<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 19, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PLATINUM SOFTWARE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 7372 33-0277592
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
195 TECHNOLOGY DRIVE
IRVINE, CALIFORNIA 92618-2402
(949) 453-4000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
L. GEORGE KLAUS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PLATINUM SOFTWARE CORPORATION
195 TECHNOLOGY DRIVE
IRVINE, CALIFORNIA 92618-2402
(949) 453-4000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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<S> <C>
LARRY W. SONSINI, ESQ. FREDERICK T. MUTO, ESQ.
MARTIN W. KORMAN, ESQ. THOMAS A. COLL, ESQ.
WILSON SONSINI GOODRICH & ROSATI COOLEY GODWARD LLP
PROFESSIONAL CORPORATION 4365 EXECUTIVE DRIVE
650 PAGE MILL ROAD SUITE 1100
PALO ALTO, CA 94304 SAN DIEGO, CA 92121
(650) 493-9300 (619) 550-6000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement and
satisfaction of the conditions as proposed in the Reorganization Agreement.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS PROPOSED PROPOSED MAXIMUM
OF SECURITIES TO AMOUNT TO BE MAXIMUM OFFERING PRICE AGGREGATE OFFERING AMOUNT OF REGISTRATION
BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE(3)
- -------------------------------------------------------------------------------------------------------------------------
Common Stock, par value 16,950,379 $9.3281 $158,114,587.00 $43,956.00
$0.001 per share
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</TABLE>
(1) Represents the number of shares of the Common Stock of the Registrant which
may be issued to former stockholders of DataWorks Corporation ("DataWorks")
pursuant to the Merger described herein.
(2) Each share of DataWorks Common Stock will be converted into 0.794 shares of
Common Stock of the Registrant pursuant to the Merger described herein.
Pursuant to Rule 457(f) under the Securities Act of 1933, the Registration
Fee has been calculated as of November 16, 1998.
(3) The amount of the Registration Fee includes $22,248 previously paid pursuant
to Section 14(g) of the Securities Exchange Act of 1934 in connection with
the filing by the Registrant and DataWorks of a Preliminary Joint Proxy
Statement/Prospectus.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
JOINT PROXY STATEMENT/PROSPECTUS
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PROXY STATEMENT PROXY STATEMENT/PROSPECTUS
of of
DATAWORKS CORPORATION PLATINUM SOFTWARE CORPORATION
</TABLE>
The Boards of Directors of Platinum Software Corporation and DataWorks
Corporation have agreed to merge a subsidiary of Platinum with and into
DataWorks. After the merger, DataWorks will operate as a wholly-owned subsidiary
of Platinum. Under the terms of the merger, Platinum will issue to DataWorks
stockholders 0.794 (the "Exchange Ratio") of a share of Platinum common stock in
exchange for each share of DataWorks common stock that they own. Similarly, each
option and warrant to purchase DataWorks common stock will, as a result of the
merger, convert into an option or warrant, as appropriate, to purchase 79.4% as
many shares of Platinum Common Stock. We estimate that the shares of Platinum
Common Stock to be issued to DataWorks stockholders (excluding shares issued
upon exercise of options and warrants) will represent approximately 28.03% of
the outstanding Platinum Common Stock (assuming conversion of all Platinum
Preferred Stock and excluding options and warrants to purchase Platinum Common
Stock) after the merger based on the capitalization of the two companies as of
November 16, 1998.
We have scheduled special meetings for the Platinum and DataWorks stockholders
to vote on the matters described in this document. At the Platinum special
meeting, Platinum stockholders will be asked to approve the issuance of shares
of Platinum common stock in the merger. At the DataWorks special meeting,
DataWorks stockholders will be asked to adopt and approve the Reorganization
Agreement and approve the merger. YOUR VOTE IS VERY IMPORTANT.
Whether or not you plan to attend your special meeting, please take the time to
vote by completing and mailing the enclosed proxy card to us. If you sign, date
and mail your proxy card without indicating how you want to vote, your proxy
will count as a vote in favor of the proposals.
You may vote at your special meeting if you own shares as of the close of
business on November 16, 1998. The dates, times and places of the special
meetings are as follows:
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FOR PLATINUM STOCKHOLDERS: FOR DATAWORKS STOCKHOLDERS:
Wednesday, December 23, 1998 Wednesday, December 23, 1998
10:00 a.m. local time 10:00 a.m. local time
195 Technology Drive 5910 Pacific Center Boulevard
Irvine, California 92618-2402 Suite 300
San Diego, California 92121
</TABLE>
This Joint Proxy Statement/Prospectus provides you with detailed information
about the proposed merger. Platinum provided the information concerning
Platinum. DataWorks provided the information concerning DataWorks.
------------------------
PLATINUM COMMON STOCK TRADES ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL
PSQL.
DATAWORKS COMMON STOCK TRADES ON THE NASDAQ NATIONAL MARKET UNDER THE
SYMBOL DWRX.
WE STRONGLY URGE YOU TO READ AND CONSIDER CAREFULLY THIS JOINT PROXY STATEMENT/
PROSPECTUS IN ITS ENTIRETY, INCLUDING THE MATTERS REFERRED TO UNDER "RISK
FACTORS" BEGINNING AT PAGE 20.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS JOINT PROXY STATEMENT/ PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
We are first mailing this Joint Proxy Statement/Prospectus and the forms of
proxy on or about November 23, 1998.
The date of this Joint Proxy Statement/Prospectus is November 19, 1998.
<PAGE> 3
THIS DOCUMENT INCORPORATES IMPORTANT BUSINESS AND FINANCIAL INFORMATION ABOUT
PLATINUM THAT IS NOT INCLUDED IN OR DELIVERED WITH THIS DOCUMENT. YOU MAY OBTAIN
DOCUMENTS THAT ARE FILED WITH THE SEC AND INCORPORATED BY REFERENCE IN THIS
DOCUMENT BY WRITTEN REQUEST OR BY TELEPHONE FROM PLATINUM AT THE FOLLOWING
ADDRESS.
Platinum Software Corporation
195 Technology Drive
Irvine, California 92618-2402
Attention: Investor Relations
Telephone: (949) 453-4000
IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM PLATINUM, PLEASE DO SO BY DECEMBER
16, 1998 IN ORDER TO RECEIVE THEM BEFORE YOUR SPECIAL MEETING.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
WHERE YOU CAN FIND MORE
INFORMATION................... 1
FORWARD-LOOKING STATEMENTS...... 2
SUMMARY......................... 5
SELECTED HISTORICAL CONSOLIDATED
FINANCIAL INFORMATION......... 14
COMPARATIVE PER SHARE DATA...... 17
COMPARATIVE MARKET PRICE DATA... 19
RISK FACTORS.................... 20
Risks Related to Merger....... 20
Difficulties of Integrating
Two Companies............ 20
Risks Associated with Fixed
Exchange Ratio........... 21
Substantial Expenses
Resulting from the
Merger................... 21
Dependence on Retention and
Integration of Key Personnel... 21
Rights of Holders of
DataWorks Common Stock
Following the Merger..... 21
Risks Related to the
Companies' Businesses and
Operations................. 22
Fluctuations in Quarterly
Operating Results........ 22
Horizontal Product
Strategy................. 22
Dependence on Distribution
Channels................. 23
Risks Associated with
Possible Growth.......... 23
Dependence on Principal
Products................. 24
Reliance on Third-Party
Suppliers................ 24
Risks Associated with Rapid
Technological Change and
Product Development...... 24
Dependence on Client/Server
Environment.............. 25
Highly Competitive
Industry................. 25
Dependence on Manufacturing
Industry................. 26
</TABLE>
<TABLE>
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PAGE
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Risks Associated with
Intellectual Property and
Proprietary Rights
Protection............... 26
Risks Associated with
International Sales...... 27
Risks Associated with Year
2000 Compliance.......... 28
Potential Adverse Effects
of Shares Eligible for
Future Sales............. 28
Possible Volatility of
Stock Prices............. 29
Risks of Product Defects... 29
PLATINUM SPECIAL MEETING........ 30
DATAWORKS SPECIAL MEETING....... 32
APPROVAL OF THE MERGER AND
RELATED TRANSACTIONS.......... 34
Joint Reasons for the
Merger..................... 34
Platinum's Reasons for the
Merger..................... 35
DataWorks' Reasons for the
Merger..................... 37
Material Contacts and Board
Deliberations.............. 39
Opinions of Platinum's
Financial Advisor.......... 43
Opinions of DataWorks'
Financial Advisor.......... 53
Material Federal Income Tax
Consequences............... 58
Stock Ownership Following
Merger..................... 60
Interests of Certain
Persons.................... 61
Governmental and Regulatory
Approvals.................. 62
Dissenters' Rights............ 63
Accounting Treatment.......... 63
TERMS OF THE MERGER............. 64
UNAUDITED PRO FORMA CONDENSED
FINANCIAL INFORMATION......... 79
DATAWORKS BUSINESS.............. 85
</TABLE>
i
<PAGE> 5
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<CAPTION>
PAGE
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<S> <C>
DATAWORKS MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND
RESULTS OF OPERATION.......... 106
DATAWORKS MANAGEMENT AND
EXECUTIVE COMPENSATION........ 119
CERTAIN TRANSACTIONS OF
DATAWORKS..................... 124
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND
MANAGEMENT OF DATAWORKS....... 125
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
COMPARISON OF PLATINUM AND
DATAWORKS STOCKHOLDERS'
RIGHTS........................ 127
LEGAL MATTERS................... 132
EXPERTS......................... 132
STOCKHOLDERS
PROPOSALS..................... 132
DATAWORKS CORPORATION INDEX TO
FINANCIAL STATEMENTS.......... F-1
</TABLE>
Appendix A-1 -- Agreement and Plan of Reorganization
Appendix A-2 -- Amendment No. 1 to Agreement and Plan of Reorganization
Appendix B -- Parent Voting Agreement
Appendix C -- Company Voting Agreement
Appendix D -- Company Affiliate Agreement
Appendix E-1 -- Opinion of DataWorks' Financial Advisor dated as of October 13,
1998
Appendix E-2 -- Opinion of DataWorks' Financial Advisor dated as of October 28,
1998
Appendix F-1 -- Opinion of Platinum's Financial Advisor dated as of October 8,
1998
Appendix F-2 -- Opinion of Platinum's Financial Advisor dated as of October 29,
1998
ii
<PAGE> 6
WHERE YOU CAN FIND MORE INFORMATION
Platinum Software Corporation ("Platinum") and DataWorks Corporation
("DataWorks") file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission (the "SEC"). You
may inspect and copy such material at the public reference facilities maintained
by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, as well
as at the SEC's regional offices at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York
10048. You may also obtain copies of such material from the SEC at prescribed
rates by writing to the Public Reference Section of the SEC, 450 Fifth Street,
N.W., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for more information on the public
reference rooms. You can also find our SEC filings at the SEC's website at
www.sec.gov.
The SEC's rules and regulations allow Platinum to "incorporate by reference" the
information contained in documents that it files with them, which means that
Platinum can disclose important information to you by referring you to those
documents. The information incorporated by reference is considered to be part of
this Joint Proxy Statement/Prospectus. Information in this Joint Proxy
Statement/Prospectus supersedes information incorporated by reference that we
filed with the SEC prior to the date of this Joint Proxy Statement/Prospectus,
while information that we file later with the SEC will automatically update and,
in some cases, supersede this information. Platinum incorporates by reference
the documents listed below and any future filings it will make with the SEC
under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
subsequent to November 19, 1998:
1. The description of Platinum Common Stock contained in the
Registration Statement on Form 8-A filed with the SEC on October 15, 1992;
2. The description of Platinum's Rights Agreement contained in the
Registration Statement on Form 8-A filed with the SEC on April 14, 1994;
3. Platinum's Annual Report on Form 10-K for the fiscal year ended
June 30, 1998, as amended;
4. Platinum's Definitive Proxy Statement on Schedule 14A dated
September 25, 1998;
5. Platinum's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998;
6. Platinum's Current Reports on Form 8-K filed with the SEC on August
5, 1998 and November 3, 1998; and
7. Platinum's Schedule 13D filed on October 23, 1998, as amended.
You may request a copy of these filings, at no cost to you, by writing or
telephoning Platinum at:
Platinum Software Corporation
Attention: Investor Relations
195 Technology Drive
Irvine, CA 92618-2402
Telephone (949) 453-4000
1
<PAGE> 7
You should make your request by December 16, 1998 to ensure delivery prior to
your special meeting.
You should rely only on the information provided or incorporated by reference in
this Joint Proxy Statement/Prospectus. We have authorized no one to provide you
with different information. You should not assume that the information in this
Joint Proxy Statement/Prospectus is accurate as of any date other than the date
on the front of the document.
FORWARD-LOOKING STATEMENTS
Certain statements made in this Joint Proxy Statement/Prospectus, including
statements as to the anticipated closing of the Merger, the anticipated tax
treatment of the Merger, the benefits expected to result from the Merger, the
anticipated dates of product releases and commercial shipments, the future
performance of the combined company following the Merger and the analyses
performed by the financial advisors to Platinum and DataWorks, are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Any statements contained herein (including without limitation
statements to the effect that Platinum, DataWorks or their respective management
"believes," "expects," "anticipates," "plans," "may," "will," "projects,"
"continues" or "estimates," or statements concerning "potential," or
"opportunity" or other variations thereof or comparable terminology or the
negative thereof) that are not statements of historical fact should be
considered forward-looking statements. Actual results could differ materially
and adversely from those anticipated in such forward-looking statements as a
result of certain factors, including those set forth in "Risk Factors" beginning
on page 20, which stockholders should carefully review.
2
<PAGE> 8
QUESTIONS AND ANSWERS
ABOUT THE PLATINUM/DATAWORKS MERGER
Q: WHY ARE THE TWO COMPANIES PROPOSING TO MERGE?
A: We believe that the merger of a subsidiary of Platinum with and into
DataWorks (the "Merger") will create a combined company (the "Combined
Company") that will be able to:
- Emerge as a leader in providing Enterprise Resource Planning ("ERP")
client/server software and Windows NT-based solutions for the middle-market
- Compete more effectively in the middle-market and against larger
competitors by providing the Combined Company with enhanced ability to
develop new products and greater functionality for existing products
- Respond more quickly and effectively to technological change, increased
competition and market demands in an industry experiencing rapid innovation
and change
- Offer a more comprehensive and integrated set of ERP applications to its
customers in the middle-market
- More effectively market the products and services of the Combined Company
- More effectively utilize the skills and resources of the companies'
respective management teams
- Enhance the Combined Company's ability to increase market penetration by
selling DataWorks' products through Platinum's dealer channels
- Provide more efficient support coverage to its customers
- Increase revenue opportunities, including from the cross-selling of
Platinum and DataWorks products
Q: AS A DATAWORKS STOCKHOLDER, WHAT WILL I RECEIVE IN THE MERGER?
A: You will receive 0.794 of a share of Platinum Common Stock in exchange for
each share of DataWorks Common Stock that you own. For example, if you own
1000 shares of DataWorks Common Stock, you will receive 794 shares of
Platinum Common Stock in exchange for your shares. You will receive only
whole shares. You will receive cash in lieu of a fractional share.
Q: AS A PLATINUM STOCKHOLDER, WILL I RECEIVE ADDITIONAL SHARES OF PLATINUM
COMMON STOCK IN THE MERGER?
A: You will continue to hold the same number of shares of Platinum Common Stock
after the Merger. Additional shares of Platinum Common Stock will be issued
only to DataWorks stockholders in the Merger.
Q: WHEN ARE THE STOCKHOLDERS' MEETINGS RELATING TO THE MERGER AND WHAT SPECIFIC
PROPOSALS WILL I BE ASKED TO CONSIDER?
A: The Platinum special meeting will take place on December 23, 1998 (the
"Platinum Special Meeting"). At the Platinum Special Meeting, Platinum
stockholders will be asked to approve the issuance of Platinum Common Stock
pursuant to the Merger. The Platinum Board of Directors unanimously
recommends voting in favor of this proposal.
The DataWorks special meeting will take place on December 23, 1998 (the
"DataWorks Special Meeting"). At
3
<PAGE> 9
the DataWorks Special Meeting, DataWorks stockholders will be asked to
approve and adopt the Agreement and Plan of Reorganization, dated as of
October 13, 1998 among Platinum, DataWorks and Zoo Acquisition Corp., as
amended as of October 30, 1998 (the "Reorganization Agreement"), and approve
the Merger. The DataWorks Board of Directors unanimously recommends voting in
favor of this proposal.
Q. IF I AM NOT GOING TO ATTEND THE STOCKHOLDER MEETING, SHOULD I RETURN MY PROXY
CARD INSTEAD?
A: Yes. Please fill out and sign your proxy card and return it in the enclosed
envelope as soon as possible. Returning your proxy card ensures that your
shares will be represented at your special meeting.
Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
A: Send in a later-dated, signed proxy card to your company's Secretary before
your special meeting or attend the special meeting in person and vote.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the Merger is completed, we will send DataWorks stockholders
written instructions for exchanging their stock certificates. Platinum
stockholders will keep their current certificates.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working to complete the Merger as quickly as possible. We hope to
complete the Merger by December 31, 1998.
Q: DO I HAVE DISSENTERS' RIGHTS IN CONNECTION WITH THE MERGER?
A: No. Neither stockholders of Platinum nor DataWorks are entitled to
dissenters' rights in connection with the Merger.
Q: WHAT ARE THE TAX CONSEQUENCES TO STOCKHOLDERS OF THE MERGER?
A: The Merger will be treated as a tax-free reorganization for federal income
tax purposes. DataWorks stockholders will not recognize gain or loss on the
exchange of their stock, other than on account of cash received for a
fractional share. Platinum stockholders will not recognize any gain or loss
in connection with the Merger. Tax matters, however, are very complicated and
the tax consequences of the Merger to you will depend on the facts of your
particular situation. We encourage you to contact your tax advisors to
determine the tax consequences of the Merger to you. To review the tax
consequences to Platinum and DataWorks stockholders in greater detail, see
pages 58 to 60 of this Joint Proxy Statement/Prospectus.
4
<PAGE> 10
SUMMARY
This summary highlights selected information found in greater detail elsewhere
in this Joint Proxy Statement/Prospectus. This summary does not contain all of
the information that is important to you. We urge you to read the entire
document (including the appendices) and the documents which Platinum has
incorporated by reference before you decide how to vote.
THE COMPANIES
PLATINUM SOFTWARE CORPORATION
195 Technology Drive
Irvine, California 92618-2402
(949) 453-4000
Platinum designs, develops, markets and supports an integrated suite of
client/server ERP applications targeted for use by middle-market companies and
divisions/subsidiaries of large corporations worldwide. Platinum's software
products incorporate a significant number of internationalized features to
address global market opportunities for financial and management information.
Platinum also offers consulting, training and support services to supplement the
use of its software products by its customers.
Platinum was incorporated in Delaware in November 1984 under the name "Platinum
Holdings Corporation". In September 1992, Platinum changed its name to "Platinum
Software Corporation". For more information on Platinum, see "Where You Can Find
More Information" on page 1.
DATA WORKS CORPORATION
5910 Pacific Center Boulevard
Suite 300
San Diego, California 92121
(619) 546-9600
DataWorks develops, markets, implements and supports open systems,
client/server-based ERP software for mid-range discrete manufacturing companies
with annual revenues between $3 million and $1 billion. DataWorks' products and
services facilitate enterprise-wide management of resources and information.
DataWorks segments the mid-range manufacturing market into three distinct
sectors based on annual revenue. Its ERP solutions are designed to provide a
product migration path to address the changing needs of growing companies.
DataWorks was incorporated in California in December 1986 and reincorporated in
Delaware in October 1998. For more information on DataWorks, see "DataWorks
Business" beginning on page 85, "DataWorks Management's Discussion and Analysis
of Financial Condition and Results of Operations" beginning on page 106,
"DataWorks Management and Executive Compensation" beginning on page 119,
"Certain Transactions of DataWorks" beginning on page 124 and "Security
Ownership of Certain Beneficial Owners and Management of DataWorks" beginning on
page 125.
ZOO ACQUISITION CORP.
195 Technology Drive
Irvine, California 92618-2402
(949) 453-4000
Zoo Acquisition Corp. ("Merger Sub") was incorporated in Delaware in October
1998 for the purpose of effecting the Merger. Merger Sub is a wholly-owned
subsidiary of Platinum.
REASONS FOR THE MERGER
The Boards of Directors of Platinum ("Platinum Board") and DataWorks ("DataWorks
Board") believe that the Merger may result in a number of benefits to Platinum's
and DataWorks' stockholders, including, among other benefits:
- The Combined Company will have a leadership position in providing
5
<PAGE> 11
ERP client/server software and WindowsNT-based solutions for the middle-market
- Combined technological resources will allow the Combined Company to
compete more effectively in the middle-market and against larger
competitors by providing it with enhanced ability to develop new products
and greater functionality for existing products
- The combined experience, financial resources, size and breadth of product
offerings and development resources of the Combined Company will allow it
to respond more quickly and effectively to technological change,
increased competition and market demands in an industry experiencing
rapid innovation and change
- The Platinum and DataWorks stockholders, respectively, will have the
opportunity to participate in the potential for growth of the Combined
Company after the Merger
In addition, the Platinum Board believes that the Merger may result in a number
of benefits to Platinum's stockholders, including, among other benefits:
- Enhanced opportunity to achieve greater scale and presence in the ERP
market
- Expanded distribution of Platinum's products to current DataWorks
customers
- Opportunity for Platinum stockholders to participate in the potential for
growth of the Combined Company after the Merger
In addition, the DataWorks Board believes that the Merger may result in a number
of benefits to DataWorks' stockholders, including, among other benefits:
- Expanded distribution of DataWorks' products to current Platinum
customers
- Improved operational expertise
- Opportunity for DataWorks stockholders to participate in the potential
for growth of the Combined Company after the Merger
- Increased stockholder liquidity and greater market capitalization of the
Combined Company
To review the background and reasons for the Merger in greater detail, as well
as the risks of the Merger, see "Approval of the Merger and Related
Transactions -- Joint Reasons for the Merger" beginning on page 34,
"-- Platinum's Reasons for the Merger" beginning on page 35, "-- DataWorks'
Reasons for the Merger" beginning on page 37, "-- Material Contacts and Board
Deliberations" beginning on page 39, "-- Opinions of Platinum's Financial
Advisor" beginning on page 43, "-- Opinions of DataWorks' Financial Advisor"
beginning on page 53 and "Risk Factors -- Risks Related to the Merger" beginning
on page 20.
PLATINUM STOCKHOLDERS' MEETING
The Platinum Special Meeting will be held at Platinum's offices located at 195
Technology Drive, Irvine, California 92618-2402 on December 23, 1998 at 10:00
a.m. local time. At the meeting, Platinum will ask its stockholders to approve
the issuance of Platinum Common Stock pursuant to the Merger.
Platinum stockholders may also consider and vote upon such other matters as may
be properly brought before the Platinum Special Meeting.
6
<PAGE> 12
DATAWORKS STOCKHOLDERS' MEETING
The DataWorks Special Meeting will be held at DataWorks' offices located at 5910
Pacific Center Boulevard, Suite 300, San Diego, California 92121 on December 23,
1998 at 10:00 a.m. local time. At the meeting, DataWorks will ask its
stockholders to approve and adopt the Reorganization Agreement and approve the
Merger.
DataWorks stockholders may also consider and vote upon such other matters as may
be properly brought before the DataWorks Special Meeting.
RECORD DATE; VOTING POWER
You are entitled to vote at your stockholders' meeting if you owned shares of
Platinum or DataWorks as of the close of business on November 16, 1998 (the
"Record Date").
At the close of business on the Record Date, 28,408,217 shares of Platinum
Common Stock and 95,305 shares of Platinum Series C Preferred Stock were
outstanding and entitled to vote at the Special Meeting. You will have one vote
at the Platinum Special Meeting for each share of Platinum Common Stock you
owned as of the Record Date and ten votes for each share of Platinum Series C
Preferred Stock you owned as of the Record Date.
At the close of business on the Record Date, 14,404,078 shares of DataWorks
Common Stock were outstanding and entitled to vote at the DataWorks Special
Meeting. You will have one vote at the DataWorks Special Meeting for each share
of DataWorks Common Stock you owned as of the Record Date.
RECOMMENDATION TO STOCKHOLDERS
TO THE PLATINUM STOCKHOLDERS:
The Platinum Board believes that the Merger is fair to, and is in the best
interests of, both you and Platinum. The Platinum Board unanimously recommends
that you vote "for" the proposal to approve the issuance of Platinum Common
Stock pursuant to the Merger.
TO THE DATAWORKS STOCKHOLDERS:
The DataWorks Board believes that the Merger is fair to, and is in the best
interests of, both you and DataWorks. The DataWorks Board unanimously recommends
that you vote "for" the proposal to approve and adopt the Reorganization
Agreement and approve the Merger.
VOTE REQUIRED
The approval of the proposal to issue shares of Platinum Common Stock in the
Merger requires the affirmative vote of a majority of the total votes cast
regarding such proposal.
The affirmative vote of a majority of the shares of DataWorks Common Stock
entitled to vote at the DataWorks Special Meeting is required to approve the
proposal to approve and adopt the Reorganization Agreement and to approve the
Merger.
VOTING AGREEMENTS
Certain officers, directors and affiliated stockholders of Platinum who
beneficially owned, in the aggregate, approximately 18.9% of the outstanding
shares of Platinum Common Stock and Platinum Series C Preferred Stock on an as-
converted-to-Common-Stock basis as of the date of the Reorganization Agreement,
have agreed that, subject to certain exceptions, they will vote their shares of
Platinum Common Stock and Platinum Series C Preferred Stock in favor of the
issuance of Platinum Common Stock pursuant to the Merger. See "Platinum Special
Meeting -- Vote Required", beginning on page 30. These stockholders have also
delivered proxies with respect to such
7
<PAGE> 13
matters to DataWorks that cannot be revoked. The form of the voting agreement
that these Platinum stockholders signed and the related irrevocable proxy are
included as Appendix B to this Joint Proxy Statement/Prospectus. For more
information on these voting agreements, see "Terms of the Merger -- Voting
Agreements" beginning on page 76.
Certain officers, directors and affiliated stockholders of DataWorks, who
beneficially owned approximately 12.7% of the outstanding shares of DataWorks
Common Stock as of the date of the Reorganization Agreement, have agreed that,
subject to certain exceptions, they will vote their shares of DataWorks Common
Stock in favor of approval of the Reorganization Agreement and the Merger. See
"DataWorks Special Meeting -- Vote Required," beginning on page 32. These
stockholders have also delivered proxies with respect to such matters to
Platinum that cannot be revoked. The form of the voting agreement that these
DataWorks stockholders signed and the related irrevocable proxy are included as
Appendix C to this Joint Proxy Statement/Prospectus. For more information on
these voting agreements, see "Terms of the Merger -- Voting Agreements"
beginning on page 76.
SHARE OWNERSHIP OF MANAGEMENT AND CERTAIN HOLDERS
As of the date of the Reorganization Agreement, the directors and executive
officers of Platinum, as a group, beneficially owned approximately 5,558,116
shares of Platinum Common Stock.
As of the date of the Reorganization Agreement, the directors and executive
officers of DataWorks, as a group, beneficially owned approximately 1,876,583
shares of DataWorks Common Stock.
TERMS OF THE MERGER
For more information on terms of the Merger, see "Terms of the Merger" beginning
on page 64.
The Reorganization Agreement is attached as Appendix A to this Joint Proxy
Statement/Prospectus. We encourage you to read the Reorganization Agreement. It
is the legal document governing the Merger.
WHEN THE MERGER WILL OCCUR
Assuming that both companies satisfy or waive all of the conditions in the
Reorganization Agreement, we anticipate that the Merger will occur on or before
December 31, 1998. For more information on regulatory matters and conditions of
the Merger, see "Approval of the Merger and Related Transactions -- Governmental
and Regulatory Approvals" beginning on page 62 and "Terms of the
Merger -- Conditions to the Merger" beginning on page 74.
WHAT STOCKHOLDERS WILL RECEIVE IN THE MERGER
If the Platinum stockholders approve the issuance of the Platinum Common Stock
pursuant to the Merger and the DataWorks stockholders approve and adopt the
Reorganization Agreement and approve the Merger, DataWorks stockholders will
receive 0.794 of a share of Platinum Common Stock for each share of Common Stock
they own prior to the Merger. Similarly, each option to purchase DataWorks
Common Stock will convert into an option to purchase 79.4% as many shares of
Platinum Common Stock at an adjusted exercise price. Platinum will assume each
option to purchase DataWorks Common Stock (each a "DataWorks Option") in
accordance with the terms of the stock option plan under which the option was
issued. Likewise, each outstanding warrant to purchase DataWorks Common Stock
(each a "DataWorks Warrant") will convert into a
8
<PAGE> 14
warrant to purchase 79.4% as many shares of Platinum Common Stock at an adjusted
exercise price. The terms and conditions that will apply to the new option or
warrant will be substantially the same as the terms and conditions that apply to
the existing option or warrant. For more information on conversion of shares and
on stock options and warrants, see "Terms of the Merger -- Manner and Basis for
Converting Shares" beginning on page 64.
Soon after the Merger occurs, Platinum will cause to be mailed to the holders of
DataWorks Common Stock (1) a letter of transmittal with respect to the surrender
of valid certificates representing DataWorks Common Stock, and (2) instructions
for use of the letter of transmittal.
DataWorks stockholders should not surrender their DataWorks stock certificates
until after the Merger and until they receive a letter of transmittal. For
information on exchanging shares, see "Terms of the Merger -- Manner and Basis
for Conversion of Shares" beginning on page 64.
OWNERSHIP OF PLATINUM FOLLOWING THE MERGER
Based upon the capitalization of DataWorks on the Record Date, Platinum will
issue an aggregate of approximately 11,436,837 shares of Platinum Common Stock
(excluding shares that may be issued in the future upon exercise of DataWorks
Warrants or DataWorks Options) in connection with the Merger. In addition, by
virtue of the Merger, Platinum will be obligated to issue an additional
aggregate of 1,833,917 shares of Platinum Common Stock upon exercise, if and
when exercised, of the DataWorks Warrants and the DataWorks Options assumed in
the Merger. Based further on the capitalization of Platinum on the Record Date
(not including outstanding options or warrants), and the number of additional
shares of Platinum Common Stock that Platinum will issue to DataWorks
stockholders in connection with the Merger, the former holders of DataWorks
Common Stock will hold approximately 28.03% of the total number of shares of
Platinum Common Stock issued and outstanding after consummation of the Merger
(assuming conversion of all Platinum Preferred Stock).
Based on the number of outstanding DataWorks Options as of the Record Date, the
total number of outstanding DataWorks Options will become options to purchase an
aggregate of 1,734,970 shares of Platinum Common Stock in connection with the
Merger. Based on the number of outstanding DataWorks Warrants as of the Record
Date, the total number of DataWorks Warrants will become warrants to purchase an
aggregate of 98,947 shares of Platinum Common Stock in connection with the
Merger.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The Merger will be treated as a tax-free reorganization for federal income tax
purposes. DataWorks stockholders will not recognize gain or loss in the Merger
(other than taxes on cash received for a fraction of a share which will be
subject to tax). The Reorganization Agreement does not require the parties to
obtain a ruling from the IRS as to the tax consequences of the Merger. In
connection with the Registration Statement, each of DataWorks and Platinum will
receive opinions from their legal counsel that, based on certain assumptions and
certifications, the Merger will be a tax-free reorganization for federal income
tax purposes. For more information, see "Approval of the Merger and Related
Transactions -- Material Federal Income Tax Consequences" beginning on page 58.
9
<PAGE> 15
TAX MATTERS ARE VERY COMPLICATED. THE TAX CONSEQUENCES OF THE MERGER TO YOU WILL
DEPEND ON THE FACTS OF YOUR OWN SITUATION. WE URGE STOCKHOLDERS TO CONSULT THEIR
OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING
THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
OPINIONS OF FINANCIAL ADVISORS
In deciding to approve the Merger, each Board considered the opinions of its
financial advisor. Platinum received opinions from its financial advisor,
Broadview International LLC ("Broadview"), that the Exchange Ratio was fair,
from a financial point of view to Platinum's stockholders. DataWorks received
opinions from its financial advisor, SoundView Technology Group, Inc.
("SoundView"), that the Exchange Ratio was fair, from a financial point of view,
to DataWorks' stockholders. More information on these opinions is provided in
the following sections of this Joint Proxy Statement/Prospectus, entitled
"Approval of the Merger and Related Transactions -- Opinions of Platinum's
Financial Advisor" beginning on page 43 and "-- Opinions of DataWorks' Financial
Advisor" beginning on page 53. These opinions are attached as Appendices E-1,
E-2, F-1 and F-2 to this Joint Proxy Statement/Prospectus. We encourage you to
read these opinions carefully and in their entirety.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
DataWorks stockholders should note that certain members of DataWorks management
and the DataWorks Board have interests in the Merger as employees and/or
directors that are different from, or in addition to, your interest as a
stockholder.
If Platinum and DataWorks complete the Merger, Platinum will continue certain
indemnification arrangements for persons serving as directors and officers of
DataWorks at the time of the Merger for at least six years following the
consummation of the Merger. Also, Platinum will maintain a policy of directors'
and officers' liability insurance for the benefit of those persons for six years
after the Merger.
The Platinum Board has agreed to take all actions necessary to nominate and
appoint Stuart W. Clifton to the Board. Mr. Clifton has also entered into an
Executive Employment Agreement and a Noncompetition Agreement with Platinum in
connection with the Merger.
Under the terms of DataWorks' 1995 Non-Employee Directors' Stock Option Plan, as
amended, the Merger will cause the vesting of outstanding options under such
plan to accelerate in full prior to the Merger and to terminate if not exercised
prior to the Merger.
For more information, see "Approval of the Merger and Related Transactions --
Interests of Certain Persons" beginning on page 61.
CONDITIONS TO THE MERGER
Platinum will complete the Merger only if a number of conditions are either
satisfied or waived by Platinum, some of which include:
- The representations and warranties of DataWorks made in the
Reorganization Agreement (subject to certain materiality qualifications)
are accurate
- DataWorks performs certain covenants and obligations contained in the
Reorganization Agreement in all material respects
- The DataWorks stockholders adopt and approve the Reorganization Agreement
and the Merger
10
<PAGE> 16
- The Platinum stockholders approve the issuance of Platinum Common Stock
in the Merger
- Platinum receives written resignations of all directors of DataWorks as
of the consummation of the merger
- There is no material adverse effect with respect to DataWorks
- There are no restraining orders, injunctions or other orders preventing
the consummation of the Merger
DataWorks will complete the Merger only if a number of conditions are satisfied
or waived by DataWorks, some of which include:
- The representations and warranties of Platinum made in the Reorganization
Agreement (subject to certain materiality qualifications) are accurate
- Platinum performs certain covenants and obligations contained in the
Reorganization Agreement in all material respects
- The DataWorks stockholders adopt and approve the Reorganization Agreement
and approve the Merger
- The Platinum stockholders approve the issuance of Platinum Common Stock
in the Merger
- There is no material adverse effect with respect to Platinum
- The Platinum Common Stock to be issued in the Merger is authorized for
listing on Nasdaq National Market
- There are no restraining orders, injunctions or other orders preventing
the consummation of the Merger
For more information on the conditions to the Merger, see "Terms of Merger --
Conditions to the Merger" beginning on page 74.
TERMINATION OF THE REORGANIZATION AGREEMENT
Either Platinum or DataWorks may terminate the Reorganization Agreement at any
time prior to the time of the Merger, whether before or after Platinum and
DataWorks obtain the requisite stockholder approvals, if:
- The Platinum and DataWorks Boards mutually consent
- Platinum and DataWorks do not complete the Merger by February 28, 1999
- A governmental entity issues an order, decree or ruling or takes any
other action which permanently prevents Platinum or DataWorks from
consummating the Merger
- Either of Platinum or DataWorks fails to obtain the requisite stockholder
approvals
Platinum may terminate the Reorganization Agreement at any time prior to the
time of the Merger, whether before or after Platinum and DataWorks obtain the
requisite stockholder approvals, if:
- A DataWorks Triggering Event (as defined in the Reorganization Agreement)
occurs
- DataWorks breaches any of its representations, warranties or covenants
contained in the Reorganization Agreement (subject to certain materiality
qualifications)
DataWorks may terminate the Reorganization Agreement at any time prior to the
time of the Merger, whether before or
11
<PAGE> 17
after Platinum and DataWorks obtain the requisite stockholder approvals, if:
- A Platinum Triggering Event (as defined in the Reorganization Agreement)
occurs
- Platinum breaches any of its representations, warranties or covenants
contained in the Reorganization Agreement (subject to certain materiality
qualifications)
EXPENSES AND TERMINATION FEES
We have agreed that we will each pay our own fees and expenses in connection
with the Merger, whether or not we consummate the Merger, except that we will
share equally all fees and expenses (other than attorneys' fees) in connection
with the printing and filing of this Joint Proxy Statement/Prospectus and the
registration statement of which this Joint Proxy Statement/Prospectus is a part.
In addition, DataWorks and Platinum have agreed to pay the other $3.25 million
if the Reorganization Agreement is terminated under certain circumstances. For
more information, see "Terms of the Merger -- Breakup Fees" beginning on page
72.
AFFILIATE AGREEMENTS
DataWorks has delivered to Platinum executed affiliate agreements with certain
stockholders who might be considered affiliates of DataWorks under applicable
securities laws. These agreements restrict such stockholders' ability to dispose
of Platinum Common Stock received in the Merger. The purpose of these agreements
is to comply with the requirements of certain federal securities laws. A form of
these affiliate agreements is included as Appendix D to this Joint Proxy
Statement/Prospectus. For more information on these agreements, see "Terms of
the Merger -- Affiliate Agreements" beginning on page 77.
ANTICIPATED ACCOUNTING TREATMENT
We expect the Merger will be accounted for as a purchase. For more information,
see "Approval of the Merger and Related Transactions -- Accounting Treatment"
beginning on page 63.
REGULATORY APPROVALS
The Merger is subject to the Hart-Scott-Rodino Antitrust Improvement Act of
1976, as amended (the "HSR Act"). DataWorks and Platinum have each made the
notifications required under the HSR Act, and have furnished certain information
to the Federal Trade Commission (the "FTC") and the Antitrust Division of the
Department of Justice ("DOJ"). The Merger must also comply with federal and
state securities laws. For more information, see "Approval of the Merger and
Related Transactions -- Government and Regulatory Matters" beginning on page 62.
RIGHTS OF HOLDERS OF PLATINUM COMMON STOCK FOLLOWING THE MERGER
As of the time of the Merger, DataWorks stockholders will become Platinum
stockholders. There are important differences between the rights of stockholders
of DataWorks and stockholders of Platinum. For a description of these
differences, see "Comparison of Platinum and DataWorks Stockholders' Rights"
beginning on page 127.
RIGHTS OF DISSENTING STOCKHOLDERS
Both Platinum and DataWorks are organized under Delaware law. Under Delaware
law, Platinum and DataWorks stockholders are not entitled to appraisal rights in
connection with the Merger.
MARKETS AND MARKET PRICES
Platinum Common Stock is quoted on the Nasdaq National Market ("Nasdaq") under
the symbol "PSQL." DataWorks
12
<PAGE> 18
Common Stock is quoted on Nasdaq under the symbol "DWRX." Following the
consummation of the Merger, DataWorks Common Stock will cease to be quoted on
Nasdaq.
The following table sets forth the closing sale prices per share of Platinum
Common Stock and DataWorks Common Stock on October 12, 1998, the last trading
day before Platinum and DataWorks announced that they signed the Reorganization
Agreement.
<TABLE>
<CAPTION>
PLATINUM DATAWORKS
COMMON DATAWORKS EQUIVALENT
STOCK PER PER
PURCHASE SHARE SHARE
PRICE PRICE PRICE(1)
-------- --------- ----------
<S> <C> <C> <C>
October 12, 1998..... $8.38 $5.38 $6.65
</TABLE>
- -------------------------
(1) Represents the equivalent of one share of DataWorks Common Stock calculated
by multiplying the price per share of Platinum Common Stock by 0.794, the
exchange ratio in the Merger.
We cannot guarantee or predict the actual prices of Platinum and DataWorks
Common Stock prior to or at the time Platinum and DataWorks consummate the
Merger. For more information on this risk, see "Risk Factors -- Risks Related to
Merger -- Risks Associated with Fixed Exchange Ratio" beginning on page 20.
13
<PAGE> 19
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The selected historical financial data set forth below with respect to
Platinum's consolidated statements of operations for each of the three years in
the period ended June 30, 1998, and with respect to Platinum's consolidated
balance sheets at June 30, 1998 and 1997, are derived from the audited
consolidated financial statements of Platinum which are incorporated by
reference into this Joint Proxy Statement/Prospectus. The selected historical
financial data set forth below with respect to Platinum's consolidated
statements of operations for the two years in the period ended June 30, 1995 and
with respect to Platinum's consolidated balance sheets at June 30, 1996, 1995
and 1994 are derived from the audited consolidated financial statements of
Platinum not incorporated by reference into this Joint Proxy
Statement/Prospectus. The selected historical financial data set forth below
with respect to the consolidated statements of operations of DataWorks for each
of the three years in the period ended December 31, 1997 and with respect to
DataWorks' consolidated balance sheets at December 31, 1997 and 1996 are derived
from the audited consolidated financial statements of DataWorks included
elsewhere in this Joint Proxy Statement/Prospectus, and are qualified by
reference to such financial statements and the notes related thereto. The
selected historical financial data set forth below with respect to the
consolidated statements of operations of DataWorks for each of the two years in
the period ended December 31, 1994 and with respect to DataWorks' consolidated
balance sheets at December 31, 1995, 1994 and 1993 are derived from the audited
consolidated financial statements of DataWorks not included in this Joint Proxy
Statement/Prospectus.
The selected historical financial data for Platinum at September 30, 1998 and
for the
three months ended September 30, 1998 and 1997 are derived from the unaudited
consolidated financial statements which are incorporated by reference into this
Joint Proxy Statement/Prospectus. The selected historical financial data for
DataWorks at September 30, 1998 and for the nine months ended September 30, 1998
and 1997 are derived from the unaudited consolidated financial statements
included elsewhere in this Joint Proxy Statement/Prospectus. In each case, the
unaudited consolidated financial statements include all adjustments, consisting
of normal recurring accruals, that each company considers necessary for a fair
presentation of the financial position and results of operations for the periods
presented. Operating results for Platinum for the three months ended September
30, 1998 and for DataWorks for the nine months ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the entire year
or future periods.
The data set forth below are qualified by reference to, and should be read in
conjunction with, the related consolidated financial statements and the notes
related thereto.
14
<PAGE> 20
PLATINUM SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
--------------------------------------------------------- -----------------
1998 1997 1996 1995 1994 1998 1997
------- ------- -------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
License fees............ $57,577 $32,123 $ 23,234 $37,925 $ 31,136 $16,177 $10,087
Services................ 40,406 27,420 21,817 20,250 16,854 14,039 8,079
Business forms sales.... -- -- -- -- 6,720 -- --
Royalty income.......... 505 1,208 619 692 -- 113 99
------- ------- -------- ------- -------- ------- -------
Total revenues.... 98,488 60,751 45,670 58,867 54,710 30,329 18,265
Cost of revenues.......... 29,961 21,980 21,083 20,205 25,635 10,066 6,069
------- ------- -------- ------- -------- ------- -------
Gross profit...... 68,527 38,771 24,587 38,662 29,075 20,263 12,196
------- ------- -------- ------- -------- ------- -------
Operating expenses:
Sales and marketing..... 38,177 26,024 21,334 21,007 25,961 10,953 7,152
Software development.... 11,724 10,398 14,490 17,914 22,059 2,797 3,050
General and
administrative........ 7,145 6,030 16,270 5,569 10,350 1,936 1,263
Charge for
restructuring......... -- 1,600 5,568 -- 6,741 -- --
Charge for purchased
research and
development........... -- -- -- -- 3,570 -- --
------- ------- -------- ------- -------- ------- -------
Total operating
expenses........ 57,046 44,052 57,662 44,490 68,681 15,686 11,465
------- ------- -------- ------- -------- ------- -------
Income (loss) from
operations............ 11,481 (5,281) (33,075) (5,828) (39,606) 4,577 731
Charge for settlement of
class action litigation
and related expenses.... -- -- -- -- (20,000) -- --
Other income (expense),
net..................... 1,866(1) 873(1) (132)(3) 103(2) 341(1) 298 574
------- ------- -------- ------- -------- ------- -------
Income (loss) before
provision for taxes... 13,347 (4,408) (33,207) (5,725) (59,265) 4,875 1,305
Provision for income
taxes................... -- -- -- 20 308 180 --
------- ------- -------- ------- -------- ------- -------
Net income
(loss).......... $13,347 $(4,408) $(33,207) $(5,745) $(59,573) $ 4,695 $ 1,305
======= ======= ======== ======= ======== ======= =======
Diluted net income (loss)
per share............... $ 0.45 $ (0.20) $ (1.83) $ (0.35) $ (3.78) $ .16 $ .05
======= ======= ======== ======= ======== ======= =======
Weighted average
shares(4)............... 29,716 21,758 18,128 16,196 15,770 30,009 28,919
======= ======= ======== ======= ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
------------------------------------------------ SEPTEMBER 30,
1998 1997 1996 1995 1994 1998
------- ------- ------- ------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).................... $22,319 $ 3,808 $ 3,438 $24,443 $ (9,996) $26,216
Total assets................................. 67,988 43,156 41,640 66,691 48,479 68,490
Current portion of long-term obligations..... -- -- -- -- 6,000 --
Long-term obligations, less current
portion.................................... 35 277 288 16,035 10,158 26
Stockholders' equity......................... 34,910 15,587 16,199 30,212 1,299 40,943
</TABLE>
- -------------------------
(1) Amount represents principally interest income.
(2) Amount represents principally interest income net of interest expense
associated with Platinum's $15,000,000 debenture.
(3) Amount represents principally interest expense associated with Platinum's
$15,000,000 debenture net of interest income.
(4) In July 1998, Platinum amended its 1998 Nonqualified Stock Option Plan to
increase the number of shares available for option grants to 3,000,000
shares. Also, in July 1998, Platinum granted options to purchase an
aggregate of 1,975,450 shares of Common Stock of Platinum to employees,
including executive officers. The options had an exercise price of $23.375
per share. In October 1998, the Platinum Board repriced the above referenced
options, as well as other outstanding options with an exercise price in
excess of $11.50, the closing price of Platinum's Common Stock on November
9, 1998, including options held by executive officers of Platinum. The
exercise price of the repriced options is equal to the closing price of
Platinum's Common Stock on the Nasdaq National Market on November 9, 1998.
Subject to certain exceptions, the repriced options are not exercisable
until one year after the date of repricing, at which time they will vest to
the same extent as the unrepriced options.
15
<PAGE> 21
DATAWORKS SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------- -------------------
1997 1996 1995 1994 1993 1998 1997
-------- -------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues:
Software licenses.................... $ 74,742 $ 55,169 $34,129 $22,260 $13,060 $ 56,571 $ 48,215
Maintenance and other services 60,868 48,327 29,519 19,790 14,908 61,371 44,412
Hardware 11,353 13,443 12,356 9,656 9,286 6,873 8,005
-------- -------- ------- ------- ------- -------- --------
Total revenues................. 146,963 116,939 76,004 51,706 37,254 124,815 100,632
Cost of revenues:
Software licenses.................... 9,222 6,584 4,772 3,981 1,901 6,589 6,082
Maintenance and other services....... 42,818 35,632 18,577 12,270 9,935 45,823 30,984
Hardware 8,638 9,966 9,309 7,436 6,304 5,362 6,061
-------- -------- ------- ------- ------- -------- --------
Total cost of revenues 60,678 52,182 32,658 23,687 18,140 57,774 43,127
-------- -------- ------- ------- ------- -------- --------
Gross profit........................... 86,285 64,757 43,346 28,019 19,114 67,041 57,505
Operating expenses:
Sales and marketing.................. 40,456 29,632 19,817 13,412 8,091 35,134 28,523
General and administrative........... 19,346 14,659 10,017 6,505 5,193 15,652 12,969
Research and development............. 10,505 8,918 8,648 4,126 2,432 10,546 7,824
Acquisition and related costs........ 15,565 3,656 -- -- -- 527 15,565
ESOP contribution.................... -- -- 446 429 387 -- --
-------- -------- ------- ------- ------- -------- --------
Total operating expenses....... 85,872 56,865 38,928 24,472 16,103 61,859 64,881
-------- -------- ------- ------- ------- -------- --------
Income from operations................. 413 7,892 4,418 3,547 3,011 5,182 (7,376)
Other income (expense), net............ 1,629 247 (1,250) (1,221) (634) 884 1,262
-------- -------- ------- ------- ------- -------- --------
Income before income taxes and
extraordinary item................... 2,042 8,139 3,168 2,326 2,377 6,066 (6,114)
Provision (credit) for income taxes.... 2,846 3,642 932 708 216 2,215 (253)
-------- -------- ------- ------- ------- -------- --------
Income (loss) before extraordinary
item................................. (804) 4,497 2,236 1,618 2,161 3,851 (5,861)
Extraordinary item, net of income
taxes................................ -- -- (1,017) (157) -- -- --
-------- -------- ------- ------- ------- -------- --------
Net income (loss)...................... $ (804) $ 4,497 $ 1,219 $ 1,461 $ 2,161 $ 3,851 $ (5,861)
-------- -------- ------- ------- ------- -------- --------
Basic earnings (loss) per share before
extraordinary item................... $ (0.06) $ 0.39 $ 0.32 $ 0.26 $ 0.36 $ 0.27 $ (0.43)
Extraordinary item..................... -- -- (0.15) (0.03) -- -- --
-------- -------- ------- ------- ------- -------- --------
Net earnings (loss) per
share -- basic....................... $ (0.06) $ 0.39 $ 0.17 $ 0.23 $ 0.36 $ 0.27 $ (0.43)
======== ======== ======= ======= ======= ======== ========
Diluted earnings (loss) per share
before extraordinary item............ $ (0.06) $ 0.38 $ 0.29 $ 0.24 $ 0.36 $ 0.26 $ (0.43)
Extraordinary item..................... -- -- (0.13) (0.02) -- -- --
-------- -------- ------- ------- ------- -------- --------
Net earnings (loss) per
share -- diluted..................... $ (0.06) $ 0.38 $ 0.16 $ 0.22 $ 0.36 $ 0.26 $ (0.43)
======== ======== ======= ======= ======= ======== ========
Common shares outstanding --basic(1)... 13,811 11,392 6,929 6,260 5,924 14,274 13,765
======== ======== ======= ======= ======= ======== ========
Common shares outstanding --
diluted(1)(2)(3)..................... 13,811 11,954 7,807 6,768 6,023 14,845 13,765
======== ======== ======= ======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------- SEPTEMBER 30,
1997 1996 1995 1994 1993 1998
-------- -------- ------- ------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................... $ 17,418 $ 50,825 $17,472 $ 3,179 $ 1,892 $ 23,785
Working capital (deficit)................... 66,656 66,700 20,566 (2,019) (4,607) 61,712
Total assets................................ 131,136 121,202 62,916 27,301 12,861 137,846
Long-term debt, less current portion........ 1,493 1,864 2,105 8,073 1,860 1,351
Total shareholders' equity (deficit)........ 84,066 82,089 31,240 (2,229) (4,339) 94,593
</TABLE>
- -------------------------
(1) See Note 1 of Notes to DataWorks' Consolidated Financial Statements
describing the determination of the number of shares used in computing per
share information.
(2) In October 1995, DataWorks completed its initial public offering resulting
in net proceeds to DataWorks of $18.0 million. The net proceeds from such
offering were used to repay outstanding indebtedness, to increase working
capital and for general corporate purposes. In December 1996, DataWorks
completed a follow-on equity offering resulting in net proceeds to DataWorks
of $41.3 million. The net proceeds were used for additional working capital,
general corporate purposes, including expansion of general sales and
marketing and customer support activities, international expansion and
possible acquisitions and joint ventures.
(3) In October 1998, DataWorks implemented an option exchange program applicable
to all employees of DataWorks, including executive officers. Under the
program, qualified employees who held outstanding options with an exercise
price of greater than $5.00 per share were eligible to exchange such options
for new options to purchase the same number of shares at an exercise price
of $9.131 per share, which is equal to the fair market value of Platinum's
Common Stock on November 9, 1998, the effective time of such repricing,
multiplied by the Exchange Ratio. Subject to certain exceptions, the newly
issued options are not exercisable until one year after the date of
issuance, at which time they will be vested to the same extent as the old
options surrendered therefor would have been.
16
<PAGE> 22
COMPARATIVE PER SHARE DATA (UNAUDITED)
The following table sets forth certain historical per share data of Platinum and
DataWorks and combined per share data on an unaudited pro forma basis. You
should read the information set forth below along with the selected historical
financial data and the unaudited pro forma combined condensed financial
information included elsewhere in this Joint Proxy Statement/Prospectus. The pro
forma combined financial data are not necessarily indicative of the operating
results that would have been achieved had the Merger been consummated as of the
beginning of the periods presented and you should not construe it as
representative of future operations.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
------------------------ ---------------
1998 1997 1996 1998 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Historical Platinum:
Net income (loss) per basic share...... $ .56 $ (.20) $(1.83) $ .17 $ .06
Net income (loss) per diluted share.... $ .45 $ (.20) $(1.83) $ .16 $ .05
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ ---------------
1997 1996 1995 1998 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Historical DataWorks:
Net income (loss) per basic share...... $ .17 $ .39 $ (.06) $ .27 $ (.43)
Net income (loss) per diluted share.... $ .16 $ .38 $ (.06) $ .26 $ (.43)
</TABLE>
<TABLE>
<CAPTION>
THREE
YEAR MONTHS
ENDED ENDED
JUNE 30, SEPTEMBER 30,
1998 1998
-------- -------------
<S> <C> <C>
Pro Forma Combined Diluted Net Income(1):
Per Platinum share........................................ $ .30 $ .11
Equivalent per DataWorks share............................ $ .24 $ .08
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
1998
-------------------
<S> <C>
Book value per share(2):
Historical Platinum....................................... $ 1.45
Historical DataWorks...................................... $ 6.57
Pro forma combined per Platinum share(3).................. $ 2.96
Pro forma combined per DataWorks share(3)................. $ 2.35
</TABLE>
- -------------------------
(1) The DataWorks equivalent pro forma combined diluted net income per share
amounts are calculated by multiplying the Platinum combined pro forma
diluted net income per share amounts by the Exchange Ratio of 0.794.
(2) The historical book value per share is computed by dividing stockholders'
equity by the number of shares of Common Stock outstanding at September 30,
1998. The pro forma combined book value per share is computed by dividing
pro forma stockholders'
17
<PAGE> 23
equity by the pro forma number of shares of Common Stock outstanding as of
September 30, 1998.
(3) Platinum estimates it will incur direct transaction costs of approximately
$2.5 million associated with the Merger, which will be included as part of
the purchase price to be allocated to the DataWorks assets acquired. The pro
forma combined book value per share data gives effect to the estimated
direct transaction costs as if such costs had been incurred as of the
respective balance sheet date. The pro forma combined book value per share
data does not include additional costs, which costs are not currently
estimable, expected to be incurred relating to integrating the companies.
The direct transaction costs are not included in the pro forma combined net
income per share data. See "Unaudited Pro Forma Combined Condensed Financial
Statements" and accompanying notes thereto.
18
<PAGE> 24
COMPARATIVE MARKET PRICE DATA
The table below sets forth, for the calendar quarters indicated, the reported
high and low closing prices of Platinum Common Stock and DataWorks Common Stock
as reported on Nasdaq.
<TABLE>
<CAPTION>
PLATINUM DATAWORKS
COMMON STOCK COMMON STOCK
--------------- ---------------
HIGH LOW HIGH LOW
------ ------ ------ ------
<S> <C> <C> <C> <C>
1996 CALENDAR YEAR
First Quarter................................. $ 7.13 $ 3.50 $14.25 $10.25
Second Quarter................................ 12.25 6.25 19.50 11.50
Third Quarter................................. 11.13 6.25 28.00 15.75
Fourth Quarter................................ 13.00 10.63 34.25 20.75
1997 CALENDAR YEAR
First Quarter................................. 13.38 8.69 27.25 13.63
Second Quarter................................ 11.00 7.00 22.75 12.00
Third Quarter................................. 12.94 10.38 21.88 12.00
Fourth Quarter................................ 11.75 7.75 20.63 13.88
1998 CALENDAR YEAR
First Quarter................................. 24.00 10.25 27.06 17.50
Second Quarter................................ 24.38 17.50 26.63 13.25
Third Quarter................................. 27.00 8.00 14.50 4.75
Fourth Quarter (through October 30, 1998)..... 10.00 5.75 6.94 3.75
</TABLE>
On October 12, 1998, the last full trading day prior to the public announcement
of the execution and delivery of the Reorganization Agreement, the closing
prices on Nasdaq were $8.38 per share of Platinum Common Stock and $5.38 per
share of DataWorks Common Stock. On October 30, 1998 the closing prices on
Nasdaq were $9.38 per share of Platinum Common Stock and $6.81 per share of
DataWorks Common Stock.
Because the Exchange Ratio is fixed, changes in the market price of Platinum
Common Stock will affect the dollar value of the common stock of the Combined
Company to be received by stockholders of DataWorks in the Merger. Platinum
stockholders and DataWorks stockholders are urged to obtain current market
quotations for Platinum Common Stock and DataWorks Common Stock prior to the
Platinum Special Meeting and DataWorks Special Meeting, respectively.
Neither Platinum nor DataWorks has paid cash dividends. The Combined Company
currently intends to retain earnings for development of its business and not to
distribute earnings to stockholders as dividends. The declaration and payment by
the Combined Company of any future dividends and the amount thereof will depend
upon the Combined Company's results of operations, financial condition, cash
requirements, future prospects, limitations imposed by credit agreements or
senior securities and other factors deemed relevant by its Board of Directors.
19
<PAGE> 25
RISK FACTORS
In deciding on the proposals in this Joint Proxy Statement/Prospectus, you
should carefully consider the risks described below, elsewhere in this Joint
Proxy Statement/Prospectus and in the documents that Platinum has incorporated
herein by reference. This Joint Proxy Statement/Prospectus contains
forward-looking statements that involve known and unknown risks and
uncertainties. See "Forward-Looking Statements." The matters set forth below are
cautionary statements identifying important factors with respect to such
forward-looking statements, including risks and uncertainties that could cause
actual results to differ materially and adversely from those in such
forward-looking statements.
RISKS RELATED TO MERGER
Difficulties of Integrating Two Companies. The Merger will not achieve its
anticipated benefits unless Platinum successfully combines its operations with
those of DataWorks and integrates the two companies' products in a timely
manner. Integrating Platinum and DataWorks will be a complex, time consuming and
expensive process and may result in revenue disruption if not completed in a
timely and efficient manner. Prior to the Merger, Platinum and DataWorks will
have operated independently, each with its own business, business culture,
clients, employees and systems. Following the Merger, the Combined Company must
operate as a combined organization utilizing common (1) information
communication systems, (2) operating procedures, (3) financial controls and (4)
human resource practices, including benefit, training and professional
development programs. There may be substantial difficulties, costs and delays
involved in integrating Platinum and DataWorks. These difficulties, costs and
delays may include:
- Distracting management from the business of the Combined Company
- Potential incompatibility of business cultures
- Perceived and potential adverse change in client service standards,
business focus, billing practices or service offerings available to
clients
- Potential inability to successfully coordinate the research and
development and sales and marketing efforts
- Costs and delays in implementing common systems and procedures, including
financial accounting systems
- Costs and inefficiencies in delivering services to the clients of the
Combined Company
- Potential inability to obtain the consents of third parties required
because of the Merger
- Inability to retain and integrate key management, technical sales and
customer support personnel
- Potential conflicts in direct sales channels and Valued Added Resellers
("VARs")
Further, we cannot assure you that the Combined Company will retain and
successfully integrate its key management, technical, sales and customer support
personnel, or that it will realize any of the anticipated benefits of the
Merger. Any one or all of the factors identified above may cause increased
operating costs, lower than anticipated financial
20
<PAGE> 26
performance or the loss of customers and employees. The failure to integrate
Platinum and DataWorks will have a material adverse effect on the business,
financial condition and results of operations of the Combined Company. See
"Approval of the Merger and Related Transactions -- Joint Reasons For the
Merger."
Risks Associated with Fixed Exchange Ratio. As of the time of the Merger, each
outstanding share of DataWorks Common Stock will be converted into the right to
receive 0.794 shares of Platinum Common Stock. Because the Exchange Ratio is
fixed, it will not increase or decrease due to fluctuations in the market price
of either Platinum Common Stock or DataWorks Common Stock. The specific value of
the consideration to be received by DataWorks stockholders in the Merger will
depend on the market price of Platinum Common Stock at the time of the Merger.
The market prices of Platinum Common Stock and DataWorks Common Stock as of a
recent date are set forth herein under "Comparative Market Price Data." We
advise you to obtain recent market quotations for Platinum Common Stock and
DataWorks Common Stock as your special meeting approaches. Platinum Common Stock
and DataWorks Common Stock historically have been subject to substantial price
volatility. We cannot assure you as to the market prices of Platinum Common
Stock or DataWorks Common Stock at any time before the time of the Merger or as
to the market price of the common stock of the Combined Company at any time
thereafter. For more information, see "Comparative Market Price Data."
Substantial Expenses Resulting from the Merger. Platinum and DataWorks estimate
that the negotiation and implementation of the Merger will result in aggregate
pre-tax expenses to Platinum and DataWorks of approximately $10.0 million,
primarily relating to costs associated with combining the operations of the two
companies and the fees of financial advisors, attorneys and accountants.
Although the companies do not believe that the costs will significantly exceed
the aforementioned amount, there can be no assurance that the companies'
estimate is correct or that unanticipated contingencies that will substantially
increase the costs of combining the operations of the two companies will not
occur. In any event, the companies anticipate that costs associated with the
Merger will negatively impact results of operations in the quarter ending
December 31, 1998.
Dependence on Retention and Integration of Key Personnel. The success of the
Combined Company depends upon the continued service of key management personnel,
including L. George Klaus, William Pieser, Ken Lally, Stuart W. Clifton and
Norman R. Farquhar. None of Platinum's key personnel prior to the Merger is
subject to an employment agreement for a specified duration. In addition, the
competition to attract, retain and motivate qualified technical, sales and
operations personnel is intense. Platinum and DataWorks have at times
experienced, and continue to experience, difficulty recruiting qualified
personnel, particularly in software development and customer support. We cannot
assure you that the Combined Company can retain its key personnel or attract
other qualified personnel in the future. The loss of services of any of the key
members of the Combined Company's management team or its failure to attract
other qualified personnel could materially adversely affect the Combined
Company's business, operating results, cash flows and financial condition.
Rights of Holders of DataWorks Common Stock Following the Merger. As of the time
of the Merger, DataWorks stockholders will become Platinum stockholders. There
are important differences between the rights of stockholders of DataWorks and
stockholders of
21
<PAGE> 27
Platinum. For a description of these differences, see "Comparison of Platinum
and DataWorks Stockholders' Rights."
RISKS RELATED TO THE COMPANIES' BUSINESSES AND OPERATIONS
Fluctuations in Quarterly Operating Results. Platinum's and DataWorks' quarterly
operating results have fluctuated in the past. The reasons for and consequences
of such fluctuations described in this risk factor will similarly affect the
Combined Company following the Merger. The Combined Company's operating results
may fluctuate in the future as a result of many factors that may include:
- The demand for the Combined Company's products
- The size and timing of orders for the Combined Company's products
- The number, timing and significance of new product announcements by the
Combined Company and its competitors
- The Combined Company's ability to introduce and market new and enhanced
versions of its products on a timely basis
- The level of product and price competition
- Changes in operating expenses of the Combined Company
- Changes in average selling prices
In addition, the Combined Company will most likely record a significant portion
of its revenues in the final month of a quarter with a concentration of such
revenues recorded in the final 10 business days of that month.
Due to the above factors, among others, the Combined Company's revenues will be
difficult to forecast, as are Platinum's and DataWorks' currently. The Combined
Company, however, will base its expense levels in significant part on its
expectations of future revenue. As a result, the Combined Company expects its
expense levels to be relatively fixed in the short run. The Combined Company's
failure to meet revenue expectations could adversely affect operating results.
Further, an unanticipated decline in revenue for a particular quarter may
disproportionately affect the Combined Company's net income because a relatively
small amount of the Combined Company's expenses will vary with its revenues in
the short run. As a result, we believe that period-to-period comparisons of
Platinum's, DataWorks' or the Combined Company's results of operations are not
and will not necessarily be meaningful, and you should not rely upon them as an
indication of future performance. Due to the foregoing factors, it is likely
that in some future quarter the Combined Company's operating results will be
below the expectations of public market analysts and investors. Such an event
would likely have a material adverse effect upon the price of the Combined
Company's Common Stock.
Horizontal Product Strategy. Prior to the Merger, Platinum's business strategy
has included, and following the time of the Merger, the Combined Company's
business strategy will include, expansion of its product offerings to include
application software products that are complementary to its existing
client/server ERP applications, such as human resources and payroll products.
This strategy may involve acquisitions, investments in other businesses that
offer complementary products, joint development agreements or licensing of
technology arrangements. The risks commonly encountered in the acquisitions
22
<PAGE> 28
of businesses would accompany any future acquisitions or investments by the
Combined Company. Such risks may include the following:
- The difficulty of integrating previously distinct businesses into one
business unit
- The substantial management time devoted to such activities
- The potential disruption of the Combined Company's ongoing business
- Undisclosed liabilities
- Failure to realize unanticipated benefits (such as synergies and cost
savings)
- Issues related to product transition (such as development, distribution
and customer support)
We expect that the consideration the Combined Company would pay in such future
acquisitions would consist of stock, rights to purchase stock, cash or some
combination. If the Combined Company issues stock or rights to purchase stock in
connection with these future acquisitions, earnings per share and then-existing
holders of the Combined Company's Common Stock may experience dilution.
Dependence on Distribution Channels. Platinum distributes its products through a
direct sales force and third-party distributors, while DataWorks distributes its
products primarily through a direct sales force. Platinum's agreements with its
VARs and authorized consultants do not require such VARs and consultants to
offer exclusively or recommend Platinum's products, and either party can
terminate such agreements with or without cause. If the Combined Company's VARs
or authorized consultants cease distributing or recommending the Combined
Company's products or emphasize competing products, the Combined Company's
results of operations could be materially and adversely affected. In addition,
Platinum SQL, a client/server ERP application, requires additional skill and
training for successful implementation. Although Platinum is actively seeking
additional VARs to sell Platinum SQL, delays in training or recruiting VARs
could adversely impact the Combined Company's ability to generate license
revenue from its Platinum SQL line of products. It is possible that the
integration of the direct sales forces of Platinum and DataWorks will lead to
conflicts with Platinum's VAR channels.
Risks Associated With Possible Growth. Platinum's and DataWorks' businesses have
grown rapidly, both internally and through acquisitions.
<TABLE>
<CAPTION>
PLATINUM TOTAL REVENUES DATAWORKS TOTAL REVENUES
- -------------------------------------- ---------------------------------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C>
Fiscal Year ended June 30, $98,488 Nine months ended September $124,815
1998 30, 1998
Fiscal Year ended June 30, $60,751 Fiscal Year ended December $146,963
1997 31, 1997
Fiscal Year ended June 30, $45,670 Fiscal Year ended December $116,939
1996 31, 1996
</TABLE>
23
<PAGE> 29
As separate companies, each of Platinum and DataWorks may not be able to
adequately manage this growth if it continues. Similarly, the Combined Company
may not be able to manage any possible growth and assimilate its new employees
and products successfully. To manage any growth effectively, the Combined
Company must:
- Expand, train and manage its employee base
- Enhance its operating and financial systems
- Effectively expand its product line
Although the Combined Company may not grow in the future, if the Combined
Company continues to grow, we cannot assure you that the management systems
currently in place will be adequate or that the Combined Company will be able to
manage any additional growth effectively.
Dependence on Principal Products. Platinum and DataWorks derive a substantial
portion of their revenue from the sale of information systems and related
support services. Accordingly, any event that adversely affects fees derived
from the sale of such systems would materially and adversely affect the Combined
Company's business, results of operations and performance. These events may
include:
- Competition from other products
- Significant flaws in the Combined Company's products
- Incompatibility with third-party hardware or software products
- Negative publicity or evaluation of the Combined Company or its products
- Obsolescence of the hardware platforms or software environments in which
the Combined Company's systems run
Reliance on Third-Party Suppliers. Platinum's and DataWorks' products
incorporate and use software products, computer hardware and equipment developed
by other entities. Following the Merger, the Combined Company will continue to
incorporate such third-party technology. We cannot assure you that such third
parties will:
- Remain in business
- Support the Combined Company's product line
- Maintain viable product lines
- Make their product lines available to the Combined Company on
commercially acceptable terms
Any significant interruption in the supply of such third-party technology could
have a material adverse effect on the Combined Company's business, results of
operation and financial condition.
Risks Associated with Rapid Technological Change and Product Development. The
market for Platinum's and DataWorks' software products is subject to ongoing
technological developments, evolving industry standards and rapid changes in
customer requirements. As companies introduce products that embody new
technologies or as new industry standards emerge, existing products may become
obsolete and unmarketable. The
24
<PAGE> 30
Combined Company's future business, operating results and financial condition
will depend on its ability to:
- Enhance its existing products
- Develop new products that address the increasingly sophisticated needs of
its customers
- Develop products for additional platforms
Further, if the Combined Company fails to respond to technological advances,
emerging industry standards and end-user requirements, or experiences any
significant delays in product development or introduction, the Combined
Company's competitive position and revenues could be adversely affected. The
Combined Company's success will depend on its ability to develop and
successfully introduce new products and services, and Platinum's and DataWorks'
success is currently dependent on the same ability. We cannot assure you that
Platinum, DataWorks or the Combined Company will successfully develop and market
new products on a timely basis, if at all. Any such delay or failure could have
a material adverse effect on Platinum's, DataWorks' or the Combined Company's
business, results of operations and financial condition. The Combined Company
may need to increase the size of its product development staff in the near
future to meet these product development challenges. We cannot assure you that
the Combined Company will successfully hire and train an adequate number of
qualified product development personnel to meet its needs. From time to time,
the Combined Company or its competitors may announce new products, capabilities
or technologies that have the potential to replace or shorten the life cycles of
the Combined Company's existing products. We cannot assure you that such
announcements will not cause customers to delay or alter their purchasing
decisions, which could have a material adverse effect on the Combined Company's
business, operating results and financial condition.
Dependence on Client/Server Environment. Platinum's and DataWorks' development
tools, application products and consulting and education services help
organizations build, customize or deploy solutions that operate in a
client/server computing environment. We cannot assure you that these markets
will continue to grow or that the Combined Company will be able to respond
effectively to the evolving requirements of these markets. If the market for
client/server application products and services does not grow in the future, or
grows more slowly than the Combined Company anticipates, or if the Combined
Company fails to respond effectively to evolving requirements of this market,
the Combined Company's business, financial condition and results of operations
will be materially and adversely affected.
Highly Competitive Industry. The business information systems industry in
general and the client/server ERP computer software industry in particular are
very competitive and subject to rapid technological change. Many of Platinum's
and DataWorks' current and potential competitors have (1) longer operating
histories, (2) significantly greater financial, technical and marketing
resources, (3) greater name recognition, (4) larger technical staffs, and (5) a
larger installed customer base than either Platinum or DataWorks have, or the
Combined Company will have following the Merger. A number of companies offer
products that are similar to Platinum's and DataWorks' products and that target
the same markets. In addition, any of these competitors may be able to respond
more quickly to new or emerging technologies and changes in customer
requirements, and to devote greater resources to the development, promotion and
sale of their products than the Combined Company.
25
<PAGE> 31
Furthermore, because there are relatively low barriers to entry in the software
industry, Platinum and DataWorks expect the Combined Company to experience
additional competition from other established and emerging companies. Such
competitors may develop products and services that compete with those offered by
the Combined Company or may acquire companies, businesses and product lines that
compete with the Combined Company. It also is possible that competitors may
create alliances and rapidly acquire significant market share. Accordingly, we
cannot assure you that the Combined Company's current or potential competitors
will not develop or acquire products or services comparable or superior to those
that the Combined Company develops, combine or merge to form significant
competitors, or adapt more quickly than will the Combined Company to new
technologies, evolving industry trends and changing customer requirements.
Competition could cause price reductions, reduced margins or loss of market
share for the Combined Company's products and services, any of which could
materially and adversely affect the Combined Company's business, operating
results and financial condition. We cannot assure you that the Combined Company
will be able to compete successfully against current and future competitors or
that the competitive pressures that the Combined Company may face will not
materially adversely affect its business, operating results and financial
condition.
Dependence on Manufacturing Industry. DataWorks' business depends upon the
capital expenditures of mid-range discrete manufacturers, which in part depend
upon the demand for such manufacturers' products. A recession or other adverse
event that affects the manufacturing industry in the United States or in other
markets that DataWorks serves could affect such demand. Decreased demand could
force manufacturers in the Combined Company's target markets to curtail or
postpone capital expenditures on business information systems. Any such change
in the amount or timing of capital expenditures in its target markets could
materially and adversely affect the Combined Company's business and operations.
Risks Associated With Intellectual Property and Proprietary Rights
Protection. Platinum and DataWorks both rely on a combination of copyright,
trademark and trade secret laws, employee and third-party nondisclosure
agreements and other industry standard methods for protecting ownership of their
proprietary software. However, we cannot assure you that in spite of these
precautions, an unauthorized third party will not copy or reverse-engineer
certain portions of Platinum, DataWorks or the Combined Company's products or
obtain and use information that the companies regard as proprietary. We cannot
assure you that the mechanisms that Platinum and DataWorks use to protect their
intellectual property will be adequate or that the Combined Company's
competitors will not independently develop products that are substantially
equivalent or superior to the Combined Company's products.
Platinum and DataWorks may from time to time receive notices from third parties
claiming that their products infringe upon third-party intellectual property
rights. We expect that as the number of software products in the country
increases and the functionality of these products further overlaps, the number
of these types of claims will increase. Any such claim, with or without merit,
could result in costly litigation and require the Combined Company to enter into
royalty or licensing arrangements. The terms of such royalty or license
arrangements, if required, may not be acceptable to the Combined Company.
26
<PAGE> 32
In addition, DataWorks provides the source code for its application software
under licenses to its customers to enable them to customize the software to meet
particular requirements. Although the source code licenses contain
confidentiality and nondisclosure provisions, we cannot assure you that such
customers will take adequate precautions to protect the Combined Company's
source code or other confidential information.
Risks Associated with International Sales. The following table compares
international sales of Platinum and DataWorks to the total revenues of such
companies for the periods indicated.
<TABLE>
<CAPTION>
PLATINUM DATAWORKS
-------- ---------
International Sales as a International Sales as a
percentage of Total Revenues percentage of Total Revenues
<S> <C> <C> <C>
Fiscal Year ended June 30, 1998 28% Nine months ended September 30, 22%
1998
Fiscal Year ended June 30, 1997 29% Fiscal year ended December 31, 17%
1997
Fiscal Year ended June 30, 1996 31% Fiscal year ended December 31, 17%
1996
</TABLE>
Platinum and DataWorks believe that any future growth of the Combined Company
will be dependent in part upon its ability to increase revenues in international
markets. The Combined Company will continue to expand its operations outside of
the United States. This expansion will require significant management attention
and financial resources and could adversely affect the Combined Company's
margins. To increase international sales in subsequent periods, the Combined
Company must establish additional foreign operations, hire additional personnel
and recruit international resellers. We cannot assure you that the Combined
Company will maintain or expand its international sales. If the revenues that
the Combined Company generates from foreign activities are inadequate to offset
the expense of maintaining foreign offices and activities, the Combined
Company's business, financial condition and results of operations could be
materially and adversely affected. International sales are subject to inherent
risks, including:
- Unexpected changes in regulatory requirements
- Tariffs and other barriers
- Unfavorable intellectual property laws
- Fluctuating exchange rates
- Difficulties in staffing and managing foreign sales and support
operations
- Longer accounts receivable payment cycles
- Difficulties in collecting payment
- Potentially adverse tax consequences, including repatriation of earnings
- Lack of acceptance of localized products in foreign countries
- Burdens of complying with a wide variety of foreign laws
- Effects of high local wage scales and other expenses
27
<PAGE> 33
Any one of these factors could materially and adversely affect the Combined
Company's future international sales and, consequently, the Combined Company's
business, operating results, cash flows and financial condition. In the recent
past, the financial markets in Asia, Latin America and other world regions have
experienced significant turmoil. Such turmoil in the Asian financial markets, in
particular, may negatively affect the Combined Company's sales to that region. A
portion of Platinum's and DataWorks' revenues from sales to foreign entities,
including foreign governments, has been in the form of foreign currencies.
Neither Platinum nor DataWorks has any hedging or similar foreign currency
contracts. Fluctuations in the value of foreign currencies could adversely
impact the profitability of the Combined Company's foreign operations.
Risks Associated With Year 2000 Compliance. Significant uncertainty exists in
the software industry concerning the potential effects of the "Year 2000" issue.
The "Year 2000" issue exists because the date codes used in some computer
software and hardware systems use only two digits so that many computer systems
cannot distinguish between the years 1900 and 2000. DataWorks believes that all
of its existing products are Year 2000 compliant, and Platinum believes that
current versions of its Platinum SQL, Platinum for Windows and Platinum for DOS
products are Year 2000 compliant. However, despite these beliefs and although
each company has conducted or is conducting its own quality testing procedures,
we cannot assure you that the Combined Company's software products contain all
necessary date code changes and are Year 2000 compliant. If any of the Combined
Company's software products fail to perform, including failures due to the onset
of calendar year 2000 there would likely be a material adverse effect on the
Combined Company's business, financial condition and results of operations.
Both Platinum and DataWorks are currently evaluating their respective
information technology infrastructures for Year 2000 compliance, including
reviewing what actions are required to make all software systems used internally
Year 2000 compliant as well as actions necessary to make each company less
vulnerable to Year 2000 compliance problems associated with third parties'
systems. We cannot assure you that such measures will alleviate all Year 2000
problems which could have a material adverse effect on the Combined Company's
business, operating results and financial condition following the Merger.
Potential Adverse Effects of Shares Eligible for Future Sales. As of the date of
the Reorganization Agreement, 28,376,789 shares of Platinum Common Stock were
outstanding. There are presently 95,305 shares of Series C Preferred Stock
outstanding. The holders of the shares of Series C Preferred Stock may convert
each of their shares of Series C Preferred Stock into ten shares of Platinum
Common Stock at any time. The holders of the Series C Preferred Stock also have
the right to cause Platinum to register with the SEC the sale of the shares of
Platinum Common Stock issuable upon conversion of the Series C Preferred Stock.
These rights will survive the Merger, and DataWorks' stockholders would, as a
result, be subject to risks associated with the existence of such rights since
they would be Platinum stockholders as of the Merger. In addition, Platinum and
DataWorks have a substantial number of options outstanding and shares issuable
to employees under their respective employee stock grant plans. As a result, a
substantial number of shares of common stock of the Combined Company will be
eligible for sale in the public market at various times in the future. Sales of
substantial amounts of such shares would dilute the holdings of stockholders and
could adversely affect the market price of the Combined Company's common stock.
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Possible Volatility of Stock Prices. The markets for Platinum's and DataWorks'
Common Stock are highly volatile. The trading price of the Combined Company's
common stock could fluctuate widely in response to:
- Quarterly variations in operations and financial results
- Announcements of technological innovations or new products by the
Combined Company or competitors
- Changes in prices of the Combined Company's or its competitors' products
and services
- Changes in product mix
- Changes in growth rates for the Combined Company as a whole or for
particular segments
- Earnings estimates for the Combined Company's market
- Systemic fluctuations in the stock market
In addition, the stock market has fluctuated widely in the past. Specifically,
the securities of many technology companies have experienced extreme price and
volume fluctuations, which often have been unrelated to the companies' operating
performance. These broad market fluctuations may adversely affect the market
price of the Combined Company's common stock. If the Merger does not occur,
stockholders of each of Platinum and DataWorks will be subject to potential
adverse consequences of fluctuations in stock price and volatility of the public
markets.
Risks of Product Defects. Software products as complex as those offered by
Platinum and DataWorks may contain undetected errors or failures when first
introduced or as new versions are released. Despite testing by Platinum,
DataWorks or the Combined Company, as the case may be, and by current and
potential customers, any of Platinum's, DataWorks' or the Combined Company's
products may contain errors after their commercial shipment. Such errors may
cause loss of or delay in market acceptance of the Combined Company's products.
The inability of the Combined Company to correct such errors in a timely manner
could have a material adverse effect on the Combined Company's results of
operations. In addition, technical problems with the current release of the
database platforms on which the Combined Company's products operate could impact
sales of these products, which could have a material adverse effect on the
Combined Company's results of operations.
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PLATINUM SPECIAL MEETING
DATE, TIME AND PLACE OF PLATINUM SPECIAL MEETING
The Platinum Special Meeting will be held at Platinum's headquarters located at
195 Technology Drive, Irvine, California 92618-2402 on Wednesday, December 23,
1998 at 10:00 a.m. local time.
PURPOSE
The purpose of the Platinum Special Meeting is to approve the issuance of shares
of Platinum Common Stock to the stockholders of DataWorks pursuant to the
Merger. Platinum stockholders may also consider and vote upon such other matters
as may be properly brought before the Platinum Special Meeting or any
postponements or adjournments thereof.
RECORD DATE AND OUTSTANDING SHARES
Only Platinum stockholders of record as of the Record Date are entitled to
notice of and to vote at the Platinum Special Meeting. As of the Record Date,
there were approximately 1,489 stockholders of record holding an aggregate of
approximately 28,408,217 shares of Platinum Common Stock and 95,305 shares of
Platinum Series C Preferred Stock.
On or about November 23, 1998, a notice meeting the requirements of Delaware law
is being mailed to all stockholders of record as of the Record Date.
VOTE REQUIRED AND VOTING RIGHTS
Under Delaware law, the charter documents of Platinum and Nasdaq rules, approval
of the issuance of shares of Platinum Common Stock pursuant to the Merger
requires the affirmative vote of a majority of the total votes cast regarding
such proposal. Each stockholder of record of Platinum Common Stock as of the
Record Date is entitled to cast one vote per each share of Platinum Common Stock
held and each stockholder of record of Platinum Series C Preferred Stock as of
the Record Date is entitled to cast ten votes per share, exercisable in person
or by properly executed proxy, on each matter properly submitted for the vote of
the stockholders of Platinum at the Platinum Special Meeting.
The presence, in person or by properly executed proxy, of at least the holders
of a majority of the outstanding shares of Platinum Common Stock and Platinum
Series C Preferred Stock on an as-converted basis entitled to vote at the
Platinum Special Meeting shall constitute a quorum. Broker non-votes and shares
held by persons abstaining will be counted in determining whether a quorum is
present at the Platinum Special Meeting. For the purposes of the foregoing
proposal, abstentions are counted as votes cast and accordingly have the same
effect as votes against the proposal, whereas broker non-votes are not counted
as votes cast and accordingly, once a quorum is present, will have no effect on
the proposal.
PROXIES
Each of the persons named in the proxy is an officer of Platinum. All shares of
Platinum Common Stock and Platinum Series C Preferred Stock that are entitled to
vote and are represented at the Platinum Special Meeting either in person or by
properly executed proxies received prior to or at the Platinum Special Meeting
and not duly and timely
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revoked will be voted at the Platinum Special Meeting in accordance with the
instructions indicated on such proxies. If no such instructions are indicated,
such proxies will be voted for the approval of the issuance of shares of
Platinum Common Stock pursuant to the Merger.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. You may revoke your proxy by (i)
filing with the Secretary of Platinum at or before the taking of the vote at the
Platinum Special Meeting, a written notice of revocation bearing a later date
than the proxy; (ii) duly executing a later-dated proxy relating to the same
shares and delivering it to the Secretary of Platinum before the taking of the
vote at the Platinum Special Meeting; or (iii) attending the Platinum Special
Meeting and voting in person (although attendance at the Platinum Special
Meeting will not in and of itself constitute a revocation of a proxy). Any
written notice of revocation or subsequent proxy should be sent so as to be
delivered to Platinum at 195 Technology Drive, Irvine, California 92618-2402,
Attention: Secretary, or hand-delivered to the Secretary of Platinum, in each
case at or before the taking of the vote at the Platinum Special Meeting.
SOLICITATION OF PROXIES; EXPENSES
The cost of the solicitation of Platinum stockholders will be borne by Platinum.
In addition, Platinum may reimburse brokerage firms and other persons
representing beneficial owners of shares for their expenses in forwarding
solicitation materials to such beneficial owners. Proxies may also be solicited
by certain Platinum directors, officers and regular employees personally or by
telephone, telegram letter or facsimile. Such persons will not receive
additional compensation, but may be reimbursed for reasonable out-of-pocket
expenses incurred in connection with such solicitation. In addition, Platinum
has retained Georgeson & Company to assist in the solicitation of proxies from
brokers, nominees, institutions and individuals at an estimated fee of $7,000,
plus reimbursement of reasonable expenses. Arrangements will also be made with
custodians, nominees and fiduciaries for forwarding of proxy solicitation
materials to beneficial owners of shares held of record by such custodians,
nominees and fiduciaries, and Platinum will reimburse such custodians, nominees
and fiduciaries for reasonable expenses incurred in connection therewith.
RECOMMENDATIONS OF THE PLATINUM BOARD
THE PLATINUM BOARD HAS UNANIMOUSLY APPROVED THE REORGANIZATION AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND HAS DETERMINED THAT THE MERGER IS FAIR TO,
AND IN THE BEST INTERESTS OF, PLATINUM AND ITS STOCKHOLDERS. AFTER CAREFUL
CONSIDERATION, THE PLATINUM BOARD UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF THE
ISSUANCE OF SHARES OF PLATINUM COMMON STOCK PURSUANT TO THE MERGER.
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DATAWORKS SPECIAL MEETING
DATE, TIME AND PLACE OF DATAWORKS SPECIAL MEETING
The DataWorks Special Meeting will be held at DataWorks' headquarters located at
5910 Pacific Center Boulevard, Suite 300, San Diego, California 92121, on
Wednesday, December 23, 1998 at 10:00 a.m. local time.
PURPOSE
The purpose of the DataWorks Special Meeting is to approve and adopt the
Reorganization Agreement and to approve the Merger. DataWorks stockholders may
also consider and vote upon such other matters as may be properly brought before
the DataWorks Special Meeting or any adjournments thereof.
RECORD DATE AND OUTSTANDING SHARES
Only stockholders of record of DataWorks Common Stock as of the Record Date are
entitled to notice of, and to vote at, the DataWorks Special Meeting. As of the
Record Date, there were approximately 270 stockholders of record holding an
aggregate of approximately 14,404,078 shares of DataWorks Common Stock.
On or about November 23, 1998, a notice meeting the requirements of Delaware law
is being mailed to all stockholders of record as of the Record Date.
VOTE REQUIRED
Under Delaware law and the charter documents of DataWorks, the affirmative vote
of the holders of a majority of the DataWorks Common Stock outstanding as of the
Record Date is required to approve and adopt the Reorganization Agreement and
approve the Merger. Each stockholder of record of DataWorks Common Stock as of
the Record Date will be entitled to cast one vote per each share of DataWorks
Common Stock held, exercisable in person or by properly executed proxy, on each
matter properly submitted for the vote of the DataWorks stockholders at the
DataWorks Special Meeting.
The presence, in person or by properly executed proxy, of at least a majority of
the outstanding shares of DataWorks Common Stock entitled to vote at the
DataWorks Special Meeting is necessary to constitute a quorum. For purposes of
obtaining the required vote of a majority of the outstanding shares of DataWorks
Common Stock for approval and adoption of the Reorganization Agreement and
approval of the Merger, the effect of an abstention or a broker non-vote is the
same as that of a vote against the proposal.
PROXIES
Each of the persons named in the proxy is an officer of DataWorks. All shares of
DataWorks Common Stock that are entitled to vote and are represented at the
DataWorks Special Meeting either in person or by properly executed proxies
received prior to or at the DataWorks Special Meeting and not duly and timely
revoked will be voted at the DataWorks Special Meeting in accordance with the
instructions indicated on such proxies. If no such instructions are indicated,
such proxies will be voted for the approval and adoption of the Reorganization
Agreement and the approval of the Merger.
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You may revoke your proxy at any time before it is exercised by filing with the
Secretary of DataWorks a written revocation or a later-dated, duly executed
proxy to the Secretary of DataWorks, or by attending the meeting and voting in
person. Any written notice of revocation or subsequent proxy should be delivered
to DataWorks at 5910 Pacific Center Boulevard, Suite 300, San Diego, California
92121, Attention: Secretary, or hand-delivered to the Secretary of DataWorks, in
each case at or before the taking of the vote at the DataWorks Special Meeting.
SOLICITATION OF PROXIES; EXPENSES
The costs of solicitation of DataWorks' stockholders will be borne by DataWorks.
In addition DataWorks may reimburse brokerage firms and other persons
representing beneficial owners of shares for their expenses in forwarding
solicitation materials to such beneficial owners. Proxies may also be solicited
by certain DataWorks directors, officers and regular employees personally or by
telephone, telegram letter or facsimile. Such persons will not receive
additional compensation, but may be reimbursed for reasonable out-of-pocket
expenses incurred in connection with such solicitation. In addition, DataWorks
has retained Georgeson & Company, an independent proxy solicitation firm, to
assist in soliciting proxies at an estimated fee of $7,000 plus reimbursement of
reasonable expenses.
RECOMMENDATION OF DATAWORKS BOARD OF DIRECTORS
THE DATAWORKS BOARD HAS UNANIMOUSLY APPROVED THE REORGANIZATION AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED THEREBY AND HAS DETERMINED THAT THE MERGER IS FAIR
TO, AND IN THE BEST INTERESTS OF, DATAWORKS AND ITS STOCKHOLDERS. AFTER CAREFUL
CONSIDERATION, THE DATAWORKS BOARD UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF THE
APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT AND THE APPROVAL OF THE
MERGER.
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APPROVAL OF THE MERGER AND RELATED TRANSACTIONS
The following discussion summarizes the proposed Merger and related
transactions. The following is not, however, a complete statement of all
provisions of the Reorganization Agreement and related agreements. Detailed
terms of and conditions to the Merger and certain related transactions are
contained in the Reorganization Agreement and the Amendment conformed copies of
which are attached to this Joint Proxy Statement/ Prospectus as Appendices A-1
and A-2. Reference is also made to the other Appendices hereto. Statements made
in this Joint Proxy Statement/Prospectus with respect to the terms of the Merger
and such related transactions are qualified in their respective entireties by
reference to the more detailed information set forth in the Reorganization
Agreement, the Amendment and the other Appendices hereto.
Additionally, the following discussion contains forward-looking statements and
involves risks and uncertainties. Actual results could differ materially from
those discussed below. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in the sections
entitled "Risk Factors," and "DataWorks Business" as well as those discussed
elsewhere in this Joint Proxy Statement/Prospectus. See "Forward-Looking
Statements."
JOINT REASONS FOR THE MERGER
The Boards of Directors of Platinum and DataWorks have determined that the
Combined Company will have the potential to realize long-term improved operating
and financial results and a stronger competitive position in the ERP market, as
compared to the two companies individually. Platinum and DataWorks believe that
there is a strategic fit among their respective ERP applications products.
Platinum and DataWorks believe that as a Combined Company they will be a
stronger competitor, will be better able to react to changes in technology and
in the marketplace, will be able to cross-sell each other's products, and will
have a critical mass of development resources and sales force and professional
services resources. There is also a geographic fit as both companies are
headquartered in Southern California.
Each of the Platinum Board and DataWorks Board has identified additional
potential mutual benefits of the Merger that they believe will contribute to the
success of the Combined Company. These potential benefits include principally
the following:
- The Combined Company will be positioned to have a leadership position in
providing ERP client/server software and Windows NT-based solutions for
the middle-market
- Combined technological resources will allow the Combined Company to
compete more effectively in the middle-market and against larger
competitors by providing the Combined Company with enhanced ability to
develop new products and greater functionality for existing products
- The combined experience, financial resources, size and breadth of
product offerings and development resources of the Combined Company will
allow the Combined Company to respond more quickly and effectively to
technological change, increased competition and market demands in an
industry experiencing rapid innovation and change
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- The combination of Platinum's ERP, including its distribution, financial
accounting and sales force automation, applications and DataWorks'
manufacturing solutions expertise will allow the Combined Company to
offer a more comprehensive and integrated set of ERP applications to its
customers in the middle-market
- The creation of a larger customer base, a higher market profile and
greater financial strength may present greater opportunities for
marketing the products and services of the Combined Company
- The Combined Company will create the opportunity to effectively utilize
the skills and resources of the companies' respective management teams
- The integration of the companies' product lines may enhance the Combined
Company's ability to increase market penetration, including by selling
DataWorks' products through Platinum's dealer channels
- The creation of a combined customer service and technical support system
may permit the Combined Company to provide more efficient support
coverage to its customers
- The integration of the companies' professional services groups may
provide enhanced revenue, including from the cross-selling of Platinum
and DataWorks products
Platinum and DataWorks have each identified additional reasons for the Merger.
Each Board of Directors has recognized that the potential benefits of the Merger
may not be realized. See "Risk Factors."
PLATINUM'S REASONS FOR THE MERGER
In addition to the anticipated joint benefits described above, the Platinum
Board believes that the following are additional reasons the Merger will be
beneficial to Platinum and for stockholders of Platinum to vote FOR the
proposals set forth herein:
- Given the complementary nature of the product lines of Platinum and
DataWorks, the Merger will enhance the opportunity for the potential
realization of Platinum's strategic objective of achieving greater scale
and presence in the ERP market
- Combining with DataWorks will provide an opportunity for expanded
distribution of Platinum's products to current DataWorks customers
- The Platinum stockholders will have the opportunity to participate in
the potential for growth of the Combined Company after the Merger
In the course of its deliberations during a Platinum Board meeting held on
October 8, 1998, the Platinum Board reviewed with Platinum management a number
of additional factors relevant to the Merger, including:
- Historical information concerning Platinum's and DataWorks' respective
businesses, prospects, financial performance and condition, operations,
technology, management and competitive position, including public
reports concerning results of operations during the most recent fiscal
year and fiscal quarter for each company with the SEC
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- Platinum management's view as to the financial condition, results of
operations and businesses of Platinum and DataWorks before and after
giving effect to the Merger based on management due diligence and
publicly available earnings estimates
- Current financial market conditions and historical market prices,
volatility and trading information with respect to Platinum Common Stock
and DataWorks Common Stock
- The consideration to be received by DataWorks stockholders in the Merger
and the market value of the Platinum Common Stock to be issued in
exchange for each share of DataWorks Common Stock and a comparison of
comparable merger transactions
- The belief that the terms of the Reorganization Agreement, including the
parties' representations, warranties and covenants, and the conditions
to their respective obligations, are reasonable
- Platinum management's view as to the prospects of Platinum as an
independent company
- Platinum management's view as to the potential for other third parties
to enter into strategic relationships with or to acquire DataWorks
- Detailed financial analysis and pro forma and other information with
respect to the companies presented by Broadview in a Board presentation,
including Broadview's opinion that the consideration to be paid pursuant
to the Reorganization Agreement was fair from a financial point of view
to Platinum's stockholders (copies of Broadview's opinions rendered to
the Platinum Board are attached as Appendix F-1 and Appendix F-2 hereto,
and stockholders are urged to carefully review these opinions)
- The impact of the Merger on Platinum's customers and employees
- Reports from management, legal and financial advisors as to the results
of their due diligence investigation of DataWorks
The Platinum Board also considered the terms of the proposed Reorganization
Agreement regarding DataWorks' rights to consider and negotiate other
acquisition proposals in certain circumstances, as well as the possible effects
of the provisions regarding termination fees. In addition, the Platinum Board
considered the accounting treatment of the Merger as either a purchase or a
pooling of interests, and the effects of goodwill on the books of the Combined
Company in the event the Merger were accounted for as a purchase.
The Platinum Board also identified and considered a variety of potentially
negative factors in its deliberations concerning the Merger, including, but not
limited to:
- The risk that the potential benefits sought in the Merger might not be
fully realized
- The possibility that the Merger might not be consummated and the effect
of public announcement of the Merger on (a) Platinum's sales and
operating results, (b) Platinum's ability to attract and retain key
management, marketing and technical personnel and (c) the progress of
certain development projects
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- The potential dilutive effect of the issuance of Platinum Common Stock
by virtue of the Merger
- The substantial charges to be incurred, primarily in the quarter ending
December 31, 1998, in connection with the Merger, including costs of
integrating the businesses and transaction expenses arising from the
Merger
- The risk that despite the efforts of the Combined Company, key technical
and management personnel might not remain employed by the Combined
Company
- The possibility that DataWorks will generate lower than expected revenue
on account of the Avante product transition
- The difficulty of managing separate operations at different geographic
locations
- The other risks described under "Risk Factors" herein. The Platinum Board
believed that these risks were outweighed by the potential benefits of
the Merger
The foregoing discussion is not exhaustive of all factors considered by the
Platinum Board. Each member of the Platinum Board may have considered different
factors, and the Platinum Board did not quantify or otherwise assign relative
weights to factors considered.
DATAWORKS' REASONS FOR THE MERGER
In addition to the anticipated joint benefits described above, the DataWorks
Board believes that the following are additional reasons the Merger will be
beneficial to DataWorks and for stockholders of DataWorks to vote FOR the
proposals set forth herein:
- Combining with Platinum will provide an opportunity for expanded
distribution of DataWorks' products to current Platinum customers
- Combining with Platinum will provide DataWorks with the benefit of the
operations expertise of Platinum's management
- The DataWorks stockholders will have the opportunity to participate in
the potential for growth of the Combined Company after the Merger
- The DataWorks stockholders will benefit from the increased liquidity of
their investment in the Combined Company and the greater market
capitalization of the Combined Company
In the course of its deliberations during DataWorks Board meetings held on
October 12, 1998, and October 13, 1998, the DataWorks Board reviewed with
DataWorks management a number of additional factors relevant to the Merger,
including:
- Historical information concerning Platinum's and DataWorks' respective
businesses, prospects, financial performance and condition, operations,
technology, management and competitive position, including public reports
concerning results of operations during the most recent fiscal year and
fiscal quarter for each company with the SEC
- DataWorks management's view as to the financial condition, results of
operations and businesses of Platinum and DataWorks before and after
giving effect to the Merger based on management due diligence and
publicly available earnings estimates
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- Current financial market conditions and historical market prices,
volatility and trading information with respect to Platinum Common Stock
and DataWorks Common Stock
- The consideration to be received by DataWorks stockholders in the Merger
and the relationship between the market value of the Platinum Common
Stock to be issued in exchange for each share of DataWorks Common Stock
and a comparison of comparable merger transactions
- The belief that the terms of the Reorganization Agreement, including the
parties' representations, warranties and covenants, and the conditions to
their respective obligations, are reasonable
- DataWorks management's view as to the prospects of DataWorks as an
independent company
- DataWorks management's view as to the potential for other third parties
to enter into strategic relationships with or to acquire DataWorks
- Detailed financial analysis and pro forma and other information with
respect to the companies presented by SoundView in a Board presentation,
including SoundView's opinion that the Exchange Ratio pursuant to the
Reorganization Agreement is fair from a financial point of view to the
stockholders of DataWorks (a copy of the opinions rendered by SoundView
to the DataWorks Board are attached as Appendix E-1 and Appendix E-2
hereto, and stockholders are urged to carefully review these opinions)
- The impact of the Merger on DataWorks' customers and employees
- Reports from management, legal and financial advisors as to the results
of their due diligence investigation of Platinum
The DataWorks Board also considered the terms of the proposed Reorganization
Agreement regarding DataWorks' respective rights to consider and negotiate other
acquisition proposals in certain circumstances, as well as the possible effects
of the provisions regarding the termination fees. The DataWorks Board also
considered the premium to be paid to DataWorks stockholders relative to recent
stock prices of Platinum and DataWorks, and the desired tax-free nature of the
Merger to DataWorks stockholders. In addition, the DataWorks Board considered
the accounting treatment of the Merger as either a purchase or a pooling of
interests. The DataWorks Board also considered various alternatives to the
Merger, including remaining as an independent company.
The DataWorks Board also identified and considered a variety of potentially
negative factors in its deliberations concerning the Merger, including, but not
limited to:
- The risk that the potential benefits sought in the Merger might not be
fully realized
- The possibility that the Merger might not be consummated and the effect
of public announcement of the Merger on (a) DataWorks' sales and
operating results, (b) DataWorks' ability to attract and retain key
management, marketing and technical personnel and (c) progress of certain
development projects
- The potential dilutive effect of the issuance of Platinum Common Stock in
the Merger
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- The substantial charges to be incurred, primarily in the quarter ending
December 31, 1998, in connection with the Merger, including costs of
integrating the businesses and transaction expenses arising from the
Merger
- The risk that despite the efforts of the Combined Company, key technical
and management personnel might not remain employed by the Combined
Company
- The difficulty of managing separate operations at different geographic
locations
- The other risks described under "Risk Factors" herein. The DataWorks
Board believed that these risks were outweighed by the potential benefits
of the Merger
The foregoing discussion is not exhaustive of all factors considered by the
DataWorks Board. Each member of the DataWorks Board may have considered
different factors, and the DataWorks Board did not quantify or otherwise assign
relative weights to factors considered.
MATERIAL CONTACTS AND BOARD DELIBERATIONS
During the week of August 17, 1998, a member of the DataWorks Board contacted L.
George Klaus, President and Chief Executive Officer of Platinum, to inquire as
to his interest in a strategic transaction between Platinum and DataWorks. Mr.
Klaus invited further discussion.
Mr. Klaus and Stuart W. Clifton, Chairman of the DataWorks Board and President
and Chief Executive Officer of DataWorks, met on August 28, 1998 and discussed
Platinum and DataWorks and a possible transaction between the two companies.
During the following week, Mr. Clifton and Mr. Klaus continued their discussions
by telephone.
Mr. Klaus and Mr. Clifton met again on September 4, 1998, and discussed Platinum
and DataWorks, including key employees and the general strengths and weaknesses
of the companies. After the meeting, Mr. Klaus and Mr. Clifton continued to
speak by telephone.
At a special meeting of the DataWorks Board on September 8, 1998, also attended
by, among others, Bradley J. Thies, General Counsel of DataWorks, and
representatives of Cooley Godward LLP ("Cooley Godward"), outside counsel to
DataWorks, Mr. Clifton provided the DataWorks Board with a brief overview of
Platinum, including descriptions of Platinum's products, markets, history and
recent acquisitions. Mr. Clifton also discussed Platinum's financial results for
its fiscal year ended June 30, 1998 and the potential benefits and risks of a
strategic combination of Platinum and DataWorks. At that meeting, the DataWorks
Board discussed a possible combination of DataWorks and Platinum, including the
potential terms theretofore discussed between the companies' management teams
and a tentative schedule under which such a transaction would occur. Following
such discussion, the DataWorks Board authorized management to proceed with
discussions with Platinum and to investigate further the possibility of a
transaction with Platinum.
On September 14, 1998, Mr. Klaus and Mr. Clifton met, with their respective
outside legal counsel, at the offices of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, counsel to Platinum ("Wilson Sonsini.") At this
meeting, Mr. Klaus and Mr. Clifton discussed terms for a proposed acquisition of
DataWorks by Platinum.
Mr. Klaus and Mr. Clifton and their respective legal counsel continued to
discuss terms for the proposed transaction throughout the week of September 14,
1998.
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To facilitate discussions, on September 17, 1998, Platinum and DataWorks entered
into a mutual non-disclosure agreement under which each agreed to maintain the
confidentiality of the other party's confidential information.
A telephone conference call between Mr. Klaus and Mr. Clifton scheduled for
September 18, 1998, to discuss the terms of the proposed transaction was
canceled pending further assessment of the proposed transaction by the DataWorks
Board.
On September 21, 1998, following discussions with members of the DataWorks
Board, Mr. Clifton contacted Mr. Klaus to indicate that DataWorks remained
interested in a possible transaction.
Also on September 21, 1998, Platinum retained Broadview as a financial advisor
with respect to the proposed Merger.
The Platinum Board met by telephone conference call on September 22, 1998, and
senior management reviewed with the Platinum Board the initial informal
discussions between senior management of the two companies concerning a possible
strategic business combination.
At a special meeting of the DataWorks Board on September 22, 1998, the DataWorks
Board continued to discuss the potential benefits and risks of a strategic
combination of Platinum and DataWorks. In addition, Joel Reed of Batchelder &
Partners, Inc., a regular financial advisor to DataWorks ("Batchelder"), gave a
presentation to the DataWorks Board regarding Platinum, including certain
financial information. Mr. Clifton also presented information to the DataWorks
Board regarding Platinum.
On September 23, 1998, Mr. Klaus, and William Peiser, Platinum's Executive Vice
President of Product Operations and Marketing, along with Platinum's financial
advisors, met with management of DataWorks, at DataWorks' offices, to conduct
due diligence of DataWorks.
Mr. Clifton, Paul Batten, DataWorks' Senior Vice President and General Manager
of the DataWorks ERP Group, John Hiraoka, DataWorks' Vice President of the
Enterprise Systems Group, along with Mr. Reed of Batchelder, met with Platinum's
management, at Platinum's offices, on September 24, 1998 to conduct a due
diligence review of Platinum.
On September 30, 1998, Mr. Klaus and Mr. Clifton and representatives of
Platinum's financial advisors met, with DataWorks' financial advisor
participating via telephone, and discussed the terms of the Merger.
On October 2, 1998, Platinum provided to DataWorks a draft of the Reorganization
Agreement and counsel to Platinum and counsel to DataWorks commenced discussions
regarding the proposed structure and other principal terms of the Reorganization
Agreement and other related documents, including the Exchange Ratio, the
termination rights relating to the Reorganization Agreement, the conditions upon
which any breakup fees would be payable and the amount of such fees, the
representations, warranties and covenants to be made, and the terms of related
transactions.
On October 5, 1998, DataWorks retained SoundView as special financial advisor to
DataWorks to render a fairness opinion with respect to the proposed Merger.
On October 5, 1998, Paul Mazzarella, Platinum's Vice President and Corporate
Controller, and Nancy Orr, Platinum's Vice President of Human Resources and
Administration, along
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with representatives of the mergers and acquisitions department of Ernst & Young
LLP, Platinum's accountants, met with Rick E. Russo, DataWorks' Vice President
of Finance, Thomas Bates, DataWorks' Vice President of Administration, and
Norman R. Farquhar, DataWorks' Executive Vice President and Chief Financial
Officer, at DataWorks' offices to conduct a financial due diligence review of
DataWorks.
On October 6, 1998, Platinum's financial advisors made a presentation to the
senior management of Platinum concerning financial due diligence and a
preliminary review of the fairness of a possible transaction.
On October 7, 1998, Mr. Farquhar and Doug Langston, DataWorks' Treasurer, along
with Mr. Reed and representatives of both companies' financial due diligence
teams, met with Mr. Klaus, Mr. Mazzarella and Ken Lally, Platinum's Executive
Vice President of Field and Customer Operations, at Platinum's offices to
conduct a financial due diligence review of Platinum.
SoundView also conducted its own due diligence review of Platinum on October 7,
1998, at Platinum's offices, including interviews with Platinum's senior
management.
Between September 17, 1998, and October 13, 1998, Platinum's legal advisors
conducted due diligence reviews of DataWorks' and DataWorks' legal advisors
conducted due diligence reviews of Platinum. Also between these dates,
Platinum's financial advisor continued its financial due diligence review of
DataWorks and DataWorks' financial advisors continued their financial due
diligence reviews of Platinum.
At an October 8, 1998 meeting of the Platinum Board, Platinum's senior
management and legal and financial advisors discussed the status of discussions
concerning the proposed transaction, the results of the due diligence evaluation
of DataWorks, and the principal terms of the Reorganization Agreement and
related documents. Platinum's financial advisor reviewed, among other things,
the strategic rationale for, and certain financial analyses relating to, the
proposed Merger, and delivered to the Platinum Board its written opinion
regarding the fairness to Platinum's stockholders from a financial point of view
of the Exchange Ratio. See "-- Opinions of Platinum's Financial Advisor."
Platinum's legal counsel discussed the Board's fiduciary duties in considering a
strategic business combination and strategic alternatives and reviewed for the
Platinum Board the principal terms of the Reorganization Agreement and certain
ancillary agreements thereto. Following discussion, the Platinum Board approved
the Reorganization Agreement and transactions and agreements related thereto,
subject to management's successful negotiation of certain remaining points.
On October 12, 1998, the DataWorks Board held a special meeting to consider the
principal terms of the Reorganization Agreement, the Merger and related
arrangements. Representatives from Cooley Godward, SoundView and Batchelder
attended the meeting. The DataWorks Board discussed in detail the terms of the
proposed transaction, but did not take any formal action with respect to the
Merger, the Reorganization Agreement or related matters at that time.
Prior to a special meeting of the DataWorks Board held on October 13, 1998, the
DataWorks Board was provided with a written report from SoundView relating to
the transaction and its potential consequences. At the October 13, 1998 meeting,
the DataWorks Board received an oral report from SoundView regarding the
proposed transactions, including its opinion that the Exchange Ratio was fair,
from a financial point of view, to the DataWorks stockholders. Upon further
discussion among the directors, the DataWorks Board unanimously (i) determined
that the terms of the Reorganization
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Agreement and the transactions contemplated thereby were fair to, and in the
best interests of, DataWorks and its stockholders, (ii) approved the
Reorganization Agreement, the Merger and all related arrangements contemplated
thereby, and (iii) resolved to recommend that the DataWorks stockholders vote
for the approval of the Reorganization Agreement and the Merger at a special
meeting of the DataWorks stockholders to be held for such purpose. Following the
meeting, SoundView delivered to DataWorks its written opinion that the Exchange
Ratio was fair, from a financial point of view, to the DataWorks stockholders.
On October 13, 1998, following final approval by the DataWorks Board, the
Reorganization Agreement was executed by both companies, each of the members of
the Board of Directors of each of Platinum and DataWorks and certain officers of
each of Platinum and DataWorks executed, as appropriate, the Platinum Voting
Agreement, the DataWorks Voting Agreement, the Platinum Affiliate Agreement, and
the DataWorks Affiliate Agreement, and Platinum and DataWorks issued a joint
press release announcing the Merger.
Another special meeting of the DataWorks Board was held on October 22, 1998 to
review the terms of the Reorganization Agreement, the Merger and related
arrangements, and to discuss a proposed amendment to the Reorganization
Agreement to permit certain actions by the parties which would cause the Merger
to be accounted for as a purchase, rather than a pooling of interests.
Representatives from Cooley Godward, SoundView and Batchelder attended the
meeting. At the meeting, DataWorks' management gave a presentation regarding the
accounting treatment of the Merger. In addition, the DataWorks Board received a
report from SoundView regarding its fairness opinion delivered on October 13,
1998, and SoundView's conclusion that its opinion as to the fairness of the
Exchange Ratio would not change as a result of the proposed amendment. Following
discussion, the DataWorks Board approved the proposed amendment of the
Reorganization Agreement, subject to receipt of a written update of SoundView's
fairness opinion to DataWorks. See "-- Opinions of DataWorks' Financial
Advisor."
On October 28, SoundView delivered a written update of its fairness opinion to
DataWorks.
On October 29, 1998, the Platinum Board held a meeting to discuss an amendment
to the Reorganization Agreement to permit certain actions by Platinum and
DataWorks which would cause the Merger to be accounted for as a purchase, rather
than a pooling of interests. Representatives of Wilson Sonsini and Broadview
attended this meeting. At the meeting, Broadview gave the Platinum Board its
revised written opinion, taking into consideration the proposed amendment of the
Reorganization Agreement, regarding the fairness to Platinum's stockholders from
a financial point of view of the Exchange Ratio. See "-- Opinions of Platinum's
Financial Advisor." Following discussion, the Platinum Board approved the
proposed amendment of the Reorganization Agreement.
On October 30, 1998, Platinum and DataWorks executed Amendment No. 1 to the
Reorganization Agreement (the "Amendment") and a Limited Waiver of the Platinum
Affiliate Agreements and DataWorks Affiliate Agreements. This waiver canceled
the Platinum Affiliate Agreements in their entirety and the sections of the
DataWorks Affiliate Agreements designed to preserve Platinum's ability to
account for the Merger as a pooling of interests. Copies of the Amendment No. 1
and Limited Waiver are filed as
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Appendix A-2 to this Joint Proxy Statement/Prospectus and are incorporated
herein by reference.
OPINIONS OF PLATINUM'S FINANCIAL ADVISOR
Platinum engaged Broadview to act as its financial advisor and requested that
Broadview render an opinion regarding the fairness, from a financial point of
view, to Platinum's shareholders, of the Exchange Ratio. At the meeting of the
Platinum Board on Thursday, October 8, 1998, Broadview rendered its written
opinion (the "October 8 Broadview Opinion") that, as of October 8, 1998, based
upon and subject to the various factors and assumptions set forth in the October
8 Broadview Opinion, the Exchange Ratio was fair, from a financial point of
view, to the Platinum shareholders. The Exchange Ratio was determined pursuant
to negotiations between Platinum and DataWorks and not pursuant to
recommendations of Broadview.
October 8 Broadview Opinion. The text of the October 8 Broadview Opinion, which
sets forth assumptions made, matters considered, and limitations on the review
undertaken, is attached as Appendix F-1 to this Proxy Statement/Prospectus.
Broadview will receive a fee from Platinum contingent upon successful conclusion
of the Merger. Pursuant to the terms of an engagement letter between Platinum
and Broadview, Platinum agreed to pay Broadview a fee upon the consummation of a
transaction calculated as 0.5% of the consideration. A fee of $150,000 paid in
connection with the delivery of the October 8 Broadview Opinion will be credited
against such amount. The summary of the October 8 Broadview Opinion set forth in
this Proxy Statement/Prospectus is qualified in its entirety by reference to the
full text of such opinion.
In rendering its opinion, Broadview, among other actions: (i) reviewed the terms
of the Reorganization Agreement and the associated schedules thereto in the form
of the draft dated October 7, 1998 furnished to Broadview by counsel to Platinum
on October 7, 1998; (ii) reviewed DataWorks' Form 10-K for its fiscal years
ended December 31, 1996 and 1997, including the audited financial statements
included therein, and DataWorks' Form 10-Q for the three months ended June 30,
1998, including the unaudited financial statements included therein; (iii)
reviewed quarterly financial projections for DataWorks for its fiscal years
ending December 31, 1998 and 1999 prepared and provided to Broadview by Platinum
management in consultation with DataWorks management; (iv) participated in
discussions with DataWorks management concerning the operations, business
strategy, financial performance and prospects for DataWorks; (v) discussed with
DataWorks management its view of the strategic rationale for the Merger; (vi)
reviewed the reported closing prices and trading activity for DataWorks Common
Stock; (vii) compared certain aspects of the financial performance of DataWorks
with public companies Broadview deemed comparable; (viii) analyzed available
information, both public and private, concerning other mergers and acquisitions
Broadview believed to be comparable in whole or in part to the Merger; (ix)
reviewed Platinum's annual report and Form 10-K for its fiscal years ended June
30, 1997 and 1998, including the audited financial statements included therein;
(x) participated in discussions with Platinum management concerning the
operations, business strategy, financial performance and prospects for Platinum;
(xi) discussed with Platinum management its view of the strategic rationale for
the Merger; (xii) reviewed the reported closing prices and trading activity for
Platinum Common Stock; (xiii) compared certain aspects of the financial
performance of Platinum with public companies Broadview deemed comparable; (xiv)
considered the total
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number of shares of Platinum Common Stock outstanding and the average weekly
trading volume of Platinum Common Stock; (xv) reviewed recent equity analyst
reports covering DataWorks and Platinum; (xvi) analyzed the anticipated effect
of the Merger on the future financial performance of the Combined Company;
(xvii) assisted in negotiations and discussions related to the Merger among
Platinum, DataWorks and their financial and legal advisors; and (xviii)
conducted other financial studies, analyses and investigations as Broadview
deemed appropriate for purposes of this opinion.
In rendering the October 8 Broadview Opinion, Broadview relied, without
independent verification, on the accuracy and completeness of all the financial
and other information (including without limitation the representations and
warranties contained in the Reorganization Agreement) that was publicly
available or furnished by Platinum, DataWorks, or DataWorks' financial advisor.
Broadview assumed that the Reorganization Agreement will be executed according
to the provisions defined therein. Broadview assumed that those projections
prepared by Platinum in consultation with DataWorks and provided by Platinum
were reasonably prepared and reflected the best available estimates and good
faith judgments of the managements of Platinum and DataWorks as to the future
performance of DataWorks. Broadview did not make or obtain an independent
appraisal or valuation of any of Dataworks' assets. With regard to any analyses
relating to valuations of comparable public companies, the share prices used
were for the close of trading on October 7, 1998, the last trading day before
the Platinum Board met to give final consideration to the proposed Merger.
The following is a summary explanation of the various sources of information and
valuation methodologies employed by Broadview in conjunction with rendering the
October 8 Broadview Opinion regarding the proposed Merger.
Public Company Comparables Analysis. Total Market Capitalization/Revenue
("TMC/R") and Price/Earnings ("P/E") multiples indicate the value public markets
place on companies in a particular market segment. A handful of companies are
comparable to DataWorks based on business model, market focus and products
offered. Broadview reviewed 14 public company comparables in the Enterprise
Resource Planning (ERP) software industry, whose primary customers consist of
middle-market (defined by Broadview to be $10 million to $500 million in annual
revenues) businesses, from a financial point of view including each company's:
Trailing Twelve Month ("TTM") Revenue; TTM Revenue Growth; TTM Pretax Margin;
Equity Market Capitalization; Net Cash Position; TTM P/E ratio; Price/Projected
Calendar Year 1999 EPS ratio ("Projected 1999 P/E"); TTM TMC/R ratio; and
TMC/Projected Calendar 1999 Year Revenue ratio ("Projected 1999 TMC/R"). The
public company comparables were selected from the Broadview Barometer, a
proprietary database of publicly-traded Information Technology ("IT") companies
maintained by Broadview and broken down by industry segment. In order of
descending TTM TMC/R, the public company comparables consist of: (i) Deltek
Systems, Inc.; (ii) Great Plains Software, Inc.; (iii) Ultimate Software Group,
Inc.; (iv) Datastream Systems, Inc.; (v) Best Software, Inc.; (vi) MAPICS, Inc.;
(vii) Platinum Software Corp.; (viii) Symix Systems, Inc.; (ix) Made2Manage
Systems, Inc.; (x) FlexiInternational Software, Inc.; (xi) Project Software and
Development, Inc.; (xii) Fourth Shift Corp.; (xiii) QAD, Inc.; and (xiv) Clarus
Corp. These comparables have a TTM P/E ratio range of 9.4 to 49.0 with a median
of 20.5; Projected 1999 P/E ratio range of 5.6 to 36.7 with a median of 13.3;
TTM
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TMC/R ratio range of 0.2 to 4.1 with a median of 1.5; Projected 1999 TMC/R ratio
range of 0.1 to 2.9 with a median of 1.0.
The per share valuation range implied by the TTM P/E multiples is $7.55 to
$39.52 with a median implied value of $16.57. The per share valuation range
implied by the Forward 1999 P/E multiples is $3.23 to $21.31 with a median
implied value of $7.72. The per share valuation range implied by the TTM TMC/R
multiples is $4.54 to $49.74 with a median implied value of $19.88. The per
share valuation range implied by Forward 1999 the TMC/R multiples is $3.76 to
$40.62 with a median implied value of $16.29.
Evaluation of Platinum Equity. Broadview compared selected valuation multiples
for public companies deemed comparable to Platinum based upon business model,
market focus and product offering, with the multiples implied by Platinum's
October 7, 1998 share price of $7 11/16, and its current and projected
performance. Broadview reviewed 14 public companies in the ERP software
industry, whose primary customers consist of middle-market (defined by Broadview
to be $10 million to $500 million in annual revenues) businesses, from a
financial point of view. In order of descending TTM TMC/R, the public company
comparables consist of: (i) Deltek Systems, Inc.; (ii) Great Plains Software,
Inc.; (iii) Ultimate Software Group, Inc.; (iv) Datastream Systems, Inc.; (v)
Best Software, Inc.; (vi) MAPICS, Inc.; (vii) Symix Systems, Inc.; (viii)
Made2Manage Systems, Inc.; (ix) FlexiInternational Software, Inc.; (x) Project
Software and Development, Inc.; (xi) Fourth Shift Corp.; (xii) QAD, Inc.; (xiii)
Clarus Corp.; and (xiv) DataWorks.
Transaction Comparables Analysis. Valuation statistics from transaction
comparables indicate the Adjusted Price/Revenue ("P/R") and Equity Price/Pretax
Income ("Price/ Pretax") multiples acquirers have paid for comparable companies
in a particular market segment. Broadview reviewed 18 comparable merger and
acquisition ("M&A") transactions from January 1, 1997 through October 7, 1998
involving sellers in the industrial enterprise application software industry
with revenues greater than $10 million. Transactions were selected from
Broadview's proprietary database of published and confidential M&A transactions
in the IT industry. In order of descending P/R multiple, the transactions used
are the acquisition of: (i) Chesapeake Decision Sciences, Inc. by Aspen
Technology, Inc.; (ii) Intertrans Logistics Solutions by i2 Technologies, Inc.;
(iii) Aurum Software, Inc. by Baan Co. NV; (iv) Confidential; (v) TSW
International, Inc. by Indus Group, Inc.; (vi) Innovative Tech Systems, Inc. by
Peregrine Systems, Inc.; (vii) Scopus Technology, Inc. by Siebel Systems, Inc.;
(viii) Wonderware Corp. by Siebe Plc; (ix) State of the Art, Inc. by Sage Group
Plc; (x) Hyprotech Ltd. by AEA Technology Plc; (xi) Intrepid Systems, Inc. by
PeopleSoft, Inc.; (xii) Confidential; (xiii) Simulation Sciences, Inc. by Siebe
Plc; (xiv) KHK Software AG by Sage Group Plc; (xv) Datalogix International, Inc.
by Oracle Systems Corp.; (xvi) Coda Group Plc by Baan Co. NV; (xvii) Interactive
Group, Inc. by DataWorks Corp.; and (xviii) Dun & Bradstreet Software
(subsidiary of Dun & Bradstreet Corp.) by GEAC Computer Corp. Ltd. The P/ R
multiples of the 18 transactions range from 0.6 to 7.9 with a median of 3.1. The
Price/ Pretax multiples of the 18 transactions range from 10.5 to 72.1 with a
median of 39.8.
The per share valuation range implied by the P/R multiples is $9.48 to $93.55
with a median implied value of $37.75. The per share valuation range implied by
the Price/Pretax multiples is $13.45 to $92.54 with a median implied value of
$51.15.
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Transaction Premiums Paid Analysis. Premiums paid in comparable public seller
transactions indicate the amount of consideration acquirers are willing to pay
above the seller's equity market capitalization. In this analysis, the value of
consideration paid in transactions involving stock is computed using the buyer's
stock price immediately prior to announcement (the most recent closing price as
quoted on the appropriate exchange), while the seller's equity market
capitalization is measured one day prior and twenty trading days prior to
announcement. Broadview reviewed 29 comparable M&A transactions involving North
American software vendors from January 1, 1997 to October 7, 1998 with total
consideration between $50 million and $250 million. Transactions were selected
from Broadview's proprietary database of published and confidential M&A
transactions in the IT industry. In order of descending premium paid to seller's
equity market capitalization 20 trading days prior to the date announcement, the
software transactions used were the acquisition of: (i) Cybermedia, Inc. by
Network Associates, Inc.; (ii) TeleBackup Systems, Inc. by VERITAS Software
Corp.; (iii) National Health Enhancement Systems, Inc. by HBO & Co.; (iv)
Visigenic Software, Inc. by Borland International, Inc.; (v) Technology Modeling
Associates, Inc. by Avant! Corp.; (vi) Interactive Group by DataWorks; (vii)
Quickturn Design Systems, Inc. by Mentor Graphics Corp.; (viii) Logic Works,
Inc. by PLATINUM technology, inc.; (ix) Award Software International, Inc. by
Phoenix Technologies Ltd.; (x) Kurzweil Applied Intelligence, Inc. by Lernout &
Hauspie Speech Products NV; (xi) Software Artistry, Inc. by Tivoli Systems (IBM
Corp.); (xii) Walsh International, Inc. by Cognizant Corp.; (xiii) The ForeFront
Group by CBT Group Plc; (xiv) Amisys Managed Care Systems, Inc. by HBO & Co.;
(xv) Globalink, Inc. by Lernout & Haupie Speech Products NV; (xvi) Maxis, Inc.
by Electronic Arts, Inc.; (xvii) Learmonth & Burchett Management Systems, Inc.
by PLATINUM technology, inc.; (xviii) PHAMIS, Inc. by IDX Systems Corp.; (xix)
IQ Software Corp. by Information Advantage Software, Inc.; (xx) Andyne Computing
Ltd. by Hummingbird Communications Ltd.; (xxi) Innovative Tech Systems, Inc. by
Peregrine Systems, Inc.; (xxii) Unison Software Corp. by Tivoli Systems (IBM
Corp.); (xxiii) Premenos Corp. by Harbinger Corp.; (xxiv) Enterprise Systems,
Inc. by HBO & Co.; (xxv) Simulation Sciences, Inc. by Siebe Plc; (xxvi)
XcelleNet, Inc. by Sterling Commerce, Inc.; (xxvii) Fractal Design Corp. by
MetaTools, Inc.; (xxviii) Orcad Inc. by Summit Design, Inc.; and (xxix) FTP
Software, Inc. by NetManage, Inc. Based upon Broadview's analysis of premiums
paid in comparable software transactions, Broadview found that premiums or
(discounts) paid to the sellers' equity market capitalizations 20 trading days
prior to the date of announcement ranged from (24.0%) to 120.3% with a median of
40.0%. The premiums or (discounts) paid to the sellers' equity market
capitalization one trading day prior to the date of announcement ranged from
(8.8%) to 87.4% with a median of 20.9%.
The per share valuation range implied by the premiums paid to the share price 20
trading days prior to announcement is $3.28 to $9.49 with a median implied value
of $6.04. The per share valuation range implied by the premiums paid to the
share price one trading day prior to announcement is $3.65 to $7.50 with a
median implied value of $4.84.
Relative Contribution Analysis. A relative contribution analysis measures each
of the merging companies' contributions to items such as Revenue and Net Income
on a percentage basis. Broadview examined the relative contributions during the
TTM ended June 30, 1998 and Projected Calendar Year 1999 based upon projections
for Platinum and DataWorks prepared by Platinum management with consultation
from DataWorks
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management, for each of the following operating metrics: (i) Revenue; (ii)
Operating Income; (iii) Pretax Income; (iv) Net Income; and (v) Working Capital.
DataWorks' relative contribution for Revenue for the TTM ended June 30, 1998 and
Projected Calendar Year 1999 is 62.8% and 56.9%, respectively. DataWorks'
relative contribution for Operating Income for the TTM ended June 30, 1998 and
Projected Calendar Year 1999 is 59.9% and 26.2%, respectively. DataWorks'
relative contribution for Pretax Income for the TTM ended June 30, 1998 and
Projected Calendar Year 1999 is 58.2% and 27.5%, respectively. DataWorks'
relative contribution for Net Income for the TTM ended June 30, 1998 and
Projected Calendar Year 1999 is 46.7% and 19.3%, respectively. DataWorks'
relative contribution for Working Capital for the TTM ended June 30, 1998 is
74.7%.
Relative Ownership Analysis. A relative ownership analysis measures each of the
merging companies' relative equity ownership and relative entity values (net of
cash). At the exchange ratio defined in the Reorganization Agreement of 0.794,
the implied equity ownership is 27.7% for DataWorks and 72.3% for Platinum,
while the implied entity ownership is 19.1% for DataWorks and 80.9% for
Platinum. (Entity ownership is calculated by taking equity market cap,
subtracting cash and adding debt.)
Exchange Ratio Analysis. Broadview considered the relative value public equity
markets have placed on DataWorks and Platinum Common Stock from October 3, 1997
through October 7, 1998. For comparative purposes, the implied historical
exchange ratio was examined in contrast to the Exchange Ratio defined in the
Reorganization Agreement. Based on this analysis, the historical exchange ratio
has ranged from 0.26 to 2.46 from October 3, 1997 to October 7, 1998. The
average historical exchange ratio for the year ending October 7, 1998 is 1.20.
Stock Performance Analysis. For comparative purposes, Broadview examined the
trading history of: (i) DataWorks Common Stock from October 3, 1997 through
October 7, 1998; and (ii) an index of the public company comparables vs.
DataWorks and the S&P 500 from October 3, 1997 through October 7, 1998.
Stock Performance Analysis. For comparative purposes, Broadview examined the
trading history of: (i) Platinum Common Stock from October 3, 1997 through
October 7, 1998; and (ii) an index of the public company comparables vs.
Platinum and the S&P 500 from October 3, 1997 through October 7, 1998.
Pro Forma Combination Analyses. A pro forma merger analysis calculates the EPS
accretion or dilution of the pro forma combined entity taking into consideration
various financial effects which will result from a consummation of the merger.
This analysis relies upon certain financial and operating assumptions provided
by equity research analysts, publicly available data about Platinum, and
management's projections for DataWorks. Broadview examined a pooling scenario
under the assumptions given to Broadview by DataWorks and Platinum management.
Under this scenario, cost savings were achieved through the reduction of
approximately 5% of the combined entity's current workforce. Based on this
scenario and management projections for Platinum and DataWorks, the pro forma
pooling model indicates EPS accretion of 13.3%, excluding acquisition expenses,
for the fiscal year ending December 31, 1999.
Broadview also examined a pooling scenario under the assumption that no
opportunities for cost savings or revenue enhancements exist. Based on this
scenario and management
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projections for Platinum and DataWorks, the pro forma pooling model indicates
EPS dilution of (0.2%), excluding acquisition expenses, for the fiscal year
ending December 31, 1999.
Consideration of the Discounted Cash Flow Valuation Methodology. While
discounted cash flow is a commonly used valuation methodology, Broadview did not
employ such an analysis for the purposes of this opinion. Discounted cash flow
analysis is most appropriate for companies which exhibit relatively steady or
somewhat predictable streams of future cash flow. Given the uncertainty in
estimating both the future cash flows and a sustainable long-term growth rate
for the Company, Broadview considered a discounted cash flow analysis
inappropriate for valuing DataWorks.
October 29 Broadview Opinion. In contemplation of the Amendment to the
Reorganization Agreement, Platinum requested that Broadview render an opinion
regarding the fairness, from a financial point of view, to Platinum's
shareholders, of the Exchange Ratio. At the meeting of the Platinum Board on
Thursday, October 29, 1998, Broadview rendered its written opinion (the "October
29 Broadview Opinion") that, as of October 29, 1998, based upon and subject to
the various factors and assumptions set forth in the October 29 Broadview
Opinion, the Exchange Ratio was fair, from a financial point of view, to the
Platinum shareholders. The Exchange Ratio was determined pursuant to
negotiations between Platinum and DataWorks and not pursuant to recommendations
of Broadview.
The text of the October 29 Broadview Opinion, which sets forth assumptions made,
matters considered, and limitations on the review undertaken, is attached as
Appendix F-2 to this Proxy Statement/Prospectus. The summary of the October 29
Broadview Opinion set forth in this Proxy Statement/Prospectus is qualified in
its entirety by reference to the full text of such opinion.
In rendering its opinion, Broadview, in addition to the actions performed in
conjunction with the October 8 Broadview Opinion and among other actions: (i)
reviewed the terms of the executed Reorganization Agreement and the associated
exhibits dated October 13, 1998; (ii) reviewed the terms of the Amendment to the
Reorganization Agreement in the form of a draft dated October 26, 1998 furnished
to Broadview by counsel to Platinum on October 26, 1998 which contained no
material differences from the definitive Amendment to the Reorganization
Agreement; (iii) reviewed the press release issued by DataWorks dated October
22, 1998 with respect to DataWorks' financial performance for the three months
ended September 30, 1998; and (iv) reviewed the press release issued by Platinum
dated October 27, 1998 with respect to Platinum's financial performance for the
three months ended September 30, 1998.
In rendering the October 29 Broadview Opinion, Broadview relied, without
independent verification, on the accuracy and completeness of all the financial
and other information (including without limitation the representations and
warranties contained in the Reorganization Agreement) that was publicly
available or furnished by Platinum, DataWorks, or DataWorks' financial advisor.
Broadview assumed that the Reorganization Agreement and the Amendment to the
Reorganization Agreement will be executed according to the provisions defined
therein. Broadview assumed that those projections prepared by Platinum in
consultation with DataWorks and provided by Platinum were reasonably prepared
and reflected the best available estimates and good faith judgments of the
managements of Platinum and DataWorks as to the future performance of DataWorks.
Broadview did not make or obtain an independent appraisal or valuation of any of
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DataWorks' assets. With regard to any analyses relating to valuations of
comparable public companies, the share prices used were for the close of trading
on October 28, 1998, the last trading day before the Platinum Board met to give
final consideration to the Amendment to the Reorganization Agreement.
The following is a summary explanation of the various sources of information and
valuation methodologies employed by Broadview in conjunction with rendering the
October 29 Broadview Opinion regarding the proposed Merger.
Public Company Comparables Analysis. Total Market Capitalization/Revenue ("TMC/
R") and Price/Earnings ("P/E") multiples indicate the value public markets place
on companies in a particular market segment. A handful of companies are
comparable to DataWorks based on business model, market focus and products
offered. Broadview reviewed 14 public company comparables in the Enterprise
Resource Planning (ERP) software industry, whose primary customers consist of
middle-market (defined by Broadview to be $10 million to $500 million in annual
revenues) businesses, from a financial point of view including each company's:
Trailing Twelve Month ("TTM") Revenue; TTM Revenue Growth; TTM Pretax Margin;
Equity Market Capitalization; Net Cash Position; TTM P/E ratio; Price/Projected
Calendar Year 1999 EPS ratio ("Projected 1999 P/E"); TTM TMC/R ratio; and
TMC/Projected Calendar 1999 Year Revenue ratio ("Projected 1999 TMC/R"). The
public company comparables were selected from the Broadview Barometer, a
proprietary database of publicly-traded Information Technology ("IT") companies
maintained by Broadview and broken down by industry segment. In order of
descending TTM TMC/R, the public company comparables consist of: (i) Great
Plains Software, Inc.; (ii) Deltek Systems, Inc.; (iii) Best Software, Inc.;
(iv) Ultimate Software Group, Inc.; (v) Platinum Software Corp.; (vi) MAPICS,
Inc.; (vii) Datastream Systems, Inc.; (viii) Symix Systems, Inc.; (ix) Project
Software & Development, Inc.; (x) Made2Manage Systems, Inc.; (xi) Clarus Corp.;
(xii) Fourth Shift Corp.; (xiii) QAD, Inc.; and (xiv) FlexiInternational
Software, Inc. These comparables have a TTM P/E ratio range of 8.9 to 56.3 with
a median of 19.9; Projected 1999 P/E ratio range of 8.7 to 42.2 with a median of
13.4; TTM TMC/R ratio range of 0.4 to 4.7 with a median of 1.6; Projected 1999
TMC/R ratio range of 0.3 to 3.4 with a median of 1.2.
The per share valuation range implied by the TTM P/E multiples is $5.65 to
$35.85 with a median implied value of $12.67. The per share valuation range
implied by the Forward 1999 P/E multiples is $5.03 to $24.49 with a median
implied value of $7.77. The per share valuation range implied by the TTM TMC/R
multiples is $7.12 to $57.52 with a median implied value of $21.52. The per
share valuation range implied by Forward 1999 the TMC/R multiples is $6.37 to
$46.83 with a median implied value of $18.40.
Evaluation of Platinum Equity. Broadview compared selected valuation multiples
for public companies deemed comparable to Platinum based upon business model,
market focus and product offering, with the multiples implied by Platinum's
October 28, 1998 share price, and its current and projected performance.
Broadview reviewed 14 public companies in the Enterprise Resource Planning (ERP)
software industry, whose primary customers consist of middle-market (defined by
Broadview to be $10 million to $500 million in annual revenues) businesses, from
a financial point of view. In order of descending TTM TMC/R, the public company
comparables consist of: (i) Great Plains Software, Inc.; (ii) Deltek Systems,
Inc.; (iii) Best Software, Inc.; (iv) Ultimate Software
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Group, Inc.; (v) MAPICS, Inc.; (vi) Datastream Systems, Inc.; (vii) Symix
Systems, Inc.; (viii) Project Software & Development, Inc.; (ix) Made2Manage
Systems, Inc.; (x) Clarus Corp.; (xi) Fourth Shift Corp.; (xii) QAD, Inc.; and
(xiii) FlexiInternational Software, Inc.; and (xiv) DataWorks.
Transaction Comparables Analysis. Valuation statistics from transaction
comparables indicate the Adjusted Price/Revenue ("P/R") and Equity Price/Pretax
Income ("Price/ Pretax") multiples acquirers have paid for comparable companies
in a particular market segment. Broadview reviewed 19 comparable merger and
acquisition ("M&A") transactions from January 1, 1997 through October 28, 1998
involving sellers in the industrial enterprise application software industry
with revenues greater than $10 million. Transactions were selected from
Broadview's proprietary database of published and confidential M&A transactions
in the IT industry. In order of descending P/R multiple, the transactions used
are the acquisition of: (i) Chesapeake Decision Sciences, Inc. by Aspen
Technology, Inc.; (ii) Intertrans Logistics Solutions by i2 Technologies, Inc.;
(iii) Aurum Software, Inc. by Baan Co. NV; (iv) Confidential; (v) TSW
International, Inc. by Indus Group, Inc.; (vi) Innovative Tech Systems, Inc. by
Peregrine Systems, Inc.; (vii) Scopus Technology, Inc. by Siebel Systems, Inc.;
(viii) Wonderware Corp. by Siebe Plc; (ix) State of the Art, Inc. by Sage Group
Plc; (x) Hyprotech Ltd. by AEA Technology Plc; (xi) Intrepid Systems, Inc. by
PeopleSoft, Inc.; (xii) Confidential; (xiii) Simulation Sciences, Inc. by Siebe
Plc; (xiv) KHK Software AG by Sage Group Plc; (xv) Datalogix International, Inc.
by Oracle Systems Corp.; (xvi) Consilium, Inc. by Applied Materials, Inc.;
(xvii) Coda Group Plc by Baan Co. NV; (xviii) Interactive Group, Inc. by
DataWorks; and (xix) Dun & Bradstreet Software (subsidiary of Dun & Bradstreet
Corp.) by GEAC Computer Corp. Ltd. The P/R multiples of the 19 transactions
range from 0.6 to 7.9 with a median of 3.0. The Price/Pretax multiples of the 19
transactions range from 10.5 to 72.1 with a median of 39.8.
The per share valuation range implied by the P/R multiples is $9.12 to $95.71
with a median implied value of $37.30. The per share valuation range implied by
the Price/Pretax multiples is $10.67 to $73.38 with a median implied value of
$40.56.
Transaction Premiums Paid Analysis. Premiums paid in comparable public seller
transactions indicate the amount of consideration acquirers are willing to pay
above the seller's equity market capitalization. In this analysis, the value of
consideration paid in transactions involving stock is computed using the buyer's
stock price immediately prior to announcement (the most recent closing price as
quoted on the appropriate exchange), while the seller's equity market
capitalization is measured one day prior and twenty trading days prior to
announcement. Broadview reviewed 32 comparable M&A transactions involving North
American software vendors from January 1, 1997 to October 28, 1998 with total
consideration between $50 million and $250 million. Transactions were selected
from Broadview's proprietary database of published and confidential M&A
transactions in the IT industry. In order of descending premium paid to seller's
equity market capitalization 20 trading days prior to the date announcement, the
software transactions used were the acquisition of: (i) FullTime Software, Inc.
by Legato Systems, Inc.; (ii) Consilium, Inc. by Applied Materials, Inc.; (iii)
Cybermedia, Inc. by Network Associates, Inc.; (iv) TeleBackup Systems, Inc. by
VERITAS Software Corp.; (v) National Health Enhancement Systems, Inc. by HBO &
Co.; (vi) Visigenic Software, Inc. by Borland International, Inc.; (vii)
Technology Modeling Associates, Inc. by Avant! Corp.; (viii) Interactive Group
by DataWorks Corp.; (ix) Quickturn Design Systems, Inc. by
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Mentor Graphics Corp.; (x) Logic Works, Inc. by PLATINUM technology, inc.; (xi)
Award Software International, Inc. by Phoenix Technologies Ltd.; (xii) Kurzweil
Applied Intelligence, Inc. by Lernout & Hauspie Speech Products NV; (xiii)
Software Artistry, Inc. by Tivoli Systems (IBM Corp.); (xiv) Walsh
International, Inc. by Cognizant Corp.; (xv) The ForeFront Group by CBT Group
Plc; (xvi) Amisys Managed Care Systems, Inc. by HBO & Co.; (xvii) Globalink,
Inc. by Lernout & Hauspie Speech Products NV; (xviii) Maxis, Inc. by Electronic
Arts, Inc.; (xix) Learmonth & Burchett Management Systems, Inc. by PLATINUM
technology, inc.; (xx) PHAMIS, Inc. by IDX Systems Corp.; (xxi) IQ Software
Corp. by Information Advantage Software, Inc.; (xxii) Andyne Computing Ltd. by
Hummingbird Communications Ltd.; (xxiii) Quarterdeck Corp. by Symantec Corp.;
(xxiv) Innovative Tech Systems, Inc. by Peregrine Systems, Inc.; (xxv) Unison
Software Corp. by Tivoli Systems (IBM Corp.); (xxvi) Premenos Corp. by Harbinger
Corp.; (xxvii) Enterprise Systems, Inc. by HBO & Co.; (xxviii) Simulation
Sciences, Inc. by Siebe Plc; (xxix) XcelleNet, Inc. by Sterling Commerce, Inc.;
(xxx) Fractal Design Corp. by MetaTools, Inc.; (xxxi) Orcad Inc. by Summit
Design, Inc.; and (xxxii) FTP Software, Inc. by NetManage, Inc.; Based upon
Broadview's analysis of premiums paid in comparable software transactions,
Broadview found that premiums or (discounts) paid to the sellers' equity market
capitalizations 20 trading days prior to the date of announcement ranged from
(26.3%) to 326.6% with a median of 41.6%. The premiums or (discounts) paid to
the sellers' equity market capitalization one trading day prior to the date of
announcement ranged from (2.0%) to 186.7% with a median of 20.0%.
The per share valuation range implied by the premiums paid to the share price 20
trading days prior to announcement is $4.01 to $23.20 with a median implied
value of $7.70. The per share valuation range implied by the premiums paid to
the share price one trading day prior to announcement is $5.27 to $15.41 with a
median implied value of $6.45.
Relative Contribution Analysis. A relative contribution analysis measures each
of the merging companies' contributions to items such as Revenue and Net Income
on a percentage basis. Broadview examined the relative contributions during the
TTM ended September 30, 1998 and Projected Calendar Year 1999 based upon
projections for Platinum and DataWorks prepared by Platinum management with
consultation from DataWorks management, for each of the following operating
metrics: (i) Revenue; (ii) Operating Income; (iii) Pretax Income; (iv) Net
Income; and (v) Working Capital. DataWorks' relative contribution for Revenue
for the TTM ended September 30, 1998 and Projected Calendar Year 1999 is 60.8%
and 56.9%, respectively. DataWorks' relative contribution for Operating Income
for the TTM ended September 30, 1998 and Projected Calendar Year 1999 is 46.8%
and 26.2%, respectively. DataWorks' relative contribution for Pretax Income for
the TTM ended September 30, 1998 and Projected Calendar Year 1999 is 46.6% and
27.5%, respectively. DataWorks' relative contribution for Net Income for the TTM
ended September 30, 1998 and Projected Calendar Year 1999 is 35.6% and 19.3%,
respectively. DataWorks' relative contribution for Working Capital for the TTM
ended September 30, 1998 is 70.2%.
Relative Ownership Analysis. A relative ownership analysis measures each of the
merging companies' relative equity ownership and relative entity values (net of
cash). At the exchange ratio defined in the Agreement of 0.794, the implied
equity ownership is 27.7% for DataWorks and 72.3% for Platinum, while the
implied entity ownership is 22.5% for DataWorks and 77.5% for Platinum.
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Exchange Ratio Analysis. Broadview considered the relative value public equity
markets have placed on DataWorks and Platinum Common Stock from October 27, 1997
through October 28, 1998. For comparative purposes, the implied historical
exchange ratio was examined in contrast to the Exchange Ratio defined in the
Agreement. Based on this analysis, the historical exchange ratio has ranged from
0.26 to 2.46 from October 27, 1997 to October 28, 1998. The average historical
exchange ratio for the year ending October 28, 1998 is 1.14.
Stock Performance Analysis. For comparative purposes, Broadview examined the
trading history of: (i) DataWorks Common Stock from October 27, 1997 through
October 28, 1998; and (ii) an index of the public company comparables vs.
DataWorks and the S&P 500 from October 27, 1997 through October 28, 1998. For
comparative purposes, Broadview examined the trading history of: (i) Platinum
Common Stock from October 27, 1997 through October 28, 1998; and (ii) an index
of the public company comparables vs. Platinum and the S&P 500 from October 27,
1997 through October 28, 1998.
Pro Forma Combination Analyses. A pro forma merger analysis calculates the EPS
accretion or dilution of the pro forma combined entity taking into consideration
various financial effects which will result from a consummation of the merger.
This analysis relies upon certain financial and operating assumptions provided
by equity research analysts, publicly available data about Platinum, and
management's projections for DataWorks. Broadview examined a purchase scenario
under the assumptions given to Broadview by DataWorks and Platinum management.
Under this scenario, cost savings were assumed through the reduction of
approximately 5% of the combined entity's current workforce. Based on this
scenario and management projections for Platinum and DataWorks, the pro forma
purchase model indicates EPS accretion of 10.2%, excluding acquisition expenses,
for the fiscal year ending December 31, 1999.
Broadview also examined a purchase scenario under the assumption that no
opportunities for cost savings or revenue enhancements exist. Based on this
scenario and management projections for Platinum and DataWorks, the pro forma
purchase model indicates EPS dilution of (3.3%), excluding acquisition expenses,
for the fiscal year ending December 31, 1999.
Consideration of the Discounted Cash Flow Valuation Methodology. While
discounted cash flow is a commonly used valuation methodology, Broadview did not
employ such an analysis for the purposes of this opinion. Discounted cash flow
analysis is most appropriate for companies which exhibit relatively steady or
somewhat predictable streams of future cash flow. Given the uncertainty in
estimating both the future cash flows and a sustainable long-term growth rate
for the Company, Broadview considered a discounted cash flow analysis
inappropriate for valuing DataWorks.
Summary of Valuation Analyses. Taken together, the information and analyses
employed by Broadview lead to Broadview's overall opinion that Exchange Ratio is
fair from a financial point of view, to Platinum shareholders.
The Platinum Board selected Broadview as its financial advisor on the basis of
Broadview's reputation and experience in the Information Technology sector and
the computer software industry in particular, as well as Broadview's historical
relationship with Platinum. Pursuant to the terms of an engagement letter
between Platinum and Broadview, the fees payable by Platinum to Broadview upon
completion of the Merger are based upon consideration to be paid by Platinum
pursuant to the Merger. Broadview will be
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reimbursed by Platinum for certain of its expenses incurred in connection with
its engagement. The terms of the fee arrangement with Broadview, which Platinum
and Broadview believe are customary in transactions of this nature, were
negotiated at arms' length between Platinum and Broadview, and the Platinum
Board was aware of the nature of the fee arrangement, including the fact that a
significant portion of the fees payable to Broadview is contingent upon
completion of the Merger. Platinum has agreed to indemnify Broadview and its
affiliates, their respective members, directors, officers, agents, employees and
legal representatives, and each person controlling Broadview or its affiliates,
against certain liabilities and expenses, including liabilities under the
federal securities laws arising out of or in connection with Broadview's
engagement by Platinum.
The above summary of the presentations by Broadview to the Platinum Board does
not purport to be a complete description of such presentations or of all the
advice rendered by Broadview. Broadview believes that its analyses and the
summary set forth above must be considered as a whole and that selecting
portions of its analyses, without considering all analyses, could create an
incomplete view of the process underlying the analyses set forth in Broadview's
presentations to the Platinum Board and in the October 8 Broadview Opinion and
the October 29 Broadview Opinion. Both the October 8 Broadview Opinion and the
October 29 Broadview Opinion are necessarily based upon market, economic,
financial and other conditions as they existed and could be evaluated as of the
date of such opinions. Neither the October 8 Broadview Opinion nor the October
29 Broadview Opinion expresses any opinion as to the price at which Platinum
Common Stock will trade at any time. In performing its analyses, Broadview made
numerous assumptions with respect to software industry performance and general
economic conditions, many of which are beyond the control of Platinum or
DataWorks. The analyses performed by Broadview are not necessarily indicative of
actual values or actual future results, which may be significantly more or less
favorable than suggested by such analyses.
OPINIONS OF DATAWORKS' FINANCIAL ADVISOR
Pursuant to a letter agreement dated as of October 5, 1998 (the "SoundView
Engagement Letter"), SoundView was engaged to provide financial advisory
services in connection with the Merger. SoundView was selected by the DataWorks
Board to act as its financial advisor based on SoundView's qualifications,
expertise and reputation, as well as its knowledge of the business and affairs
of DataWorks. On October 13, 1998, SoundView rendered its written opinion to the
DataWorks Board to the effect that, as of such date, based upon and subject to
the various considerations set forth in the opinion, the Exchange Ratio pursuant
to the Reorganization Agreement was fair from a financial point of view to the
holders of shares of DataWorks Common Stock.
Representatives of SoundView also made oral presentations to the DataWorks Board
on October 13, 1998 and October 22, 1998. Finally, SoundView provided to the
DataWorks Board a letter dated October 28, 1998, to the effect that the Exchange
Ratio pursuant to the Reorganization Agreement was fair from a financial point
of view to the holders of shares of DataWorks Common Stock as of October 13,
1998, upon further consideration of certain facts described in such letter,
including clarification of the Exchange Ratio, an adjustment in the accounting
treatment of the Proposed Transaction, and certain accounting results of such
accounting treatment.
THE FULL TEXT OF THE WRITTEN OPINION OF SOUNDVIEW DATED OCTOBER 13, 1998, AND
THE LETTER FROM SOUNDVIEW TO THE
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DATAWORKS BOARD DATED OCTOBER 28, 1998 (THE "LETTER UPDATE") WHICH SET FORTH,
AMONG OTHER THINGS, ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED
AND LIMITATIONS ON THE SCOPE OF THE REVIEW UNDERTAKEN BY SOUNDVIEW IN RENDERING
ITS OPINION, ARE ATTACHED AS APPENDICES E-1 AND E-2, RESPECTIVELY TO THIS JOINT
PROXY STATEMENT/PROSPECTUS. DATAWORKS STOCKHOLDERS ARE URGED TO, AND SHOULD,
READ THE OPINION AND THE LETTER UPDATE CAREFULLY AND IN THEIR ENTIRETY.
SOUNDVIEW'S OPINION AND THE LETTER UPDATE ARE DIRECTED TO THE DATAWORKS BOARD
AND ADDRESSES ONLY THE FAIRNESS OF THE EXCHANGE RATIO PURSUANT TO THE
REORGANIZATION AGREEMENT FROM A FINANCIAL POINT OF VIEW AS OF THE DATE OF THE
OPINION, AND DO NOT ADDRESS ANY OTHER ASPECT OF THE MERGER AND DO NOT CONSTITUTE
A RECOMMENDATION TO ANY HOLDER OF DATAWORKS COMMON STOCK AS TO HOW TO VOTE AT
THE DATAWORKS SPECIAL MEETING. THE SUMMARY OF THE OPINION OF SOUNDVIEW, AS
QUALIFIED BY THE LETTER UPDATE SET FORTH IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION AND THE LETTER UPDATE.
In connection with rendering its opinion, SoundView, among other things: (i)
reviewed certain publicly available financial statements and other information
of DataWorks and Platinum, respectively; (ii) discussed certain internal
financial statements and other financial and operating data concerning DataWorks
and Platinum prepared by the managements of DataWorks and Platinum,
respectively; (iii) discussed the past and current operations and financial
condition and the prospects of DataWorks, including information relating to
certain strategic, financial and operational benefits anticipated from the
Merger, with senior executives of DataWorks; (iv) discussed the past and current
operations and financial condition and the prospects of Platinum, including
information relating to certain strategic, financial and operational benefits
anticipated from the Merger, with senior executives of Platinum; (v) reviewed
the pro forma impact of the Merger on the earnings per share of Platinum; (vi)
compared the financial performance of DataWorks and Platinum and the prices and
trading activity of the DataWorks Common Stock and Platinum Common Stock with
that of certain other publicly traded companies and their securities; (vii)
reviewed the financial terms, to the extent publicly available, of certain
comparable transactions; (viii) discussed with the senior managements of
DataWorks and Platinum their strategic rationale for the Merger; (ix) reviewed
the Reorganization Agreement and certain related agreements; and (x) performed
such other studies and analyses and considered such other factors as SoundView
deemed appropriate.
SoundView assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by it for the purposes of
its opinion. With respect to the internal financial statements and other
financial and operating data and discussions relating to the strategic,
financial and operational benefits anticipated from the Merger provided by
DataWorks and Platinum, SoundView assumed that they were reasonably prepared on
bases reflecting the best then currently available estimates and judgments of
the prospects of DataWorks and Platinum, respectively. SoundView relied upon the
assessment by the managements of DataWorks and Platinum of their ability to
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retain key employees of both DataWorks and Platinum. SoundView also relied upon,
without independent verification, the assessment by the managements of DataWorks
and Platinum of DataWorks' and Platinum's technologies and products, the timing
and risks associated with the integration of DataWorks and Platinum, and the
validity of, and risks associated with, DataWorks' and Platinum's existing and
future products and technologies. SoundView did not make any independent
valuation or appraisal of the assets, liabilities or technologies of DataWorks
or Platinum, nor was SoundView furnished with any such appraisals. In addition,
SoundView assumed that the Merger would be recorded as a purchase under
generally accepted accounting principles, that it will be a tax-free
reorganization and would be consummated in accordance with the terms set forth
in the Reorganization Agreement. SoundView's opinion was necessarily based on
economic, market and other conditions as in effect on, and the information made
available to it as of, the date of the opinion.
In addition, in arriving at its opinion, SoundView was not authorized to
solicit, and did not solicit, interest from any party with respect to the
acquisition of DataWorks or any of its assets.
The following is a brief summary of certain of the analyses performed by
SoundView in connection with the preparation of its written opinion dated
October 13, 1998.
Peer Group Comparison. SoundView compared certain financial information of
DataWorks with corresponding financial information for a group of ERP Software
Companies. Such financial information included, among other things, market
valuation, current stock price as a multiple of earnings per share, and the
ratio of the multiple of current stock price to estimated earnings per share in
the calendar year 1999 to the estimated revenue growth rate. Among other things,
this analysis indicated that, as of October 9, 1998, based on earnings per share
and revenue growth rate estimates provided by DataWorks' management, DataWorks
Common Stock traded at a multiple of 7.1 times estimated earnings per share for
the calendar year 1999 (representing a multiple of 0.5 times its estimated
revenue growth rate), compared to a median multiple of 14.1 times (representing
a multiple of 0.4 times the median estimated revenue growth rate) for the ERP
Software Companies. The peer group comparison also showed revenue growth rate
estimates of 14% for DataWorks and a median of 35% for the ERP Software
Companies based on a compilation of securities research analyst forecasts.
SoundView also compared certain financial information of Platinum with
corresponding financial information for a group of Financial
Accounting/Salesforce Automation Software Companies. Such financial information
included, among other things, market valuation, current stock price as a
multiple of earnings per share, and the ratio of the multiple of current stock
price to estimated earnings per share in the calendar year 1999 to the estimated
revenue growth rate. SoundView is aware that Platinum has substantial net
operating loss carryforwards which, according to management's projections, will
cause the company to incur no tax liability in calendar 1999. In connection with
the preparation of its opinion, however, SoundView performed its analyses based
on fully taxed earnings for Platinum. Among other things, this analysis
indicated that, as of October 9, 1998, based on earnings per share and revenue
growth rate estimates provided by Platinum's management, Platinum Common Stock
traded at a multiple of 10.9 times estimated earnings per share for the calendar
year 1999 (representing a multiple of 0.2 times its estimated revenue growth
rate), compared to a median multiple of 13.4 times (representing a multiple of
0.4
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times the median estimated revenue growth rate) for the Financial
Accounting/Salesforce Automation Software Companies. The peer group comparison
also showed revenue growth rate estimates of 46% for Platinum and a median of
41% for the Financial Accounting/ Salesforce Automation Software Companies based
on a compilation of securities research analyst forecasts.
No company utilized in either peer group comparison is identical to DataWorks or
Platinum, respectively. In evaluating the peer group companies, SoundView made
judgments and assumptions with regard to industry performance, general business,
economic, market and financial conditions and other matters, many of which are
beyond the control of DataWorks and Platinum, such as the impact of competition
on DataWorks or Platinum and the industry generally, industry growth and the
absence of any material adverse change in the financial condition and prospects
of DataWorks or Platinum or the industry or in the financial markets in general.
Analysis of Selected Precedent Transactions. As part of its analysis, SoundView
reviewed twenty five transactions involving software companies (the "Software
Transactions"). SoundView compared certain statistics for each of the Software
Transactions to corresponding statistics for DataWorks based on the Exchange
Ratio and the closing market price of Platinum Common Stock on October 9, 1998.
For the Software Transactions, this analysis indicated multiples of net sales
ranging from 1.5 times to 16.1 times latest twelve months net sales, multiples
of earnings ranging from 23.5 times to 196.3 times latest twelve months earnings
and premiums paid to closing stock prices ranging from 2.3% to 59.9% for one day
prior to transaction announcement. These statistics compared to a multiple of
0.6 times latest twelve months net sales, a multiple of 7.9 times latest twelve
months earnings and a premium to the closing stock price of 51.7% for DataWorks
based on the Exchange Ratio and the closing market price of the DataWorks Common
Stock on October 9, 1998.
No transaction utilized in the analysis of selected precedent transactions is
identical to the Merger. In evaluating the precedent transactions, SoundView
made judgments and assumptions with regard to industry performance, general
business, economic, market and financial conditions and other matters, many of
which are beyond the control of DataWorks and Platinum, such as the impact of
competition on DataWorks and Platinum and the industry generally, industry
growth and the absence of any material adverse change in the financial condition
and prospects of DataWorks and Platinum and the industry and in the financial
markets in general.
Relative Contribution Analysis. SoundView analyzed the pro forma contribution of
each of DataWorks and Platinum, based on projected information supplied to
SoundView by DataWorks' and Platinum's managements, respectively, to the
resultant combined company assuming consummation of the Merger. This analysis
indicated that, in terms of net sales, operating income and pretax income,
DataWorks would contribute 55%, 29% and 30%, respectively, in calendar year
1999; 54%, 32% and 32%, respectively, in calendar year 2000; and 53%, 31% and
31%, respectively, in calendar year 2001. These statistics, adjusted to reflect
each company's respective capital structure, were compared to the pro forma
ownership of the outstanding common stock of the combined company, implied by
the Exchange Ratio, of 29% for DataWorks stockholders on a diluted basis.
Pro Forma Analysis of the Merger. SoundView analyzed the pro forma impact of the
Merger on Platinum's estimated earnings per share for the calendar years 1999,
2000 and
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2001, based on estimates provided by Platinum's management. SoundView observed
that, assuming the Merger would be recorded as a purchase under generally
accepted accounting principles, before taking into account any one-time charges
that may result from the combination, but taking into account expected benefits
that may result from the combination, the Merger would result in earnings per
share accretion for Platinum stockholders for each of the calendar years 1999,
2000 and 2001, respectively, based on the Exchange Ratio. On the same basis and
for the same time period, SoundView observed that the merger would also result
in earnings per share accretion for DataWorks stockholders, i.e. the estimated
earnings of the shares in the combined company received by the DataWorks
stockholders would be greater than the estimated earnings, based on estimates
provided by DataWorks' management, of the DataWorks shares on a DataWorks stand
alone basis.
In connection with the review of the Merger by the DataWorks Board, SoundView
performed a variety of financial and comparative analyses for purposes of its
opinion given in connection therewith. While the foregoing summary describes the
analyses and factors reviewed by SoundView in connection with its opinion, it
does not purport to be a complete description of all the analyses performed by
SoundView in arriving at its opinion. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to summary description.
Furthermore, selecting any portion of its analyses, without considering all
analyses, would create an incomplete view of the process underlying its opinion.
In addition, SoundView may have given various analyses and factors more or less
weight than other analyses and factors, and may have deemed various assumptions
more or less probable than other assumptions, so that the ranges of valuations
resulting from any particular analysis described above should not be taken to be
SoundView's view of the actual value of DataWorks or Platinum. In performing its
analyses, SoundView made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond the control of DataWorks or Platinum. Any estimates contained
therein are not necessarily indicative of future results or actual values, which
may be significantly more or less favorable than those suggested by such
estimates. The analyses performed were prepared solely as part of SoundView's
analysis of the fairness of the Exchange Ratio pursuant to the Reorganization
Agreement from a financial point of view to the holders of shares of DataWorks
Common Stock and were conducted in connection with the delivery of SoundView's
opinion. The analyses do not purport to be appraisals or to reflect the prices
at which DataWorks or Platinum might actually be sold.
The Exchange Ratio pursuant to the Reorganization Agreement was determined
through arm's-length negotiations between DataWorks and Platinum and was
approved by the DataWorks Board.
SoundView did not recommend any specific exchange ratio to DataWorks or that any
specific exchange ratio constituted the only appropriate exchange ratio for the
Merger. SoundView's opinion to the DataWorks Board was one of many factors taken
into consideration by the DataWorks Board in making its determination to approve
the Merger. Consequently, the SoundView analyses described above should not be
viewed as determinative of the opinion of the DataWorks Board with respect to
the value of DataWorks or whether the DataWorks Board would have been willing to
agree to a different exchange ratio.
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The DataWorks Board retained SoundView based upon SoundView's qualifications,
experience and expertise. SoundView is a recognized investment banking and
advisory firm. SoundView, as part of its investment banking business, performs
valuations of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. In the ordinary course of SoundView's trading, brokerage and financing
activities, SoundView or its affiliates may at any time hold long or short
positions, may trade, make a market or otherwise effect transactions, for its
own account or for the accounts of customers, in the equity securities of
DataWorks or Platinum. In the past, SoundView and its affiliates have provided
financing services for DataWorks and have received fees for the rendering of
these services.
Pursuant to the SoundView Engagement Letter, SoundView has provided advisory
services and a fairness opinion in connection with the Merger and DataWorks has
agreed to pay fees to SoundView equal to the sum of (i) $300,000 for SoundView's
retainer and fairness opinion fee plus (ii) if the Merger is consummated, an
additional 0.2375% of the aggregate value of the transaction. In addition,
DataWorks has also agreed to indemnify SoundView and its affiliates, their
respective directors, officers, agents and employees and each person, if any,
controlling SoundView or any of its affiliates against certain liabilities and
expenses, including the fees of its legal counsel and certain liabilities under
the federal securities laws, arising out of SoundView's engagement and the
transactions in connection therewith.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion addresses the material federal income tax
considerations of the Merger that are generally applicable to holders of
DataWorks Common Stock exchanging their DataWorks Common Stock for Platinum
Common Stock. Stockholders of DataWorks should be aware that the following
discussion does not deal with all federal income tax considerations that may be
relevant to particular DataWorks stockholders in light of their particular
circumstances, such as stockholders who are dealers in securities, who are
banks, insurance companies or tax-exempt organizations, who are subject to the
alternative minimum tax provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), who hold their shares as part of a hedge, straddle or
other risk reduction transaction, who are foreign persons or who acquired their
DataWorks Common Stock through stock option or stock purchase programs or in
other compensatory transactions. In addition, the following discussion does not
address the tax consequences of the Merger under foreign, state or local tax
laws or tax consequences of transactions effectuated prior to or after the
Merger (whether or not such transactions are in connection with the Merger)
including, without limitation, the exercise of options or rights to purchase
DataWorks Common Stock in anticipation of the Merger. ACCORDINGLY, DATAWORKS
STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE,
LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE MERGER.
The following discussion is based on the Code, applicable Treasury Regulations,
judicial authority and administrative rulings and practice, all as of the date
hereof. The IRS is not precluded from adopting a contrary position. In addition,
there can be no assurance that future legislative, judicial or administrative
changes or interpretations will not adversely affect the accuracy of the
statements and conclusions set forth herein. Any such changes
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or interpretations could be applied retroactively and could affect the tax
consequences of the Merger to Platinum, Merger Sub, DataWorks and/or their
respective stockholders.
Neither Platinum nor DataWorks has requested or will request a ruling from the
IRS with regard to any of the U.S. federal income tax consequences of the
Merger. Wilson Sonsini and Cooley Godward have rendered opinions (collectively,
the "Tax Opinions") to Platinum and DataWorks and its stockholders,
respectively, that, if the Merger is consummated in accordance with the
Reorganization Agreement (and without any waiver, breach or amendment of any of
the provisions thereof), the Merger will constitute a reorganization under
Section 368(a) of the Code (a "Reorganization"). Moreover, as a condition to the
consummation of the Merger, such counsel must also render tax opinions at the
closing of the Merger that the Merger will constitute a Reorganization (the
"Closing Opinions").
The Tax Opinions and the Closing Opinions assume and are conditioned upon (i)
the truth and accuracy of the statements, covenants, representations and
warranties contained in the Reorganization Agreement, in the representations
received from Platinum, Merger Sub and DataWorks to support the Tax Opinions and
the Closing Opinions (the "Tax Representations") and in all other instruments
and documents related to the formation, organization and operation of Platinum,
Merger Sub and DataWorks examined by and relied upon by Wilson Sonsini and
Cooley Godward in connection with the Merger, (ii) that original documents
submitted to such counsel are authentic, documents submitted to such counsel as
copies conform to the original documents, and that all such documents have been
(or will be by the effective time) duly and validly executed and delivered where
due execution and delivery are a prerequisite to the effectiveness thereof;
(iii) that all covenants contained in the Reorganization Agreement and the Tax
Representations are performed without waiver or breach of any material provision
thereof; (iv) that any representation or statement made "to the best of
knowledge" or similarly qualified is correct without such qualification; and (v)
that the Merger will be reported as a Reorganization by Platinum and DataWorks
in their respective federal income tax returns.
Subject to the limitations and qualifications referred to herein and in the Tax
Opinions and Closing Opinions, and assuming that the Merger is treated in
accordance with the Tax Opinions and Closing Opinions, the following U.S.
federal income tax consequences will result:
(a) No gain or loss will be recognized by the holders of DataWorks Common
Stock upon the receipt of Platinum Common Stock solely in exchange for such
DataWorks Common Stock in the Merger (except to the extent of cash received in
lieu of fractional shares);
(b) The aggregate tax basis of the Platinum Common Stock so received by the
stockholders of DataWorks in the Merger (including any fractional share of
Platinum Common Stock not actually received) will be the same as the aggregate
tax basis of the DataWorks Common Stock surrendered in exchange therefor;
(c) The holding period of the Platinum Common Stock so received by each
stockholder of DataWorks in the Merger will include the period for which the
DataWorks Common Stock surrendered in exchange therefor was considered to be
held, provided that the DataWorks Common Stock so surrendered is held as a
capital asset at the Effective Time;
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(d) Cash payments received by holders of DataWorks Common Stock in lieu of
receipt of a fractional share of Platinum Common Stock will be treated as if
such fractional share of Platinum Common Stock had been issued in the Merger and
then redeemed by Platinum, and a stockholder of DataWorks receiving such cash
will generally recognize gain or loss upon such payment, measured by the
difference (if any) between the amount of cash received and the basis in such
fractional share; and
(e) None of Platinum, Merger Sub or DataWorks will recognize gain or loss
solely as a result of the Merger.
A successful IRS challenge to the Reorganization status of the Merger would
result in a DataWorks stockholder recognizing gain or loss with respect to each
share of DataWorks Common Stock surrendered equal to the difference between the
stockholder's basis in such share and the fair market value, as of the Effective
Time, of the Platinum Common Stock received in exchange therefor. In such event,
a DataWorks stockholder's aggregate basis in the Platinum Common Stock so
received would equal its fair market value, and the stockholder's holding period
for such stock would begin the day after the Merger.
Even if the Merger qualifies as a Reorganization, a recipient of shares of
Platinum Common Stock would recognize gain to the extent that such shares were
considered to be received in exchange for services or property (other than
solely DataWorks Common Stock). All or a portion of such gain may be taxable as
ordinary income. Gain would also have to be recognized to the extent that a
DataWorks stockholder was treated as receiving (directly or indirectly)
consideration other than Platinum Common Stock in exchange for the DataWorks
Common Stock.
STOCK OWNERSHIP FOLLOWING MERGER
Based upon the capitalization of DataWorks as of the close of business on the
Record Date (excluding the number of shares of DataWorks Common Stock
outstanding and the number of shares issuable upon exercise of DataWorks Options
and DataWorks Warrants), an aggregate of approximately 11,436,837 shares of
Platinum Common Stock will be issued to DataWorks stockholders in the Merger and
Platinum will assume DataWorks Options and DataWorks Warrants for up to
approximately 1,833,917 additional shares of Combined Company Common Stock.
Based upon the number of shares of Platinum Common Stock issued and outstanding
as of the Record Date and after giving effect to the issuance of Platinum Common
Stock as described in the previous sentence, the former holders of DataWorks
Common Stock would hold, and have voting power with respect to, approximately
28.03% of the Combined Company's total issued and outstanding shares, and
holders of former DataWorks Options and DataWorks Warrants would hold options
and warrants exercisable for approximately 4.30% of the Combined Company's total
issued and outstanding shares (assuming the exercise of only such options and
warrants). The foregoing numbers of shares and percentages are subject to change
in the event that the capitalization of either Platinum or DataWorks changes
prior to the time of the Merger, and there can be no assurance as to the actual
capitalization of Platinum or DataWorks at the time of the Merger or of the
Combined Company at any time following the time of the Merger.
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INTERESTS OF CERTAIN PERSONS
Indemnification
Pursuant to the Reorganization Agreement, from and after the time of the Merger,
Platinum has agreed to cause the surviving corporation in the Merger to fulfill
and honor in all respects the obligations of DataWorks pursuant to any
indemnification agreements between DataWorks and its directors and officers as
of the time of the Merger (the "Indemnified Parties") and any indemnification
provisions under DataWorks' Certificate of Incorporation ("DataWorks'
Certificate") and DataWorks' Bylaws as in effect on the date of the
Reorganization Agreement. The Certificate of Incorporation and Bylaws of the
surviving corporation in the Merger will contain provisions with respect to
exculpation and indemnification that are at least as favorable to the
Indemnified Parties as those contained in DataWorks' Certificate and Bylaws as
in effect on the date of the Reorganization Agreement, which provisions will not
be amended, repealed or otherwise modified for a period of six years from the
time of the Merger in any manner that would adversely affect the rights
thereunder of individuals who, immediately prior to the time of the Merger, were
directors, officers, employees or agents of DataWorks, unless such modification
is required by law.
Pursuant to the Reorganization Agreement for a period of six years after the
time of the Merger, Platinum has agreed to cause the surviving corporation in
the Merger to use its commercially reasonable efforts to maintain in effect, if
available, directors' and officers' liability insurance covering those persons
who are currently covered by DataWorks' directors' and officers' liability
insurance policy on terms comparable to those applicable to the current
directors and officers of DataWorks; provided, however, that in no event will
Platinum or the surviving corporation in the Merger be required to expend in
excess of 150% of the annual premium currently paid by DataWorks for such
coverage (or such coverage as is available for such 150% of such annual
premium).
Employment Arrangements
In connection with the Merger, Stuart W. Clifton and Platinum have entered into
both an Executive Employment Agreement ("Employment Agreement") and a
Noncompetition Agreement ("Noncompetition Agreement"). The Employment Agreement
provides that Mr. Clifton will serve as an employee of Platinum as of the date
of the Merger and for one year thereafter, or such shorter or longer time as
agreed by the parties. The Employment Agreement provides that Mr. Clifton's base
annual salary rate will be $450,000 and that he will be entitled to a yearly
bonus based on his achievement of milestones relating to Platinum's net revenue
and net income projections. In addition, effective as of the date of the Merger,
Platinum will grant to Mr. Clifton an option to purchase 375,000 shares of
Platinum Common Stock.
Under the terms of the Employment Agreement, if Mr. Clifton's employment is
terminated by Platinum for cause, all of his compensation will cease immediately
and no severance benefits will be provided. If Mr. Clifton's employment is
terminated other than by Platinum for cause, Mr. Clifton will serve as a
consultant to Platinum. The consulting period will last two years, or, if
longer, until three years after the date of the Merger in the event he is
terminated by Platinum without cause (or he resigns following a change of
control of Platinum). In the event that Mr. Clifton dies or becomes permanently
disabled while he is an employee of Platinum, Mr. Clifton or his estate, as
appropriate, will be
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entitled to all of the consulting fees (as described below) and to continued
vesting of his options. During such time as Mr. Clifton may serve as a
consultant to Platinum, Platinum will pay Mr. Clifton $450,000 per year and pay
for Mr. Clifton's medical insurance. Mr. Clifton will also be eligible to
receive yearly bonuses during his consulting term which are comparable to
bonuses he received during his employment term.
Under the terms of the Noncompetition Agreement, Mr. Clifton may not compete
with the business of Platinum or solicit employees of Platinum to leave their
employment with Platinum for a period of three years, commencing on the date of
the Merger or, if later, the time Mr. Clifton ceases to serve as an employee or
consultant of Platinum. In consideration of these obligations, Platinum will pay
Mr. Clifton $1,000,000 on the date of the Merger.
In addition, upon consummation of the Merger, Mr. Clifton will become a member
of the Combined Company Board and Norman Farquhar will become the Chief
Financial Officer of the Combined Company. Accordingly, Messrs. Clifton and
Farquhar will enter into indemnification agreements with the Combined Company,
become subject to the Combined Company's director and officer liability
insurance policy and will become subject to the indemnification provisions set
forth in Platinum's Certificate and Bylaws.
Stock Plans
DataWorks' 1995 Non-Employee Directors' Stock Option Plan, as amended (the
"Directors' Plan"), provides that in the event of certain change in control
transactions, the time during which options outstanding under the Directors'
Plan may be exercised will be accelerated to permit the optionee to exercise all
such options in full prior to such event, and the options will terminate if not
exercised prior to such event. Under the terms of the Directors' Plan, the
Merger will cause the vesting of outstanding options under the Directors' Plan
to accelerate in full prior to the Merger and to terminate if not exercised
prior to the Merger.
GOVERNMENTAL AND REGULATORY APPROVALS
Under the HSR Act, and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Merger cannot be consummated until notifications
have been given and certain information has been furnished to the FTC or the
Antitrust Division of the Department of Justice (the "Antitrust Division") and
the specified waiting period has been satisfied. The notifications required
under the HSR Act as well as certain information have been furnished to the FTC
and the Antitrust Division. At any time before or after consummation of the
Merger, and notwithstanding that the HSR Act waiting period has expired, the
Antitrust Division, the FTC or any state or foreign governmental authority,
could take such action under the antitrust laws as it deems necessary or
desirable in the public interest. Such action could include seeking to enjoin
the consummation of the Merger or seeking divestiture of DataWorks or businesses
of Platinum or DataWorks by Platinum. Private parties may also seek to take
legal action under the antitrust laws under certain circumstances.
Based on information available to them, Platinum and DataWorks believe that the
Merger will be effected in compliance with federal, state and foreign antitrust
laws. However, there can be no assurance that a challenge to the consummation of
the Merger on antitrust
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grounds will not be made or that, if such a challenge were made, Platinum and
DataWorks would prevail.
DISSENTERS' RIGHTS
Stockholders of Platinum and DataWorks are not entitled to appraisal rights
under Delaware law in connection with the Merger.
ACCOUNTING TREATMENT
Platinum and DataWorks expect that the Merger will be accounted for as a
purchase.
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TERMS OF THE MERGER
The following is a brief summary of the material provisions of the
Reorganization Agreement and the Amendment, copies of which are attached as
Appendix A-1 and A-2 to this Joint Proxy Statement/Prospectus and are
incorporated herein by reference. This summary is qualified in its entirety by
reference to the full and complete text of the Reorganization Agreement and the
Amendment. References herein to the Reorganization Agreement shall mean the
Reorganization Agreement as amended by the Amendment.
TIME OF THE MERGER
Subject to the provisions of the Reorganization Agreement, Platinum, DataWorks
and Merger Sub shall cause the Merger to be consummated by filing a Certificate
of Merger with the Secretary of State of the State of Delaware in accordance
with the relevant provisions of Delaware law as soon as practicable on or after
the Closing Date. The closing of the Merger (the "Closing") shall take place at
the offices of Wilson Sonsini Goodrich & Rosati, Professional Corporation at a
time and date to be specified by the parties, which shall be no later than the
second business day after the satisfaction or waiver of the conditions set forth
in the Reorganization Agreement, or at such other time, date and location as the
parties to the Reorganization Agreement agree in writing. The Closing is
anticipated to occur after the close of trading on December 31, 1998.
MANNER AND BASIS OF CONVERTING SHARES
At the time of the Merger (the "Effective Time"), by virtue of the Merger and
without any action on the part of Merger Sub, DataWorks or the holders of any of
the following securities each share of DataWorks Common Stock (including, with
respect to each such share of DataWorks Common Stock, the associated Rights (as
defined in that certain Rights Agreement (the "DataWorks Rights Plan") dated as
of on or about October 13, 1998, between DataWorks and ChaseMellon Shareholder
Services, L.L.C., as Rights Agent)) issued and outstanding immediately prior to
the Effective Time, other than any shares of the DataWorks Common Stock held by
DataWorks or owned by Platinum, Merger Sub or any direct or indirect
wholly-owned subsidiary to be canceled, will be canceled and extinguished and
automatically converted into the right to receive 0.794 shares of Common Stock
of Platinum upon surrender of the certificate representing such share of the
DataWorks Common Stock in the manner provided below (or in the case of a lost,
stolen or destroyed certificate, upon delivery of an affidavit).
If any shares of the DataWorks Common Stock outstanding immediately prior to the
Effective Time are unvested or are subject to a repurchase option, risk of
forfeiture or other condition under any applicable restricted stock purchase
agreement or other agreement with DataWorks, then the shares of Platinum Common
Stock issued in exchange for such shares of DataWorks Common Stock will also be
unvested to the same extent and/or be subject to the same repurchase option,
risk of forfeiture or other condition, as applicable, and the certificates
representing such shares of Platinum Common Stock may accordingly be marked with
appropriate legends.
Each share of DataWorks Common Stock held by DataWorks or owned by Merger Sub,
Platinum or any direct or indirect wholly-owned subsidiary of DataWorks or of
Platinum immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof.
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At the Effective Time, all options to purchase DataWorks Common Stock then
outstanding under DataWorks' 1995 Equity Incentive Plan, 1995 Non-Employee
Directors' Stock Option Plan, the Interactive 1997 Nonstatutory Stock Option
Plan and the Interactive 1995 Stock Option Plan (the "DataWorks Stock Option
Plans") shall be assumed by Platinum. At the Effective Time, rights outstanding
under DataWorks' 1995 Employee Stock Purchase Plan (the "DataWorks Purchase
Plan") shall be treated as described below. At the Effective Time, certain
warrants issued by DataWorks (the "Warrants") shall be, in connection with the
Merger, assumed by Platinum as described below.
At the Effective Time, each outstanding DataWorks Option, whether or not
exercisable and regardless of the respective exercise prices thereof, will be
assumed by Platinum. Each DataWorks Option so assumed by Platinum under the
Reorganization Agreement will continue to have, and be subject to, the same
terms and conditions set forth in the applicable DataWorks Stock Option Plan
immediately prior to the Effective Time (including, without limitation, any
repurchase rights, vesting provisions and vested status of any such DataWorks
Option), except that (i) each DataWorks Option will be exercisable (or will
become exercisable in accordance with its terms) for that number of whole shares
of Platinum Common Stock equal to the product of the number of shares of
DataWorks Common Stock that were issuable upon exercise of such DataWorks Option
immediately prior to the Effective Time multiplied by the Exchange Ratio,
rounded down to the nearest whole number of shares of Platinum Common Stock and
(ii) the per share exercise price for the shares of Platinum Common Stock
issuable upon exercise of such assumed DataWorks Option will be equal to the
quotient determined by dividing the exercise price per share of DataWorks Common
Stock at which such DataWorks Option was exercisable immediately prior to the
Effective Time by the Exchange Ratio, rounded up to the nearest whole cent. It
is intended that DataWorks Options assumed by Platinum shall qualify following
the Effective Time as incentive stock options as defined in Section 422 of the
Code to the extent DataWorks Options qualified as incentive stock options
immediately prior to the Effective Time.
Rights outstanding under the DataWorks Purchase Plan shall be treated in a
manner reasonably acceptable to Platinum and DataWorks.
At the Effective Time, the Warrants will be assumed by Platinum. Each Warrant so
assumed by Platinum under the Reorganization Agreement will continue to have,
and be subject to, the same terms and conditions set forth in the applicable
warrant agreement immediately prior to the Effective Time (including, without
limitation, any repurchase rights or vesting provisions), except that (i) each
Warrant will be exercisable (or will become exercisable in accordance with its
terms) for that number of whole shares of Platinum Common Stock equal to the
product of the number of shares of DataWorks Common Stock that were issuable
upon exercise of such Warrant immediately prior to the Effective Time multiplied
by the Exchange Ratio, rounded down to the nearest whole number of shares of
Platinum Stock and (ii) the per share exercise price for the shares of Platinum
Common Stock issuable upon exercise of such assumed Warrant will be equal to the
quotient determined by dividing the exercise price per share of DataWorks Common
Stock at which such Warrant was exercisable immediately prior to the Effective
Time by the Exchange Ratio, rounded up to the nearest whole cent.
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The Exchange Ratio shall be adjusted to reflect appropriately the effect of any
stock split, reverse stock split, stock dividend (including any dividend or
distribution of securities convertible into Platinum Common Stock or DataWorks
Common Stock), reorganization, recapitalization, reclassification or other like
change with respect to Platinum Common Stock or DataWorks Common Stock occurring
on or after the date of the Reorganization Agreement and prior to the Effective
Time.
As soon as practicable after the Effective Time, Platinum shall cause the
Exchange Agent to mail to each DataWorks stockholder of record (as of the
Effective Time) a letter of transmittal with instructions to be used by such
stockholder in surrendering certificates which, prior to the Merger, represented
shares of DataWorks Common Stock and cash in lieu of any fractional shares.
HOLDERS OF DATAWORKS COMMON STOCK SHOULD NOT SURRENDER THEIR CERTIFICATES UNTIL
AFTER THE MERGER AND UNTIL SUCH HOLDERS RECEIVE THE LETTER OF TRANSMITTAL FROM
THE EXCHANGE AGENT.
CONDUCT FOLLOWING THE MERGER
Once the Merger is consummated, Merger Sub will cease to exist as a corporation,
and all of the business, assets, liabilities and obligations of Merger Sub will
be merged into DataWorks with DataWorks remaining as the Surviving Corporation.
Pursuant to the Reorganization Agreement, the Certificate of Incorporation of
Merger Sub in effect immediately prior to the Effective Time will become the
Certificate of Incorporation of the Surviving Corporation and the Bylaws of
Merger Sub will become the Bylaws of the Surviving Corporation. The Board of
Directors of the Surviving Corporation will consist of the directors who are
serving as directors of Merger Sub immediately prior to the Effective Time. The
officers of DataWorks immediately prior to the Effective Time will remain as
officers of the Surviving Corporation, until their successors are duly elected
or appointed or qualified.
Pursuant to the Reorganization Agreement, the Platinum Board will take all
actions necessary to cause Stuart Clifton to be elected to the Platinum Board
immediately after the Effective Time.
CONDUCT OF PLATINUM'S AND DATAWORKS' BUSINESS PRIOR TO THE MERGER
Pursuant to the Reorganization Agreement, until the earlier of the termination
of the Reorganization Agreement pursuant to its terms or the Effective Time,
DataWorks (and each of its subsidiaries) agrees, except (i) as indicated in the
DataWorks disclosure schedules or (ii) to the extent that Platinum shall
otherwise consent in writing, to carry on its business in all material respects,
in the usual, regular and ordinary course, in substantially the same manner as
heretofore conducted and in compliance with all applicable laws and regulations,
to pay its debts and taxes when due subject to good faith disputes over such
debts or taxes, to pay or perform other material obligations when due, and use
its commercially reasonable efforts consistent with past practices and policies
to preserve intact its present business organization, keep available the
services of its present officers and employees and preserve its relationships
with customers, suppliers, distributors, licensors, licensees, and others with
which it has business dealing. In addition, DataWorks will promptly notify the
other of any material event involving its business or operations. In addition,
except as permitted by the terms of the Reorganization Agreement or as provided
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in the DataWorks disclosure schedules, without the prior written consent of
Platinum, DataWorks shall not do any of the following, and shall not permit its
subsidiaries to do any of the following:
(a) Waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or restricted stock, or reprice options
granted under any employee, consultant, director or other stock plans or
authorize cash payments in exchange for any options granted under any of such
plans;
(b) Grant any severance or termination pay to any officer or employee
except pursuant to agreements outstanding, or policies existing, on the date of
the Reorganization Agreement and as disclosed in the DataWorks schedules, or
adopt any new severance plan;
(c) Transfer or license to any person or entity or otherwise extend, amend
or modify in any material respect any rights to the Platinum Intellectual
Property, or enter into grants to future patent rights, other than non-exclusive
licenses in the ordinary course of business and consistent with past practice;
(d) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in respect
of any capital stock or split, combine or reclassify any capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for any capital stock;
(e) Purchase, redeem or otherwise acquire, directly or indirectly, any
shares of capital stock of DataWorks or it subsidiaries, except repurchases of
unvested shares at cost in connection with the termination of the employment
relationship with any employee pursuant to stock option or purchase agreements
in effect on the date of the Reorganization Agreement;
(f) Issue, deliver, sell, authorize, pledge or otherwise encumber, any
shares of DataWorks capital stock or any securities convertible into shares of
DataWorks capital stock, or subscriptions, rights, warrants or options to
acquire any shares of DataWorks capital stock or any securities convertible into
shares of DataWorks capital stock, or enter into other agreements or commitments
of any character obligating it to issue any such shares or convertible
securities, other than the issuance delivery and/or sale of (i) stock options in
the ordinary course of business and consistent with past practice up to 200,000
shares, (ii) shares of the DataWorks Common Stock pursuant to the exercise of
stock options therefor outstanding as of the date of the Reorganization
Agreement or granted pursuant to the foregoing clause (i), (iii) shares of
DataWorks Common Stock issuable to participants in the DataWorks Employee Stock
Purchase Plan consistent with the terms thereof and (iv) shares of DataWorks
capital stock pursuant to exercise of the Warrants;
(g) Cause, permit or propose any amendments to the Certificate of
Incorporation and Bylaws of DataWorks or the similar governing instruments of
each of its subsidiaries;
(h) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any equity interest in or a portion of the assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets which are material, individually or in the aggregate, to the
business of DataWorks or enter into any material joint ventures, strategic
partnerships or alliances;
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(i) Sell, lease, license, encumber or otherwise dispose of any properties
or assets which are material, individually or in the aggregate, to the business
of DataWorks, except sales of inventory in the ordinary course of business
consistent with past practice;
(j) Incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or options,
warrants, calls or other rights to acquire any debt securities of DataWorks,
enter into any "keep well" or other agreement to maintain any financial
statement condition or enter into any arrangement having the economic effect of
any of the foregoing other than (i) in connection with the financing of ordinary
course trade payables consistent with past practice or (ii) pursuant to existing
credit facilities in the ordinary course of business;
(k) Adopt or amend any employee benefit plan or employee stock purchase or
employee stock option plan, or enter into any employment contract or collective
bargaining agreement (other than offer letters and letter agreements entered
into in the ordinary course of business consistent with past practice with
employees who are terminable "at will"), pay any special bonus or special
remuneration to any director or employee, or increase the salaries or wage rates
or fringe benefits (including rights to severance or indemnification) of its
directors, officers, employees or consultants other than pursuant to written
agreements with such persons disclosed in the DataWorks schedules or in the
ordinary course of business, consistent with past practice, or change in any
material respect any management policies or procedures;
(l) Make any payments outside of the ordinary course of business in excess
of $250,000 other than in connection with the Merger or commitments preexisting
the date of the Reorganization Agreement;
(m) Modify, amend or terminate any DataWorks Contract or other material
contract or agreement to which DataWorks or any subsidiary thereof is a party or
waive, release or assign any material rights or claims thereunder;
(n) Enter into any contracts, agreements, or obligations relating to the
distribution, sale, license or marketing by third parties of DataWorks' products
or products licensed by DataWorks other than in the ordinary course of business
consistent with past practice but in no event will any exclusive rights be
granted or restrictions on DataWorks' business activities be agreed to;
(o) Materially revalue any of its assets or, except as required by GAAP,
make any change in accounting methods, principles or practices;
(p) Agree in writing or otherwise to take any of the actions described in
(a) through (o) above.
Pursuant to the Reorganization Agreement, until the earlier of the termination
of the Reorganization Agreement pursuant to its terms or the Effective Time,
Platinum (and each of its subsidiaries) agrees, except (i) as indicated in the
Platinum disclosure schedules or (ii) to the extent that DataWorks shall
otherwise consent in writing, carry on its business, in all material respects,
in the usual, regular and ordinary course, in substantially the same manner as
heretofore conducted and in compliance with all applicable laws and regulations,
pay its debts and taxes when due, subject to good faith disputes over such debts
or taxes, pay or perform other material obligations when due, and use its
commercially reasonable efforts consistent with past practices and policies to
preserve intact its present business organization, keep available the services
of its present
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officers and employees and preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others with which it has business
dealings. In addition, except as permitted by the terms of the Reorganization
Agreement or as provided in the Platinum disclosure schedules, without the prior
written consent of DataWorks, Platinum shall not do any of the following and
shall not permit its subsidiaries to do any of the following:
(a) Waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or restricted stock, or reprice options
granted under any employee, consultant, director or other stock plans or
authorize cash payments in exchange for any options granted under any of such
plans;
(b) Transfer or license to any person or entity or otherwise extend, amend
or modify in any material respect any rights to the Platinum Intellectual
Property, or enter into grants to future patent rights, other than in the
ordinary course of business and consistent with past practice;
(c) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in respect
of any capital stock or split, combine or reclassify any capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for any capital stock;
(d) Purchase, redeem or otherwise acquire, directly or indirectly, any
shares of capital stock of Platinum or its subsidiaries, except repurchases of
unvested shares at cost in connection with the termination of the employment
relationship with any employee pursuant to stock option or repurchase agreements
in effect on the date of the Reorganization Agreement;
(e) Issue, deliver, sell, authorize, pledge or otherwise encumber any
shares of capital stock or any securities convertible into shares of capital
stock, or subscriptions, rights, warrants or options to acquire any shares of
capital stock or any securities convertible into shares of capital stock, or
enter into other agreements or commitments of any character obligating it to
issue any such shares or convertible securities, other than the issuance,
delivery and/or sale of (i) stock options in the ordinary course of business and
consistent with past practice, (ii) shares of Platinum Common Stock pursuant to
the exercise of stock options therefor outstanding as of the date of the
Reorganization Agreement or granted pursuant to the foregoing clause (i), and
(iii) shares of Platinum Common Stock issuable to participants in the Platinum
Employee Stock Purchase Plan consistent with the terms thereof;
(f) Cause, permit or propose any amendments to the Certificate and Bylaws
of Platinum or the similar governing instruments of each of its subsidiaries;
(g) Acquire or agree to acquire by (i) merging or consolidating with, or
(ii) purchasing any equity in or a portion of the assets of, or (iii) any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof, for consideration in excess of $50
million in any individual acquisition or $100 million in the aggregate for all
such acquisitions;
(h) Incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or options,
warrants, calls or other rights to acquire any debt securities of Platinum,
enter into any "keep well" or other agreement to maintain any financial
statement condition or enter into any arrangement having the economic effect of
any of the foregoing other than (i) in connection with the financing of
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ordinary course trade payables consistent with past practice or (ii) pursuant to
existing credit facilities in the ordinary course of business;
(i) Sell, lease, license, encumber or otherwise dispose of any properties
or assets which are material, individually or in the aggregate, to the business
of Platinum, except sales of inventory in the ordinary course of business
consistent with past practice;
(j) Materially revalue any of its assets or, except as required by GAAP,
make any change in accounting methods, principles or practices; or
(k) Agree in writing or otherwise to take any of the actions described in
Section (a) through (j) above.
NO SOLICITATION
Under the terms of the Reorganization Agreement, until the earlier of the
Effective Time or termination of the Reorganization Agreement pursuant to its
terms, DataWorks and its subsidiaries will not, nor will they authorize or
permit any of their respective officers, directors, affiliates or employees or
any investment banker, attorney or other advisor or representative retained by
any of them to, directly or indirectly, (i) solicit, initiate, encourage or
induce the making, submission or announcement of any Acquisition Proposal (as
defined below), (ii) participate in any discussions or negotiations regarding,
or furnish to any person any non-public information with respect to, or take any
other action to facilitate any inquiries or the making of any proposal that
constitutes or may reasonably be expected to lead to, any Acquisition Proposal,
(iii) engage in discussions with any person with respect to any Acquisition
Proposal, except as to the existence of the provisions regarding
non-solicitation contained in the Reorganization Agreement, (iv) subject to the
following paragraph, approve, endorse or recommend any Acquisition Proposal or
(v) enter into any letter of intent or similar document or any contract
agreement or commitment contemplating or otherwise relating to any Acquisition
Transaction (as defined below); provided, however, that prior to the approval of
the Reorganization Agreement by the required DataWorks stockholder vote, the
non-solicitation provisions contained in the Reorganization Agreement shall not
prohibit DataWorks from furnishing nonpublic information regarding DataWorks and
its subsidiaries to, entering into a confidentiality agreement with or entering
into discussions with, any person or group in response to a Superior Offer (as
hereinafter defined) submitted by such person or group (and not withdrawn) if
(1) neither DataWorks nor any representative of DataWorks and its subsidiaries
shall have violated any of the restrictions regarding non-solicitation set forth
in the Reorganization Agreement, (2) the DataWorks Board concludes in good
faith, after consultation with its outside legal counsel, that such action is
required in order for the DataWorks Board to comply with its fiduciary
obligations to the DataWorks' stockholders under applicable law, (3) prior to
furnishing any such nonpublic information to, or entering into discussions with,
such person or group, DataWorks gives Platinum written notice of the identity of
such person or group and of DataWorks' intention to furnish nonpublic
information to, or enter into discussions with, such person or group and
DataWorks receives from such person or group an executed confidentiality
agreement containing customary limitations on the use and disclosure of all
nonpublic written and oral information furnished to such person or group by or
on behalf of DataWorks, and (4) contemporaneously with furnishing any such
nonpublic information to such person or group, DataWorks furnishes such
nonpublic information to Platinum (to the extent such nonpublic information has
not been previously furnished by Platinum to DataWorks).
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DataWorks and its subsidiaries will immediately cease any and all existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any Acquisition Proposal.
Without limiting the foregoing, it is understood that any violation of the
restrictions set forth in the preceding two sentences by any officer, director
or employee of DataWorks or any of its subsidiaries or any investment banker,
attorney or other advisor or representative of DataWorks or any of its
subsidiaries shall be deemed to be a breach of the non-solicitation provisions
contained in the Reorganization Agreement by DataWorks. In addition to the
foregoing, DataWorks shall provide Platinum with at least 24 hours prior notice
(or such lesser prior notice as provided to the members of the DataWorks Board
but in no event less than eight hours) of any meeting of the DataWorks Board at
which the DataWorks Board is reasonably expected to consider a Superior Offer,
together with such notice a copy of the definitive documentation relating to
such Superior Offer.
Notwithstanding the terms discussed in this section, nothing in the
Reorganization Agreement prevents the DataWorks Board from withholding,
withdrawing, amending or modifying its unanimous recommendation in favor of the
Merger if (i) a Superior Offer is made to DataWorks and is not withdrawn, (ii)
neither DataWorks nor any of its representatives shall have violated any of the
restrictions regarding confidentiality contained in the Reorganization
Agreement, and (iii) the DataWorks Board or any committee thereof concludes in
good faith, after consultation with its outside counsel, that, in light of such
Superior Offer, the withholding, withdrawal, amendment or modification of such
recommendation is required in order for the DataWorks Board to comply with its
fiduciary obligations to the DataWorks' stockholders under applicable law.
Subject to applicable laws, no provision of the Reorganization Agreement
summarized in this paragraph shall limit DataWorks' obligation to hold and
convene the DataWorks Stockholders' Meeting (regardless of whether the unanimous
recommendation of the DataWorks Board shall have been withdrawn, amended or
modified).
In addition to the obligations of DataWorks described in this section, DataWorks
as promptly as practicable shall advise Platinum orally and in writing of any
request for non-public information which DataWorks reasonably believes would
lead to an Acquisition Proposal or of any Acquisition Proposal, or any inquiry
with respect to or which DataWorks reasonably should believe would lead to any
Acquisition Proposal, the material terms and conditions of such request,
Acquisition Proposal or inquiry, and the identity of the person or group making
any such request, Acquisition Proposal or inquiry. DataWorks will keep Platinum
informed in all material respects of the status and details (including material
amendments or proposed material amendments) of any such request, Acquisition
Proposal or inquiry.
"Acquisition Proposal" means any offer or proposal (other than an offer or
proposal by Platinum) relating to any Acquisition Transaction. "Acquisition
Transaction" means any transaction or series of related transactions other than
the transactions contemplated by the Reorganization Agreement involving: (A) any
acquisition or purchase from DataWorks by any person or "group" (as defined
under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) of more than a 5% interest in the total outstanding voting
securities of DataWorks or any of its subsidiaries or any tender offer or
exchange offer that if consummated would result in any person or "group" (as
defined under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) beneficially owning 5% or
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more of the total outstanding voting securities of DataWorks or any of its
subsidiaries or any merger, consolidation, business combination or similar
transaction involving DataWorks pursuant to which the stockholders of DataWorks
immediately preceding such transaction hold less than 95% of the equity
interests in the surviving or resulting entity of such transaction; (B) any
sale, lease (other than in the ordinary course of business), exchange, transfer,
license (other than in the ordinary course of business), acquisition or
disposition of more than 10% of the assets of DataWorks; or (C) any liquidation
or dissolution of DataWorks. "Superior Offer" means an unsolicited, bona fide
written offer made by a third party to consummate any of the following
transactions: (i) a merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving
DataWorks pursuant to which the stockholders of DataWorks immediately preceding
such transaction hold less than 50% of the equity interest in the surviving or
resulting entity of such transaction; (ii) a sale or other disposition by
DataWorks of assets (excluding inventory and used equipment sold in the ordinary
course of business) representing in excess of 50% of the fair market value of
DataWorks business immediately prior to such sale, or (iii) the acquisition by
any person or group (including by way of a tender offer or an exchange offer or
issuance by DataWorks), directly or indirectly, of beneficial ownership or a
right to acquire beneficial ownership of shares representing in excess of 50% of
the voting power of the then outstanding shares of capital stock of DataWorks in
each case, on terms that the DataWorks Board of Directors determines, in its
reasonable judgment, after consultation with its financial advisor, to be more
favorable to the DataWorks' stockholders than the terms of the Merger; provided,
however, that any such offer shall not be deemed to be a "Superior Offer" if any
financing required to consummate the transaction contemplated by such offer is
not committed and is not likely in the judgment of the DataWorks' Board to be
obtained by such third party on a timely basis.
BREAK UP FEES
Platinum and DataWorks have agreed that if the Reorganization Agreement is
terminated by either Platinum or DataWorks, as applicable, due to (i) the
failure of the Merger to be consummated by February 28, 1999; (ii) the failure
of DataWorks to obtain the required approval of the stockholders of DataWorks
contemplated by the Reorganization Agreement by reason of the failure to obtain
the required vote at a meeting of the DataWorks stockholders duly convened
therefore or at any adjournment thereof; or (iii) a DataWorks Triggering Event
(as defined below), then DataWorks shall promptly, but in no event later than
two days after the date of such termination, pay Platinum a fee equal to $3.25
million in immediately available funds; provided, that in the case of
termination as a result of the failure of the Merger to be consummated by
February 28, 1999, such payment shall be made only if following October 13, 1998
and prior to the termination of the Reorganization Agreement, a third party has
publicly announced an Acquisition Proposal for an Acquisition Transaction and
within 12 months following the termination of the Reorganization Agreement
Platinum enters into or announces an intention to enter into a Company
Acquisition (as defined below).
Platinum and DataWorks have further agreed that if the Reorganization Agreement
is terminated by either Platinum or DataWorks, as applicable, due to (i) the
failure of Platinum to obtain the required approval of the stockholders of
Platinum contemplated by the Reorganization Agreement by reason of the failure
to obtain the required vote at a
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meeting of the Platinum stockholders duly convened therefore or at any
adjournment thereof; or (ii) a Platinum Triggering Event, then Platinum shall
promptly, but in no event later than two (2) days after the date of such
termination, pay to DataWorks a fee equal to $3.25 million in immediately
available funds.
Platinum and DataWorks have agreed that the fees described above shall not be in
lieu of damages incurred in the event of breach of the Reorganization Agreement.
Except as set forth above, Platinum and DataWorks have agreed that all fees and
expenses incurred in connection with the Reorganization Agreement and the
transactions contemplated thereby shall be paid by the party incurring such
expenses whether or not the Merger is consummated; provided, however, that
Platinum and DataWorks shall share equally all fees and expenses, other than
attorneys' and accountants fees and expenses, incurred in relation to the
printing and filing with the SEC of this Joint Proxy Statement/ Prospectus.
"Company Acquisition" shall mean any of the following transactions (other than
the transactions contemplated by the reorganization Agreement); (i) a merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving DataWorks pursuant to which the stockholders of
DataWorks immediately preceding such transaction hold less than 50% of the
aggregate equity interests in the surviving or resulting entity of such
transaction or (ii) a sale or other disposition by DataWorks of assets
(excluding inventory and used equipment sold in the ordinary course of business)
representing in excess of 50% of the aggregate fair market value of DataWorks'
business immediately prior to such sale. "DataWorks Triggering Event" shall be
deemed to have occurred if: (i) the DataWorks Board or any committee thereof
shall for any reason have withdrawn or shall have amended or modified in a
manner adverse to Platinum its unanimous recommendation in favor of, the
adoption and approval of the Reorganization Agreement or the approval of the
Merger; (ii) Platinum shall have failed to include in this Joint Proxy
Statement/Prospectus the unanimous recommendation of the DataWorks Board in
favor of the adoption and approval of the Reorganization Agreement and the
approval of the Merger; (iii) the DataWorks Board fails to reaffirm its
unanimous recommendation in favor of the adoption and approval of the
Reorganization Agreement and the approval of the Merger within ten (10) business
days after Platinum requests in writing that such recommendation be reaffirmed;
(iv) the DataWorks Board or any committee thereof shall have approved or
publicly recommended any Acquisition Proposal; or (v) a tender or exchange offer
relating to securities of DataWorks shall have been commenced by a Person
unaffiliated with Platinum and DataWorks shall not have sent to its
securityholders pursuant to Rule 14e-2 promulgated under the Securities Act,
within ten (10) business days after such tender or exchange offer is first
published sent or given, a statement disclosing that DataWorks recommends
rejection of such tender or exchange offer.
"Platinum Triggering Event" shall be deemed to have occurred if: (i) the
Platinum Board for any committee thereof shall for any reason have withdrawn or
shall have amended or modified in a manner adverse to DataWorks its unanimous
recommendation in favor of, the issuance of shares of Platinum Common Stock
pursuant to the Merger; (ii) Platinum shall have failed to include in the
Prospectus/Proxy Statement the unanimous recommendation of the Platinum Board in
favor of the issuance of shares of Platinum Common Stock pursuant to the Merger;
or (iii) the Platinum Board fails to reaffirm its unanimous
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recommendation in favor of the issuance of the shares of Platinum Common Stock
pursuant to the Merger within ten (10) business days after DataWorks requests in
writing that such recommendation be reaffirmed.
CONDITIONS TO THE MERGER
The respective obligations of each party to the Reorganization Agreement to
effect the Merger are subject to the satisfaction at or prior to the Closing
Date of the following conditions: (i) the Reorganization Agreement shall have
been approved and adopted, and the Merger shall have been duly approved, by the
requisite vote under applicable law, by the stockholders of DataWorks; (ii) the
issuance of the shares of Platinum Common Stock pursuant to the Merger shall
have been duly approved by the requisite vote under applicable Nasdaq rules by
the stockholders of Platinum; (iii) the SEC shall have declared the Registration
Statement effective and no stop order suspending the effectiveness of the
Registration Statement or any part thereof shall have been issued and no
proceeding for that purpose, and no similar proceeding in respect of this Joint
Proxy Statement/ Prospectus, shall have been initiated or threatened in writing
by the SEC; (iv) no Governmental Entity shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or permanent) which is
in effect and which has the effect of making the Merger illegal or otherwise
prohibiting consummation of the Merger and all waiting periods, if any, under
the HSR Act relating to the transactions contemplated hereby shall have expired
or terminated early and all material foreign antitrust approvals required to be
obtained prior to the Merger in connection with the transactions contemplated
hereby shall have been obtained; (v) Platinum and DataWorks shall each have
received written opinions from their respective tax counsel (Wilson Sonsini and
Cooley Godward, respectively), in form and substance reasonably satisfactory to
them, to the effect that the Merger will constitute a tax-free reorganization
within the meaning of Section 368(a) of the Code and such opinions shall not
have been withdrawn; provided, however, that if the counsel to either Platinum
or DataWorks does not render such opinion, this condition shall nonetheless be
deemed to be satisfied with respect to such party if counsel to the other party
renders such opinion to such party. The parties to the Reorganization Agreement
have agreed to make representations as requested by such counsel for the purpose
of rendering the Tax Opinions and have further agreed to confirm the accuracy
and completeness of such representations as of the Effective Time as requested
by such counsel for the purpose of rendering those opinions discussed in this
paragraph.
In addition, the obligation of DataWorks to consummate and effect the Merger is
subject to the satisfaction at or prior to the Closing Date of each of the
following conditions, any of which may be waived, in writing, exclusively by
DataWorks: (i) each representation and warranty of Platinum and Merger Sub
contained in the Reorganization Agreement shall have been true and correct as of
October 13, 1998 and as of the Closing date (subject to certain materiality
qualifications) and DataWorks shall have received a certificate with respect to
the foregoing signed on behalf of Platinum by an authorized officer of Platinum;
(ii) Platinum and Merger Sub shall have performed or complied in all material
respects with all agreements and covenants required by the Reorganization
Agreement to be performed or complied with by them on or prior to the Closing
Date, and DataWorks shall have received a certificate to such effect signed on
behalf of Platinum by an authorized
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officer of Platinum; (iii) no material adverse effect with respect to Platinum
shall have occurred since the date of the Reorganization Agreement; (iv) each of
the Platinum Affiliates shall have entered into an affiliate agreement and each
of such agreements will be in full force and effect as of the Effective Time;
and (v) the shares of Platinum Common Stock to be issued in the Merger shall
have been authorized for listing on the Nasdaq National Market, subject to
notice of issuance.
Further, the obligations of Platinum and Merger Sub to consummate and effect the
Merger are subject to the satisfaction at or prior to the Effective Time of each
of the following conditions, any of which may be waived, in writing, exclusively
by Platinum: (i) each representation and warranty of DataWorks contained in the
Reorganization Agreement shall be true and correct as of October 13, 1998 and as
of the Closing Date (subject to certain materiality qualifications) and Platinum
shall have received a certificate with respect to the foregoing signed on behalf
of DataWorks by an authorized officer of DataWorks; (ii) DataWorks shall have
performed or complied in all material respects with all agreements and covenants
required by the Reorganization Agreement to be performed or complied with by it
at or prior to the Closing Date, and Platinum shall have received a certificate
to such effect signed on behalf of DataWorks by the Chief Executive Officer and
Chief Financial Officer of DataWorks; (iii) no material adverse effect with
respect to DataWorks and its subsidiaries shall have occurred since the date of
the Reorganization Agreement; (iv) each of the DataWorks Affiliates shall have
entered into affiliate agreements and each of such agreements will be in full
force and effect as of the Effective Time and (v) all necessary actions shall
have been taken to extinguish and cancel all outstanding Rights under the
DataWorks Rights Plan or render such Rights inapplicable to the Merger and the
other transactions contemplated by the Reorganization Agreement.
TERMINATION OF THE REORGANIZATION AGREEMENT
The Reorganization Agreement provides that it may be terminated at any time
prior to the Effective Time, whether before or after the requisite approvals of
the stockholders of Platinum or DataWorks: (i) by mutual written consent duly
authorized by the Platinum and DataWorks Boards; (ii) by either DataWorks or
Platinum if the Merger shall not have been consummated by February 28, 1999 for
any reason; provided, however, that the right to terminate the Reorganization
Agreement pursuant to this right of termination shall not be available to any
party whose action or failure to act has been a principal cause of or resulted
in the failure of the Merger to occur on or before such date and such action or
failure to act constitutes a material breach of the Reorganization Agreement;
(iii) by either DataWorks or Parent if a Governmental Entity shall have issued
an order, decree or ruling or taken any other action, in any case having the
effect of permanently restraining, enjoining or otherwise prohibiting the
Merger, which order, decree, ruling or other action is final and nonappealable;
(iv) by DataWorks or Platinum if the required approval of the stockholders of
Platinum contemplated by the Reorganization Agreement shall not have been
obtained by reason of the failure to obtain the required vote at a meeting of
Platinum stockholders duly convened therefor or at any adjournment thereof;
provided, however, that the right to terminate the Reorganization Agreement
pursuant to this right of termination shall not be available to Platinum where
the failure to obtain Platinum stockholder approval shall have been caused by
the action or failure to act of Platinum and such action or failure to act
constitutes a material breach by Platinum of the Reorganization Agreement; (v)
by DataWorks or Platinum if the required approval of the stockholders of
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DataWorks contemplated by the Reorganization Agreement shall not have been
obtained by reason of the failure to obtain the required vote at a meeting of
DataWorks stockholders duly convened therefore or at any adjournment thereof;
provided, however, that the right to terminate the Reorganization Agreement
pursuant to this right of termination shall not be available to DataWorks where
the failure to obtain the DataWorks stockholder approval shall have been caused
by the action or failure to act of DataWorks and such action or failure to act
constitutes a material breach by DataWorks of the Reorganization Agreement; (vi)
by Platinum (at any time prior to the adoption and approval of the
Reorganization Agreement and the Merger by the required vote of the stockholders
of DataWorks) if a DataWorks Triggering Event shall have occurred; (vii) by
DataWorks (at any time prior to the adoption and approval of the Reorganization
Agreement and the Merger by the required vote of the stockholders of Platinum)
if a Platinum Triggering Event shall have occurred; (viii) by DataWorks, upon a
breach of any representation, warranty, covenant or agreement on the part of
Platinum set forth in the Reorganization Agreement, or if any representation or
warranty of Platinum shall have become untrue (provided that if such inaccuracy
in Platinum's representations and warranties or breach by Platinum is curable by
Platinum through the exercise of commercially reasonable efforts, then DataWorks
may not terminate the Reorganization Agreement provided Platinum continues to
exercise such commercially reasonably efforts to cure such breach); (ix) by
Platinum, upon a breach of any representation, warranty, covenant or agreement
on the part of DataWorks set forth in the Reorganization Agreement, or if any
representation or warranty of DataWorks shall have become untrue (provided that
if such inaccuracy in DataWorks' representations and warranties or breach by
DataWorks is curable by DataWorks through the exercise of commercially
reasonable efforts, then Platinum may not terminate the Reorganization Agreement
provided DataWorks continues to exercise such commercially reasonably efforts to
cure such breach).
VOTING AGREEMENTS
DataWorks Voting Agreements. Pursuant to certain agreements (each a "DataWorks
Voting Agreement" and, collectively, the "DataWorks Voting Agreements") certain
officers, directors and affiliated stockholders of DataWorks (each a "DataWorks
Voting Agreement Stockholder"), who beneficially owned an aggregate of 1,876,583
outstanding shares of DataWorks Common Stock as of the date of the
Reorganization Agreement (representing approximately 12.7% of shares of
DataWorks Common Stock as of the date of the Reorganization Agreement) have
agreed that, prior to the termination of the DataWorks Voting Agreement pursuant
to its terms, they will vote their shares of DataWorks Common Stock in favor of
the approval of the Reorganization Agreement and the Merger. The DataWorks
Voting Agreement Stockholders have also delivered to Platinum irrevocable
proxies with respect to the matters covered by the DataWorks Voting Agreements.
In addition, the DataWorks Voting Agreement Stockholders have agreed not to
transfer any securities of DataWorks owned by them, unless such transfer is in
accordance with the DataWorks Affiliate Agreement between the DataWorks Voting
Agreement Stockholder and Platinum, and provided that the proposed transferee of
such DataWorks securities shall have (i) executed a counterpart of the DataWorks
Voting Agreement and an irrevocable proxy and (ii) agreed to hold such DataWorks
securities subject to all of the terms and provisions of the DataWorks Voting
Agreement. The form
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of DataWorks Voting Agreement is attached to this Joint Proxy
Statement/Prospectus as Appendix C.
Platinum Voting Agreements. Pursuant to certain agreements (each a "Platinum
Voting Agreement" and, collectively, the "Platinum Voting Agreements") certain
officers, directors and affiliated stockholders of Platinum (each a "Platinum
Voting Agreement Stockholder"), who beneficially owned an aggregate of 5,558,116
outstanding shares of Platinum Common Stock and Platinum Series C Preferred
Stock on an as-converted to Common Stock basis as of the date of the
Reorganization Agreement (representing approximately 18.9% of the shares of
Platinum Common Stock as of the date of the Reorganization Agreement) have
agreed that, prior to the termination of the Platinum Voting Agreement pursuant
to its terms, they will vote their shares of Platinum Common Stock and Platinum
Series C Preferred Stock on an as-converted to Common Stock basis in favor of
the issuance of the shares of Platinum Common Stock to the stockholders of
DataWorks pursuant to the Reorganization Agreement. The Platinum Voting
Agreement Stockholders have also delivered to DataWorks irrevocable proxies with
respect to the matters covered by the Platinum Voting Agreements. In addition,
the Platinum Voting Agreement Stockholders have also agreed not to transfer any
securities of Platinum owned by them, unless such transfer is in accordance with
the Platinum Affiliate Agreement between the Platinum Voting Agreement
Stockholder and Platinum, and provided that the proposed transferee of such
Platinum securities shall have (i) executed a counterpart of the Platinum Voting
Agreement and an irrevocable proxy and (ii) agreed to hold such Platinum
securities subject to all of the terms and provisions of the Platinum Voting
Agreement. The form of Platinum Voting Agreement is attached to this Joint Proxy
Statement/Prospectus as Appendix B.
AFFILIATE AGREEMENTS
DataWorks Affiliate Agreements. Pursuant to certain agreements (each a
"DataWorks Affiliate Agreement"), certain officers, directors and affiliated
stockholders of DataWorks who beneficially owned an aggregate of 1,876,583
outstanding shares of DataWorks Common Stock as of the date of the
Reorganization Agreement (representing approximately 12.7% of shares of
DataWorks Common Stock as of the date of the Reorganization Agreement) (each, a
"DataWorks Affiliate") have agreed not to effect any sale, transfer or other
disposition of the Platinum Common Stock received by such DataWorks Affiliate in
the Merger unless: (i) such sale, transfer or other disposition is made in
conformity with the volume and other requirements of Rule 145 under the
Securities Act of 1933, as amended, as evidenced by a broker's letter and a
representation letter executed by the DataWorks Affiliate (reasonably
satisfactory in form and content to Platinum), each stating that such
requirements have been met; (ii) legal counsel reasonably satisfactory to
Platinum shall have advised Platinum in a written opinion letter (reasonably
satisfactory in form and content to Platinum), upon which Platinum may rely,
that such sale, transfer or other disposition will be exempt from registration
under the Securities Act; (iii) such sale, transfer or other disposition is
effected pursuant to an effective registration statement under the Securities
Act; or (iv) an authorized representative of the SEC shall rendered written
advice to such DataWorks Affiliate to the effect that the SEC would take no
action, or that the staff of the SEC would not recommend that the SEC take
action, with respect to such proposed sale, transfer or other disposition, and a
copy of such written advice and all other related communications with the SEC
shall have been delivered to Platinum. The
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Limited Waiver executed by Platinum and DataWorks in connection with the
Amendment canceled certain sections of the DataWorks Affiliate Agreements
designed to preserve Platinum's ability to account for the Merger as a pooling
of interests.
The form of DataWorks Affiliate Agreement and the Limited Waiver are attached to
this Joint Proxy Statement/Prospectus as Appendices D and A-2, respectively.
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UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial statements give
effect to the acquisition by Platinum of all the outstanding shares of DataWorks
in a transaction accounted for as a purchase business combination.
The unaudited pro forma condensed combined financial information is based on the
consolidated financial statements of Platinum giving effect to the Merger under
the assumptions and adjustments outlined in the accompanying notes to unaudited
pro forma condensed combined balance sheet and statement of operations. Such pro
forma adjustments are based upon available information and upon certain
assumptions that Platinum's management believes are reasonable under the
circumstances. These pro forma financial statements are presented for
illustrative purposes only and therefore are not necessarily indicative of the
operating results or financial position that might have been achieved had the
Merger occurred as of an earlier date, nor are they necessarily indicative of
operating results or financial position which may occur in the future.
The pro forma condensed combined balance sheet is provided as of September 30,
1998, giving effect to the Merger as though it had been consummated on that
date. Pro forma combined condensed statements of operations are provided for the
three-month period ended September 30, 1998 and the fiscal year ended June 30,
1998, giving effect to the Merger as though it had occurred at the beginning of
the earliest period presented.
Platinum's condensed financial information included in these pro forma financial
statements is derived from its June 30, 1998 audited consolidated financial
statements, and its September 30, 1998 unaudited condensed consolidated
financial statements, incorporated herein by reference. DataWorks' condensed
financial information included in these pro forma financial statements was
derived from its historical financial statements which are based on a fiscal
year ending December 31. Accordingly, the results of operations for DataWorks
included in the unaudited pro forma condensed combined statements of operations
for the year ended June 30, 1998 and the three month period ended September 30,
1998 were derived from its audited consolidated financial statements for the
year ended December 31, 1997 and its unaudited consolidated financial statements
for the nine months ended September 30, 1998, included elsewhere herein, and its
unaudited financial statements for the six months ended June 30, 1998 not
included herein.
Platinum's unaudited condensed consolidated financial statements as of and for
the three-month period ended September 30, 1998, and DataWorks' unaudited
condensed consolidated financial statements as of and for the nine months ended
September 30, 1998 have been prepared in accordance with generally accepted
accounting principles applicable to interim financial information and, in the
opinions of Platinum's and DataWorks' respective managements, include all
adjustments necessary for a fair presentation of financial information for such
interim periods.
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PLATINUM SOFTWARE CORPORATION AND DATAWORKS CORPORATION
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
PLATINUM DATAWORKS ADJUSTMENTS NOTES COMBINED
--------- --------- ----------- ----- ---------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents......... $ 6,640 $ 23,785 $ 30,425
Short-term investments............ 12,553 9,897 22,450
Accounts receivable, net.......... 27,702 56,635 84,337
Other current assets.............. 6,842 12,267 $ (1,583) 2 17,151
(375) 3
--------- -------- -------- --------
Total current assets................ 53,737 102,584 (1,958) 154,363
Equipment, furniture and fixtures,
net............................... 9,335 11,077 (3,800) 4 16,612
Capitalized software costs, net..... 3,753 9,287 (7,888) 4 5,152
Intangible assets, net.............. 192 10,977 9,935 4 21,104
Other assets........................ 1,473 3,921 (667) 4 4,727
========= ======== ======== ========
Total assets........................ $ 68,490 $137,846 $ (4,378) $201,958
========= ======== ======== ========
Current liabilities:
Accounts payable.................. $ 3,862 $ 11,569 $ 15,431
Other accrued liabilities......... 8,185 13,218 $ 1,415 1 34,818
7,000 2
4,000 5
1,000 6
Deferred revenue.................. 15,474 15,192 30,666
Current portion of long-term
liabilities.................... -- 893 893
--------- -------- -------- --------
Total current liabilities........... 27,521 40,872 13,415 81,808
Long-term liabilities............... 26 2,381 2,407
Shareholders' equity:
Preferred stock................... 7,501 7,501
Common stock...................... 28 87,661 (87,661) 1 40
12 1
Additional paid-in capital........ 148,631 84,288 1 232,919
Less: notes receivable from
officers....................... (11,563) (11,563)
Retained earnings................. (103,029) 6,296 (6,296) 1 (110,529)
(7,500) 4
Cumulative foreign currency
translation adjs............... (625) 636 (636) 1 (625)
--------- -------- -------- --------
Total shareholders' equity.......... 40,943 94,593 (17,793) 117,743
========= ======== ======== ========
Total liabilities and shareholders'
equity............................ $ 68,490 $137,846 $ (4,378) $201,958
========= ======== ======== ========
</TABLE>
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PLATINUM SOFTWARE CORPORATION AND DATAWORKS CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
PLATINUM DATAWORKS ADJUSTMENTS NOTES COMBINED
-------- --------- ----------- ----- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses................... $57,577 $ 84,657 $142,234
Maintenance & other services........ 40,406 70,331 110,737
Hardware............................ -- 11,140 11,140
Royalty income...................... 505 505
------- -------- ------- --------
Total revenues.............. 98,488 166,128 -- 264,616
Cost of revenues:
Software licenses................... 5,990 10,186 16,176
Maintenance & other services........ 23,971 51,475 75,446
Hardware............................ -- 8,563 8,563
------- -------- ------- --------
Total cost of revenues...... 29,961 70,224 -- 100,185
------- -------- ------- --------
Gross profit.......................... 68,527 95,904 -- 164,431
Operating expenses:
Sales and marketing................. 38,177 45,165 83,342
Research and development............ 11,724 12,290 24,014
General and administrative.......... 7,145 21,310 $ 1,987 7 29,682
(760) 8
Acquisition and related costs....... -- 15,565 15,565
------- -------- ------- --------
Total operating expenses.... 57,046 94,330 1,227 152,603
Income from operations................ 11,481 1,574 (1,227) 11,828
Other income (expense), net........... 1,866 1,457 3,323
------- -------- ------- --------
Income before income taxes............ 13,347 3,031 (1,227) 15,151
Provision for income taxes............ -- 3,242 (491) 9 2,751
------- -------- ------- --------
Net income............................ $13,347 $ (211) $ (736) $ 12,400
======= ======== ======= ========
Income (loss) per common
share -- basic...................... $ 0.56 $ (0.02) $ 0.35
Weighted average common shares........ 23,956 14,062 35,456
Income (loss) per common share --
diluted............................. $ 0.45 $ (0.02) $ 0.30
Weighted average common shares,
assuming dilution................... 29,716 14,062 41,392
</TABLE>
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<PAGE> 87
PLATINUM SOFTWARE CORPORATION AND DATAWORKS CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
QUARTER ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
PLATINUM DATAWORKS ADJUSTMENTS NOTES COMBINED
-------- --------- ----------- ----- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses................... $16,177 $18,550 $34,727
Maintenance & other services........ 14,039 22,865 36,904
Hardware............................ -- 1,790 1,790
Royalty income...................... 113 -- 113
------- ------- ----- -------
Total revenues.............. 30,329 43,205 -- 73,534
Cost of revenues:
Software licenses................... 2,795 2,295 5,090
Maintenance & other services........ 7,271 16,819 24,090
Hardware............................ -- 1,434 1,434
------- ------- ----- -------
Total cost of revenues...... 10,066 20,548 -- 30,614
------- ------- ----- -------
Gross profit.......................... 20,263 22,657 -- 42,920
Operating expenses:
Sales and marketing................. 10,953 12,881 23,834
Research and development............ 2,797 3,687 6,484
General and administrative.......... 1,936 5,913 $ 497 7 8,156
(190) 8
Acquisition and related costs....... -- 527 527
------- ------- ----- -------
Total operating expenses.... 15,686 23,008 307 39,001
Income from operations................ 4,577 (351) (307) 3,919
Other income (expense), net........... 298 240 538
------- ------- ----- -------
Income before income taxes............ 4,875 (111) (307) 4,457
Provision for income taxes............ 180 (40) (123) 9 17
------- ------- ----- -------
Net income............................ $ 4,695 $ (71) $(184) $ 4,440
======= ======= ===== =======
Income per common share -- basic...... $ 0.17 $ 0.00 $ 0.11
Weighted average common shares........ 28,330 14,402 39,830
Income per common share -- diluted.... $ 0.16 $ 0.00 $ 0.11
Weighted average common shares,
assuming dilution................... 30,009 14,402 41,681
</TABLE>
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NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
1. To record the issuance of 11.5 million shares of Platinum Common Stock in
exchange for all outstanding shares of DataWorks, including the elimination of
DataWorks' historical equity accounts. The total purchase price was determined
as follows:
<TABLE>
<S> <C>
Value of Platinum Common Stock............................ $81,800
Other direct acquisition expenses......................... 2,500
-------
$84,300
=======
</TABLE>
The valuation of the Platinum Common Stock is based on its weighted average
closing price three days prior to and three days following the announcement of
the Merger.
In addition, DataWorks expects to incur approximately $1,415 in expenses to
consummate the Merger.
2. To write-off prepaid royalties and establish reserves related to the
termination of certain contractual arrangements between DataWorks and third
parties under which DataWorks had agreed to sell third party software in
connection with sales of DataWorks products.
3. To write-off DataWorks marketing literature and inventories that will be
rendered obsolete by the Merger.
4. To write-off $7,888 of capitalized software for in-process projects that will
be discontinued upon consummation of the merger and to adjust the carrying value
of DataWorks fixed assets, intangibles and other assets to fair value.
Additionally, Platinum expects to allocate approximately $7,500 of the purchase
price to the estimated value of DataWorks' in-process research and development,
which will be immediately expensed upon consummation of the Merger. The
estimated amounts are subject to adjustment based on completion of independent
appraisals.
In the fourth calendar quarter of 1998, DataWorks expects to record
non-recurring expenses of approximately $4,000. As a result, Platinum expects
amounts assigned to intangible assets in the purchase price allocation, and
pre-tax annual and quarterly amortization thereof, to increase by $4,000, $800,
and $200, respectively, from amounts reflected in the accompanying pro forma
condensed combined balance sheet and statements of income.
5. To record estimated costs of severing and relocating DataWorks employees, and
office consolidations associated with the Merger. In addition, Platinum expects
to incur approximately $2,000 of costs associated with severing its employees.
Such amounts will be recorded in operations in the period that such costs are
incurred, and are not reflected in the accompanying pro forma financial
information.
6. To record estimated cost to settle customer disputes related to the
discontinuance of certain DataWorks development projects.
7. To record additional amortization expense related to increase in intangible
assets. Such amounts are expected to be amortized over a period of five years.
8. To adjust depreciation of fixed assets resulting from its adjustment to fair
value.
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<PAGE> 89
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION (CONTINUED)
(DOLLARS IN THOUSANDS)
9. To record the tax benefit associated with the net increase in depreciation
and amortization. Platinum currently has recorded a $46,495 valuation allowance
on its net deferred tax assets, the majority of which pertains to net operating
loss carryforwards, while DataWorks has paid taxes of approximately $4,000 in
the past two years. No benefit has been recognized in the accompanying pro forma
condensed combined balance sheet for the net deferred tax asset expected to be
generated as a result of the acquisition. Any deferred tax assets that may be
recognized upon consummation of the merger, would result in a corresponding
reduction in the amount of the purchase price allocated to intangible assets.
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<PAGE> 90
DATAWORKS BUSINESS
OVERVIEW
DataWorks develops, markets, implements and supports open systems,
client/server-based ERP software for mid-range discrete manufacturing companies
with annual revenues between $3 million and $1 billion. DataWorks' products and
services facilitate enterprise-wide management of resources and information and
allow mid-range manufacturers to reduce order fulfillment cycle times, improve
operating efficiencies and measure critical company performance against defined
plan objectives. DataWorks' products enable its customers to manage
make-to-stock and make-to-order production methods, as well as multiple hybrid
or "mixed mode" production methods, within a single manufacturing site or across
multiple sites. DataWorks' products also help customers adapt to growth,
changing levels of operations, and business process re-engineering, which is
becoming commonplace among manufacturing concerns.
The business needs and resource requirements of mid-range manufacturers tend to
be considerably different than those of larger companies. Companies in this
market typically have small information systems ("IS") departments, budget
constraints and limited experience with the advanced technologies inherent in
ERP systems. DataWorks segments the mid-range manufacturing market into three
distinct sectors: the lower tier segment (companies with annual revenues of $3
million to $25 million), the mid-tier segment ($25 million to $200 million) and
the upper tier segment ($200 million to $1 billion). DataWorks' family of ERP
solutions is designed to provide a product migration path to address the
changing needs of growing companies in the mid-range manufacturing market.
DataWorks' principal product is Avante, an open system client/server-based
product family that is targeted at mid-tier manufacturers. Version 8.3 of the
Avante product, released in October 1998, combines functionality from DataWorks
prior systems. DataWorks broadened its product line in 1996 to serve the lower
tier segment of the mid-range market with Vista and Vantage. Vista and Vantage
are easy-to-use Windows-based products, which DataWorks acquired through its
acquisition of DCD Corporation ("DCD"). DataWorks also has under development its
Impresa for Backoffice system (previously referred to as ECS), an object
oriented, multi-tier client/server-based product that is designed for the upper
tier segment of the mid-range market. To address primarily the unique
requirements of the aerospace and defense contractors in the mid-range market,
especially those with maintenance, repair and overhaul ("MRO") functionality
needs, DataWorks has significantly enhanced its commitment to this sector with
the availability of Impresa for MRO (previously called JIT and obtained by
DataWorks in its acquisition of Interactive). Impresa for MRO is a product built
on a total Oracle technology framework.
DataWorks has designed its product family to be affordable and to incorporate a
broad range of applications, depth of functionality, ease of use and an ability
to be rapidly and economically deployed. The Company's products are comprised of
modules that provide and integrate feature-rich applications. DataWorks can
configure these modules to comprehensively support a customer's business.
DataWorks provides turnkey solutions by integrating its application software
products with third party hardware, operating systems, databases and other
software products. DataWorks offers a suite of development tools and a full
complement of services to help its customers maximize the benefits of DataWorks'
software products and efficiently implement DataWorks' ERP solutions. These
services
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include initial system implementation, consultation, customer support desk and
maintenance activities, technical and programming services, and periodic
enhancement releases of software products.
In September 1997, DataWorks acquired Interactive Group, Inc. ("Interactive") in
a stock-for-stock transaction that was accounted for as a pooling of interests.
The financial results of DataWorks contained in this Joint Proxy
Statement/Prospectus include the financial results of Interactive. DataWorks
believes its acquisition of Interactive offers major advantages in three key
areas -- significantly enhanced international operations, including
international channels, six offices in Europe as well as a substantial
distributor in Germany; more comprehensive mid-tier product offerings; and
substantial critical mass which makes DataWorks one of the largest mid-range ERP
providers in the world. Prior to and after its acquisition of Interactive,
DataWorks completed a number of other strategic acquisitions and other strategic
transactions, including its acquisitions of C-Way Systems, Inc. and CTi Software
B.V.
INDUSTRY BACKGROUND
Manufacturers worldwide are attempting to re-engineer their businesses as they
react to increasing global competitive pressures, demanding vendor-customer
relationships and rapidly changing market requirements. In implementing these
re-engineering efforts, manufacturing companies in the mid-range sector are
increasingly orienting their operations to respond to customer needs by
shortening product development and delivery cycles, enhancing product quality
and providing products configured to meet customer requirements. To achieve
these objectives, manufacturers must increase the efficiency of their
operations, within the limits of budgetary constraints, by increasing the
productivity of personnel and the efficient management of assets throughout
their enterprises. Manufacturing companies also require the flexibility to
modify and expand operations in response to market demand. All of these factors
contribute to the need for information systems that offer enterprise-wide
availability and integrated use of a broad range of accurate and current
information that enables manufacturers to respond more quickly to their
customers and to manage their organizations more efficiently. The IS needs of
manufacturers depend to some degree on the nature of their manufacturing
processes, which may include make-to-stock, in which parts are assembled into
finished products based on a standard bill order; make-to-order, in which parts
are assembled into a finished product based on unique customer specifications;
and configure-to-order, in which the final assembly of parts can be configured
to create many different model and style variations based on customer orders.
Firms using configure-to-order production methods are referred to as one form of
mixed mode manufacturers because they assemble products using elements of both
make-to-stock and make-to-order. Mixed mode manufacturing can create significant
market advantages for companies embracing this latest production process
approach but it is extremely difficult to realize economic gains without
responsive information systems.
Since the early 1970s, there has been a steady evolution of manufacturing
software systems available from third party software developers or developed
internally by the manufacturers themselves. Initially, developers introduced
Material Requirements Planning ("MRP") systems to allow manufacturers to manage
the flow of materials at various stages of the manufacturing process. In the
1980s, a more expansive Manufacturing Resource Planning ("MRP II") superseded
the original MRP systems. The MRP II approach incorporates labor and equipment
capacity planning for the production process as part of a materials
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planning methodology. More recently, in response to the evolving needs of
manufacturing companies, there has been a significant shift away from the
traditional MRP II planning-oriented systems in favor of more comprehensive ERP
systems. These ERP systems provide actual enterprise-wide management of
resources, integration of more sophisticated forecasting and reporting models
and the capability to measure quality levels and delivery cycle responsiveness.
ERP systems based on open systems, client/server platforms offer further
advantages to manufacturers by providing access to information throughout the
manufacturing enterprise on a timely basis, providing a wider distribution of
applications and databases and permitting the integration of a diverse array of
new software components and technologies as they become available. Effectively
designed ERP systems are also scalable to permit deployment of localized
information systems resources within departments and individual business units
or across an enterprise, as well as to provide adequate support for
organizational growth.
Despite its virtues, open systems, client/server-oriented ERP solutions have not
historically been readily available to manufacturers in the mid-range sector.
There are several key contributing factors that have traditionally precluded
mid-size companies from reaping the full benefits of the new technologies. In
complex, diverse manufacturing environments, many ERP systems require a
significant IS staff, either internal to the organization or contracted at
substantial expense from outside the company, and a high level of expertise to
establish the proper design and configuration of a client/server system that
meets a company's specific needs. Implementation of these systems has often been
lengthy and costly. In addition, large global ERP suppliers have continued to
price their products beyond the financial capabilities of the typical mid-size
firm.
In order to achieve their business process re-engineering ("BPR") objectives,
mid-range manufacturers need the benefits of open systems, client/server ERP
solutions that are affordable and can be quickly implemented with minimal
disruption to business and maintained with a limited IS staff. These ERP systems
must also provide sufficient depth of functionality and flexibility to enable
manufacturers to respond to varying customer needs and offer scalability for
growth in operations. The demand for a new generation of turnkey ERP solutions
that address the needs of the mid-range manufacturing market is significant and
growing.
Large (multi-billion dollar) manufacturing enterprises increasingly are seeking
the efficiencies and competitive advantages of electronically tying together in
a supply chain sources of raw materials, component products, and certain
outsourced manufacturing processes. Many of the "feeder" suppliers of these
products and services to the large manufacturing enterprise are companies in the
mid-range manufacturing market. These mid-range companies require systems to
address their market diversity, scalability, and localized information systems
requirements along with committed ERP vendor development resources, to
electronically link these systems into a wide area network for electronic supply
chain management.
THE DATAWORKS SOLUTION
DataWorks offers open, client/server-based ERP software systems that enable
discrete manufacturing companies to re-engineer their businesses to compete more
effectively, while responding to the specific needs and limitations of the
mid-range market. DataWorks has designed its current and planned products to
meet the ERP needs of all tiers of mid-range manufacturing companies. As
companies in the lower and mid-tiers grow, their
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enterprise-wide management requirements change, and DataWorks provides an
efficient migration path to more complex ERP solutions. DataWorks believes that
mid-sized manufacturers in its targeted industry segments represent a
significantly higher growth sector than the general manufacturing community at
large. The principal elements of DataWorks' ERP solutions are as follows:
OPEN SYSTEMS AND ADVANCED RDBMS ARCHITECTURE
DataWorks' family of products addresses the dynamic environment faced by
mid-sized manufacturers through a commitment to open systems architecture.
DataWorks' software products operate on most major client/server hardware
platforms and operating systems, including Microsoft NT and UNIX, wide area
networks ("WANs"), local area networks ("LANs") and prominent user interfaces,
including Microsoft Windows, Apple Macintosh and ASCII. DataWorks uses advanced
relational database management systems ("RDBMS") that are best suited for the
particular application required by mid-range manufacturers, including Ardent
Software, Inc., (formerly UniData, Inc. and VMark Software, Inc.), Microsoft
Foxpro and Progress Software Corporation ("Progress").
BREADTH AND DEPTH OF PRODUCTS AND APPLICATIONS
DataWorks' products are intended to address the application needs of customers
throughout the mid-range market. By utilizing certain core technologies
throughout its product line, DataWorks enables a customer to migrate from
product to product to address the changing needs of the customer's enterprise.
DataWorks' products are comprised of modules that provide and integrate
feature-rich applications in the areas of (i) Business Planning and Engineering,
(ii) Sales, Distribution and Customer Service, (iii) Production and Material
Operations and (iv) Finance and Administration. Periodically, DataWorks
introduces new application modules that are compatible with the current in-field
software release. In addition, DataWorks' development and implementation support
tools provide an interface to an increasing number of third party application
products that can be seamlessly integrated into DataWorks' ERP products through
application programming interface ("API") technology.
RAPID DEPLOYMENT
By offering rapid product deployment and migration among its product lines,
DataWorks seeks to minimize the business interruption to companies that
typically results from the introduction of a new or expanded ERP system, thereby
enabling such companies to more quickly realize the benefits of a new or
expanded ERP system. DataWorks utilizes a highly responsive implementation
planning process and focused consulting and training services to design ERP
solutions that are "right sized" to satisfy its customers' needs for
functionality and rapid deployment while remaining within the varied but
generally limited budgets of such customers. For example, by utilizing these
deployment tools and procedures, DataWorks is able to complete the
enterprise-wide deployment of Avante in three to nine months. Vista, DataWorks'
least expensive ERP system, is virtually self-installable through self-contained
tutorials and training tools familiar to most personal computer users. Vantage
can be deployed within three to six months. DataWorks anticipates deployment of
the Impresa for Backoffice system will take significantly longer than that of
Avante, but DataWorks is designing Impresa for Backoffice so that it can be
effectively accomplished without significantly disrupting the customer's
operations.
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FLEXIBILITY/ADAPTABILITY/SCALABILITY
A critical element to achieving initial user acceptance of a new system and
facilitating rapid implementation is the ability to adapt DataWorks' standard
software to conform more closely to the particular needs of users. DataWorks'
products permit ready adaptation of its systems to meet initial needs during the
implementation phase and respond to a customer's unique system refinements and
ongoing changes in production and operational processes once the system is fully
in service. DataWorks' customers can start with a small number of local
concurrent users and expand to many hundreds of concurrent users across LANs and
WANs over several years utilizing the same ERP solution from DataWorks. In
addition to accommodating new modules and potential significant growth of users
without sacrificing performance, the scalability of DataWorks' ERP solutions and
the ability to migrate within DataWorks' product family allow mid-range
manufacturers to change levels of operations and expand application
functionality to accommodate growth.
SUPERIOR PRICE/PERFORMANCE
DataWorks seeks to achieve superior price and performance by providing its
mid-range manufacturing customers with the "right sized" system and associated
functionality to meet their ERP needs while satisfying their budgetary
constraints. DataWorks' ERP systems emphasize standard application modules that
require minimum customization, advanced yet cost-effective RDBMS and other
technologies and highly user-oriented fourth generation language ("4GL")
development environments. Furthermore, DataWorks has standardized the
implementation process and supported it with DataWorks' proprietary software
tools, resulting in cost effective and rapid initial deployment of its ERP
products.
THE DATAWORKS STRATEGY
DataWorks' objective is to be the leading provider of business information
solutions and related products and services to mid-range manufacturers within
selected markets. DataWorks' strategy to achieve this objective incorporates the
following elements:
PROVIDE COMPLETE SOLUTIONS AND PRODUCT MIGRATION PATH
DataWorks offers products in each tier of the mid-range manufacturing market to
address a broad range of customer needs and provide a product migration path to
address the changing needs of growing companies. DataWorks offers products for
both make-to-order and repetitive manufacturers, and seeks to support new
manufacturing processes such as demand-flow production and agile manufacturing.
DataWorks complements its product offerings with a full suite of implementation
and consulting services, education, training and software tools to assist
customers in deriving the maximum benefit from DataWorks' products. By providing
comprehensive solutions, DataWorks is able to work more closely with customers,
sell additional modules or products, and provide additional support services in
an ongoing course of business.
FOCUSED MARKET STRATEGY
DataWorks targets mid-range manufacturing companies with annual revenues between
$3 million and $1 billion and historically has focused its efforts on discrete,
rather than process, manufacturers. In the mid-tier of the mid-range market,
sales of DataWorks' Avante product solutions have targeted eight primary "highly
engineered product"
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manufacturing sectors: industrial equipment; computer/office equipment; consumer
electronics; instrumentation and controls; medical/dental products;
transportation/aerospace products; capital equipment; and contract manufactures.
This approach has enabled DataWorks to better understand the needs of its
customers and to use that knowledge to tailor products and services to those
needs. DataWorks plans to continue to rely on its experience and reputation in
these select markets to enhance its competitive position. DataWorks intends to
leverage its expertise in these eight sectors to market and sell its Impresa for
Backoffice system currently under development to customers in the upper tier of
the mid-range market. DataWorks further plans to leverage its expertise to
enhance sales of its Vista and Vantage products, which are currently focused on
a wide range of manufacturers in the lower tier, to emerging growth oriented
discrete manufacturers in those eight primary manufacturing sectors.
MAINTAIN TECHNOLOGY LEADERSHIP
DataWorks believes it is a technology leader in the mid-range manufacturing
market, as it was one of the first companies to offer ERP client/server
solutions for mid-range manufacturers and to introduce full ERP solutions on
Microsoft NT. DataWorks has designed its products to utilize the most effective
open systems technologies such as client/server architectures, RDBMS, graphical
user interfaces ("GUI") and Workflow tools for the mid-range market. DataWorks
incorporates common technology across its product line in order to leverage its
development resources and ensure compatibility among products. DataWorks seeks
to develop new modules and incorporate new functionality into its products such
as Internet integration, business objects, decision support, manufacturing
execution systems ("MES") support, and Object EDI, a cross-product universal
transaction processing protocol.
ACHIEVE HIGH LEVELS OF CUSTOMER SATISFACTION
DataWorks is committed to consistently achieving high levels of customer
satisfaction with its ERP systems. DataWorks focuses on delivering high-quality
products that address specific application needs, are easy to implement and
enable increased productivity. DataWorks also designs its applications and
development tools to permit end-users to easily customize systems to fit their
specific needs, which enhances end-user productivity and overall satisfaction
with the DataWorks' products and services.
COMPREHENSIVE SALES AND MARKETING PROCESS
DataWorks has developed a sophisticated sales and marketing system designed to
enhance its new customer success rate. DataWorks utilizes a multi-phased sales
approach consisting of telemarketing sales for initial qualification, account
representatives, systems engineers and the active involvement of senior
management. DataWorks' prospecting system enables account representatives to
appropriately qualify prospective customers and track active prospects in
significant detail through three stages of sales cycle management. The
prospecting system also provides valuable management information to measure
performance of its sales force and monitor ongoing sales efforts. DataWorks
intends to leverage its sophisticated sales and marketing system to increase
DataWorks' presence in the lower-tier and international markets in an effort to
enhance sales and increase new customer success rates. DataWorks believes its
sales processes and prospect management system provide it with a significant
competitive advantage.
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PRODUCTS
The business needs and resource requirements of mid-sized manufacturers tend to
be considerably different than those of larger companies. Customers in this
market generally have small IS departments, budget constraints and limited
experience with the advanced technologies inherent in ERP systems. DataWorks has
designed its product family to be affordable and to incorporate a broad range of
applications, depth of functionality, ease of use and an ability to be deployed
rapidly. DataWorks has products or is developing products with features intended
to address the particular needs of each of the lower tier, mid-tier and upper
tier segments of the mid-range market.
The following chart describes DataWorks' principal existing and planned ERP
solutions and typical customer profiles relating to each of them:
<TABLE>
<CAPTION>
LOWER TIER SEGMENT MID-TIER SEGMENT UPPER TIER SEGMENT
------------------- -------------------- -------------------------
VISTA IMPRESA FOR MRO
PRODUCTS VANTAGE AVANTE IMPRESA FOR BACKOFFICE(1)
- ------------------------------------- ------------------- -------------------- -------------------------
<S> <C> <C> <C>
Customer Revenues.................... $3 - $25 million $25 - $200 million $200 million - $1 billion
Type of Manufacturing Operations..... Entry level Make to order MRO Functionality
Basic job shop/ Mixed mode Multi-plant/Global
Make-to-order Repetitive supply chain/
Distributed system
IS Infrastructure.................... Minimal Limited Significant
Price Range.......................... $10,000 - $150,000 $125,000 - $750,000 $500,000 - $3 million(1)
Deployment Period.................... 1 - 4 months 3 - 9 months (1)
</TABLE>
- -------------------------
(1) Impresa for Backoffice is currently under development. We cannot assure you
that DataWorks will commence commercial shipments on a timely basis, or at
all, or if timely shipped, that the Impresa for Backoffice system will
achieve market acceptance. As Impresa for Backoffice is currently under
development, data on average deployment period and sales cycle is
unavailable and the indicated price range is estimated. See
"Business -- Products -- Upper Tier: Impresa for Backoffice."
LOWER TIER: VISTA AND VANTAGE
DataWorks offers Vista and Vantage for its customers with annual revenues
typically between $3 million and $25 million. These products are better suited
for the lower tier segment of mid-range manufacturers who, as compared to
customers who use Avante, have less developed IS infrastructures and lower IS
budgets, require shorter deployment periods, and often seek established,
user-friendly products.
Vista is an easy-to-use, Windows-based ERP software package that provides a
cost-effective solution for job shops with up to $5 million in revenues. Vista
fully integrates 15 core business modules and features single level bills of
material capabilities. Vista incorporates the DesignWare feature which permits
users to, among other things, define their own screens, add fields, change
colors, hide fields, change grid sizes and drag choices from menus to the
desktop.
Vantage is an easy-to-use, Windows-based ERP software package with flexible
order-handling capabilities to support a mix of custom and standard part orders
and multilevel assemblies and comprises 18 fully integrated business modules.
Vantage is optimized for the rapid deployment, minimal support and
price/performance requirements of custom and mixed-mode manufacturers in the $5
million to $25 million revenue range.
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Vista and Vantage, like Avante, are comprised of groups of modules that can be
differently configured to comprehensively support a customer's business
processes. The following chart describes the Vista and Vantage modules, and the
discussion below points out certain key characteristics of the Vista and Vantage
modules:
VISTA AND VANTAGE APPLICATION MODULE GROUPS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
BUSINESS PLANNING SALES, DISTRIBUTION PRODUCTION AND MATERIAL FINANCE AND
AND ENGINEERING AND CUSTOMER SERVICE OPERATIONS ADMINISTRATION
- ------------------------ ------------------------ ------------------------ ------------------------
<S> <C> <C> <C>
Bills of Material Estimating Inventory Management Accounts Payable
Scheduling Order Entry Job Control Accounts Receivable
Shop Vision Quoting Purchasing/Receiving General Ledger
Global Finite EDI Shop Floor Data Payroll
Rescheduling
Shipping/Receiving Collection Report Writer
Purchasing RFQ
Document Management
</TABLE>
Business Planning and Engineering Group. In Vista and Vantage, the Business
Planning and Engineering module allows the production manager to control the
sales and shop priorities through a visual scheduling manager. Indented bills of
material support provide the ability to retain product information for repeat
orders, and "what if" scheduling provides the ability to simulate the impact of
new orders and schedule changes.
Sales, Distribution and Customer Service Group. Estimating, quoting and sales
order processing are tightly integrated in the products, supporting the
requirement for rapid cost estimating and order commitment. Order-to-job linking
provides rapid access to production status and delivery information. EDI
applications allow for electronic distribution of sales orders, change orders
and invoices.
Production and Material Operations Group. Priorities established in scheduling
are realized in manufacturing job processing. These controls present real-time
status reporting based on data collection inputs and provide just-in-time
material purchasing and availability. Visual job "wizards" and document
management allow paperless management and instant graphical review of job
history, job status and inventory.
Finance and Administration Group. Vista's and Vantage's Finance and
Administration Group enables associated product costs and revenues to be
recorded to the General Ledger module as subsidiary ledgers of the Accounts
Payable, Accounts Receivable, Payroll and Shop Floor Data Collection modules.
DataWorks bases its prices for Vista and Vantage applications on the specific
product line, the modules purchased and the number of concurrent users. The
average sales price of Vista is $12,000, and the average sales price of Vantage
is $65,000. As of September 30, 1998, DataWorks licensed these two products,
cumulatively, to more than 1,500 customers.
MID-TIER: AVANTE
DataWorks historically has focused its marketing, product development and
services resources on "highly engineered product" companies with annual revenues
typically between $25 million and $200 million in eight principal industries:
industrial equipment; computer/office equipment; consumer electronics;
instrumentation and controls; medical/dental products; transportation/aerospace
products; capital equipment; and contract manufacturers. Avante provides three
principal application software suites that
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address the needs of its customers in this mid-tier. One of Avante's application
suites is directed toward manufacturers generally making high-volume products,
often utilizing repetitive/just-in-time techniques, that are either
make-to-stock or configure-to-order, and which may have some smaller
make-to-order requirements. In a second application suite, Avante supports
customers who have mixed-mode manufacturing techniques. Avante's third
application suite is oriented toward make-to-order or engineer-to-order
manufacturers that typically have diverse project management and project costing
requirements, as well as a smaller element of make-to-stock requirements. Avante
includes application components developed internally by DataWorks and some
acquired with the acquisitions of Madic-Compufact Corporation ("MCC") in June
1994 and Interactive in September 1997.
The Avante system is comprised of groups of modules that comprehensively support
a manufacturing company's business process. These modules provide and integrate
feature-rich applications, are built upon a common set of design and development
standards and tools, and share a common database architecture. Avante is highly
modular in nature and can be scaled from small to large configurations on a
variety of platforms supporting the Microsoft NT and UNIX operating systems.
This enterprise-wide system can be implemented in a variety of multi-currency,
multi-company and multi-plant environments networked through client and
host-based configurations.
The following chart describes the Avante modules, and the discussion below
points out certain key characteristics of Avante modules:
AVANTE APPLICATION MODULE GROUPS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
BUSINESS PLANNING AND SALES, DISTRIBUTION AND PRODUCTION AND FINANCE AND
ENGINEERING CUSTOMER SERVICE MATERIAL OPERATIONS ADMINISTRATION
- ------------------------ ------------------------ ------------------------ ------------------------
<S> <C> <C> <C>
Capacity Customer Service Inventory Management Accounts Payable
Requirements Planning Electronic Data Lot/Serial Control Accounts Receivable
Engineering Change Interchange MES Budgeting
Control Estimating Multi-Plant Control Cost Accounting
Forecasting Field Service Production Activity Currency and VAT
Master Production Quoting Management Executive
Scheduling Sales Order Project Management Information System
Material Requirements Shipping/Returned Purchasing/Receiving Fixed Assets
Planning Material Quality Control General Ledger
Product Configurator Repetitive Manufacturing Payroll
Product Definition Shop Floor Data Personnel
Collection
Work Order Control
</TABLE>
Business Planning and Engineering Group. The Business Planning and Engineering
Group enables manufacturing companies to create high-level business plans from
current and historical sales, production and purchasing data. Manufacturing
companies use these plans to generate specific product and product family
forecasts, as well as capacity models that flow into final and sub-assembly
manufacturing, scheduling and purchase plans. Engineering and configuration
management define material and routing structures to planning and production and
provide visibility to anticipate and coordinate product changes.
Sales, Distribution and Customer Service Group. The Sales, Distribution and
Customer Service Group allows a manufacturer to estimate, quote and take orders
for standard, configured and custom, "one-of-a-kind" products. The sales made
are integrated with the Business Planning and Engineering modules providing
actual versus plan reporting.
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Shipments, order status and invoicing can be transmitted directly to the
customer via electronic data interchange ("EDI"). Return material, field service
and Help Desk applications are available on line to customer service providing
detail service analysis and call tracking.
Production and Material Operations Group. The Production and Material Operations
Group provides a means to record, track and measure production, material, labor,
quality and cost flows throughout the manufacturing and purchasing processes.
Inventory tracking is provided by company, plant, warehouse and location with
full traceability. Traditional work order, as well as rate and cell-based
just-in-time production is supported and fully integrated with detailed shop
floor and quality control reporting. The Production and Material Operations
Group provides blanket and contract orders, EDI and detailed supplier analysis
reporting in the purchasing application.
Finance and Administration Group. The Finance and Administration Group flows
from the operational modules included in the groups described above. This group
captures all associated costs and revenues to the General Ledger module as
subsidiary ledgers of the Accounts Payable, Accounts Receivable, Payroll,
Inventory Management, Shop Floor Data Collection, Shipping/Returned Material and
Cost Accounting modules. The costing systems support both actual and standard
cost methodologies with additional capabilities for unlimited cost simulation,
modeling and reporting. The Financial modules support both distributed and
consolidated processing in a multi-company environment and provide complete
foreign currency and tax capabilities.
The average price of DataWorks' Avante ERP system (exclusive of hardware) sold
to new customer sites in DataWorks' target market increased to approximately
$325,000 in 1997 from approximately $251,000 in 1996. As of September 30, 1998,
DataWorks licensed the Avante product to more than 1,000 customers at more than
1,200 customer sites.
UPPER TIER: IMPRESA PRODUCT FAMILY
Impresa for MRO (previously called JIT and obtained by DataWorks in its
acquisition of Interactive) is a software system consisting of standardized
modules and a family of additional integration modules. Impresa for MRO is
designed primarily for MRO and contract manufacturing, including a fully
integrated suite of software supporting supply chain management, repair and
overhaul, manufacturing, quality, financial and project management applications
which are designed to support an enterprise's business processes in an
industrial company. DataWorks typically sells Impresa for MRO to large
organizations in need of a fully integrated enterprise-wide system that can
accommodate multiple geographic sites, including international operations.
Impresa for MRO is a complete set of Oracle-based client/server applications
which operates in a flexible UNIX operating environment and is designed to
manufacturing, accounting and human engineering standards. The major components
of Impresa for MRO's architecture are (i) client/server ERP within an open
systems UNIX platform; (ii) a three-tiered model (Presentation Clients,
Application and Database Servers); (iii) use of the Oracle 4GL toolset and
Developer/2000 which provides easy site extension, personalization and
deployment of applications on the Internet and Intranet; and (iv) use of the
Oracle version 7 database. The Impresa for MRO software application modules can
be grouped into the functions of supply chain management, operations, system
applications, financial applications, engineering and integration.
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The Impresa for Backoffice system, which DataWorks has under development, has
been designed to address the ERP needs of the upper tier of the mid-range
manufacturing market. This upper tier consists of companies with annual revenues
ranging from $200 million to $1 billion. These organizations typically have
substantial IS staff because supporting a variety of both standard and custom
applications in a dynamic, multi-national corporation requires a significant
investment in information services. These enterprises are better able to invest
in the tools and technology necessary to support a complex, fully distributed
client/server computing environment and to provide the depth of staff and
technological expertise to maintain a more "customized" application set.
DataWorks believes its Impresa for Backoffice system will provide valuable depth
to its product family and will enable DataWorks to provide a product for the
upper tier that is complementary to its mid-tier product, Avante. Generally,
DataWorks believes that products currently offered by ERP vendors serving
Fortune 1000 firms that might potentially compete with DataWorks in the upper
tier of the mid-range manufacturing market are complex and expensive, and
usually require a multi-year "custom implementation" process. DataWorks believes
the Impresa for Backoffice system can be competitive with the products currently
offered by large ERP system vendors by offering superior technology, a more open
solution, competitive pricing and shorter, less costly deployment periods.
DataWorks intends that the Impresa for Backoffice system, in addition to
providing DataWorks with a product solution for the upper tier of the mid-range
market, will also provide a migration path for DataWorks' current customers
using Avante or an earlier derivative product that may outgrow those ERP systems
and require the features of the Impresa for Backoffice system.
The Impresa for Backoffice system is a second generation client/server
application for manufacturing, planning, inventory, engineering, distribution,
service and finance. While the Avante system provides a tightly coupled 4GL tool
set and database architecture, Impresa for Backoffice is built on tools and
database architectures from established market leaders, such as Microsoft, IBM,
Oracle and Sybase, to promote flexibility and technology independence. DataWorks
believes that the flexible and independent Impresa for Backoffice system
architecture can be managed with the significant IS resources of typical upper
tier manufacturers. Impresa for Backoffice employs an object oriented,
three-tier client/server architecture, in which the business logic, database and
presentation layers can be allocated independently across multiple processors
(servers or clients). This distributed model allows large corporations to deploy
a series of smaller, departmental or company servers to replace their existing
mainframe computers. DataWorks has designed the Impresa for Backoffice system to
be database independent, initially supporting the Microsoft SQL Server and
Oracle databases.
Impresa for Backoffice is currently under development. We cannot assure you that
DataWorks will commence such shipments on a timely basis, or at all or if timely
shipped, that the Impresa Backoffice system will achieve market acceptance.
Furthermore, DataWorks has limited experience in selling products to customers
in the upper tier of the mid-range manufacturing market and anticipates that
selling products to such customers will result in a longer sales cycle and will
require a different strategy than DataWorks employs in selling products to
customers in the mid-tier market. For example, as part of its upper tier
marketing strategy, DataWorks is exploring potential relationships with third
party integrators to facilitate implementation of the Impresa for Backoffice
system. There can be no assurance that any such relationships will be formed or,
if formed, will prove
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beneficial to DataWorks. Accordingly, even if DataWorks timely commences
customer shipments of the Impresa for Backoffice system, there can be no
assurance that DataWorks will be successful in effectively marketing the Impresa
for Backoffice system or that the Impresa for Backoffice system will achieve
market acceptance.
CORE FEATURES AND TECHNOLOGIES
DataWorks provides certain core technologies for the mid-range market across its
entire product line, and offers certain development and implementation support
tools to facilitate customization and deployment of DataWorks' products.
PORTABILITY AND SCALABILITY
DataWorks provides its products on all major versions of Microsoft NT and UNIX
operating systems. These environments enable DataWorks' products to have
extensive portability and scalability.
DEVELOPMENT TOOLS
DataWorks has enabled each of its products with a sophisticated 4GL development
environment that allows DataWorks' software to be tailored to the unique needs
of users while ensuring the integrity of the database and applications.
DataWorks' products support a Windows-based GUI providing consistent, familiar
desktop interfaces and connectivity to a wide variety of third party products.
Traditional screens and reports are managed as templates and forms to provide
flexible user views into the database.
The database and development environments of products designed for the lower
tier of the mid-range market are tightly integrated to minimize cost and support
requirements. Vista provides VB Forms, a powerful form design tool that supports
user-definable screen generation. Vantage is written in the Progress 4GL and
database, which provides a powerful, graphical development tool set. To serve
the mid-tier, DataWorks' Avante tools is an object based development tool
utilizing a graphical development environment. Through Avante tools, DataWorks
is able to support products across multiple operating systems from a single
object code library. The Impresa for Backoffice system is being designed for the
upper tier to support Powersoft's Powerbuilder 5.0 and Optima enterprise
development suite as the foundation of DataWorks' client/server infrastructure
("CSI") development tool product. DataWorks has designed CSI's "object
libraries" to support the complex development and deployment requirements of a
global enterprise, and are intended to ensure a consistent look and feel to all
functions of the Impresa for Backoffice system.
RDBMS
DataWorks has designed products to run on databases that are best suited for the
particular applications required by customers, including Microsoft Foxpro and
SQL Server, Progress, Ardent, Oracle and Sybase. SQL, ODBC and sophisticated
file transfer capabilities provide immediate access to foreign databases and
other host applications. DataWorks has chosen these relational databases in
order to maximize the throughput of its customers' transactions, to provide
realistic models of business data and to maximize price and performance under
the budget constraints of its customers in each tier of the mid-range market.
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SMARTLINKS
DataWorks' SmartLinks interface to third party applications provides a standard
parameterized interface mechanism between the Avante product and associated data
and modules within selected third party applications. DataWorks has established
links to a broad range of third party applications, such as Microsoft Office and
Autodesk AutoCad, for computer aided design, scanned images, database graphics,
word processing, spreadsheets, multimedia, sales contact management, forecasting
and project planning. DataWorks plans to expand the SmartLinks capabilities to
its other products.
DEPLOYMENT TOOLS
DataWorks' SmartTools data conversion system is a means for new customers,
implementation consultants or existing customers to convert data from either
legacy systems or third party applications, and process that data through the
business rules of DataWorks' ERP systems. SmartTools can greatly shorten the
time needed to build conversion routines and significantly increases conversion
accuracy. SmartTools electronically takes conversion data from the legacy system
and simulates the data being entered through a keyboard or generated
programmatically by the DataWorks system.
THIRD PARTY PRODUCTS
DATABASES
DataWorks separately licenses database products to its customers. Microsoft
Foxpro and Progress support the Vista and Vantage product lines, respectively,
and the Ardent databases support the Avante product. DataWorks has designed
Impresa for Backoffice as a database independent application, and Impresa for
Backoffice will initially support the Oracle, Sybase and Microsoft SQL Server
databases.
CLIENT TOOLS
DataWorks' products support PC-based GUIs that manage application presentation,
desktop tools and network communications, and facilitate the client workstation.
DataWorks incorporates client GUI and development tools such as Microsoft Visual
Foxpro, Progress, Borland Delphi and Sybase Powerbuilder.
HARDWARE
As part of its turnkey solutions, at the request of a customer DataWorks can
provide complete third party computer hardware systems and related computer
peripherals. In such situations, either the third party vendor ships hardware,
or DataWorks resells the products. DataWorks does not typically carry hardware
inventory in either case. DataWorks implements its ERP systems on a number of
hardware platforms, including Hewlett-Packard Company ("Hewlett-Packard"), IBM,
Data General, Digital Equipment Corporation ("DEC") and Intel Pentium and other
x86-based systems. Configurations may be host-based, server-oriented, or full
client/server with highly networked solutions, in which DataWorks may
participate in providing network hardware solutions. Additionally, DataWorks
offers peripherals, factory data collection equipment and communications
equipment for resale to its customers.
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NETWORKS
DataWorks supports a wide variety of network communication protocols as part of
its turnkey product support. DataWorks has support agreements with regional and
national communications suppliers and network suppliers to facilitate the design
and implementation of these environments.
SERVICE AND SUPPORT
DataWorks offers a full complement of services that allow its customers to
maximize the benefits of DataWorks' software products, including project
management, consulting, implementation, education and multi-media training,
professional programming, system integration and support, video conferencing,
maintenance and customer service. DataWorks' services are not typically included
in the price of its software. DataWorks bills maintenance support annually in
advance, while implementation, consulting and programming services are billed
monthly as incurred.
IMPLEMENTATION SUPPORT PROGRAM
DataWorks offers its customers an Implementation Support Program ("ISP") with
their initial system order or significant upgrade to an existing system
installation. ISP provides a variety of project management and consulting
services to assist in rapid implementation and deployment of DataWorks' business
solutions. Services offered include a variety of site-specific technical and
consulting services to assist in all phases of the implementation process.
DataWorks may also provide assistance in integrating its products with the
customer's other software, such as automated systems and devices for factory
automation and shop floor data collection. In addition, DataWorks offers "first
call" support that allows customers to call DataWorks with service inquiries. As
part of the implementation of its software, DataWorks employs a pilot program
that allows certain of its customers to simulate running their businesses with
the new software prior to full-scale "live" implementation of the new system.
The entire implementation process, and specifically the pilot programs, are
greatly aided by DataWorks' SmartTools product. Pilot program simulations for
more complex businesses are conducted in an integrated series of hands-on
classroom exercises that emphasize system controls and procedures, using a
database generated by SmartTools that accurately represents the customer's
business. By simulating a number of relevant business scenarios, the pilot
program gives key users valuable experience with DataWorks' software, generates
involvement in and commitment to the new system and provides a means to track
the progress of the implementation of the system before actual full-scale use.
CUSTOMER SUPPORT PROGRAM
DataWorks offers its customers a Comprehensive Support Program ("CSP").
DataWorks bases the cost of CSP on a percentage of list price of the DataWorks
software purchased and generally bills the cost of CSP annually in advance.
Through CSP, DataWorks provides product enhancements and updates that maintain
the customers' software and documentation to the then-current standard release
level licensed and supported by DataWorks. CSP also includes hotline telephone
support during extended business hours for questions regarding software use.
This support is available to customers up to 24 hours per day, seven days per
week, as a separately priced option.
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EDUCATION AND TRAINING
DataWorks offers education and training services that provide customers with a
formalized program to ensure that customers implement and utilize applications
in an efficient and cost-effective manner. DataWorks also offers its customers a
variety of software installation, technical support and user training services,
both on-site and in DataWorks' regional training centers. Customized education
and training programs are also available to meet customers' specific development
needs.
PROFESSIONAL CONSULTING SERVICES
DataWorks provides an array of on-site and classroom implementation and training
services that are tailored to the complexity of each of the Company's ERP
systems. DataWorks assigns each new customer site an Account Manager who
coordinates DataWorks' activities with the customer. These activities include
project management, hardware/software installation scheduling, classroom
education scheduling, on-site training, conversion planning and pilot simulation
supervision. Windows-based project management software maintains a detailed
project plan, resource list, and schedule of events for each phase of the
implementation. Designed to meet the return on investment objectives of the
customer, the project plan is the customer's key feedback and monitoring
mechanism for managing the success of the implementation. The Account Manager
and an assigned team are responsible for guiding the new customer from initial
installation through successful operation of the system in a live environment.
The Account Manager is also the initial point of contact to introduce other
DataWorks resources to the customer. The implementation of Vista typically only
requires such services on a limited basis.
PROFESSIONAL PROGRAMMING SERVICES
DataWorks provides professional programming services, including custom
applications analysis, design, development, training and deployment for most of
its ERP solutions. Custom software projects may range from simple report
development to designing and programming complete applications and integrating
legacy systems.
Throughout the project, DataWorks provides software and design reviews to the
customer as defined in the project specification. Upon project completion,
DataWorks delivers custom software under revision control to a test database
where the customer conducts compliance testing. The revision control tools
within Avante allow testing, deployment and management of new enhancements
without affecting current software releases. DataWorks creates all software
enhancements of Avante, regardless of scope, using the Object Preview
development environment, and all such software enhancements conform to
DataWorks' published guidelines for standards and conventions.
PRODUCT DEVELOPMENT
DataWorks focuses product development efforts on enhancement of its existing
products and introduction of its Impresa for Backoffice system. At September 30,
1998, DataWorks had approximately 180 full-time employees in product
development. Research and development expenses are comprised primarily of
salaries and a portion of DataWorks' overhead for its in-house staff and amounts
paid to outside consultants, as appropriate, to supplement the product
development efforts of its in-house staff. Research and development expenses are
charged to operations as incurred. Gross research and
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development expenditures totaled approximately $14.3 million in 1997 and $11.4
million in 1996. Gross research and development expenditures included amounts
for capitalized software totaling $3.8 million in 1997 and $2.5 million in 1996.
DataWorks plans to continue to enhance its Vista, Vantage, and Avante
application products and to develop its Impresa for Backoffice system to suit
the evolving needs of the manufacturing market served by DataWorks. In
particular, DataWorks intends to pursue improved functionality on existing
application modules and the creation of new modules. In addition to applications
development, DataWorks will seek to improve its object-oriented development
environment, with two fundamental objectives: continued user empowerment with
emphasis on ease-of-use, and increased flexibility to make changes to the base
products to suit specific customer requirements. Internet/Intranet enabled
applications will continue to be a focus of development throughout the entire
product line. The DataWorks Open Integration Environment will expand traditional
supply chain EDI communication protocols with Object EDI and encapsulated
"business objects." DataWorks expects to continue to enhance the capabilities of
its MES and factory data collection applications to address the increasing focus
on real time, wireless data collection and acquisition. DataWorks also expects
to enhance its strategic planning and decision support capabilities through
offerings in the area of third party report writers, data warehousing and data
mining products. DataWorks plans to continue to expand its API and object
frameworks across all products thereby enhancing each systems ability to access
the global supply chain.
SALES AND MARKETING
DOMESTIC
DataWorks sells its products in the United States primarily through a direct
sales force. As of September 30, 1998, DataWorks had 175 full-time and 48
part-time employees in its domestic sales organization, including sales
representatives, pre-sale consultants, telemarketers and sales management
personnel.
The key components of DataWorks' domestic sales strategy include sophisticated
prospect development and sales cycle management processes. DataWorks uses a
combination of electronic prospective client databases, computer aided
telemarketing and field sales methodologies to identify potential candidates for
its ERP systems from within its targeted markets who are in the early stages of
searching for a new business management system. This process accounts for a
large percentage of DataWorks' new accounts and lessens the need for the sales
force to engage in territory prospecting activities of its own. DataWorks
monitors prospective customers through a comprehensive prospect management
system that breaks the sales cycle into several phases, each with multiple
measurement points, to properly assess the prospective client base.
DataWorks' domestic sales strategy also emphasizes a "regionalization" concept.
DataWorks believes a strong local presence is an important factor in addressing
the needs of mid-range manufacturers and establishing mutually beneficial
long-term relationships. Under DataWorks' regionalization approach, DataWorks
has decentralized much of its client development activity, customer services and
customer account responsibilities. DataWorks has regional centers in Irvine,
California; San Jose, California; Chicago, Illinois; Burlington, Massachusetts;
Dallas, Texas; Philadelphia, Pennsylvania; and Atlanta,
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Georgia. In addition, DataWorks has local offices in 10 other locations across
the United States. DataWorks intends to open two additional full-service
regional centers by late 1998.
INTERNATIONAL
DataWorks currently addresses the international market with direct sales efforts
through its wholly-owned subsidiaries in the United Kingdom and France and
through product-specific distributor agreements in Germany, Australia and
Canada. To date, DataWorks has not generated a material amount of revenue
through these distributor agreements. DataWorks plans to increase its
international sales efforts through expanded direct sales and additional
distribution arrangements, each to be supported by DataWorks' domestically
developed prospect development and sales cycle management processes.
COMPETITION
The business information systems industry is intensely competitive, rapidly
changing and significantly affected by new product offerings and other market
activities. A number of companies offer products similar to DataWorks' products
which are directed at the market for ERP systems. Many of DataWorks' existing
competitors, as well as a number of potential competitors, have more established
and larger marketing and sales organizations, significantly greater financial
and technical resources and a larger installed base of customers than DataWorks.
In addition, customers who have a large installed base of legacy systems may
resist committing the time and resources necessary to convert to an open
systems, client/server-based software product. DataWorks has no significant
proprietary barriers to entry which would limit competitors from developing
similar products or selling competing products in DataWorks' markets.
Accordingly, there can be no assurance that such competitors will not offer or
develop products that are superior to DataWorks' products or that achieve
greater market acceptance.
In addition, suppliers of RDBMS or companies that develop management information
software applications for large multinational manufacturers are beginning to
market to the upper tier of the mid-range market targeted by DataWorks or
otherwise develop applications that compete effectively in DataWorks' markets.
Furthermore, DataWorks intends to expand its marketing and product development
efforts toward the upper end of its target market, which could result in
increased competition. As a result, competition (including price competition) is
likely to increase substantially, which may result in price reductions and loss
of market share. In addition, potential customers may increasingly demand that
ERP systems incorporate certain popular RDBMS software not currently integrated
into certain of DataWorks' product offerings that are offered by its
competitors. As the client/server computing market expands, a large number of
companies, some with significantly greater resources than DataWorks, may enter
the market or increase their market share by acquiring or entering into
alliances with competitors of DataWorks. There can be no assurance that
DataWorks will be able to compete successfully against its competitors or that
the competitive pressures faced by DataWorks will not adversely affect its
financial performance.
DataWorks has a large number of competitors that vary in size, primary computer
platforms and overall product scope. Within its market, the primary competition
comes from independent software vendors in four distinct groups including (i)
large multinational system developers in the upper tier of DataWorks' mid-range
market, including Baan Company, Oracle and QAD, Inc., (ii) companies offering
high levels of functionality on
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the AS/400 platform such as System Software Associates, Inc. and J.D. Edwards
Company, (iii) traditional mid-range market sector firms such as ROI Systems,
Inc. and Symic Systems, Inc., and (iv) lower priced PC network-based offerings
from companies such as Fourth Shift Corporation, Lilly Software Associates and
Macola Software, Inc. There is also a large number of regional manufacturing
software suppliers who leverage as competitive advantages their concentrated
local support, reputation and, typically, lower price.
DataWorks' principal market is highly fragmented and consists of a few large
multinational suppliers and a much larger number of small, regional competitors.
DataWorks believes that its industry will experience consolidation as business
information systems become more complex and as more manufacturers adopt
sophisticated business information systems, forcing smaller companies in the
industry to specialize or merge with their competitors. In order to compete
effectively in the broad markets which DataWorks presently targets, DataWorks
will need to continue to grow and attain sufficient size to ensure that it can
develop new products on a timely basis in response to evolving technology and
new customer demands and can sell such products to a variety of manufacturing
industries worldwide. No assurance can be given that DataWorks will be able to
grow sufficiently to enable it to compete effectively.
DataWorks believes its use of open systems technologies is an important
competitive factor. DataWorks also believes that the number of competitors
offering open systems solutions will grow significantly over the next several
years. Additionally, DataWorks believes that the typical mid-range customer
desires an easy-to-use, highly functional 4GL environment, fully integrated
throughout the ERP system, which DataWorks has provided through its internally
produced development tool set. DataWorks anticipates that a significant source
of future competition may be from larger manufacturing software companies that
may tailor their products for the mid-range market. Only a few of the larger and
better capitalized software systems companies currently compete in DataWorks'
targeted market. There can be no assurance that such companies will not develop
products that are superior to DataWorks' products or that achieve greater market
acceptance.
The principal elements affecting the buying decision of customers in the
mid-range sector are comprehensive application functionality that addresses a
wide range of business areas, rapid system deployment, ease-of-use, strong
performance, quality of customer support, a fully integrated application set
supported by a user-oriented 4GL development environment that allows for easy
modification to applications where needed, price and customer references. It is
also mandatory that the ERP system be enhanced on a regular basis throughout the
license or maintenance term and that such product enhancements be properly
supported by necessary revision control software provided by the vendor. In
order to be successful in the future, DataWorks must respond effectively to
customer needs and properly select and incorporate those technologies and
application functionalities that will meet the challenges posed by competitors'
innovations. To accomplish this critical objective, DataWorks must continue to
invest in enhancing its current products and, when necessary, introduce new
products to remain competitive. There can be no assurance that DataWorks will be
able to continue to invest in such enhancements or new products, or introduce
such enhancements or new products in a timely fashion or at all.
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INTELLECTUAL PROPERTY
DataWorks regards its products as proprietary trade secrets and confidential
information. DataWorks relies on a combination of copyright, trademark and trade
secret laws, employee and third party nondisclosure agreements and other
industry standard methods for protecting ownership of its proprietary software.
There can be no assurance, however, that, in spite of these precautions, an
unauthorized third party will not copy or reverse-engineer certain portions of
DataWorks' products or obtain and use information that DataWorks regards as
proprietary. In addition, the laws of some foreign countries do not protect
DataWorks' proprietary rights to the same extent as do the laws of the United
States. There can be no assurance that the mechanisms used by DataWorks to
protect its software will be adequate or that DataWorks' competitors will not
independently develop software products that are substantially equivalent or
superior to DataWorks' software products.
DataWorks licenses products to end users under license agreements which are
generally in standard form, although each license is individually negotiated and
may contain variations. The standard form agreement allows the end user to use
the products solely on the end user's computer equipment for the end user's
internal purposes, and the end user is generally not permitted to sublicense or
transfer the products. DataWorks licenses the source code for its application
software to its customers to enable them to customize the software to meet
particular requirements. DataWorks' standard form agreement includes a
confidentiality clause protecting the products. In the event of termination of
the license agreement, the end user remains responsible for any accrued and
unpaid license fees and confidentiality obligations. However, there can be no
assurance that such customers will take adequate precautions to protect
DataWorks' source code or other confidential information.
DataWorks' has one software patent application pending, but there can be no
assurances that a patent will be issued or that, if a patent is issued, it will
provide DataWorks with competitive advantages or will not be challenged by
others. DataWorks believes that it has all necessary rights to market its
products, although there can be no assurance that third parties will not assert
infringement claims in the future. DataWorks may receive notices from third
parties claiming that DataWorks' products infringe third party proprietary
rights. DataWorks expects that, as the number of software products in the
industry increases and the functionality of these products further overlaps,
software products will increasingly be subject to such claims. Any such claim,
with or without merit, could result in costly litigation and require DataWorks
to enter into royalty or license arrangements. Such royalty or license
arrangements, if required, may not be available on terms acceptable to DataWorks
or at all.
DataWorks believes that, due to the rapid pace of innovation within the computer
industry, factors such as technological and creative skill of personnel,
knowledge and experience of management, name recognition, maintenance and
support of software products, the ability to develop, enhance, market and
acquire software products and services, and strategic relationships in the
industry are more important in establishing and maintaining a leading position
within the industry than are patent, copyright and other legal protections for
intellectual property.
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EMPLOYEES
At October 31, 1998, DataWorks had 1,215 full-time employees, including 468 in
sales and marketing, 214 in product development, 418 in support services and 115
in finance and administration. DataWorks also has 45 part-time employees,
primarily in the telemarketing area. DataWorks' employees are not represented by
any collective bargaining organization, and DataWorks has never experienced a
work stoppage. DataWorks believes that its relations with its employees are
good. The loss of certain key employees or DataWorks' inability to attract and
retain other qualified employees could have a material adverse effect on
DataWorks' business and operations.
PROPERTY
DataWorks leases the majority of its facilities in or near the following cities:
<TABLE>
<CAPTION>
APPROXIMATE LEASE
LOCATION SQUARE FEET EXPIRATION DATE PRINCIPAL ACTIVITIES
-------- ----------- --------------- -------------------------
<S> <C> <C> <C>
San Diego, CA.............. 48,000 June 1999 Corporate HQ, Sales and
Marketing
San Diego, CA.............. 44,000 January 2000 Product Development and
Customer Support
San Diego, CA.............. 9,600 July 1999 Impresa for MRO
Operations
Irvine, CA................. 25,000 August 2001 Sales, Marketing and
Customer Support
Minneapolis, MN............ 30,000 April 2002 DCD Operations
Minneapolis, MN............ 12,000 January 2002 Impresa for MRO
Operations (formerly JIT)
Burlington, MA............. 19,000 April 2003 Sales, Marketing and
Customer Support
London, England............ 14,000 September 2004 Regional HQ, Sales,
Marketing and Customer
Support
Paris, France.............. 16,000 June 2007 Sales, Marketing,
Customer Support and
Administration
Laidscheesdam, 13,000 January 2009 Sales and Product
Netherlands.............. Localization
</TABLE>
DataWorks also has approximately 17,000 square feet of office space under lease
and rental agreements in various locations across the United States and
approximately 13,000 square feet of office space in the United Kingdom and
Europe in support of its regional activities with expiration dates ranging from
1998 through 2004.
DataWorks believes that its facilities are adequate for its current needs and
that suitable additional or substitute space will be available as needed to
accommodate expansion of DataWorks operations.
LEGAL PROCEEDINGS
DataWorks, and certain of its officers, directors and former officers,
consisting of Stuart W. Clifton, Norman R. Farquhar, Mark Hellinger, Robert W.
Brandel, Nathan W. Bell and Ronald S. Parker, have been named as defendants in a
lawsuit alleging violations of the
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federal securities laws. The complaint, which was filed on November 3, 1998 in
the United States District Court for the Southern District of California,
purports to be brought on behalf of a class of stockholders, and alleges that
between January 28, 1998 and July 16, 1998, the defendants issued misleading
statements concerning DataWorks' acquisition of Interactive Group, Inc. and
sales of certain products. The complaint does not specify the dollar amount of
damages alleged or relief requested. Platinum is also named in the lawsuit as a
defendant as a successor of DataWorks. DataWorks intends to defend itself
vigorously in the lawsuit, and denies the allegations in the complaint.
DataWorks is also engaged in legal actions arising in the ordinary course of its
business and believes that the ultimate outcome of these actions will not have a
material adverse effect on its financial position or results of operations.
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DATAWORKS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATION
The following discussion and analysis should be read in conjunction with the
selected historical financial data, and the historical financial statements and
the Notes thereto included elsewhere in this Joint Proxy Statement/Prospectus.
Additionally, the following discussion and analysis contains forward-looking
statements that involve risks and uncertainties, such as statements of
DataWorks' plans, objectives, expectations and intentions. The cautionary
statements made in this Joint Proxy Statement/Prospectus should be read as
applicable to all related forward-looking statements that appear in this Joint
Proxy Statement/Prospectus. DataWorks' actual results could differ materially
from those discussed here. Factors that could cause or contribute to such
differences include those risks discussed in this section and the sections
entitled "Risk Factors" and "DataWorks Business" as well as those discussed
elsewhere in this Joint Proxy Statement/ Prospectus. See "Forward-Looking
Statements."
OVERVIEW
DataWorks was incorporated in 1986 and develops, markets, implements and
supports open systems, client/server-based ERP software for mid-range, discrete
manufacturing companies with annual revenues between $3 million and $1 billion.
DataWorks' products and services facilitate enterprise-wide management of
resources and information and allow mid-range manufacturers to reduce order
fulfillment cycle times, improve operating efficiencies and measure critical
company performance against defined plan objectives.
In September 1997, DataWorks acquired Interactive Group, Inc. ("Interactive") in
a stock-for-stock transaction that was accounted for as a pooling-of-interests.
The financial results of DataWorks contained in this Joint Proxy
Statement/Prospectus include the financial results of Interactive. DataWorks
believes its acquisition of Interactive offers major advantages in three key
areas: significantly enhanced international operations, including established
international channels, six offices in Europe as well as a substantial
distributor in Germany; more comprehensive mid-tier product offerings; and
substantial critical mass which makes DataWorks one of the largest mid-range ERP
providers in the world.
In September 1996, DataWorks acquired DCD Corporation ("DCD") in a
stock-for-stock transaction that was accounted for as a pooling-of-interests.
The financial results of DataWorks contained in this Joint Proxy
Statement/Prospectus include the financial results of DCD. In May 1994,
DataWorks acquired Madic-Compufact Corporation ("MCC") principally for cash in a
transaction accounted for as a purchase. DataWorks believes that the DCD and MCC
acquisitions allowed it to achieve several important strategic objectives,
including the ability to better serve the lower tier of mid-range manufacturers
and the addition of complementary products to better serve the make-to-order
markets. The acquisitions also allowed DataWorks to expand geographically and to
increase its customer and revenue base.
In December 1995, Interactive acquired all the outstanding shares of Just In
Time Enterprise, Inc. ("JIT") for cash, a note payable and the assumption of
liabilities in a transaction accounted for as a purchase. The acquisition of JIT
and its Oracle-based manufacturing software may allow DataWorks to participate
in the more lucrative high end market for relational database and software
development technology. Because the
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acquisition of JIT was accounted for as a purchase, the financial results of JIT
prior to January 1995 are not included in DataWorks' financial results.
Due to intense competition in the computer hardware market and an increasing
tendency for customers, particularly new accounts, to purchase hardware directly
from third party vendors, DataWorks has experienced declining hardware revenues
as a percentage of each system it sells and declining profit margins with
respect to such hardware revenues. In the past, gross profit from hardware sales
has not been a significant part of DataWorks' total gross profit, and DataWorks
believes this trend will continue.
DataWorks believes its success has been due in part to its strategy of focusing
marketing and development resources on eight "highly engineered product"
industries within the mid-range discrete manufacturing market sector. DataWorks
is unaware of any of its competitors specifically targeting the same group of
industries. There can be no assurance that competitors with significantly
greater financial, technical and marketing resources than DataWorks will not
target these particular industries.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
total revenues represented by certain condensed consolidated statement of
operations data:
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- -------------
1997 1996 1995 1998 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS DATA
REVENUES:
Software licenses......................... 51% 47% 45% 45% 48%
Maintenance and other services............ 41 41 39 49 44
Hardware.................................. 8 12 16 6 8
--- --- --- --- ---
Total revenues.................... 100 100 100 100 100
Cost of revenues............................ 41 45 43 46 43
--- --- --- --- ---
Gross profit................................ 59 55 57 54 57
OPERATING EXPENSES:
Sales and marketing....................... 28 25 26 28 28
General and administrative................ 13 13 13 13 13
Research and development.................. 7 8 11 8 8
Acquisition and related costs............. 11 2 -- -- 16
ESOP contribution......................... -- -- 1 -- --
--- --- --- --- ---
Total operating expenses.......... 59 48 51 49 65
--- --- --- --- ---
Income from operations...................... 0% 7% 6% 5% (8)%
=== === === === ===
</TABLE>
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Revenues -- Total revenues increased $24.2 million or 24% to $124.8 million for
the nine months ended September 30, 1998 from $100.6 million for the same period
in the prior year. The nine month revenues reflected a continued growth of
software licenses and maintenance and other service revenues. Software sales
increased 17% while maintenance and other services increased 38% for the first
nine months of 1998. The growth in software
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license revenue was attributable to sales of the DataWorks lower tier products,
Vista and Vantage, and Avante international sales, partially offset by lower
domestic Avante sales. The growth in maintenance and other services revenues was
a result of the increase in software license agreements, which provide for
initial maintenance, training, installation and support services. Hardware
revenues decreased slightly from the same prior year period as a result of
de-emphasized third-party hardware sales.
As a percentage of DataWorks' total revenues, international revenues represented
22% during 1998 as compared with 16% in 1997. The increase in international
revenues consisted primarily of sales from DataWorks' UK subsidiary and to a
lesser extent its Netherlands subsidiary, which was purchased June 1998, and its
French subsidiary, which was purchased July 1997.
Cost of Revenues -- Total cost of revenues increased $14.7 million or 34% to
$57.8 million for the nine months ended September 30, 1998 from $43.1 million in
the same prior year period. Cost of software licenses as a percentage of
software revenue remained relatively constant while the cost of maintenance and
other services as a percentage of related revenues increased to 75% from 70% for
the first nine months of 1998 as compared to the same period in 1997. These
expenses were impacted by the 1998 shift toward relatively higher service
revenue, which bear a higher cost than maintenance revenue. DataWorks has made a
significant investment in its professional consulting service organization,
which has experienced increased growth during 1998.
Gross Profit -- Gross profit increased $9.5 million or 17% to $67.0 million from
$57.5 million for year to date 1998, representing 54% and 57% of total revenues,
respectively. The increase in absolute dollars was directly related to the
increase in total revenues. Gross profit, as a percentage of revenues, was
unfavorably impacted by the change in product mix between software revenues,
which have a higher gross margin, and maintenance and other services, which have
a lower gross margin.
Sales and Marketing Expenses -- Sales and marketing expenses increased $6.6
million or 23% to $35.1 million in the nine months ended September 30, 1998 from
$28.5 million for the same period in 1997, representing a constant 28% of total
revenues. The absolute dollar increase was primarily attributable to DataWorks'
expanded direct sales force, increased commissions associated with the higher
revenues, increased marketing efforts, and additional facility costs.
General and Administrative Expenses -- General and administrative expenses
increased $2.7 million or 21% to $15.7 million for the nine months ended
September 30, 1998 from $13.0 million for the same period in 1997, representing
13% and 13% of the total revenues, respectively. The increase, in absolute
terms, resulted primarily from increases in staffing and information systems
infrastructure to support DataWorks' growth as well as increases in expenses
associated with the expanding operations of its foreign subsidiaries.
Research and Development Expenses -- DataWorks continues to invest heavily in
the future by funding research and development projects. Research and
development expenses are comprised primarily of salaries and a portion of
DataWorks' overhead for its in-house staff and amounts paid to outside
consultants, as appropriate, to supplement the product development efforts of
its in-house staff. Research and development expenses are charged to operations
as incurred. However, certain software production costs related to DataWorks'
Impresa for Backoffice product, are capitalized pursuant to Statement of
Financial Accounting Standards No. 86, "Accounting for Software Costs."
Amortization of
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these costs will begin on a module by module basis when the product is initially
released, which is expected sometime in 1999. As of September 30, 1998, the
amount capitalized for Impresa for Backoffice was $7.9 million. In addition to
in-house software development costs, DataWorks purchased certain capitalized
software, which has already reached technological feasibility, from third-party
software providers totaling $1.2 million for the nine months ended September 30,
1998.
Gross research and development expenses increased $3.0 million or 34% to $11.8
million in the nine months ended September 30, 1998 from $8.8 million for the
same period in 1997, representing a constant 9% of total revenues in period.
Gross research and development expenditures included capitalized software costs
related to Impresa for Backoffice of $1.3 million and $1.0 million for the
second quarters of 1998 and 1997, respectively.
Restructuring costs -- Restructuring costs of $0.5 million during the nine
months ended September 30, 1998 represent the non-recurring costs incurred as
part of the initial phase of a company-wide reorganization. These costs were
primarily due to severance packages offered to three executives within
DataWorks. During October 1998, DataWorks incurred $1.5 million related to the
reorganization and workforce reduction and during the remainder of the fourth
calendar quarter of 1998, DataWorks expects to record an additional $2.5 million
of non-recurring expenses.
Acquisition costs -- Acquisition and restructuring costs of $15.6 million in
1997 represent the non-recurring costs incurred during the acquisition of the
Interactive Group, Inc.
Other Income, Net -- Other income consists primarily of interest and dividend
income offset slightly by interest expense. Other income for the nine months
ended September 30, 1998 was impacted by the decreased balance of cash, cash
equivalents and short term investments as compared to the same 1997 periods.
Provision for Income Taxes -- During 1998, DataWorks' effective income tax rate
has remained a constant 37% as compared to 36% in 1997. The estimated annual
effective tax rate is relatively sensitive to the results of operations in
various foreign subsidiaries. Consequently, such projections may change in
future periods and the actual effective tax rate could differ from the current
estimate.
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996
Total Revenues -- Software license fees and related services, including software
maintenance, consulting and custom programming, are DataWorks' principal sources
of revenues. In addition, DataWorks resells third party hardware and operating
systems software to provide turnkey systems solutions.
Total revenues for the year ended December 31, 1997 increased $30.1 million or
26% to $147.0 million from $116.9 million in 1996. The growth in total revenues
was primarily a result of increases in the sales of software licenses and in
maintenance and other service revenues offset slightly by a reduction in third
party hardware sales. Revenues from DataWorks' international operations as a
percentage of total revenues remained unchanged at 17% for both 1997 and 1996.
Software License Revenues -- Revenues from DataWorks' non-cancelable software
licenses are recognized upon delivery of the products, provided no significant
Company obligations remain and collection of the related receivable is deemed
probable. Software license fees accounted for $74.7 million or 51% of total
revenues in 1997, up from $55.1 million or
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47% of total revenues in 1996, an increase of $19.6 million or 35% in absolute
dollars. This growth was primarily attributable to continued demand, which was
strengthened by the recent acquisition of Interactive, for DataWorks' ERP
systems from its targeted companies. In addition, the increase in system sales
was indirectly a result of expansion of the domestic and international sales
force and increased marketing efforts.
Cost of Software License Revenues -- The cost of software license revenues
consists primarily of the cost of software products and firmware security
devices provided by third party suppliers and sold with DataWorks' systems. For
the year 1997, the cost of software license revenues increased $2.6 million or
40% to $9.2 million compared to $6.6 million in 1996. As a percentage of
software license revenues, cost of software licenses remained unchanged at 12%
for 1997 and 1996. The increase in absolute dollars was directly related to the
increase in software license revenues.
Maintenance and Other Service Revenues -- Maintenance and other service revenues
include fees primarily from software maintenance, consulting, education and
custom programming services. DataWorks' software license agreements provide
on-going maintenance, education, and installation support services. Software
maintenance revenues are generally prepaid and recognized ratably over the
maintenance agreement period. Consulting, education and custom programming
revenues are generally paid and recognized as the services are performed.
Revenues from maintenance and other services increased $12.5 million or 26% to
$60.9 million in 1997 compared to $48.3 million in 1996. However, as a
percentage of total revenues, it remained at a constant level of 41% for both
years. The absolute dollar increase was reflective of DataWorks' growing
installed customer base which subscribes to ongoing maintenance support and, to
a greater extent, an increase in revenues from support services generated by
DataWorks' expanding professional services staff.
Cost of Maintenance and Other Service Revenues -- DataWorks provides its
software maintenance, consulting and custom programming services through a
professional in-house staff. The cost of these services is primarily salaries
and a portion of DataWorks' overhead cost and, to a lesser extent, third party
product support costs. For the year 1997, cost of maintenance and other services
increased $7.2 million or 20% to $42.8 million compared to $35.6 million in
1996. As a percentage of related revenues, cost of maintenance and other
services decreased to 70% in 1997 compared to 74% in the prior year. Conversely,
the gross profit percentage increased to 30% in 1997 compared to 26% experienced
in 1996. The increase in absolute dollars was primarily attributable to the
continued expansion of DataWorks' professional service organization required to
support growth in new customer accounts which included the addition of 56
professional staff during 1997. The increase in gross profit percentage
experienced from maintenance and other service activities resulted from improved
productivity of DataWorks' consulting staff, particularly related to a
significant number of technical professionals hired and internally trained
during 1996.
Hardware Revenues -- Hardware revenues include computers (primarily servers),
data collection equipment, peripherals and related network and communications
products purchased from third party vendors and sold through DataWorks to its
customers. Hardware revenues decreased $2.1 million or 16% to $11.3 million in
1997 from $13.4 million in 1996. As a percentage of total revenues, hardware
revenues represented 8% in 1997 compared to 12% in the prior year. The reduction
in hardware revenues reflects an increasing tendency for new customers, who
purchase smaller systems, to purchase
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hardware directly from third party vendors. This tendency and the increased
pressure on profit margins in computer hardware caused by increased competition
has caused DataWorks to experience declining hardware revenues, and DataWorks
anticipates the trend to continue in the future.
Cost of Hardware Revenues -- The cost of hardware revenues consists primarily of
the cost of the computers (primarily servers), data collection equipment,
peripherals and related network and communications products purchased from third
party vendors. For the year 1997, the cost of hardware decreased $1.3 million or
13% to $8.6 million compared to $9.9 million in 1996. As a percentage of
hardware revenues, cost of hardware increased to 76% for 1997 compared to 74% in
1996. The decrease in absolute dollars was directly related to the decrease in
hardware revenues whereas the decrease in gross profit percentage was
attributable to the increased competition in the computer hardware market.
Recently, gross profit from hardware sales has not been a significant part of
DataWorks' total gross profit, and DataWorks believes this trend will continue.
Gross Profit -- Gross profit increased $21.5 million or 33% to $86.3 million in
1997 from $64.8 million in 1996 and increased as a percentage of total revenues
to 59% from 55%, respectively. These increases were due primarily to the
increase in software license revenues, (which carry a higher gross profit
percentage), as a percentage of total revenues, and to a lesser extent, the
increase in maintenance and other services revenues experienced in 1997.
Sales and Marketing Expenses -- Sales and marketing expenses consist of
salaries, commissions and related overhead costs for the sales and marketing
activities of DataWorks, including advertising, promotion, trade show
participation and public relations costs. Sales and marketing expenses increased
$10.8 million or 37% to $40.5 million in 1997 compared to $29.7 million in 1996
and increased as a percentage of revenues to 28% from 25% for the same period.
The increases in sales and marketing expenses were attributable to DataWorks'
direct sales force expansion and enhanced marketing efforts, travel, commissions
and other expenses directly related to the increased sales activity. In
conjunction with these efforts, DataWorks hired 47 additional sales and
marketing personnel during 1997, with an emphasis on increasing its European
presence. DataWorks expects sales and marketing expenses will continue to
increase in absolute dollars as DataWorks continues to expand its sales and
marketing programs.
General and Administrative Expenses -- General and administrative expenses
include costs of corporate services functions including accounting, human
resources and legal services, as well as the corporate executive staff. General
and administrative expenses increased $4.6 million or 32% to $19.3 million in
1997 compared to $14.7 million in 1996. As a percentage of total revenues,
general and administrative expenses remained unchanged at 13% for 1997 and 1996.
The increase in absolute dollars was attributable to DataWorks' continued
expansion into Europe, which included the business development and
infrastructure costs for regional offices in France, Nordic, Ireland and the
Netherlands, and expenses associated with the development and support of the
Evosoft distributorship for Germany and Hungary. Domestically, the increase was
due to additional personnel required to support the growth in DataWorks'
operations. DataWorks anticipates that these costs will continue to increase in
absolute dollars.
Research and Development Expenses -- Research and development expenses are
comprised primarily of salaries and a portion of DataWorks' overhead for its
in-house staff and
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amounts paid to outside consultants, as appropriate, to supplement the product
development efforts of its in-house staff. Research and development expenses are
charged to operations as incurred. Certain software production costs related to
DataWorks' Impresa for Backoffice product (previously called ECS), however, are
capitalized as required by Statement of Financial Accounting Standards No. 86,
"Accounting for Software Cost." In addition, DataWorks includes in capitalized
software purchases of research and development which has reached technological
feasibility. In connection with the Interactive acquisition, DataWorks acquired
certain Oracle-based products which has allowed DataWorks to redirect and focus
its Impresa for Backoffice product to the Microsoft-centric Sequel Server-based
product. As a result of the overlap in development efforts, DataWorks wrote-off
$3.6 million of capitalized software costs related to Impresa for Backoffice as
acquisition and related costs during 1997. As of December 31, 1997, the amount
capitalized for Impresa for Backoffice, totaled approximately $4.3 million.
Amortization of these costs will begin when the product is initially released,
which is expected sometime in 1999. DataWorks does not capitalize internally
developed software costs for any product other than Impresa for Backoffice.
Gross research and development expenditures increased $2.9 million or 25% to
$14.3 million in 1997 compared to $11.4 million in 1996, which represents 10% of
total revenues for each year. Gross research and development expenditures in
1997 and 1996 included amounts for capitalized software totaling $3.8 million
and $2.5 million, respectively. The increase in gross expenditures was due
primarily to the employment of additional development personnel and related
overhead costs required to support DataWorks' level of investment in research
and development and the translation and localization of DataWorks' software
which it believes are necessary to maintain a competitive position in its
targeted market. DataWorks anticipates continued increased expenditures on
research and development for both the enhancement of current products and the
addition of new products.
Acquisition and Related Costs -- Acquisition and related costs of $15.6 million
in 1997 represent the costs incurred in connection with the acquisition of
Interactive. These costs included investment banking fees, legal and accounting
fees and expenses necessary to integrate and combine the operations of the two
companies. At December 31, 1997, included in other accrued liabilities were
approximately $1.5 million of anticipated integration and severance costs
anticipated to be paid during 1998. There can be no assurance that DataWorks
will not incur additional charges in future periods to reflect costs associated
with the integration of the two companies. For the 1996 year, acquisition and
related costs of $3.7 million represent the transaction costs incurred in
connection with the acquisition of DCD.
Other Income (Expense), net -- Other net income (expense) consists primarily of
interest income and expense. For the 1997 year, interest income, net of interest
expense, increased $1.4 million to $1.6 million compared to $0.2 million in
1996. The net increase consisted primarily of additional interest and dividend
income earned from the investment of the net proceeds from DataWorks' follow-on
equity offering in December 1996. The increase in investment income was offset
in part by interest expense associated with DataWorks' line of credit borrowings
and other interest bearing long-term obligations. The majority of these
obligations were repaid in September 1997.
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Income Taxes -- DataWorks' effective income tax rates for 1997 and 1996 were
139% and 45%, respectively. The effective income tax rates were higher than the
statutory rates due primarily to the non-deductibility of certain Interactive
and DCD acquisition and related costs incurred in 1997 and 1996, respectively,
offset partially by the benefits realized from tax exempt investment income and
the utilization of net operating loss carryforwards and research tax credits.
The effective tax rate for such periods without the acquisition costs would have
been approximately 38%.
Net Income (Loss) -- The net loss of $0.8 million experienced for the 1997 year
included one-time acquisition costs of $15.6 million, with an offsetting income
tax benefit of approximately $3.7 million, incurred in connection with the
acquisition of Interactive. Net income without such one-time costs and related
tax consequences would have been approximately $11.1 million. Net income for
1996 of $4.5 million included similar one-time acquisition costs of $3.7
million, with an offsetting income tax benefit of approximately $0.8 million,
incurred in connection with the acquisition of DCD. Net income without such
one-time costs and related tax consequences would have been approximately $7.4
million.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
Total Revenues -- Total revenues increased $40.9 million or 54% to $116.9
million in 1996 from $76.0 million in 1995. This was primarily due to an
increase in software license sales to new accounts and an overall increase in
maintenance and other service revenues.
Software License Revenues -- Software license revenues increased $21.0 million
or 62% to $55.2 million in 1996 from $34.1 million in 1995. This growth
consisted of system sales and upgrades to new and existing customers and was
attributable, in Management's opinion, to increased marketing efforts, expansion
of the sales force and increased functionality in both the Vista and Vantage
products.
Cost of Software License Revenues -- The cost of software license revenues
increased $1.8 million or 38% to $6.6 million in 1996 from $4.8 million in 1995.
This increase was directly related to the increase in software license revenues.
The cost of software license revenues represented approximately 12% and 14% of
software license revenues for 1996 and 1995, respectively. This decrease in
software license cost, as a percentage of software license revenues, was due
primarily to database costs reductions on a per user basis.
Maintenance and Other Service Revenues -- Maintenance and other service revenues
increased $18.8 million or 64% to $48.3 million in 1996 from $29.5 million in
1995. This growth was due primarily to the increase in new customers and
increased capacity created by the growth in DataWorks' service organization.
Cost of Maintenance and Other Service Revenues -- Cost of maintenance and other
services increased $17.0 million or 91% to $35.6 million in 1996 from $18.6
million in 1995. This increase was primarily due to the continued expansion of
DataWorks' professional service organization required to support growth in new
customer accounts. Gross profit, as a percentage of maintenance and other
service revenues, decreased to 26% in 1996 from 37% in 1995. The decrease in
gross profit percentage was primarily attributable to lower utilization of
revenue-generating personnel in 1996 which resulted from re-educating the
existing service personnel on new releases of DataWorks' products and
orientating an unusually large number of newly hired service personnel on the
various current releases.
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Hardware Revenues -- Hardware revenues increased $1.0 million or 8% to $13.4
million in 1996 from $12.4 million in 1995. This represented approximately 12%
of total revenues in 1996 as compared to approximately 16% of total revenues in
1995, reflecting an increasing tendency for new customers, who purchase smaller
systems, to purchase hardware directly from third party vendors. This tendency
and the increased pressure on profit margins in computer hardware caused by
increased competition has caused DataWorks to experience declining hardware
revenues as a percentage of new account systems.
Cost of Hardware Revenues -- The cost of hardware revenues increased $0.7
million or 7% to $10.0 million in 1996 from $9.3 million in 1995. The increase
was directly related to the additional hardware revenues realized in 1996
compared to 1995. DataWorks attempts to maintain a 20% gross profit on hardware
sales. In the past, gross profit from hardware sales has not been a significant
part of DataWorks' total gross profit, and DataWorks believes this trend will
continue.
Gross Profit -- Gross profit increased $21.5 million or 50% to $64.8 million in
1996 from $43.3 million in 1995 primarily due to the increase in total revenues.
Gross profit as a percentage of total revenues decreased to 55% from 57% in 1996
as compared to 1995. This decrease was primarily attributable to higher
personnel and related costs coupled with a lower utilization of revenue
generating service personnel as mentioned above.
Sales and Marketing Expenses -- Sales and marketing expenses increased $9.8
million or 50% to $29.6 million in 1996 from $19.8 million in 1995 and decreased
as a percentage of revenues to 25% from 26% for the same period. The increase in
absolute dollars was attributable to DataWorks' expansion of its direct sales
force, increased marketing efforts, travel, commissions and other expenses
related directly to the increased sales activity.
General and Administrative Expenses -- General and administrative expenses
increased $4.6 million or 46% to $14.7 million in 1996 from $10.1 million in
1995. This increase was largely due to the increase in administrative staff and
the related facility costs necessary to support the growth of DataWorks,
including the operations of JIT which was acquired in December 1995. General and
administrative expenses in 1995 included $0.9 million of non-recurring
compensation expense recorded in connection with a final stock grant and related
cash bonus pursuant to a compensation arrangement with an officer of DataWorks.
As a percentage of total revenues, general and administrative expenses was
unchanged at 13% for 1996 and 1995.
Research and Development Expenses -- Research and development expenses are
comprised primarily of salaries and a portion of DataWorks' overhead for its
in-house staff and amounts paid to outside consultants, as appropriate, to
supplement the product development efforts of its in-house staff. Research and
development expenses are charged to operations as incurred. Certain software
production costs related to DataWorks' Impresa for Backoffice product, however,
are capitalized as required by Statement of Financial Accounting Standards No.
86, "Accounting for Software Cost." Amortization of these costs will begin when
the product is initially released. DataWorks does not capitalize internally
developed software costs for any product other than Impresa for Backoffice. As
of December 31, 1996, the amount capitalized for Impresa for Backoffice was
approximately $4.4 million.
Gross research and development expenditures increased $1.5 million or 15% to
$11.4 million in 1996 from $9.9 million in 1995, which represented 10% of total
revenues in 1996 compared to 13% in 1995. Gross research and development
expenditures in such
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<PAGE> 120
periods included amounts for capitalized software totaling $2.5 million and $1.3
million, respectively. Also included in 1995 was approximately $3.3 million of
research and development costs purchased, in connection with the acquisition of
JIT, which had not yet reached technological feasibility. The increase in gross
expenditures was due primarily to the employment of additional development
personnel and reflects DataWorks' belief that investments in research and
development are necessary to maintain a competitive position in its targeted
market.
Acquisition and Related Costs -- Acquisition and related costs of $3.7 million
in 1996 represent the transaction costs incurred in connection with the
acquisition of DCD. These costs included investment banking fees, legal and
accounting fees and expenses necessary to integrate and combine the operations
of the two companies.
ESOP Contributions and Dividends -- DCD established the ESOP in 1992 for the
benefit of all of its employees meeting certain eligibility requirements. The
ESOP was assumed by DataWorks in connection with its acquisition of DCD. In
1992, DCD obtained financing from a commercial bank and advanced proceeds to the
ESOP in order to purchase certain shares from a selling shareholder. See Note 4
of Notes to Consolidated Financial Statements.
Other Income and Expense -- DataWorks reported net interest income of $0.2
million in 1996 as compared to net interest expense of $1.3 million in 1995. The
net interest income for 1996 related primarily to the earnings from the
investment of a portion of the net proceeds from DataWorks' initial public
offering in October 1995 and its follow-on equity offering in December 1996
which was partially offset by interest expense from long-term debt incurred in
connection with the JIT acquisition. For the year 1995, net interest expense
consisted primarily of interest expense from long-term debt, the amortization of
debt discount and issue costs, and the ESOP obligation, net of a small amount of
interest income related to the investment of a portion of the net proceeds from
Interactive's initial public offering in May 1995. Substantially all outstanding
debt incurred in connection with prior financings was retired from the proceeds
of DataWorks' Series A Preferred Stock financing and the October 1995 initial
public offering. With the prepayment of such indebtedness, DataWorks recognized
an extraordinary expense of $1.0 million, net of income tax benefit, arising
from the write-off of unamortized debt issue cost, debt discount and other
related fees.
Income Taxes -- DataWorks' effective tax rate for 1996 was 45%, due primarily to
the non-deductibility of certain DCD acquisition and related costs. The
effective tax rate without the acquisition and related costs would have been
approximately 38%. DataWorks' effective tax rate for 1995 was 29%. DataWorks
realized tax benefits in 1995 from the deduction of certain tax credits and from
contributions and dividends paid on Common Stock held by the ESOP used to make
ESOP debt service payments, which reduced DataWorks' effective tax rate in such
period. See Note 8 of Notes to Consolidated Financial Statements.
Net Income (Loss) -- The net income of $4.5 million experienced for the 1996
year included one-time acquisition costs of $3.7 million, with an offsetting
income tax benefit of approximately $0.8 million incurred in connection with the
acquisition of DCD Corporation. Net income without such one-time costs and
related tax consequences would have been approximately $7.4 million.
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<PAGE> 121
LIQUIDITY AND CAPITAL RESOURCES
DataWorks generally finances its operations with cash generated from operations
and current cash and short-term investment balances. During the first nine
months of 1998, DataWorks' operating activities provided $0.1 million of cash.
This included $3.9 million in net income and $6.5 million of non-cash expenses
offset by $10.3 million of cash used for working capital purposes. The use of
working capital was attributable to an increase in account receivables and the
payments of year-end commissions and bonuses, accrued merger-related integration
costs, and prepaid third-party database and maintenance costs.
Cash provided by investing activities amounted to $5.0 million for the first
nine months of 1998. The increase was primarily due to the maturity of
short-term investments that totaled $20.6 million, net. Cash used in investing
activities included $4.8 million of capitalized software costs primarily related
to the Impresa for Backoffice development, $6.0 million of capital equipment
purchases, $2.2 million investment in JB Systems and the $1.7 million increase
of intangible assets primarily associated with the purchase of CTi and C-WAY.
Financing activities provided $0.9 million during the nine months ended
September 30, 1998. Proceeds from the exercise of stock options and from stock
purchased by employees through DataWorks' Employee Stock Purchase Plan provided
cash of $2.5 million. Capital lease obligations, repayment of DataWorks' line of
credit obligation and the payment of non-interest bearing earnout payables
during the first three quarters of 1998 reduced cash provided by financing
activities by $1.5 million.
As of September 30, 1998 DataWorks had $61.7 million working capital including
$23.8 million in cash and cash equivalents and $9.9 million in short-term
investments consisting of high-quality municipal bonds, U. S. government debt
securities and commercial paper. DataWorks' principal commitments as of
September 30, 1998 consisted primarily of facilities and equipment leases.
During September 1998, DataWorks entered into an agreement with a commercial
developer to lease buildings being developed and constructed by the commercial
developer. The buildings, which total approximately 160,000 square feet, will be
located in San Diego, California, and will serve as the corporate headquarters
for DataWorks. The lease agreement, which is for a ten-year period with two
five-year options to extend the term of the lease, is expected to commence in
September 1999. Total lease commitment approximates $33.6 million over the
initial lease term and $5.2 million in tenant improvements. DataWorks is also
obligated under certain software reseller agreements with third-party providers
to render quarterly or annual minimum licenses and maintenance support payments.
These payments amount to $0.9 million, $3.3 million, $2.1 million and $2.8
million for the remainder of 1998, 1999, 2000 and 2001, respectively.
DataWorks' capital resources may be used to support working capital
requirements, product development, capital equipment requirements and possible
acquisitions of businesses, products or technologies complementary to DataWorks'
current business. DataWorks believes that its current cash and short-term
investment balances, available lines of credit and cash flows from operations
are sufficient to fund its operations for at least the next 12 months. However,
during this period or thereafter, DataWorks may require additional financing.
There can be no assurance that such additional financing will be available on
terms favorable to DataWorks, or at all.
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<PAGE> 122
IMPACT OF INFLATION
DataWorks believes that inflation has not had a material effect on its
operations and considers the future risk to be minimal.
FOREIGN CURRENCY EXPOSURES
Revenues from international operations accounted for approximately 17% of
DataWorks' total revenues in 1997. International sales are predominantly
invoiced and paid in major foreign currencies which exposes DataWorks to the
impact of fluctuation of foreign currencies versus the U.S. dollar. The
operating impact of such fluctuations, however, is offset to the extent expenses
of DataWorks' international operations are incurred and paid in the respective
local currencies. Historically, foreign currency fluctuations have not had a
material effect on DataWorks' operations and management considers the future
risk to be minimal.
YEAR 2000 COMPLIANCE
DataWorks' State of Readiness -- Significant uncertainty exists in the software
industry concerning the potential effects from the Year 2000 issue associated
with the date codes used in computer software and hardware systems. The Year
2000 plan of DataWorks' internal support staff consists of four phases: (1)
complete an inventory of all mission critical systems employed in DataWorks,
including identification of hardware, software and embedded technology that
potentially may be affected by the Year 2000 issue; (2) categorize all mission
critical systems as compliant, compliant with minor issues, or non-compliant;
(3) identify steps to bring all compliant with minor issues and non-compliant
products into compliance through modifications and/or upgrades; and (4)
implement all necessary modifications and/or upgrades. All four phases include
evaluation of DataWorks' products, its information technology systems and its
non-information technology systems which include embedded technology, such as
microcomputers. DataWorks believes it has largely completed the first two phases
described above. Although it will continue efforts to identify issues in this
regard, DataWorks currently estimates that phases three and four will be
completed by mid-1999. In addition, DataWorks is dependent on products and
services provided by third parties and must rely on those third parties to
assess the impact of the Year 2000 issue on the technology they have supplied
and to take any necessary corrective action. DataWorks has obtained Year 2000
compliance documentation from the majority of these third-party suppliers and
expects to receive the remaining documentation by mid-1999.
Costs -- Over the last two years, DataWorks has upgraded or replaced the
majority of its mission critical information and non-information technology
systems through its normal capital procurement programs. To date, no specific
expenditures have been made as a result of the Year 2000. Costs incurred by
DataWorks to remediate the Year 2000 problems within its own products included
software development efforts accomplished by its internal development staff.
These incremental costs were expensed as incurred to research and development
consistent with other on-going product enhancement efforts and were not
considered material. DataWorks expects to fund any future costs through cash
flows from operations and does not expect these costs to have a material adverse
effect on DataWorks' liquidity or results of operations. The cost of the project
is based on DataWorks' estimates, which make numerous assumptions about future
events. There can
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<PAGE> 123
be no assurance that these estimates will be correct and actual costs could
differ materially from these estimates.
Most Reasonably Likely Worst Case Scenarios for DataWorks -- DataWorks will
continue to devote resources to address its Year 2000 issues. However, there can
be no assurance that DataWorks' products do not contain undetected Year 2000
problems. Further, there can be no assurance that DataWorks' assessment of
third-party suppliers and vendors will be accurate. Furthermore, it has been
widely reported that a significant amount of litigation surrounding business
interruptions will arise out of Year 2000 issues. It is uncertain whether, or to
what extent, DataWorks may be affected by such litigation. Additionally,
third-party software and computer technology used internally may materially
impact DataWorks if not Year 2000 compliant. DataWorks' operations may be at
risk if its suppliers and other third-party service providers fail to adequately
address the problem. This issue could result in system failures, data
corruption, the generation of erroneous information, and other significant
disruptions of business activities. Based on currently available information,
management does not believe that the Year 2000 matters discussed above related
to internal systems or products sold to customers will have a material adverse
impact on DataWorks' financial condition or overall trends in results of
operations. However, to the extent that either DataWorks or a third-party vendor
or service provider on which DataWorks relies does not achieve Year 2000
readiness, DataWorks' results of operations may be adversely impacted. The
amount of such an impact cannot be quantified at present.
DataWorks' Contingency Plan -- DataWorks does not have a contingency plan.
DataWorks is in the process of evaluating the need for a contingency plan and
expects to finish the evaluation by early 1999.
Forward-looking Statements -- DataWorks has made forward-looking statements
regarding its Year 2000 Program. Those statements include: DataWorks'
expectations about when it will be "Year 2000 ready"; DataWorks' expectations
about the impact of the Year 2000 problem on its ability to continue to operate
on and after January 1, 2000; the readiness of its suppliers, the costs
associated with the Year 2000 and worst case scenarios. DataWorks has described
many of the risks associated with those forward-looking statements above.
However, DataWorks wishes to caution the reader that there are many factors that
could cause its actual results to differ materially from those stated in the
forward-looking statements. This is especially the case because many aspects of
the Year 2000 Program are outside its control such as the performance of many
third-party suppliers. All of these factors made it impossible for DataWorks to
ensure that it will be able to resolve all Year 2000 problems in a timely manner
to avoid materially adversely affecting it operations or business or exposing
DataWorks to third-party liability.
RECENT ACCOUNTING PRONOUNCEMENTS
DataWorks has determined that the adoption of recently issued Statements of
Financial Accounting Standards ("SFAS") No. 129, "Disclosure of Information
about Capital Structure," No. 130, "Reporting Comprehensive Income," No. 131,
"Disclosures about Segments of an Enterprise and Related Information," and SOP
97-2, "Software Revenue Recognition," will not have a material impact on its
financial condition or results of operations. SFAS No. 129 and SOP 97-2 are
effective for fiscal 1998, and SFAS Nos. 130 and 131 are effective for fiscal
1999.
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DATAWORKS MANAGEMENT AND EXECUTIVE COMPENSATION
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers of DataWorks who will serve as a director or executive
officer of Platinum are Stuart W. Clifton and Norman R. Farquhar. See "Approval
of the Merger and Related Transactions -- Interests of Certain Persons." Their
ages and positions with DataWorks as of October 13, 1998 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Stuart W. Clifton....... 54 Chairman of the Board, President and Chief
Executive Officer
Norman R. Farquhar...... 52 Executive Vice President, Chief Financial
Officer and Director
</TABLE>
Stuart W. Clifton has served as President, Chief Executive Officer and as
Chairman of the Board of Directors of DataWorks since January 1987. Between 1971
and 1986, Mr. Clifton held various management positions at Triad Systems
Corporation, a vertical distribution software company, in which he was involved
from its inception, most recently as Executive Vice President and General
Manager. Mr. Clifton also serves on the Board of Directors of Star Buffet, Inc.,
a food-service company.
Norman R. Farquhar has served as Executive Vice President and Chief Financial
Officer of DataWorks since February 1996 and as a director of DataWorks since
August 1995. From April 1993 to December 1995, Mr. Farquhar served as Senior
Vice President, Chief Financial Officer and Secretary of Wonderware Corporation,
a manufacturer of software for the industrial automation industry. From December
1991 to April 1993, he was Vice President of Finance and Chief Financial Officer
of MTI Technology Corporation, a developer of system-managed storage solutions.
From November 1987 to December 1991, he was Senior Vice President and Chief
Financial Officer of Amperif Corporation, a manufacturer of cache-based data
storage subsystems. Mr. Farquhar is also a member of the Board of Directors of
Alteer Corporation, a medical software company, and a member of the Board of
Directors and Chairman of the Audit Committee of Artecon, Inc., a manufacturer
of host-and network-attached data storage products.
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<PAGE> 125
EXECUTIVE COMPENSATION
The following table shows for the fiscal years ended December 31, 1995, 1996 and
1997 certain compensation awarded or paid to, or earned by, Messrs. Clifton and
Farquhar.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION(1) AWARDS(2)
---------------------------------- -------------
OTHER ANNUAL SECURITIES ALL OTHER
SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION FISCAL YEAR ($) ($) ($) OPTIONS(#)(3) ($)(4)
- ----------------------------- ----------- -------- -------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Stuart W. Clifton............ 1997 $271,981 $270,000 -- -- $12,947
Chairman of the Board, 1996 $272,000 $192,500(5) -- -- $14,560
President and Chief 1995 $250,000 $301,700(5) -- 30,000 $14,738
Executive Officer
Norman R. Farquhar........... 1997 $200,000 $150,000 -- $ 4,832
Executive Vice President, 1996 $183,333 $ 80,000 -- 165,000 $ 2,213
Chief Financial Officer 1995 -- -- -- 19,230 --
and Director
</TABLE>
- -------------------------
(1) As permitted by rules promulgated by the SEC, no amounts are shown with
respect to certain perquisites where such amounts do not exceed the lesser
of 10% of the sum of the amount in the salary and bonus columns or $50,000.
(2) None of the named executive officers held restricted stock awards as of
October 13, 1998.
(3) All options were granted under the 1995 Equity Incentive Plan (the
"Incentive Plan").
(4) Includes the value of excess group term life insurance premiums paid on
behalf of Messrs. Clifton and Farquhar.
(5) Mr. Clifton's bonus for 1995 includes advances of $91,700 made in 1994 and
approved by the Board as a 1995 bonus in June 1995. Mr. Clifton's bonus for
1995 includes a bonus of $210,000 for services rendered in 1995, which bonus
was paid in 1996. Mr. Clifton's bonus for 1996 includes advances of $90,000
made in 1994 and approved by the Board as a 1996 bonus in February 1997. Mr.
Clifton's bonus for 1997 includes advances of $90,000 made in 1997 and
approved by the Board as a 1997 bonus in 1997.
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OPTION GRANTS IN LAST FISCAL YEAR
DataWorks grants options to its executive officers under its 1995 Equity
Incentive Plan, as amended. The following tables show, for the fiscal year ended
December 31, 1997, certain information regarding options granted to, exercised
by, and held at year end by, Messrs. Clifton and Farquhar:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------------------- ANNUAL RATES OF
NUMBER OF PERCENT OF MARKET STOCK PRICE
SECURITIES TOTAL OPTIONS VALUE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR ON OPTION TERM(4)(5)
OPTIONS EMPLOYEES IN BASE PRICE GRANT EXPIRATION ---------------------
NAME GRANTED(1) FISCAL YEAR(2) ($/SHARE)(3) DATE DATE 5% 10%
---- ---------- -------------- ------------ ------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Stuart W. Clifton... 70,000(5)(6) 11.1% $15.30 $14.25 04/17/02 295,897 653,856
120,000(6) 19.0% $15.88 $15.88 12/18/07 1,200,150 3,028,950
Norman R.
Farquhar.......... 30,000(7) 4.8% $15.30 $14.25 04/17/07 289,170 729,810
</TABLE>
- -------------------------
(1) The options will fully vest upon a change in control of DataWorks as defined
in the Incentive Plan unless the acquiring company assumes the options or
substitutes similar options. The term of the options is generally ten years.
(2) Based on options to purchase 631,000 shares granted to employees, including
named executive officers, under the Incentive Plan in fiscal 1997.
(3) On November 9, 1998, DataWorks repriced such options to provide for an
exercise price of $9.131. See "Certain Transactions of DataWorks."
(4) Calculated on the assumption that the market value of the underlying stock
increases at the stated values, compounded annually. The total appreciation
of the options over a ten-year term at 5% and 10% is 63% and 159%,
respectively. These amounts do not reflect DataWorks' estimate or projection
of future stock price performance. Actual gains, if any, are dependent on
the actual future performance of DataWorks Common Stock and no gain to the
optionee is possible unless the stock price increases over the option term,
which will benefit all stockholders.
(5) The term of Mr. Clifton's option to purchase 70,000 shares is five years.
The total appreciation of these options over a five-year term at 5% and 10%
is 28% and 61%, respectively.
(6) Such options become exercisable over a four-year period, with 25% of the
shares subject to such options vesting on the first anniversary of the
respective grant dates and the remainder vesting monthly thereafter.
(7) Such option becomes exercisable over a three-year period with shares vesting
in 36 equal monthly installments.
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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information indicating that Messrs. Clifton and
Farquhar did not exercise stock options during the fiscal year ended December
31, 1997. The following table also sets forth the number and value of securities
underlying unexercised options held by Messrs. Clifton and Farquhar at December
31, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS AT DECEMBER 31, THE-MONEY OPTIONS AT
SHARES VALUE 1997(1) DECEMBER 31, 1997 (2)
ACQUIRED REALIZED --------------------------- ---------------------------
NAME ON EXERCISES ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stuart W. Clifton.... 0 -- 21,666 198,334 $198,244 $876,506
Norman R. Farquhar... 0 -- 110,580 103,650 $979,549 $629,589
</TABLE>
- -------------------------
(1) Includes both "in-the-money" and "out-of-the-money" options. "In-the-money"
options are options with an exercise price below the fair market value of
DataWorks Common Stock.
(2) Fair market value of DataWorks Common Stock as of December 31, 1997
($19.875) minus the exercise price.
EMPLOYMENT AGREEMENTS
In May 1994, Stuart W. Clifton entered into an executive employment agreement
with DataWorks which was amended and restated in December 1997. Under the terms
of the amended and restated agreement, Mr. Clifton receives an annual salary of
no less than $325,000 and bonuses and equity compensation as determined by the
Compensation Committee of the Board of Directors. In addition, the agreement
provides that during each quarter, Mr. Clifton is entitled to advances in the
amount of $33,000, provided that the aggregate amount of all outstanding
advances does not exceed $264,000. The agreement provides that advances be
repaid by deduction from any annual bonus awarded to Mr. Clifton and net
proceeds from any sale of DataWorks' securities held by him. If the advances for
any calendar year are not repaid from his annual bonus awarded for such year, or
from his net proceeds from sales of DataWorks' securities owned by him during
such year, the advances will commence bearing interest on the date bonuses are
determined by the Compensation Committee during such year. All outstanding
advances, including interest accrued thereon, are due and payable in full five
years from the effective date of the agreement. In fiscal 1997, the Compensation
Committee, with Mr. Clifton's consent, decided to discontinue such bonus
advances to Mr. Clifton. The principal amount of such advances outstanding as of
December 31, 1997 was $97,205.
If Mr. Clifton's employment is terminated by DataWorks without cause, under the
agreement he is entitled to receive as severance two times his then-current base
salary plus two times his most recent annual bonus, payable in equal monthly
installments over the 12-month period following the date of termination,
continued health insurance benefits and automatic forgiveness by DataWorks of
any outstanding advances in principal sum not exceeding $198,000 and all accrued
interest thereon. If Mr. Clifton's employment is terminated by DataWorks for
cause or he resigns, all of his executive compensation will cease immediately,
no severance benefits will be provided and all outstanding advances and accrued
interest thereon will be automatically due and payable in full. In addition, in
the event that, at the time of, or within 12 months following, a merger or other
change in
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<PAGE> 128
control of DataWorks which occurs after December 19, 1998, DataWorks or its
successor terminates Mr. Clifton's employment without cause or Mr. Clifton
voluntarily terminates his employment for reason or for no reason, all options
then owned by Mr. Clifton shall immediately accelerate and become fully vested
and exercisable. However, upon consummation of the Merger, Mr. Clifton's
employment agreement with Platinum will become effective and will amend and
restate Mr. Clifton's employment agreement with DataWorks. See "Approval of the
Merger and Related Transactions -- Interests of Certain Persons."
The principal amount of all outstanding advances paid to Mr. Clifton pursuant to
his executive employment contract as of October 13, 1998 was $97,205.
Pursuant to an offer letter dated January 17, 1996, Norman R. Farquhar receives
an annual base salary of $200,000, which is subject to review and adjustment by
the compensation committee, and a cash bonus of $50,000 for the fiscal year
beginning January 1, 1996. Upon commencement of his employment in February 1996,
Mr. Farquhar was granted an option to purchase 135,000 shares of Common Stock at
an exercise price equal to the fair market value on the date of grant, which
option vests monthly over a three-year period. If Mr. Farquhar's employment is
terminated without cause, he will receive an amount equal to his then annual
base salary payable in equal monthly installments over the 12-month period
following the date of termination in consideration for which Mr. Farquhar
agrees, for one year following such termination, to (i) not solicit any
employee, consultant or independent contractor of the DataWorks to terminate his
or her relationship with DataWorks in order to become an employee, consultant or
independent contractor to or for any other person or business, (ii) be available
to DataWorks on a transitional basis and (iii) not become financially interested
in, be employed by or have any connection with a competitor of DataWorks.
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<PAGE> 129
CERTAIN TRANSACTIONS OF DATAWORKS
Messrs. Clifton and Farquhar are each subject to employment agreements with
DataWorks. See "DataWorks Management and Executive Compensation -- Employment
Agreements."
Primarily as a result of the DataWorks Board's concern regarding the retention
of employees in light of the decline in DataWorks' share price during the third
quarter of 1998, in October 1998, DataWorks implemented an option exchange
program applicable to all employees of DataWorks, including executive officers.
Under the program, qualified employees who held outstanding options with an
exercise price of greater than $5.00 per share were eligible to exchange such
options for new options to purchase the same number of shares at an exercise
price of $9.131 per share, which is equal to the fair market value of Platinum's
Common Stock on November 9, 1998, the effective time of such repricing,
multiplied by the Exchange Ratio. Subject to certain exceptions, the newly
issued options are not exercisable until one year after the date of issuance, at
which time they will be vested to the same extent as the old options surrendered
therefor would have been.
DataWorks has entered into indemnity agreements with certain officers and
directors which provide, among other things, that DataWorks will indemnify such
officer or director, under the circumstances and to the extent provided for
therein, for expenses, damages, judgments, fines and settlements he may be
required to pay in actions or proceedings which he is or may be made a party by
reason of his position as a director, officer or other agent of DataWorks, and
otherwise to the full extent permitted under Delaware law and DataWorks' Bylaws.
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<PAGE> 130
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF DATAWORKS
The following table sets forth certain information with respect to beneficial
ownership of DataWorks Common Stock as of October 13, 1998, by: (i) each person
known by DataWorks to beneficially own 5% or more of the outstanding shares of
DataWorks Common Stock, (ii) each of DataWorks' directors, (iii) each of
DataWorks' executive officers and (iv) all executive officers and directors of
DataWorks as a group.
<TABLE>
<CAPTION>
PERCENT OF SHARES OF
SHARES OF DATAWORKS PLATINUM
DATAWORKS COMMON COMMON
COMMON STOCK STOCK
STOCK OUTSTANDING BENEFICIALLY
BENEFICIALLY PRIOR TO THE OWNED AFTER
NAME OWNED(1) MERGER THE MERGER
---- ------------ ------------ -------------
<S> <C> <C> <C>
Stuart W. Clifton..................... 1,040,422(2) 6.74% 826,095
Norman R. Farquhar.................... 134,854(3) * 107,074
Rick E. Russo......................... 37,412(4) * 29,705
Bradley J. Thies...................... 0 * 0
Nathan W. Bell........................ 299,555(5) 2.04% 237,846
Tony N. Domit......................... 16,309(6) * 12,949
William P. Foley II................... 296,943(7) 2.02% 235,772
Ronald S. Parker...................... 34,979(8) * 27,773
Roy Thiele-Sardina.................... 16,109(6) * 12,790
All executive officers and directors
as a group (9 persons).............. 1,876,583(9) 12.7% 1,490,004
</TABLE>
- -------------------------
* Less than one percent.
(1) This table is based upon information supplied by officers, directors and
principal shareholders. Unless otherwise indicated in the footnotes to this
table and subject to community property laws where applicable, the Company
believes that each of the shareholders named in this table has sole voting
and investment power with respect to the shares indicated as beneficially
owned. Applicable percentages are based on 14,399,602 shares outstanding on
October 13, 1998, adjusted as required by rules promulgated by the
Securities and Exchange Commission (the "SEC").
(2) Includes 94,373 shares subject to options exercisable within 60 days of
October 13, 1998.
(3) Includes 134,854 shares subject to options exercisable within 60 days of
October 13, 1998.
(4) Includes 22,946 shares subject to options exercisable within 60 days of
October 13, 1998.
(5) Includes 69 shares issuable upon exercise of a warrant held by Mr. Bell,
3,458 shares issuable upon exercise of a warrant held by Pacific Mezzanine
Fund, L.P. ("PMF") and 325,097 shares held by PMF. Mr. Bell is a general
partner of Pacific Private Capital, which is the general partner of PMF. He
disclaims beneficial ownership of securities held by PMF, except to the
extent of his pro rata interest therein. Includes 8,054 shares subject to
options exercisable within 60 days of October 13, 1998.
125
<PAGE> 131
(6) Includes 16,109 shares subject to options exercisable within 60 days of
October 13, 1998.
(7) Includes 170,000 shares held by Fidelity National Title Insurance Company of
Pennsylvania ("Fidelity Pennsylvania") and 90,000 shares held by Fidelity
National Title Insurance Company ("Fidelity"). Mr. Foley is an executive
officer and director of Fidelity National Financial, Inc., which is
affiliated with both Fidelity Pennsylvania and Fidelity. Includes 14,443
shares subject to options exercisable within 60 days of October 13, 1998.
(8) Includes 13,662 shares issuable upon exercise of a warrant held by Parker,
Mulcahy & Associates ("PMA"). Mr. Parker is Chairman of the Board of PMA. He
disclaims beneficial ownership of securities held by PMA. Includes 8,054
shares subject to options exercisable within 60 days of October 13, 1998.
(9) Includes 602,217 shares held by entities affiliated with directors and
officers of the Company, 314,942 shares subject to options held by officers
and directors exercisable within 60 days of October 13, 1998 and 17,189
shares issuable upon exercise of warrants held by directors and entities
affiliated with directors. See notes (2) through (8).
126
<PAGE> 132
COMPARISON OF PLATINUM AND DATAWORKS
STOCKHOLDERS' RIGHTS
INTRODUCTION
Platinum and DataWorks are each incorporated under the laws of the State of
Delaware. The holders of shares of DataWorks Common Stock, whose rights as
stockholders are currently governed by Delaware law, DataWorks' Certificate and
the DataWorks Bylaws, will, upon the exchange of their shares pursuant to the
Merger, become holders of shares of Platinum Common Stock, and their rights as
such will be governed by Delaware law, Platinum's Certificate and the Amended
and Restated Bylaws of Platinum (the "Platinum Bylaws"). The material
differences between the rights of holders of shares of DataWorks Common Stock
and the rights of holders of shares of Platinum Common Stock result from
differences in their governing corporate documents and are summarized below.
The following summary does not purport to be a complete statement of the rights
of holders of shares of Platinum Common Stock under applicable Delaware law,
Platinum's Certificate and Platinum Bylaws or a comprehensive comparison with
the rights of the holders of shares of DataWorks Common Stock under applicable
Delaware law, DataWorks' Certificate and DataWorks Bylaws or a complete
description of the specific provisions referred to herein. The identification of
specific differences is not meant to indicate that other equally or more
significant differences do not exist. This summary is qualified in its entirety
by reference to the Delaware General Corporation Law (the "DGCL") and the
governing corporate documents of Platinum and DataWorks, to which holders of
shares of DataWorks Common Stock are referred.
AUTHORIZED CAPITAL STOCK
Platinum's Certificate provides that Platinum has authority to issue (i)
60,000,000 shares of Platinum Common Stock, par value $.001 per share and (ii)
5,000,000 shares of preferred stock, par value $.001 per share. DataWorks
Certificate provides that DataWorks has the authority to issue (i) 50,000,000
shares of DataWorks Common Stock, par value $.001 per share and (ii) 5,000,000
shares of preferred stock, par value $.001 per share.
BOARD OR STOCKHOLDER APPROVED PREFERRED STOCK
The Platinum Board has the authority to issue the Platinum Preferred Stock in
one or more series and to fix the rights, preferences, privileges and
restrictions granted to or imposed upon any unissued and undesignated shares of
Preferred Stock and to fix the number of shares constituting any series and the
designations of such series, without any further vote or action by the
stockholders. Of the 5,000,000 authorized shares of Platinum Preferred Stock,
500,000 shares have been designated Series A Junior Participating Preferred
Stock, 2,490,000 shares have been designated Series B Preferred Stock and
231,915 have been designated Series C Preferred Stock. The DataWorks Board has
the authority to issue the DataWorks Preferred Stock in one or more series and
to fix the rights, preferences, privileges and restrictions granted to or
imposed upon any unissued and undesignated shares of Preferred Stock and to fix
the number of shares constituting any series and the designations of such
series, without any further vote or action by the stockholders. Of the 5,000,000
authorized shares of DataWorks Preferred Stock, 300,000 shares have been
designated Series A Junior Participating Preferred Stock in connection with the
DataWorks Rights Plan.
127
<PAGE> 133
VOTING RIGHTS
The DGCL states that, unless a corporation's certificate of incorporation or,
with respect to clauses (ii) and (iii), the bylaws, specify otherwise, (i) each
share of its capital stock is entitled to one vote, (ii) a majority of voting
power of the shares entitled to vote, present in person or represented by proxy,
shall constitute a quorum at a stockholders' meeting and (iii) in all matters
other than the election of directors, the affirmative vote of a majority of the
voting power of shares, present in person or represented by proxy at the meeting
and entitled to vote on the subject matter, shall be the action of the
stockholders. The holders of shares of Platinum Common Stock are entitled to one
vote per share on all matters to be voted on by the stockholders of Platinum.
The holders of Platinum Series C Preferred Stock are entitled to vote with the
holders of Common Stock on an as-converted basis as a single class with such
shares of Common Stock. (Each share of Platinum Series C Preferred Stock is
convertible into ten (10) shares of Platinum Common Stock.) The holders of
shares of DataWorks Common Stock are entitled to one vote per share on all
matters to be voted on by the stockholders of DataWorks.
NUMBER OF DIRECTORS
Under the DGCL, unless a corporation's certificate of incorporation specifies
the number of directors, such number shall be fixed by, or in the manner
provided in, its bylaws. If a corporation's certificate of incorporation
expressly authorizes its board of directors to amend its bylaws, its board of
directors may change the authorized number of directors by an amendment to the
corporation's bylaws, if fixed therein, or in such manner as is provided
therein. If such certificate of incorporation specifies the number of directors,
the number of directors can only be changed by amending the certificate of
incorporation. The Platinum Bylaws provide that the number of members of the
Platinum Board shall be not fewer than four nor more than seven, such number to
be fixed from time to time by resolution of the Board. The number of directors
on the Platinum Board is currently five. The DataWorks Bylaws specify that the
number of directors shall be fixed in accordance with DataWorks' Certificate.
DataWorks' Certificate provides that the number of directors shall be fixed
exclusively by one or more resolutions adopted by the Board of Directors. The
number of directors on the DataWorks Board is currently seven.
ELECTION OF BOARD OF DIRECTORS
The DGCL provides that, unless the certificate of incorporation or the bylaws
specify otherwise, a corporation's directors shall be elected by a plurality of
the votes of the shares present in person or represented by proxy at the meeting
and entitled to vote on the election of directors. Under the DGCL, a
corporation's certificate of incorporation may provide that stockholders of a
corporation can elect directors by cumulative voting. Neither Platinum's
Certificate nor DataWorks' Certificate provides for cumulative voting.
VOTE ON MERGER, CONSOLIDATION OR SALE OF SUBSTANTIALLY ALL ASSETS
The DGCL generally requires approval of any merger, consolidation or sale of
substantially all the assets of a corporation at a meeting of stockholders by
vote of the holders of a majority of all outstanding shares of the corporation
entitled to vote thereon. The certificate of incorporation of a Delaware
corporation may provide for a greater vote. Neither Platinum's Certificate nor
DataWorks' Certificate contains any provision requiring a greater vote with
respect to business combinations. See "Anti-Takeover Protection."
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<PAGE> 134
SPECIAL MEETINGS OF STOCKHOLDERS
Under the DGCL, special stockholder meetings of a corporation may be called by
its board of directors and by any person or persons authorized to do so by its
certificate of incorporation or bylaws. Under the Platinum Bylaws, special
meetings of the stockholders may be called by the Chairman of the Board, if any,
the President or the Board of Directors. Written notice of a special meeting
shall state the date, time, place and purpose(s) of the meeting. DataWorks'
Certificate and Bylaws provide that special meetings of the stockholders may be
called, for any purpose or purposes, by the Chairman of the Board, the Chief
Executive Officer or President, or by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of authorized directors.
Special meetings called by any person or persons other than the Board of
Directors shall be in writing specifying the general nature of the business
proposed to be transacted.
STOCKHOLDER ACTION BY WRITTEN CONSENT
Under the DGCL, any action by a corporation's stockholders must be taken at a
meeting of such stockholders, unless a consent in writing setting forth the
action so taken is signed by the stockholders having not less than the minimum
number of votes necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Actions by written
consent, however, may not be taken if otherwise provided for in the certificate
of incorporation. Both Platinum's Certificate and DataWorks' Certificate
prohibit stockholder action by written consent.
AMENDMENT OF CERTIFICATE OF INCORPORATION
The DGCL allows amendment of a corporation's certificate of incorporation if its
board of directors adopts a resolution setting forth the amendment proposed and
declaring its advisability and the stockholders thereafter approve such proposed
amendment, either at a special meeting called by the board for the purpose of
approval of such amendment by the stockholders or, if so directed by the board,
at the next annual stockholders' meeting. At any such meeting, the proposed
amendment generally must be approved by a majority of the outstanding shares
entitled to vote. The holders of the outstanding shares of a class are entitled
to vote as a separate class upon a proposed amendment, whether or not entitled
to vote thereon by the certificate of incorporation, if the amendment would
increase or decrease the aggregate number of authorized shares of such class,
increase or decrease the par value of the shares of such class or alter or
change the powers, preferences or special rights of the shares of such class so
as to affect them adversely. If any proposed amendment would alter or change the
powers, preferences or special rights of one or more series of any class so as
to affect them adversely, but not affect the entire class, then only the shares
of the series so affected by the amendment will be considered a separate class
for the purposes of a vote on the amendment. Under the DGCL, a corporation's
certificate of incorporation also may require, for action by the board or by the
holders of any class or series of voting securities, the vote of a greater
number or proportion than is required by the DGCL and the provision of the
certificate of incorporation requiring such greater vote may also provide that
such provision cannot be altered, amended or repealed except by such greater
vote. Platinum's Certificate contains no provisions requiring a vote greater
than that specified in the DGCL to amend Platinum's Certificate. DataWorks'
Certificate contains a provision requiring the affirmative vote of at least
sixty-six and two-thirds (66 2/3%) of the voting power of all of the
then-outstanding shares of the voting stock,
129
<PAGE> 135
voting together as a single class, to alter, amend or repeal certain sections of
DataWorks' Certificate.
AMENDMENT OF BYLAWS
Under the DGCL, the power to adopt, amend or repeal a corporation's bylaws
resides with the stockholders entitled to vote thereon, and with the directors
of such corporation if such power is conferred upon the board of directors by
the certificate of incorporation. The Platinum Bylaws authorize the Platinum
Board to alter, amend, change, add to or repeal the Platinum Bylaws. DataWorks'
Certificate authorizes the DataWorks Board to adopt, amend or repeal the
DataWorks Bylaws. DataWorks' Certificate also provides that the DataWorks Bylaws
may be altered or amended or new Bylaws adopted by the affirmative vote of at
least sixty-six and two-thirds percent (66 2/3%) of the voting power of all of
the then-outstanding shares of the voting stock of Dataworks entitled to vote at
an election of directors.
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The DGCL provides that a corporation may limit or eliminate a director's
personal liability for monetary damages to the corporation or its stockholders
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to such corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for paying or
approving a stock repurchase in violation of Section 174 of the DGCL or (iv) for
any transaction from which the director derived an improper personal benefit.
Both Platinum's Certificate and DataWorks' Certificate provide for elimination
of personal liability subject to the statutory exceptions.
Under the DGCL, directors and officers as well as other employees and
individuals may be indemnified against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement in connection with specified
actions, suits or proceedings, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation as a
derivative action) if they acted in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interests of the corporation,
and, with respect to any criminal action or proceeding, if they had no
reasonable cause to believe their conduct was unlawful. Platinum's Certificate
and Bylaws and DataWorks' Certificate and Bylaws provide to directors and
officers of Platinum and DataWorks, respectively, indemnification to the fullest
extent provided by law. Additionally, both the Platinum and DataWorks Bylaws
provide that expenses incurred by a person in defending a civil or criminal
action, suit or proceeding by reason of the fact that he or she is a director or
officer, may be paid in advance of the final disposition of such action, suit or
proceeding, upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he or she
is not entitled to be indemnified by the company as provided.
PAYMENT OF DIVIDENDS
The DGCL permits the payment of dividends and the redemption of shares out of a
corporation's surplus. Under the DGCL, if a dividend is paid out of capital
surplus, stockholders need not be notified, and the dividends may, in certain
cases, also be paid out of net profits for the fiscal year in which declared or
out of net profits for the preceding
130
<PAGE> 136
fiscal year. The Platinum Bylaws have no provisions limiting the payment of
dividends. The DataWorks Bylaws provide that the directors may, subject to the
provisions of DataWorks' Certificate, declare and pay dividends pursuant to the
DGCL. The DataWorks Board may set apart out of any of the funds available for
dividends a reserve or reserves for certain purposes and may modify or abolish
any such reserve.
ANTI-TAKEOVER PROTECTION
Under the DGCL, a merger or consolidation generally must be approved by the
affirmative vote of the holders of a majority of all of the outstanding shares
of stock entitled to vote thereon. However, no stockholder approval is required
if the acquiring corporation owns 90% or more of the outstanding shares of the
acquired corporation.
In addition to the DGCL's general requirements, Section 203 of the DGCL,
"Business Combinations with Interested Stockholders," prohibits a corporation
that does not opt out of its provisions from entering into certain business
combination transactions with "interested stockholders" (generally defined to
include persons beneficially owning 15% or more of the corporation's outstanding
capital stock) unless certain super-majority votes are obtained. Neither
Platinum nor DataWorks has opted out of Section 203 in the their respective
Charters or Bylaws.
On March 9, 1994, Platinum adopted and approved a shareholder rights agreement
and declared a dividend distribution of one Right for each share of Platinum
Common Stock outstanding at the close of business on April 14, 1994, and
authorized the issuance of one Right, subject to adjustment, for each share of
Platinum Common Stock issued between April 14, 1994 and the time of certain
triggering events. The Rights have certain anti-takeover effects and are
intended to discourage coercive or unfair takeover tactics and to encourage any
potential acquirer to negotiate a price fair to all Platinum stockholders. The
Rights may cause substantial dilution to an acquiring party that attempts to
acquire Platinum on terms not approved by the Platinum Board, but they will not
interfere with any negotiated merger or other business combination.
In the event that any person or group acquires beneficial ownership of twenty
percent (20%) or more of the outstanding shares of Platinum Common Stock, each
holder of a Right, other than a Right beneficially owned by the acquiring
person, may exercise that Right. Each Right entitles the registered holder to
purchase from the Corporation a unit consisting of one on-hundredth of a share
of Series A Junior Participating Preferred Stock at a purchase price of $70.00
per unit, subject to adjustment.
On October 13, 1998, DataWorks adopted and approved a similar shareholder rights
plan and declared a dividend of one Right for each share of DataWorks Common
Stock outstanding at the close of business on October 28, 1998, and further
authorized and directed the issuance of one Right with respect to each share of
Common Stock that shall become outstanding between October 28, 1998 and the time
of certain triggering events. The DataWorks Rights also have certain
anti-takeover effects and are intended to discourage coercive or unfair takeover
tactics and to encourage any potential acquirer to negotiate a price fair to all
DataWorks stockholders. The Rights may cause substantial dilution to an
acquiring party that attempts to acquire DataWorks on terms not approved by the
DataWorks Board, but they will not interfere with any negotiated merger or other
business combination.
131
<PAGE> 137
In the event that any person or group acquires beneficial ownership of fifteen
percent (15%) or more of the outstanding shares of DataWorks Common Stock, each
holder of a Right, other than a Right beneficially owned by the acquiring
person, may exercise the Rights, upon surrender of a Right Certificate (as
defined in the DataWorks Rights Agreement) to the Rights Agent, together with
payment of the Purchase Price for each one one-hundredth of a Preferred Share as
to which the Rights are exercised. The Purchase Price for each one one-hundredth
of a Preferred Share pursuant to the exercise of a Right shall initially be
$60.00 subject to adjustment.
APPRAISAL RIGHTS
Under the DGCL, the holders of shares of DataWorks Common Stock are not entitled
to appraisal rights in connection with the Merger because the DataWorks Common
Stock is designated as a national market system security on Nasdaq.
LEGAL MATTERS
The validity of the shares of Platinum Common Stock to be issued pursuant to the
Merger and the federal income tax consequences of the Merger will be passed upon
for Platinum by Wilson Sonsini Goodrich & Rosati Professional Corporation, Palo
Alto, California. Certain legal matters in connection with the Reorganization
Agreement and the federal income tax consequences of the Merger will be passed
upon for DataWorks by Cooley Godward LLP, San Diego, California.
EXPERTS
The consolidated financial statements of Platinum at June 30, 1997 and 1998 and
for the three years in the period ended June 30, 1998 appearing in its Annual
Report on
Form 10-K, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated by reference
herein. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of DataWorks at December 31, 1996 and 1997
and for each of the three years in the period ended December 31, 1997 included
in this Registration Statement and related Joint Proxy Statement/Prospectus,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein which, as to the year ended
December 31, 1995, is based in part on the report of PricewaterhouseCoopers LLP,
independent accountants. The consolidated financial statements referred to above
are included in reliance upon such reports given upon the authority of such
firms as experts in accounting and auditing.
It is expected that representatives of Ernst & Young LLP will be present at the
Platinum and DataWorks Special Meetings where they will have an opportunity to
respond to appropriate questions of stockholders and to make a statement if they
so desire.
STOCKHOLDER PROPOSALS
Pursuant to Rule 14a-8 under the Exchange Act, Platinum stockholders may present
proper proposals for inclusion in Platinum's proxy statement and for
consideration at the
132
<PAGE> 138
next annual meeting of its stockholders by submitting such proposals to Platinum
in a timely manner. As noted in Platinum's proxy statement relating to its 1998
Annual Meeting of Stockholders, in order to be so included for the 1999 annual
meeting, stockholder proposals must be received by Platinum no later than May
26, 1999, and must otherwise comply with the requirements of Rule 14a-8.
Pursuant to recent changes to the proxy rules, unless a stockholder who wishes
to bring a matter before the stockholders at DataWorks' 1999 Annual Meeting of
Stockholders notifies DataWorks of such matter prior to March 27, 1999,
management will have discretionary authority to vote all shares for which it has
proxies in opposition to such matter.
133
<PAGE> 139
DATAWORKS CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors......... F-2
Report of PricewaterhouseCoopers LLP, Independent
Accountants............................................ F-3
Consolidated Balance Sheets as of December 31, 1997 and
1996................................................... F-4
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995....................... F-5
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1997, 1996 and 1995........... F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995....................... F-7
Notes to Consolidated Financial Statements................ F-8
UNAUDITED FINANCIAL STATEMENTS
Unaudited Consolidated Balance Sheet as of September 30,
1998................................................... F-27
Unaudited Consolidated Statements of Operations for the
nine months ended September 30, 1998 and 1997.......... F-28
Unaudited Consolidated Statements of Cash Flows for the
nine months ended September 30, 1998 and 1997.......... F-29
Notes to Unaudited Financial Statements................... F-30
</TABLE>
F-1
<PAGE> 140
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
DataWorks Corporation
We have audited the accompanying consolidated balance sheets of DataWorks
Corporation as of December 31, 1997 and 1996, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of DataWorks' management. Our responsibility is to
express an opinion on these financial statements based on our audits. We did not
audit the financial statements of DCD Corporation, which statements reflect
total revenues of $11,482,867 for the year ended December 31, 1995. Those
statements were audited by other auditors whose reports have been furnished to
us, and our opinion, insofar as it relates to data included for DCD Corporation,
is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of DataWorks Corporation at December 31,
1997 and 1996, and the consolidated results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
San Diego, California
January 26, 1998
F-2
<PAGE> 141
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
DCD Corporation
In our opinion, the statements of operations, of stockholders' equity and of
cash flows of DCD Corporation (not presented separately herein) present fairly,
in all material respects, the results of its operations and its cash flows for
the year ended December 31, 1995, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above. We have not audited the
financial statements of DCD Corporation for any period subsequent to December
31, 1995.
/s/ PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota
April 5, 1996
F-3
<PAGE> 142
DATAWORKS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 17,418 $ 50,825
Short-term investments, available-for-sale............. 30,503 --
Accounts receivable, net of allowance for doubtful
accounts of $2,360 and $1,527 at December 31, 1997
and 1996, respectively.............................. 53,617 40,427
Deferred income taxes.................................. 3,377 3,098
Other current assets................................... 6,354 6,798
-------- --------
Total current assets........................... 111,269 101,148
Equipment, furniture and fixtures, net................... 8,184 7,070
Capitalized software costs, net.......................... 4,807 5,034
Intangible assets, net................................... 6,083 6,201
Deferred income taxes.................................... -- 1,134
Other assets............................................. 793 615
-------- --------
Total assets................................... $131,136 $121,202
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................... $ 11,802 $ 10,178
Accrued compensation................................... 10,476 5,069
Income taxes payable................................... 1,732 1,387
Deferred revenue....................................... 14,271 9,939
Short-term borrowings and current portion of long-term
obligations......................................... 721 2,013
Other accrued liabilities.............................. 5,611 5,862
-------- --------
Total current liabilities...................... 44,613 34,448
Deferred income taxes.................................... 964 2,801
Long-term obligations, less current portion.............. 1,493 1,864
Commitments
Shareholders' equity:
Common shares, no stated par value:
Authorized shares -- 25,000
Issued and outstanding shares -- 13,967 and 13,570
at December 31, 1997 and 1996, respectively....... 81,458 78,703
Retained earnings...................................... 2,445 3,249
Cumulative foreign currency translation adjustments.... 163 137
-------- --------
Total shareholders' equity............................... 84,066 82,089
-------- --------
Total liabilities and shareholders' equity............... $131,136 $121,202
======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 143
DATAWORKS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Revenues:
Software licenses............................ $ 74,742 $ 55,169 $34,129
Maintenance and other services............... 60,868 48,327 29,519
Hardware..................................... 11,353 13,443 12,356
-------- -------- -------
Total revenues................................. 146,963 116,939 76,004
Cost of revenues:
Software licenses............................ 9,222 6,584 4,772
Maintenance and other services............... 42,818 35,632 18,577
Hardware..................................... 8,638 9,966 9,309
-------- -------- -------
Total cost of revenues......................... 60,678 52,182 32,658
-------- -------- -------
Gross profit................................... 86,285 64,757 43,346
Operating expenses:
Sales and marketing.......................... 40,456 29,632 19,817
General and administrative................... 19,346 14,659 10,017
Research and development..................... 10,505 8,918 8,648
Acquisition and related costs................ 15,565 3,656 --
ESOP contribution............................ -- -- 446
-------- -------- -------
Total operating expenses....................... 85,872 56,865 38,928
-------- -------- -------
Income from operations......................... 413 7,892 4,418
Other income (expense), net.................... 1,629 247 (1,250)
-------- -------- -------
Income before income taxes and extraordinary
item......................................... 2,042 8,139 3,168
Provision for income taxes..................... 2,846 3,642 932
-------- -------- -------
Income (loss) before extraordinary item........ (804) 4,497 2,236
Extraordinary item, net of income taxes........ -- -- (1,017)
-------- -------- -------
Net income (loss).............................. $ (804) $ 4,497 $ 1,219
======== ======== =======
Basic earnings (loss) per share before
extraordinary item........................... $ (0.06) $ 0.39 $ 0.32
Extraordinary item............................. -- -- (0.15)
-------- -------- -------
Net earnings (loss) per share -- basic......... $ (0.06) $ 0.39 $ 0.17
======== ======== =======
Diluted earnings (loss) per share before
extraordinary item........................... $ (0.06) $ 0.38 $ 0.29
Extraordinary item............................. -- -- (0.13)
-------- -------- -------
Net earnings (loss) per share -- diluted....... $ (0.06) $ 0.38 $ 0.16
======== ======== =======
Common shares outstanding -- basic............. 13,811 11,392 6,929
======== ======== =======
Common shares outstanding -- diluted........... 13,811 11,954 7,807
======== ======== =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 144
DATAWORKS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
PREFERRED SHARES COMMON SHARES RETAINED CURRENCY SHAREHOLDERS'
----------------- ----------------- EARNINGS RECEIVABLE TRANSLATION EQUITY
SHARES AMOUNT SHARES AMOUNT (DEFICIT) FROM ESOP ADJUSTMENTS (DEFICIT)
------ ------- ------ ------- --------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1995...................... -- $ -- 6,635 $ 649 $(1,818) $(1,088) $ 27 $(2,230)
Issuance of common stock
to comply with certain
antidilution
provisions.............. -- -- 2 -- -- -- -- --
Issuance of warrants to
purchase shares of
common stock............ -- -- -- 29 -- -- -- 29
Issuance of Series A
preferred stock net..... 865 5,938 -- -- -- -- -- 5,938
Issuance of common stock
upon exercise of
warrants and stock
options................. -- -- 1,229 1,532 -- -- -- 1,532
Conversion of Series A
preferred stock upon
initial public
offering................ (865) (5,938) 865 5,938 -- -- -- --
Issuance of common stock
upon initial public
offering, net........... -- -- 2,566 24,195 -- -- -- 24,195
Dividends declared on
common stock............ -- -- -- -- (649) -- -- (649)
Repayments of ESOP
receivable.............. -- -- -- -- -- 1,088 -- 1,088
Compensation relating to
the granting of stock
options and stock
bonus................... -- -- 91 466 -- -- -- 466
Repurchase of common
stock................... -- -- (431) (400) -- -- -- (400)
Tax benefit related to
stock options
exercised............... -- -- -- 62 -- -- -- 62
Foreign currency
translation
adjustment.............. -- -- -- -- -- -- (10) (10)
Net income................ -- -- -- -- 1,219 -- -- 1,219
---- ------- ------ ------- ------- ------- ---- -------
Balance at December 31,
1995...................... -- -- 10,957 32,471 (1,248) -- 17 31,240
Issuance of common stock
upon exercise of stock
options................. -- -- 335 226 -- -- -- 226
Issuance of common stock
upon exercise of
warrants................ -- -- 14 122 -- -- -- 122
Issuance of common stock
in follow-on public
offering, net........... -- -- 2,113 41,330 -- -- -- 41,330
Issuance of common stock
under Employee Stock
Purchase Plan........... -- -- 154 1,231 -- -- -- 1,231
Tax benefit related to
exercise of stock
options................. -- -- -- 3,180 -- -- -- 3,180
Compensation relating to
the granting of stock
options................. -- -- -- 161 -- -- -- 161
Repurchase of common
stock................... -- -- (3) (18) -- -- -- (18)
Foreign currency
translation
adjustment.............. -- -- -- -- -- -- 120 120
Net income................ -- -- -- -- 4,497 -- -- 4,497
---- ------- ------ ------- ------- ------- ---- -------
Balance at December 31,
1996...................... -- -- 13,570 78,703 3,249 -- 137 82,089
Issuance of common stock
upon exercise of stock
options................. -- -- 217 458 -- -- -- 458
Issuance of common stock
upon exercise of
warrants................ -- -- 1 3 -- -- -- 3
Issuance of common stock
under Employee Stock
Purchase Plan........... -- -- 179 1,672 -- -- -- 1,672
Tax benefit related to
exercise of stock
options................. -- -- -- 533 -- -- -- 533
Compensation relating to
the granting of stock
options................. -- -- -- 89 -- -- -- 89
Foreign currency
translation
adjustment.............. -- -- -- -- -- -- 26 26
Net loss.................. -- -- -- -- (804) -- -- (804)
---- ------- ------ ------- ------- ------- ---- -------
Balance at December 31,
1997...................... -- $ -- 13,967 $81,458 $ 2,445 $ -- $163 $84,066
==== ======= ====== ======= ======= ======= ==== =======
</TABLE>
See accompanying notes.
F-6
<PAGE> 145
DATAWORKS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).......................................... $ (804) $ 4,497 $ 1,219
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization of intangible assets......... 5,172 3,474 1,742
Provision for doubtful accounts............................ 1,813 1,206 1,020
Amortization of debt discount and debt issue costs......... -- -- 214
Non-cash acquisition and related costs..................... 6,641 -- --
Reduction of advances to officers charged to operating
expenses................................................. -- -- 109
Compensation relating to the granting of options and stock
bonus.................................................... 89 161 466
Purchased research and development......................... -- -- 3,250
Write-off of software license.............................. -- -- 235
Deferred income taxes...................................... (449) 774 (1,605)
Extraordinary item, non-cash portion....................... -- -- 886
Other...................................................... -- (48) 85
Changes in operating assets and liabilities:
Accounts receivable...................................... (15,273) (15,106) (10,711)
Write-off of bad debts................................... (980) (791) (206)
Other current assets..................................... (1,159) (2,801) (1,684)
Accounts payable......................................... 1,624 1,917 820
Accrued compensation..................................... 5,407 2,161 707
Deferred revenue......................................... 4,332 1,081 2,314
Other accrued liabilities and income taxes payable....... 94 1,737 2,032
-------- -------- --------
Net cash provided by (used in) operating activities........ 6,507 (1,738) 893
INVESTING ACTIVITIES
Purchases of equipment, furniture and fixtures............. (4,902) (4,757) (2,499)
Purchases of short-term investments........................ (54,014) -- --
Sale of short-term investments............................. 23,511 -- --
Additions to capitalized software costs.................... (3,785) (2,979) (1,334)
Increase in intangible assets.............................. (296) -- (310)
Advances to officers....................................... -- -- (224)
Acquisition of businesses.................................. -- -- (1,500)
Other assets............................................... (178) 8 (115)
-------- -------- --------
Net cash used in investing activities...................... (39,664) (7,728) (5,982)
FINANCING ACTIVITIES
Net decrease in obligations under lines of credit.......... (479) -- (2,751)
Proceeds from notes payable................................ 908 1,200 1,250
Repayments of notes payable................................ (2,838) (1,377) (6,978)
Deferred debt issue costs.................................. -- -- (164)
Repayment of payables to shareholder....................... -- -- (50)
Repurchase of common stock................................. -- (18) (400)
Issuance of series A preferred stock, net.................. -- -- 4,688
Dividend paid on class A common stock...................... -- -- (649)
Issuance of common stock, net.............................. 2,133 42,909 24,402
-------- -------- --------
Net cash (used in) provided by financing activities........ (276) 42,714 19,348
Effect of exchange rate on cash............................ 26 105 34
-------- -------- --------
Net (decrease) increase in cash and cash equivalents....... (33,407) 33,353 14,293
Cash and cash equivalents at beginning of year............. 50,825 17,472 3,179
-------- -------- --------
Cash and cash equivalents at end of year................... $ 17,418 $ 50,825 $ 17,472
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest..................... $ 355 $ 290 $ 1,389
======== ======== ========
Cash paid during the year for income taxes................. $ 2,511 $ 1,875 $ 930
======== ======== ========
NON-CASH TRANSACTIONS:
Note payable for business acquisition...................... $ -- -- $ 2,500
======== ======== ========
Earnouts payable for business acquisitions................. $ 746 $ 573 $ --
======== ======== ========
</TABLE>
See accompanying notes.
F-7
<PAGE> 146
DATAWORKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
DataWorks Corporation ("DataWorks" or "the Company") is a California corporation
which develops, markets, implements and supports open systems,
client/server-based Enterprise Resource Planning software for mid-range discrete
manufacturing companies.
As described more fully in Note 2, on September 29, 1997, the Company acquired
Interactive Group, Inc. ("Interactive"). The acquisition was accounted for as a
pooling of interests and, accordingly, the consolidated financial statements
reflect the combined financial position and operating results for the Company
and Interactive for all periods presented. In addition, the consolidated
financial statements include the accounts of DataWorks' wholly-owned
subsidiaries DCD Corporation ("DCD") and DataWorks (Europe) Ltd. All significant
intercompany accounts and transactions have been eliminated in consolidation.
On December 31, 1995, Interactive acquired all of the outstanding shares of
Just-In-Time Enterprise Systems, Inc. ("JIT") from Fourth Shift Corporation
("FSC") of Minneapolis, Minnesota, a publicly traded manufacturing software
company (Note 2). This acquisition was accounted for under the purchase method
of accounting. The results of operations of JIT are included in the consolidated
statements of operations since the date of the acquisition.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly liquid investments with
remaining maturities, when acquired, of three months or less. Included in cash
and cash equivalents are $4,803,000 and $42,388,000 of debt securities
classified as available-for-sale stated at cost which approximates fair value at
December 31, 1997 and 1996, respectively. DataWorks evaluates the financial
strength of institutions at which significant investments are made and believes
the related credit risk is limited to an acceptable level.
SHORT-TERM INVESTMENTS, AVAILABLE-FOR-SALE
Management determines the appropriate classification of its investments in
marketable debt and equity securities at the time of purchase and re-evaluates
such designation as of each balance sheet date. The Company has classified all
securities as available-for-sale in accordance with Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities. Available-for-sale securities are carried at amounts which
approximate fair value, with unrealized gains and losses reported net of
F-8
<PAGE> 147
DATAWORKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
related taxes as a separate component of shareholders' equity. Realized gains
and losses and declines in value judged to be other-than-temporary, if any, on
available-for-sale securities are included in earnings and computed using the
specific identification cost method. At December 31, 1997, short-term
investments include those securities with maturities less than one year from the
balance sheet date.
EQUIPMENT, FURNITURE AND FIXTURES
Equipment, furniture and fixtures are recorded at cost. DataWorks provides for
depreciation on equipment, furniture and fixtures using the straight-line method
over the estimated useful lives of the assets, generally three to seven years.
Leasehold improvements are amortized over the lesser of their estimated useful
life or term of the lease.
CAPITALIZED SOFTWARE COSTS
In accordance with Statement of Financial Accounting Standards No. 86 Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,
costs incurred in the research and development of new software products and
significant enhancements to existing software products are charged against
operations as incurred until the technological feasibility of the product has
been established. After technological feasibility has been established, direct
production costs, including programming and testing, are capitalized.
Amortization of these costs will begin when the product becomes available for
sale.
Capitalized software costs are amortized using the greater of the amount
computed using the ratio of current product revenues to estimated total product
revenues or the straight-line method over the estimated economic lives of the
products. It is possible that estimated total product revenues, the estimated
economic life of the product, or both will be reduced in the future. As a
result, the carrying amount of capitalized software costs may be reduced in the
future, which could result in material charges to the results of operations in
future periods.
In connection with the Interactive acquisition, the Company acquired certain
Oracle-based products which has allowed the Company to redirect and focus its
Impresa for Backoffice product (previously called ECS) to the Microsoft centric
sequel server-based product. As a result of the overlap in development efforts,
the Company wrote-off capitalized software costs related to Impresa for
Backoffice totaling approximately $3.6 million and included this charge in
acquisition and related costs during 1997.
INTANGIBLE ASSETS
Intangible assets arose from the acquisitions of various companies, including
Madic, JIT and GP2 (see Note 2). The excess of cost over the fair value of the
net assets purchased has been allocated to goodwill, customer list, non-compete
agreements, trademarks and trade names, assembled work forces, and developed
technology. These intangible assets are being amortized over estimated useful
lives ranging from three to ten years.
F-9
<PAGE> 148
DATAWORKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOREIGN CURRENCY TRANSLATION
The Company has determined that the local currency of the United Kingdom
operations is the functional currency. Accordingly, assets and liabilities are
translated at the current exchange rate at the balance sheet date, and revenues
and expenses are translated at the average exchange rate in effect during the
period. Translation adjustments are reported as a separate component of
shareholders' equity. Realized gains and losses related to foreign currency
transactions are reported as income or expense in the period presented. Such
gains and losses were not material for any period presented.
REVENUE RECOGNITION
Revenue is derived from licensing software, the sale of hardware, maintenance,
implementation and installation, consulting and custom programming services.
Contract revenue related to software licenses and hardware sales is recognized
upon delivery of the products, provided that no significant vendor obligations
remain and the collection of the related receivable is deemed probable, net of
estimated future returns. Maintenance contract revenue is recognized ratably
over the period the service is provided. Revenue from implementation and
installation, consulting and custom programming is billed and recognized as the
services are provided. Amounts billed but not recognized are deferred in the
accompanying consolidated balance sheets. DataWorks' policy is in compliance
with the provisions of the American Institute of Certified Public Accountants
Statement of Position No. 91-1, Software Revenue Recognition.
CONCENTRATION OF CREDIT RISK
DataWorks sells its products primarily to manufacturing companies located
throughout the United States and, to a lesser extent, Europe. Credit is extended
based on an evaluation of the customer's financial condition and terms of
DataWorks' sales normally require a significant up-front cash deposit. DataWorks
estimates its potential losses on trade receivables on an ongoing basis and
provides for anticipated losses in the period in which the revenues are
recognized. Actual losses may differ from DataWorks' estimates, which could have
a material impact on DataWorks' results of operations in future periods. For the
three years ended December 31, 1997, the Company had no individual customer
which accounted for 10% or more of total annual revenues.
EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board (FASB) issued Statement No.
128, Earnings Per Share (SFAS 128). SFAS 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options. Diluted earnings per share is similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts presented, and where appropriate, have been restated to conform to the
SFAS 128 requirements.
F-10
<PAGE> 149
DATAWORKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ACCOUNTING STANDARD ON IMPAIRMENT OF LONG-LIVED ASSETS
Effective January 1, 1996, DataWorks adopted Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of. The adoption in 1996 had no material effect
on the consolidated financial statements.
NEW ACCOUNTING STANDARDS
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, Reporting Comprehensive Income (SFAS 130), which the Company is required to
adopt for 1998. This statement will require the Company to report in the
financial statements, in addition to net income, comprehensive income and its
components including foreign currency items and unrealized gains and losses on
certain investments in debt and equity securities. Upon adoption of SFAS 130,
the Company is also required to reclassify financial statements for earlier
periods provided for comparative purposes. The adoption of SFAS 130 will not
have a significant impact on the Company's consolidated financial statement
disclosures.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, Disclosures about Segments of an Enterprise and Related Information (SFAS
131), which the Company is required to adopt for its 1998 annual financial
statements. This statement establishes standards for reporting information about
operating segments in annual financial statements and requires selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. Under SFAS 131,
operating segments are to be determined consistent with the way that management
organizes and evaluates financial information internally for making operating
decisions and assessing performance. The Company has not determined the impact
of the adoption of this new accounting standard on its consolidated financial
statement disclosures.
In November 1997, the American Institute of Certified Public Accountants issued
Statement of Position No. 97-2, Software Revenue Recognition (SOP 97-2), which
the Company is required to adopt for agreements entered into with customers
beginning in 1998. This statement provides guidance for recognizing revenue
related to sales by software vendors.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform to the current
year presentation.
2. BUSINESS COMBINATIONS
On September 29, 1997, the Company acquired Interactive Group, Inc., a Delaware
corporation, and its wholly-owned subsidiaries Interactive (UK) Ltd., JIT and
Interactive France which develops, markets, implements and supports integrated
business information systems that enable discrete manufacturers to manage their
enterprise-wide information
F-11
<PAGE> 150
DATAWORKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
requirements. Under the terms of the acquisition agreement, stockholders of
Interactive received 3,709,165 shares of common stock of the Company based on an
exchange ratio of 0.8054 shares for each share of Interactive common stock they
owned at the time the acquisition was consummated. In addition, options and
warrants to acquire Interactive common stock were converted as a result of the
acquisition into equivalent options and warrants to acquire the Company's common
stock, based upon the exchange ratio. The acquisition has been accounted for
under the pooling-of-interests method of accounting. Accordingly, the historical
financial statements for periods prior to the consummation of the combination
have been restated as though the companies had been combined for all periods
presented.
In connection with the acquisition of Interactive, the Company recorded one-time
acquisition and related costs during the third quarter of 1997 of $15.6 million.
These costs included investment banking fees, legal and accounting fees, certain
capitalized software and asset write-offs and various estimated expenses
associated with the integration of operations. At December 31, 1997,
approximately $1.5 million of anticipated integration and severance costs are
included in other accrued liabilities.
On September 27, 1996, the Company acquired DCD, a Minnesota corporation, which
designs, develops, markets and supports management software for use by lower
tier mid-range manufacturers in the make-to-order manufacturing industry. In
connection with the acquisition, the shareholders of DCD received 1,763,704
shares of common stock of the Company. The acquisition has been accounted for
under the pooling-of-interests method of accounting. Accordingly, the historical
financial statements for periods prior to the consummation of the combination
have been restated as though the companies had been combined for all periods
presented. In connection with the acquisition of DCD, the Company recorded
one-time acquisition and related costs of $3.7 million which consisted of
investment banking fees, legal and accounting fees and certain expenses
associated with the integration of operations.
Total revenues and net income (loss) of DataWorks and Interactive for the
periods preceding the acquisition were as follows (in thousands):
<TABLE>
<CAPTION>
DATAWORKS INTERACTIVE COMBINED
--------- ----------- --------
<S> <C> <C> <C>
Six months ended June 30, 1997
Total revenues..................... $34,002 $28,442 $ 62,444
Net income (loss).................. 2,963 367 3,330
Year ended December 31, 1996
Total revenues..................... 60,748 56,191 116,939
Net income......................... 3,236 1,261 4,497
Year ended December 31, 1995
Total revenues..................... 43,011 32,993 76,004
Extraordinary item, net of income
taxes........................... (1,017) -- (1,017)
Net income (loss).................. 2,357 (1,138) 1,219
</TABLE>
In January 1996, DataWorks purchased certain assets of Arrowkey Systems
("Arrowkey") for $450,000. In accordance with the terms of the agreement, the
Company paid an
F-12
<PAGE> 151
DATAWORKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
additional $75,000 in January 1997 and may be required to pay up to $75,000 in
January 1998 and 1999 if certain sales levels of Arrowkey software products are
achieved (as defined). The owner of Arrowkey is an employee of DataWorks.
On December 31, 1995, Interactive acquired all of the outstanding shares of JIT
in exchange for $1.5 million of cash, a $2.5 million note payable, and the
assumption of net liabilities of $4.3 million. These liabilities do not take
into account any potential losses associated with litigation that JIT is subject
to in the normal course of business. In the opinion of management, the
resolution of these matters will not have a material adverse effect on the
Company's results of operations or financial position.
In addition, $1.2 million of contingent consideration is payable in two
installments due January 1998 and 1999 based on a percentage of revenues
generated from the JIT software. During the years ended December 31, 1997 and
1996, Interactive accrued $282,000 and $415,000, respectively, under the earnout
calculation and recorded corresponding increases to its intangible assets
related to the purchase price of JIT (Note 6). A summary of the purchase price
and the allocation of costs to the assets acquired from JIT is as follows as of
December 31, 1995 (in thousands):
<TABLE>
<S> <C>
Current assets................................. $2,165
Fixed assets................................... 863
Intangible assets.............................. 2,455
In-process research and development............ 3,250
------
$8,733
======
</TABLE>
During 1995, following the acquisition of JIT, Interactive wrote-off the
purchased in-process research and development and this amount is included in
research and development expense.
On July 25, 1997, Interactive acquired substantially all of the outstanding
shares of Genie Productique/Gestion de Production ("GP2"), subsequently renamed
Interactive France, a small provider of ERP software solutions to the
manufacturing mid-market in France, in exchange for approximately $420,000 plus
an additional $167,000 of contingent consideration payable over three years
based on a percentage of revenues generated primarily from Interactive France's
installed base of customers. The transaction was accounted for as a purchase and
DataWorks' statements of operations include the results of operations of
Interactive France from the date of acquisition. The excess of cost over the
fair value of the net assets purchased has been allocated to customer base and
assembled work force.
F-13
<PAGE> 152
DATAWORKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. FINANCIAL STATEMENT INFORMATION
EQUIPMENT, FURNITURE AND FIXTURES
Equipment, furniture and fixtures consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
-------- -------
<S> <C> <C>
Computer equipment........................ $ 11,133 $ 9,051
Office furniture, fixtures and equipment
and other............................... 7,574 5,337
-------- -------
18,707 14,388
Less accumulated depreciation and
amortization............................ (10,523) (7,318)
-------- -------
$ 8,184 $ 7,070
======== =======
</TABLE>
INTANGIBLE ASSETS
Intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
------- -------
<S> <C> <C>
Customer list.............................. $ 3,300 $ 3,300
Goodwill................................... 1,531 1,531
Covenant not to compete.................... 960 810
Assembled workforce........................ 1,013 831
Trademarks and trade names................. 457 457
Customer base.............................. 990 563
Developed technology....................... 1,053 770
Other...................................... 68 68
------- -------
9,372 8,330
Less accumulated amortization.............. (3,289) (2,129)
------- -------
$ 6,083 $ 6,201
======= =======
</TABLE>
OTHER INCOME (EXPENSE), NET
Other income (expense) consists of the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996 1995
------ ----- -------
<S> <C> <C> <C>
Interest and dividend income....... $1,944 $ 579 $ 292
Interest expense................... (315) (332) (1,256)
Other expense...................... -- -- (286)
------ ----- -------
$1,629 $ 247 $(1,250)
====== ===== =======
</TABLE>
F-14
<PAGE> 153
DATAWORKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. SHORT-TERM INVESTMENTS
At December 31, 1997, the amortized cost of short-term investments classified as
available-for-sale was as follows (in thousands):
<TABLE>
<CAPTION>
AMORTIZED
COST
---------
<S> <C>
U.S. government debt securities.............. $ 2,739
Tax exempt commercial paper.................. 1,007
Municipal bonds.............................. 26,757
-------
$30,503
=======
</TABLE>
The amortized cost of these securities approximates fair value at December 31,
1997. No significant gains or losses were realized during the years ended
December 31, 1997 and 1996.
5. EMPLOYEE STOCK OWNERSHIP PLAN AND RECAPITALIZATION
DCD established an ESOP in 1992 for the benefit of all employees meeting certain
eligibility requirements. In 1992, DCD obtained financing of $2,550,000 from a
commercial bank and advanced the proceeds to the ESOP which purchased 899,640
shares of common stock from a DCD stockholder. The ESOP note payable was secured
by the assets of DCD and a $500,000 personal guarantee of the selling
stockholder. During 1995, the ESOP note payable and "Receivable from ESOP" were
paid in full.
DCD recorded the funds advanced to the ESOP as a "Receivable from ESOP" which
was a reduction of stockholders' equity. As DCD made discretionary contributions
and dividends to the ESOP, these amounts were used to repay the "Receivable from
ESOP" and the related ESOP note payable. As the principal amount of the loan was
repaid, the "Receivable from ESOP" was reduced accordingly. The amount of the
repayments during 1995 was $1,087,503.
During 1995, DCD paid $56,408 of interest expense, contributed $438,477 to the
ESOP and incurred $7,073 of other ESOP related expenses. Also during 1995, DCD
paid dividends of $649,026 on common stock owned by the ESOP. At December 31,
1995, the ESOP had released and allocated 899,640 shares.
F-15
<PAGE> 154
DATAWORKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
------ ------
<S> <C> <C>
8.75% note payable to Fourth Shift
Corporation; principal and interest payable
in twelve equal quarterly installments of
$239,130 each, commencing on April 1, 1996;
paid September 30, 1997.................... $ -- $1,934
Revolving line of credit agreement with Royal
Bank of Scotland plc (the "Royal Bank of
Scotland Agreement"); interest payable
monthly at the bank's prime rate, plus 2%
(9.25% at December 31, 1997); expires July
31, 1998................................... 721 --
Revolving line of credit agreement; interest
payable monthly; repaid and cancelled
September 30, 1997......................... -- 1,200
Non-interest bearing earnout payable to FSC;
due in varying amounts until January 31,
1999....................................... 697 415
Non-interest bearing earnout payable to GP2;
due in varying amounts until July 25,
2000....................................... 420 --
Other........................................ 376 328
------ ------
2,214 3,877
Less current portion of long-term
obligations................................ (721) (2,013)
------ ------
$1,493 $1,864
====== ======
</TABLE>
Maturities of long-term obligations are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
<S> <C>
1998........................................... $ 721
1999........................................... 1,264
2000........................................... 200
2001........................................... 26
2002 and thereafter............................ 3
------
$2,214
======
</TABLE>
The Royal Bank of Scotland Agreement is limited to borrowings of 800,000 British
pounds (approximately $1.3 million at December 31, 1997) and is secured by the
accounts receivable of Interactive (U.K.) Ltd. The Royal Bank of Scotland
Agreement contains restrictive covenants, including limitations on the payment
of dividends. At December 31, 1997, the Company was in compliance with all such
covenants.
In June 1997, the Company amended its banking facility agreement to be
uncommitted. This facility provides for borrowings up to a maximum of $6 million
and bears interest at the bank's prime rate (8.5% at December 31, 1997). This
uncommitted arrangement can
F-16
<PAGE> 155
DATAWORKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
be withdrawn by the lender at any time, at their option. At December 31, 1997,
DataWorks had no borrowings outstanding under the banking facility.
7. EXTRAORDINARY ITEM
In connection with the repayment of a senior term note payable in September 1995
and the settlement of subordinated notes payable in August and November 1995,
the related unamortized debt issue costs and debt discount were written off. In
addition, DataWorks also incurred prepayment and other cash charges related to
the payment of the senior term note. In accordance with generally accepted
accounting principles, these write-offs and cash charges, net of the related
income tax benefits, have been reported as extraordinary items in the
accompanying consolidated statements of operations. The composition of the
extraordinary items are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
Write-off of unamortized debt issue costs and
debt discount............................... $ 886
Cash prepayment penalty and other cash
charges..................................... 838
------
1,724
Income tax benefit............................ (707)
------
$1,017
======
</TABLE>
8. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Current:
Federal........................... $2,324 $1,827 $1,113
Foreign........................... 611 561 398
State............................. 717 480 269
------ ------ ------
3,652 2,868 1,780
Deferred:
Federal........................... (622) 720 (779)
Foreign........................... -- -- --
State............................. (184) 54 (69)
------ ------ ------
(806) 774 (848)
------ ------ ------
$2,846 $3,642 $ 932
====== ====== ======
</TABLE>
F-17
<PAGE> 156
DATAWORKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred income taxes are provided for temporary differences in recognizing
certain income and expense items for financial reporting and tax reporting
purposes. Significant components of deferred tax assets and liabilities are as
follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------
1997 1996
------- -------
<S> <C> <C>
Deferred tax liabilities:
Difference in tax basis of acquired
intangibles........................... $ (847) $(1,066)
Capitalized software costs............... (1,665) (1,735)
Depreciation............................. -- (49)
Other.................................... (70) (110)
------- -------
Total deferred tax liabilities... (2,582) (2,960)
Deferred tax assets:
Net operating loss and credit
carryforwards......................... 323 1,205
Deferred revenue and expenses............ 38 500
Allowance for doubtful accounts and
product returns....................... 889 307
Depreciation............................. 394 --
Purchased research and development....... 1,155 1,183
Accrued liabilities and other............ 2,196 1,347
------- -------
Total deferred tax assets........ 4,995 4,542
------- -------
Net deferred tax assets.......... $ 2,413 $ 1,582
======= =======
</TABLE>
The effective income tax rate varied from the statutory federal rate as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Income tax provision at statutory
rate.............................. $ 695 $2,784 $1,077
State income tax provision, net of
federal benefits.................. 352 410 163
Benefit of tax credits.............. (416) (278) (105)
Non deductible merger expenses...... 2,461 682 --
ESOP dividend tax benefit........... -- -- (256)
Effect of foreign rates............. -- 16 (38)
Utilization of research tax credits
and net operating loss
carryforwards..................... -- (228) --
Permanent differences............... (477) 73 (54)
Other............................... 231 183 145
------ ------ ------
$2,846 $3,642 $ 932
====== ====== ======
</TABLE>
At December 31, 1997, DataWorks has a consolidated federal research and
development credit carryforward of approximately $312,000 which will begin to
expire in 2012, unless previously utilized.
F-18
<PAGE> 157
DATAWORKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In accordance with Sections 382 and 383 of the Internal Revenue Code, a change
in ownership of greater than fifty percent of a corporation within a three-year
period will place an annual limitation on the corporation's ability to utilize
its existing carryforwards.
9. RECEIVABLE FROM OFFICER
At December 31, 1997 and 1996, the receivable from officer is from one of
DataWorks' principal officers and shareholders and consists of net advances
totaling $97,000 and $155,300, respectively, and is included in other assets.
The advances will be repaid or offset against any future performance bonuses
earned and approved by the Board of Directors.
10. COMMITMENTS AND CONTINGENCIES
The Company is obligated under various noncancellable operating leases for
equipment, vehicles and office space through 2004. Certain of the leases provide
that the Company pay all or a portion of taxes, maintenance, insurance and other
operating expenses, and certain of the rents are subject to adjustment for
changes as determined by certain consumer price indices and exchange rates. Two
of DataWorks' corporate office lease agreements provide for deferred payment
terms. For financial reporting purposes, rent expense is recorded on the
straight-line basis over the term of the lease and the difference between rent
expense accrued and amounts paid under the lease agreements are included in
other liabilities in the accompanying consolidated balance sheets.
Minimum lease commitments for noncancellable operating leases as of December 31,
1997 are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
<S> <C>
1998.......................................... $ 4,160
1999.......................................... 3,360
2000.......................................... 2,356
2001.......................................... 2,187
2002 and thereafter........................... 2,231
-------
$14,294
=======
</TABLE>
Aggregate rent expense was approximately $4,162,000, $3,437,000 and $2,663,000
in 1997, 1996 and 1995, respectively.
During 1997, the Company entered into various software resell agreements with
third party software providers. These resell agreements generally require
certain minimum levels of renumeration during the term of the agreements in the
form of quarterly or annual minimum royalty and maintenance support payments. At
December 31, 1997, the
F-19
<PAGE> 158
DATAWORKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company is obligated to make minimum payments related to these resell agreements
as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
<S> <C>
1998.......................................... $ 1,927
1999.......................................... 3,360
2000.......................................... 2,261
2001.......................................... 2,968
-------
$10,516
=======
</TABLE>
CONTINGENCIES
The Company is subject to legal proceedings and claims that arise in the normal
course of business. While the outcome of the proceedings and claims cannot be
predicted with certainty, management does not believe that the outcome of any of
these matters will have a material adverse effect on the Company's consolidated
financial condition or results of operations.
11. SHAREHOLDERS' EQUITY
COMMON STOCK
In January 1991, the Company entered into a stock and cash bonus arrangement
(the "Arrangement") with an officer of the Company that provided for the
issuance of common stock as a bonus for services rendered. On January 1, 1995,
the Company issued 90,849 shares of common stock and a related cash bonus
sufficient to cover the related income tax under the Arrangement. No further
cash or stock bonuses have been provided for under this Arrangement. On March
20, 1995, the Company removed the forfeiture provisions associated with the
Arrangement, and compensation expense of $871,000 related to this bonus was
recorded which consisted of the then current fair value of the common stock and
the related cash bonus under the Arrangement.
PREFERRED STOCK
As of December 31, 1997, DataWorks is authorized to issue 5,000,000 shares of
preferred stock; no shares are outstanding.
WARRANTS
In connection with various financing arrangements, the Company issued warrants
to purchase 1,382,183 shares of DataWorks' common stock at prices ranging from
$0.26 to $8.68 per share. In connection with the completion of the initial
public offering in November 1995, 1,345,869 warrants were converted to 1,050,843
shares of common stock for cash proceeds of $175,439 and the settlement of
$1,300,000 of subordinated notes payable. During 1997 and 1996, warrants were
exercised for the purchase of 988 and 14,092 shares of common stock,
respectively, at $8.68 per share. At December 31, 1997, warrants to purchase
21,234 shares of common stock at $8.68 per share remain outstanding. The
warrants expire in August, 2000.
F-20
<PAGE> 159
DATAWORKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In addition, in May 1995, the Company granted a warrant to an underwriter for
the purchase of up to 104,702 shares of common stock at an exercise price of
$9.68 per share. The warrant expires in May, 2000.
In 1990, a warrant was issued to a shareholder to purchase 113,852 shares of
Company common stock at $0.22 per share. The warrant was exercised in March,
1995 by reducing the subordinated debenture payable to the shareholder.
STOCK OPTION EXERCISED BY OFFICER
In July 1996, an officer of DCD exercised an option to acquire 37% of DCD's
common shares in accordance with the terms of the option. For tax purposes, the
exercise of the option is compensatory. Accordingly, for the year ended December
31, 1996, the Company recorded a tax benefit of approximately $2.5 million as an
addition to common stock.
STOCK OPTION PLANS
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25) and related Interpretations,
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS
123), requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
DataWorks has an Equity Incentive Plan (the "Plan") under which 2,824,127 shares
of common stock are reserved for issuance to eligible employees, directors and
consultants of DataWorks. The Plan provides for awards in the form of options,
stock bonuses, restricted shares or stock appreciation rights ("SARs"). The
terms of any stock awards under the Plan, including vesting requirements, are
determined by the Board of Directors, subject to the provisions of the Plan.
Options issued under the Plan are either incentive stock options ("ISOs") or
nonstatutory stock options ("NSOs"). The exercise price of the ISOs is not less
than the fair market value on the date of grant and the exercise price of the
NSOs is determined by the Board of Directors. Options granted under the Plan
generally become exercisable over a period of four years and the maximum term of
options granted is ten years. For the years ended December 31, 1997, 1996 and
1995, the Company recorded $89,000, $91,000 and $15,000, respectively, in
compensation expense related to employee stock options granted at less than fair
market value on the date of grant.
On September 13, 1995, DataWorks adopted the Non-Employee Directors' Stock
Option Plan (the "Directors' Plan") under which 150,000 shares of common stock
are reserved for issuance upon exercise of options granted by DataWorks to
non-employee members of the board of directors. The exercise price of the
options will be at the fair market value of the stock on the date of grant.
Options granted under the Directors' Plan will become exercisable over three
years and expire ten years from the date of grant. As of December 31, 1997,
100,000 options were granted under the Directors' Plan.
F-21
<PAGE> 160
DATAWORKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In addition, at December 31, 1997, DataWorks has outstanding options to purchase
an additional 102,169 shares of common stock at prices ranging from $1.30 to
$5.20 per share outside of the plans, of which 47,172 were exercisable. The
Company recorded $70,000 of expense related to the estimated fair market value
of certain of these options on their date of grant during the year ended
December 31, 1996.
Pro forma information regarding net income and earnings per share is required by
SFAS 123, and has been determined as if the Company has accounted for its
employee stock options under the fair value method of that Statement. The fair
value of these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions for 1997, 1996 and 1995, respectively: risk-free interest rates of
6.25%, 6% and 6%; dividend yield of 0%; volatility factors of the expected
market price of the Company's common stock of 76.5%, 67.5% and 67.5% for 1997,
1996 and 1995, respectively, and a weighted-average life of the options of 5.15,
4.06 and 4.09 years for 1997, 1996 and 1995, respectively.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in thousands, except for earnings per share
information):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Pro forma net income (loss)........ $(2,913) $3,406 $1,147
======= ====== ======
Pro forma basic earnings (loss) per
share............................ $ (0.21) $ 0.30 $ 0.17
======= ====== ======
Pro forma diluted earnings (loss)
per share........................ $ (0.21) $ 0.28 $ 0.15
======= ====== ======
</TABLE>
The results above are not likely to be representative of the effects of applying
FAS 123 on reported net income or loss for future years as these amounts reflect
the expense for only one, two or three years vesting.
F-22
<PAGE> 161
DATAWORKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of the Company's stock option activity, including those issued outside
of the plans, and related information for the years ended December 31 follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ---------------------- ----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
---------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding --
beginning of
year............... 1,399,516 $11.16 1,104,927 $ 3.91 525,788 $ .26
Granted.............. 877,878 15.08 662,301 17.67 682,359 6.06
Exercised............ (172,207) 1.95 (335,158) .67 (64,759) .49
Forfeited............ (125,601) 11.56 (32,554) 7.02 (38,461) .39
---------- ------ ---------- ------ ---------- -----
Outstanding -- end of
year............... 1,979,586 $13.85 1,399,516 $11.16 1,104,927 $3.91
========== ========== ==========
Exercisable at end of
year............... 584,465 390,351 358,761
Weighted-average fair
value of options
granted during
year............... $ 11.93 $ 9.27 $ 2.04
</TABLE>
The weighted-average remaining contractual life of the options outstanding at
December 31, 1997 is 8.45 years.
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
------------------------------------------ ----------------------------
REMAINING WEIGHTED EXERCISE PRICE
RANGE OF NUMBER CONTRACTUAL AVERAGE NUMBER WEIGHTED
EXERCISE PRICES OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE AVERAGE
--------------- ----------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.26 to 0.65....... 52,311 6.12 $ .46 37,204 $0.39
2.86 to 3.72....... 107,891 6.21 3.25 64,350 3.29
5.02 to 6.83....... 239,841 8.79 6.30 50,167 5.87
7.53.......... 150,340 7.81 7.53 80,360 7.53
9.31 to 11.06...... 243,989 7.97 10.59 157,945 10.60
11.50.......... 126,415 8.00 11.50 55,602 11.50
13.25 to 14.50...... 90,527 9.50 13.89 4,443 14.50
15.30 to 16.00...... 334,106 8.34 15.64 22,859 16.00
18.13 to 18.50...... 312,166 9.67 18.46 11,804 18.20
21.75 to 25.75...... 322,000 8.78 25.23 99,731 25.26
</TABLE>
At December 31, 1997, options for 560,461 shares were available for future
grant.
F-23
<PAGE> 162
DATAWORKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
EMPLOYEE STOCK PURCHASE PLAN
On September 13, 1995, DataWorks adopted an Employee Stock Purchase Plan (the
"Purchase Plan") under which 440,734 shares of common stock were reserved for
sale to employees. DataWorks' Board of Directors may grant eligible employees
the right to purchase a fixed number of shares of common stock (up to but not
exceeding 15% of each employee's earnings) over a fixed offering period (not to
exceed 27 months) at the lesser of 85% of the fair market value of the stock on
the grant date or 85% of the fair market value on the purchase date or dates
specified on the date of grant. At December 31, 1997, 333,150 shares have been
issued under the Purchase Plan.
SHARES RESERVED FOR FUTURE ISSUANCE
The following common stock is reserved for future issuance at December 31, 1997:
<TABLE>
<S> <C>
Stock options:
Granted and outstanding................. 1,979,586
Reserved for future grants.............. 560,461
---------
2,540,047
Warrants.................................. 125,936
Employee stock purchase plan.............. 107,584
---------
2,773,567
=========
</TABLE>
12. EMPLOYEE RETIREMENT AND PROFIT SHARING PLANS
Effective July 1, 1994, DataWorks established a 401(k) defined contribution
retirement plan (the "Retirement Plan") covering all employees. The Retirement
Plan provides for voluntary employee contributions from 1% to 15% of annual
compensation (as defined). DataWorks may contribute such amounts as determined
by the Board of Directors. Participants vest in employer contributions over five
years at a rate of 20% for each year of service. There were no employer
contributions to the Retirement Plan during the years ended December 31, 1997,
1996 or 1995.
Interactive maintains profit sharing and deferred savings plans for its
employees, which allow participants to make contributions by salary reduction
pursuant to Section 401(k) of the Internal Revenue Code. Under both plans,
Interactive contributions are discretionary, and employees vest immediately in
their contributions. Interactive U.K. Subsidiary also maintains a defined
contribution pension plan for its employees. Expenses for the plans aggregated
approximately $790,000, $571,000, and $314,000 for the years ended December 31,
1997, 1996 and 1995, respectively.
In addition, DCD has a profit sharing plan which provides for an annual
contribution not to exceed the maximum allowed as a deduction under the Internal
Revenue Code. The plan covers substantially all employees after specified
periods of service and the attainment of minimum age requirements. Each year's
contribution is determined by the Board of Directors. No Company contributions
to the plan were declared or made during 1997, 1996 or 1995.
F-24
<PAGE> 163
DATAWORKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Effective July 1996, DCD established a 401(k) defined contribution retirement
plan (the "DCD plan") covering all employees of DCD. The DCD plan provides for
voluntary employee contributions from 1% to 15% of annual compensation (as
defined). DCD may match these contributions at 50% on the first 6% of employee
contributions. For the years ended December 31, 1997 and 1996, DCD contributions
to the plan totaled $0 and $87,000, respectively.
13. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share (in thousands except per share amounts):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1997 1996 1995
------- ------- ------
<S> <C> <C> <C>
Numerator
Net income (loss)............... $ (804) $ 4,497 $1,219
======= ======= ======
Numerator for basic and diluted
earnings per share -- income
(loss) available to common
shareholders................. $ (804) $ 4,497 $1,219
======= ======= ======
Denominator
Weighted average common shares
outstanding -- shares used in
computing basic earnings per
share........................ 13,811 11,392 6,929
Weighted average options and
warrants to purchase common
stock as determined by the
treasury method............ -- 562 878
------- ------- ------
Shares used in computing diluted
earnings per share........... 13,811 11,954 7,807
======= ======= ======
Basic earnings (loss) per share... $ (0.06) $ 0.39 $ 0.17
======= ======= ======
Diluted earnings (loss) per
share........................... $ (0.06) $ 0.38 $ 0.16
======= ======= ======
</TABLE>
The earnings (loss) per share information was computed applying the requirements
of recently effective Statement of Financial Accounting Standards No. 128 and
SEC Staff Accounting Bulletin No. 98.
F-25
<PAGE> 164
DATAWORKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. GEOGRAPHIC DATA
The Company's operations consist of one business segment: the development,
marketing, implementation, and support of integrated business information
systems for the discrete manufacturing industry. The Company has operations in
North America and Europe. The operations and identifiable assets of the Company
by geographic area are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Revenues from unaffiliated
customers:
North America.................... $121,689 $ 96,794 $62,768
Europe........................... 25,274 20,145 13,236
-------- -------- -------
$146,963 $116,939 $76,004
======== ======== =======
Income (loss) before income taxes:
North America.................... $ (1,402)(a) $ 6,138(b) $ 1,995
Europe........................... 3,444 2,001 1,173
-------- -------- -------
$ 2,042 $ 8,139 $ 3,168
======== ======== =======
Identifiable assets:
North America.................... $116,775 $111,797 $55,777
Europe........................... 14,361 9,405 7,139
-------- -------- -------
$131,136 $121,202 $62,916
======== ======== =======
</TABLE>
- -------------------------
(a) Includes one-time charges in the aggregate, after-tax amount of $11.9
million in connection with the Interactive acquisition.
(b) Includes one-time charges in the aggregate, after-tax amount of $2.1 million
in connection with the DCD acquisition.
F-26
<PAGE> 165
DATAWORKS CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
-------------
(UNAUDITED)
<S> <C>
Current assets:
Cash and cash equivalents................................. $ 23,785
Short-term investments, available-for-sale................ 9,897
Accounts receivable, net of allowance for doubtful
accounts of $2,654..................................... 56,635
Deferred income taxes..................................... 3,361
Other current assets...................................... 8,906
--------
Total current assets.............................. 102,584
Equipment, furniture and fixtures, net...................... 11,077
Capitalized software costs, net............................. 9,287
Intangible assets, net...................................... 10,977
Advances to related parties................................. 97
Other assets................................................ 3,824
--------
Total assets...................................... $137,846
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 11,569
Accrued compensation...................................... 8,077
Income taxes payable...................................... 2,782
Deferred revenue.......................................... 15,192
Current portion of long-term obligations.................. 893
Other accrued liabilities................................. 2,359
--------
Total current liabilities......................... 40,872
Deferred income taxes....................................... 1,030
Long-term obligations, less current portion................. 1,351
Commitments
Shareholders' equity:
Common shares, no stated par value:
Authorized shares -- 50,000
Issued and outstanding shares -- 14,400................ 87,661
Retained earnings......................................... 6,296
Cumulative foreign currency translation adjustments....... 636
--------
Total shareholders' equity........................ 94,593
--------
Total liabilities and shareholders' equity........ $137,846
========
</TABLE>
F-27
<PAGE> 166
DATAWORKS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Revenues:
Software licenses...................................... $ 56,571 $ 48,215
Maintenance and other services......................... 61,371 44,412
Hardware............................................... 6,873 8,005
-------- --------
Total revenues........................................... 124,815 100,632
Cost of revenues:
Software licenses...................................... 6,589 6,082
Maintenance and other services......................... 45,823 30,984
Hardware............................................... 5,362 6,061
-------- --------
Total cost of revenues................................... 57,774 43,127
-------- --------
Gross profit............................................. 67,041 57,505
Operating expenses:
Sales and marketing.................................... 35,134 28,523
General and administrative............................. 15,652 12,969
Research and development............................... 10,546 7,824
Restructuring costs.................................... 527 --
Acquisition and related costs.......................... -- 15,565
-------- --------
Total operating expenses................................. 61,859 64,881
-------- --------
Income (loss) from operations............................ 5,182 (7,376)
Other income, net........................................ 884 1,262
-------- --------
Income (loss) before income taxes........................ 6,066 (6,114)
Provision (credit) for income taxes...................... 2,215 (253)
-------- --------
Net income (loss)........................................ $ 3,851 $ (5,861)
======== ========
Net income (loss) per share -- basic..................... $ 0.27 $ (0.43)
======== ========
Net income (loss) per share -- diluted................... $ 0.26 $ (0.43)
======== ========
Common shares outstanding -- basic....................... 14,272 13,765
======== ========
Common shares outstanding -- diluted..................... 14,843 13,765
======== ========
</TABLE>
F-28
<PAGE> 167
DATAWORKS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1998 1997
-------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ 3,851 $(5,861)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization of intangible assets........ 5,570 3,652
Non cash acquisition and related costs.................... -- 5,248
Compensation regarding granting of stock options.......... 35 67
Deferred income taxes..................................... 82 (234)
Provision for doubtful accounts........................... 838 965
Changes in operating assets and liabilities:
Accounts receivable..................................... (3,313) (2,752)
Write-off of bad debts.................................. (543) (339)
Other current assets.................................... (2,552) (1,185)
Accounts payable........................................ (233) 2,532
Accrued compensation.................................... (2,399) 976
Deferred revenue........................................ 921 1,754
Other accrued liabilities and income taxes payable...... (2,202) 263
-------- -------
Net cash provided by operating activities................... 55 5,086
INVESTING ACTIVITIES
Purchases of equipment, furniture and fixtures.............. (6,055) (3,523)
Purchases of short-term investments......................... (21,210) --
Sale of short-term investments.............................. 41,816 --
Additions to capitalized software costs..................... (4,761) (2,750)
Increase in intangible assets............................... (1,715) (239)
Cash paid for acquisitions.................................. (2,613) --
Advances to related party, net.............................. -- 58
Other assets................................................ (515) (80)
-------- -------
Net cash provided by (used in) investing activities......... 4,947 (6,534)
FINANCING ACTIVITIES
Net increase (decrease) in obligations under line of
credit.................................................... (727) (655)
Proceeds from notes payable................................. -- 500
Repayments of notes payable and capital lease obligations... (884) (1,740)
Issuance of common stock, net............................... 2,503 1,966
-------- -------
Net cash provided by financing activities................... 892 71
Effect of exchange rate on cash............................. 473 --
-------- -------
Net increase (decrease) in cash and cash equivalents........ 6,367 (1,377)
Cash and cash equivalents at beginning of period............ 17,418 50,825
-------- -------
Cash and cash equivalents at end of period.................. $ 23,785 $49,448
======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest.................... $ 153 $ 371
======== =======
Cash paid during the period for income taxes................ $ 777 $ 1,649
======== =======
NON-CASH TRANSACTIONS
Common stock issued for business acquisitions............... $ 3,665 $ --
======== =======
Equipment acquired through capital leases................... $ 959 $ 321
======== =======
Earnouts payable for business acquisitions.................. $ 682 $ 139
======== =======
</TABLE>
F-29
<PAGE> 168
DATAWORKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements included herein
have been prepared by DataWorks Corporation (the "Company" or "DataWorks")
pursuant to the rules and regulations of the Securities and Exchange Commission
(the "SEC") for preparing interim period financial statements. Accordingly, they
do not include all of the information and disclosures required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments and reclassifications considered necessary for a
fair and comparable presentation have been included and are of a normal
recurring nature. The unaudited consolidated financial statements should be read
in conjunction with the consolidated financial statements and notes thereto for
the year ended December 31, 1997 included in this Proxy Statement/Prospectus.
The results of operations for the nine months ended September 30, 1998 are not
necessarily indicative of the results which may be reported for any other
interim period or for the year ending December 31, 1998.
2. EARNINGS PER SHARE
Basic earnings per share was computed by dividing net income by the weighted
average shares of common stock outstanding during the periods. Diluted earnings
per share was computed by dividing net income by the weighted average shares of
common stock and common stock equivalents outstanding during the periods. The
dilutive effect of the potential exercise of outstanding options and warrants to
purchase shares of common stock was calculated using the treasury stock method.
3. RECEIVABLES FROM RELATED PARTIES
At September 30, 1998, the receivables from related parties consist of balances
due from one of DataWorks' principal officers and shareholders representing net
advances totaling $97,000.
4. COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income ("SFAS 130"). This statement
requires the Company to report in the financial statements, in addition to net
income, comprehensive income and its components including foreign currency
translation adjustments and unrealized gains and losses on its
available-for-sale securities. SFAS 130 also requires the Company to reclassify
financial statements for earlier periods provided for comparative purposes.
F-30
<PAGE> 169
DATAWORKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The components of comprehensive income for the nine months ended September 30,
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1998 1997
------ -------
<S> <C> <C>
Net income (loss)........................... $3,851 $(5,861)
Unrealized gains (losses) on foreign
currency translation adjustments.......... 473 (60)
------ -------
Total comprehensive income
(loss)......................... $4,324 $(5,921)
====== =======
</TABLE>
5. SOFTWARE REVENUE RECOGNITION
As of January 1, 1998, the Company adopted Statement of Position No. 97-2,
Software Revenue Recognition ("SOP 97-2"), which provides guidance for
recognizing revenue related to sales by software vendors. The adoption of SOP
97-2 did not have a significant impact on the Company's financial statements at
and for the nine months ended September 30, 1998.
6. ACQUISITIONS
On January 28, 1998, DataWorks acquired a 19.5% interest in Evosoft DataWorks
Software GmbH ("Evosoft") for approximately $413,000 in cash. Evosoft, located
in Nuremberg, Germany, will market, distribute and support the Company's
products upon translation and localization into German specifications. DataWorks
has an option to purchase the remaining interest in Evosoft by January 2001. The
Company accounts for its investment in Evosoft on the cost method.
On April 22, 1998, the Company acquired the assets of C-WAY Systems, Inc., a
Delaware Corporation, ("C-WAY") in exchange for 106,315 shares of DataWorks'
common stock valued at approximately $2.6 million and a possible earnout of up
to an additional approximately $2.6 million. The earnout is payable over four
years based upon satisfaction of certain product development goals and a
percentage of future revenues generated. Prior to the transaction, C-WAY
developed, sold and supported advanced planning and scheduling software for
manufacturers. The transaction was accounted for as a purchase, and the results
of operations of C-WAY are included with the results of the Company's operations
subsequent to the date of acquisition. The excess costs over fair market value
of the net assets purchased has been allocated to developed technology, customer
base and assembled workforce and is being amortized over five years.
Effective June 1, 1998, the Company acquired the assets of CTi Software BV
("CTi") in exchange for $1.25 million cash and 65,689 shares of DataWorks'
common stock, at the time valued at approximately $1.25 million. Prior to the
acquisition, CTi, located in Hague, Netherlands, developed, marketed, and
maintained software for mid-range manufacturers software. The transaction was
accounted for as a purchase, and the results of operations of CTi are included
with the results of the Company's operations subsequent to the date of
acquisition. The excess costs over fair market value of the net assets
F-31
<PAGE> 170
DATAWORKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
purchased has been allocated to customer base and assembled workforce and is
being amortized over five years.
On July 3, 1998 the Company acquired the assets of 7+7 Software AB ("7+7") in
exchange for cash payments over three years in the aggregate amount of $0.35
million. 7+7 was an enterprise software consulting group to mid-range
manufacturers. The transaction was accounted for as a purchase, and the results
of operations of 7+7 is included with the results of the Company's operations
subsequent to the date of acquisition.
On August 12, 1998, DataWorks acquired a 19.5% interest in JB Systems, Inc. ("JB
Systems") for $2.2 million cash. A JB Systems' board member that is also a board
member of the Company owns the majority of the remaining outstanding shares.
Therefore, the investment is accounted for using the equity method, and the
Company's equity in the results of operations of JB Systems are included with
the results of the Company's operations subsequent to the purchase date. JB
Systems, headquartered in Woodland Hills, California, is a leading supplier of
computerized plant maintenance and management software. DataWorks has an option
to purchase the remaining interest in JB Systems for a two-year period
commencing on the close of the initial investment. As discussed in Note 10, upon
the completion of the merger with Platinum, the Company's board member is
expected to resign. Accordingly, the Company will account for its investment in
JB Systems on the cost method.
The Company has determined that the aggregate impact of these acquisitions on
the Company's results of operations is not material.
7. COMMITMENTS
During September 1998, the Company entered into an agreement with a commercial
developer to lease buildings being developed and constructed by the commercial
developer. The buildings, which total approximately 160,000 square feet, will be
located in San Diego, California, and will serve as the corporate headquarters
for the Company. The lease agreement, which is for a ten-year period with two
five-year options to extend the term of the lease, is expected to commence in
September 1999. Total lease commitment approximates $40.0 million over the
initial lease term.
8. RESTRUCTURING AND OTHER COSTS
During the third quarter of 1998, the Company commenced an initial phase of a
company-wide reorganization. These costs consisted primarily of severance
packages offered to three of the Company's executives. In the fourth quarter of
1998, the Company expects to record additional nonrecurring expenses of
approximately $4.0 million.
9. REVISED EMPLOYEE STOCK PURCHASE PLAN
During June 1998, in conjunction with the Company's Annual Shareholders Meeting,
the shareholders approved an increase in the number of shares authorized for
issuance under the Employee Stock Purchase Plan (the "Plan") by 750,000 shares.
During July 1998, the
F-32
<PAGE> 171
DATAWORKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Company adopted a revised Plan which included amendments to the employee
eligibility requirements and certain of the terms of rights granted under the
Plan.
10. SUBSEQUENT EVENTS
Pursuant to shareholder approval obtained at the Annual Meeting of Shareholders
of DataWorks held June 18, 1998, the Company completed its reincorporation in
Delaware on October 2, 1998.
On October 13, 1998, the Company entered into a definitive agreement (the
"Merger Agreement") with Platinum Software Corporation, ("Platinum"), a supplier
of software solutions for manufactures and distributors in the mid-range market,
pursuant to which the Company will become a wholly-owned subsidiary of Platinum
in a stock-for-stock merger (the "Merger") intended to qualify as a tax-free
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended, and accounted for as a purchase for financial reporting
purposes. Under the terms of the Merger Agreement, stockholders of the Company
will receive 0.794 shares of Platinum common stock for each share of Company
common stock they own at the time the Merger is consummated. In addition,
options and warrants to acquire Company common stock will be converted as a
result of the Merger into equivalent options and warrants for Platinum common
stock, based upon the exchange ratio. The Merger is expected to be completed in
December 1998, subject to approval of the Merger Agreement and the Merger by the
stockholders of the Company and the shareholders of Platinum as well as the
satisfaction or waiver of customary closing conditions. The transactions
involving the Company and Platinum, and the various agreements entered into in
connection therewith are described more fully elsewhere in this Joint Proxy
Statement/Prospectus. The Company expects to incur costs directly related to
completing the Merger of $1.5 million, most of which will be non-deductible for
income tax purposes.
On October 13, 1998, the Company adopted a Shareholder Rights Plan (the "Plan")
under which all shareholders of record as of October 28, 1998 will receive
rights (the "Rights") to purchase shares of a new series of preferred stock. The
Rights will be distributed as a non-taxable dividend and will expire in ten
years from the record date. The Rights will be exercisable only if a person or
group acquires 15 percent or more of the Company's common stock or announces a
tender offer for 15 percent or more of the common stock. In the event a person
acquires 15 percent or more of the Company's common stock, all Rights holders
except the buyer will be entitled to acquire the Company's preferred stock at a
discount. Notwithstanding the foregoing, the Plan provides that the Company's
proposed merger with Platinum will not cause the rights to become exercisable as
long as Platinum is acting in accordance with the terms of the Merger Agreement.
On October 22, 1998 the Company's Board of Directors authorized an employee
stock option repricing effective November 9, 1998. Approximately 1,467,450
shares under options, with original per share prices of $9.75 to $25.75, were
repriced at $9.131 per
F-33
<PAGE> 172
DATAWORKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
share. The repricing affected the Company's 1995 Equity Incentive Plan, the
Interactive Group, Inc. 1995 Stock Option Plan and the Interactive Group, Inc.
1997 Nonstatutory Stock Option Plan assumed by DataWorks as part of the
Company's acquisition of Interactive Group, Inc. The repricing did not affect
the number of shares issuable under options previously granted, vesting period
or expiration date of the options. However, there is a twelve-month period
following the repricing in which all repriced options generally cannot be
exercised.
A lawsuit was filed against DataWorks on November 3, 1998 seeking an unspecified
amount of damages on behalf of an alleged class of persons who purchased shares
of the Company's common stock at various times between January 28, 1998 to July
16, 1998. The complaint named as defendants the Company, certain of its officers
and former officers and certain directors of the Company, asserting that they
violated federal and state securities laws by misrepresenting and failing to
disclose certain information about the Company's business. The Company has not
yet formally responded to this complaint. Although the Company has insurance
which covers such actions, and intends to vigorously defend the actions against
the Company, there can be no assurance that an adverse result or settlement with
regard to this lawsuit would not have a material adverse effect on the Company's
financial condition or results of operations.
F-34
<PAGE> 173
APPENDIX A-1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
PLATINUM SOFTWARE CORPORATION
ZOO ACQUISITION CORP.
AND
DATAWORKS CORPORATION
Dated as of October 13, 1998
<PAGE> 174
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I THE MERGER.............................................. 1
1.1 The Merger.................................................. 1
1.2 Effective Time; Closing..................................... 2
1.3 Effect of the Merger........................................ 2
1.4 Certificate of Incorporation; Bylaws........................ 2
1.5 Directors and Officers...................................... 2
1.6 Effect on Capital Stock..................................... 2
1.7 Surrender of Certificates................................... 4
1.8 No Further Ownership Rights in Company Common Stock......... 6
1.9 Lost, Stolen or Destroyed Certificates...................... 6
1.10 Tax Consequences............................................ 7
1.11 Taking of Necessary Action; Further Action.................. 7
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY..........
7
2.1 Organization of the Company................................. 7
2.2 Company Capital Structure................................... 8
2.3 Obligations With Respect to Capital Stock................... 10
2.4 Authority; Non-Contravention................................ 10
2.5 SEC Filings; Company Financial Statements................... 11
2.6 Absence of Certain Changes or Events........................ 12
2.7 Taxes....................................................... 13
2.8 Title to Properties; Absence of Liens and Encumbrances...... 15
2.9 Intellectual Property....................................... 15
2.10 Compliance; Permits; Restrictions........................... 18
2.11 Litigation.................................................. 19
2.12 Brokers' and Finders' Fees.................................. 19
2.13 Transactions with Affiliates................................ 19
2.14 Employee Benefit Plans...................................... 20
2.15 Environmental Matters....................................... 24
2.16 Year 2000 Compliance........................................ 25
2.17 Agreements, Contracts and Commitments....................... 25
2.18 Pooling of Interests........................................ 26
2.19 Change of Control Payments.................................. 27
2.20 Disclosure.................................................. 27
2.21 Board Approval.............................................. 27
2.22 Fairness Opinion............................................ 27
2.23 Section 203 of the Delaware General Corporation Law Not
Applicable.................................................. 27
2.24 Customs..................................................... 27
</TABLE>
i
<PAGE> 175
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
2.25 Company Rights Plan......................................... 28
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER
SUB............................................................. 28
3.1 Organization of Parent...................................... 28
3.2 Parent Capital Structure.................................... 29
3.3 Obligations With Respect to Capital Stock................... 30
3.4 Authority; Non-Contravention................................ 30
3.5 SEC Filings; Parent Financial Statements.................... 32
3.6 Absence of Certain Changes or Events........................ 33
3.7 Taxes....................................................... 33
3.8 Title to Properties; Absence of Liens and Encumbrances...... 35
3.9 Intellectual Property....................................... 35
3.10 Compliance; Permits; Restrictions........................... 37
3.11 Litigation.................................................. 38
3.12 Brokers' and Finders' Fees.................................. 38
3.13 Environmental Matters....................................... 38
3.14 Year 2000 Compliance........................................ 39
3.15 Agreements, Contracts and Commitments....................... 39
3.16 Pooling of Interests........................................ 39
3.17 Disclosure.................................................. 40
3.18 Board Approval.............................................. 40
3.19 Fairness Opinion............................................ 40
3.20 Customs..................................................... 40
3.21 Organization of Merger Sub.................................. 40
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME.................... 41
4.1 Conduct of Business by the Company.......................... 41
4.2 Conduct of Business by Parent............................... 43
ARTICLE V ADDITIONAL AGREEMENTS................................... 45
5.1 Prospectus/Proxy Statement; Registration Statement; Other
Filings; Board Recommendations.............................. 45
5.2 Meeting of Company Stockholders............................. 46
5.3 Meeting of Parent Stockholders.............................. 48
5.4 Confidentiality; Access to Information...................... 49
5.5 No Solicitation............................................. 49
5.6 Public Disclosure........................................... 51
5.7 Reasonable Efforts; Notification............................ 51
5.8 Third Party Consents........................................ 52
5.9 Stock Options and Employee Benefits......................... 52
5.10 Form S-8.................................................... 53
5.11 Indemnification............................................. 53
</TABLE>
ii
<PAGE> 176
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
5.12 Board of Directors of Parent................................ 54
5.13 Nasdaq Listing.............................................. 54
5.14 Company Affiliate Agreement................................. 54
5.15 Parent Affiliate Agreement.................................. 54
5.16 Regulatory Filings; Reasonable Efforts...................... 54
5.17 Company 401(K) Plan and Benefit Arrangements................ 55
5.18 Tax Matters................................................. 55
ARTICLE VI CONDITIONS TO THE MERGER............................... 55
6.1 Conditions to Obligations of Each Party to Effect the
Merger...................................................... 56
6.2 Additional Conditions to Obligations of the Company......... 56
6.3 Additional Conditions to the Obligations of Parent and
Merger Sub.................................................. 57
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER..................... 59
7.1 Termination................................................. 59
7.2 Notice of Termination; Effect of Termination................ 61
7.3 Fees and Expenses........................................... 61
7.4 Amendment................................................... 62
7.5 Extension; Waiver........................................... 62
ARTICLE VIII GENERAL PROVISIONS................................... 62
8.1 Non-Survival of Representations and Warranties.............. 62
8.2 Notices..................................................... 63
8.3 Interpretation; Knowledge................................... 64
8.4 Counterparts................................................ 64
8.5 Entire Agreement; Third Party Beneficiaries................. 64
8.6 Severability................................................ 65
8.7 Other Remedies; Specific Performance........................ 65
8.8 Governing Law............................................... 65
8.9 Rules of Construction....................................... 65
8.10 Assignment.................................................. 65
8.11 Waiver of Jury Trial........................................ 66
</TABLE>
iii
<PAGE> 177
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION is made and entered into as of October
13, 1998, among Platinum Software Corporation, a Delaware corporation
("PARENT"), Zoo Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Parent ("MERGER SUB"), and DataWorks Corporation, a Delaware
corporation (the "COMPANY").
RECITALS
A. Upon the terms and subject to the conditions of this Agreement (as defined in
Section 1.2 below) and in accordance with the Delaware General Corporation Law
("DELAWARE LAW"), Parent, Merger Sub and the Company intend to enter into a
business combination transaction.
B. The Boards of Directors of Parent and the Company (i) have determined that
the Merger (as defined in Section 1.1) is consistent with and in furtherance of
the long-term business strategies of Parent and the Company and fair to, and in
the best interests of, Parent and the Company and their stockholders, (ii) have
approved this Agreement, the Merger and the other transactions contemplated by
this Agreement and (iii) have determined to recommend that the stockholders of
Parent and the Company adopt and approve this Agreement and approve the Merger.
C. Concurrently with the execution of this Agreement, and as a condition and
inducement to Parent's willingness to enter into this Agreement, certain
affiliates of the Company are entering into Voting Agreements in substantially
the form attached hereto as Exhibit A-1 (the "COMPANY VOTING AGREEMENTS"). In
addition, concurrently with the execution of this Agreement and as a condition
and inducement to the Company's willingness to enter into this Agreement,
certain affiliates of Parent are entering into Voting Agreements in
substantially the form attached hereto as Exhibit A-2 (the "PARENT VOTING
AGREEMENTS").
D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the covenants, promises and representations
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and subject
to and upon the terms and conditions of this Agreement and the applicable
provisions of Delaware Law, Merger Sub shall be merged with and into the Company
(the "MERGER"), the separate corporate existence of Merger Sub shall cease and
the Company shall continue as the surviving corporation. The Company as the
surviving corporation after the Merger is hereinafter sometimes referred to as
the "SURVIVING CORPORATION".
1.2 Effective Time; Closing. Subject to the provisions of this Agreement, the
parties hereto shall cause the Merger to be consummated by filing a Certificate
of Merger with
A-1-1
<PAGE> 178
the Secretary of State of the State of Delaware in accordance with the relevant
provisions of Delaware Law (the "CERTIFICATE OF MERGER") (the time of such
filing with the Secretary of State of the State of Delaware (or such later time
as may be agreed in writing by the Company and Parent and specified in the
Certificate of Merger) being the "EFFECTIVE TIME") as soon as practicable on or
after the Closing Date (as herein defined). Unless the context otherwise
requires, the term "AGREEMENT" as used herein refers collectively to this
Agreement and Plan of Reorganization and the Certificate of Merger. The closing
of the Merger (the "CLOSING") shall take place at the offices of Wilson Sonsini
Goodrich & Rosati, Professional Corporation, at a time and date to be specified
by the parties, which shall be no later than the second business day after the
satisfaction or waiver of the conditions set forth in Article VI, or at such
other time, date and location as the parties hereto agree in writing (the
"CLOSING DATE").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger shall
be as provided in this Agreement and the applicable provisions of Delaware Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the property, rights, privileges, powers and franchises of
the Company and Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities and duties of the Company and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
(a) At the Effective Time, the Certificate of Incorporation of Merger Sub,
as in effect immediately prior to the Effective Time, shall be the Certificate
of Incorporation of the Surviving Corporation until thereafter amended as
provided by law and such Certificate of Incorporation of the Surviving
Corporation; provided, however, that at the Effective Time the Certificate of
Incorporation of the Surviving Corporation shall be amended so that the name of
the Surviving Corporation shall be "DataWorks Corporation".
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be, at the Effective Time, the Bylaws of the Surviving
Corporation until thereafter amended.
1.5 Directors and Officers. The initial directors of the Surviving Corporation
shall be the directors of Merger Sub immediately prior to the Effective Time,
until their respective successors are duly elected or appointed and qualified.
The initial officers of the Surviving Corporation shall be the officers of the
Company immediately prior to the Effective Time, until their respective
successors are duly appointed.
1.6 Effect on Capital Stock. At the Effective Time, by virtue of the Merger and
without any action on the part of Merger Sub, the Company or the holders of any
of the following securities:
(a) Conversion of Company Common Stock. Each share of Common Stock, $0.001
par value per share, of the Company (including, with respect to each such share
of Company Common Stock, the associated Rights (as defined in that certain
Rights Agreement (the "COMPANY RIGHTS PLAN") dated as of on or about October 13,
1998, between the Company and Chase Mellon Shareholder Services, L.L.C., as
Rights Agent) (the "COMPANY COMMON STOCK") issued and outstanding immediately
prior to the Effective Time, other than any shares of the Company Common Stock
to be canceled pursuant to Section 1.6(b), will be canceled and extinguished and
automatically converted (subject to Sections 1.6(e) and (f)) into the right to
receive 0.794 (the "EXCHANGE
A-1-2
<PAGE> 179
RATIO") shares of Common Stock of Parent (the "PARENT COMMON STOCK") upon
surrender of the certificate representing such share of the Company Common Stock
in the manner provided in Section 1.7 (or in the case of a lost, stolen or
destroyed certificate, upon delivery of an affidavit in the manner provided in
Section 1.9). If any shares of the Company Common Stock outstanding immediately
prior to the Effective Time are unvested or are subject to a repurchase option,
risk of forfeiture or other condition under any applicable restricted stock
purchase agreement or other agreement with the Company, then the shares of
Parent Common Stock issued in exchange for such shares of Company Common Stock
will also be unvested to the same extent and/or be subject to the same
repurchase option, risk of forfeiture or other condition, as applicable, and the
certificates representing such shares of Parent Common Stock may accordingly be
marked with appropriate legends. The Company shall take all action that may be
necessary to ensure that, from and after the Effective Time, Parent is entitled
to exercise any such repurchase option or other right set forth in any such
restricted stock purchase agreement or other agreement.
(b) Cancellation of Parent-Owned Stock. Each share of Company Common Stock
held by the Company or owned by Merger Sub, Parent or any direct or indirect
wholly-owned subsidiary of the Company or of Parent immediately prior to the
Effective Time shall be canceled and extinguished without any conversion
thereof.
(c) Stock Options; Employee Stock Purchase Plans; Warrants.
(i) At the Effective Time, all options to purchase Company Common Stock
then outstanding under the Company's 1995 Equity Incentive Plan (the "1995
PLAN"), 1995 Non-Employee Directors' Stock Option Plan (the "DIRECTOR PLAN"),
the Interactive 1997 Nonstatutory Stock Option Plan (the "INTERACTIVE 1997
PLAN"), the Interactive 1995 Stock Option Plan (the "INTERACTIVE 1995 PLAN" and
together with the 1995 Plan, the Director Plan and the Interactive 1997 Plan the
"COMPANY STOCK OPTION PLANS") shall be assumed by Parent in accordance with
Section 5.9 hereof. Rights outstanding under the Company's 1995 Employee Stock
Purchase Plan (the "COMPANY PURCHASE PLAN") shall be treated as set forth in
Section 5.9.
(ii) At the Effective Time, the warrants issued by the Company and set
forth on Part 2.3 of the Company Schedules (which warrants entitle the holders
thereof as set forth on such Part 2.3 to purchase the number of shares Company
Common Stock set forth on such Part 2.3) (collectively the "WARRANTS") shall be,
in connection with the Merger, assumed by Parent in accordance with Section 5.9.
(d) Capital Stock of Merger Sub. Each share of Common Stock, $0.001 par
value per share, of Merger Sub (the "MERGER SUB COMMON STOCK") issued and
outstanding immediately prior to the Effective Time shall be converted into one
validly issued, fully paid and nonassessable share of Common Stock, $0.001 par
value per share, of the Surviving Corporation. Each certificate evidencing
ownership of shares of Merger Sub Common Stock shall evidence ownership of such
shares of capital stock of the Surviving Corporation.
(e) Adjustments to Exchange Ratio. The Exchange Ratio shall be adjusted to
reflect appropriately the effect of any stock split, reverse stock split, stock
dividend (including any dividend or distribution of securities convertible into
Parent Common Stock or Company Common Stock), reorganization, recapitalization,
reclassification or other like change with
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respect to Parent Common Stock or Company Common Stock occurring on or after the
date hereof and prior to the Effective Time.
(f) Fractional Shares. No fraction of a share of Parent Common Stock will
be issued by virtue of the Merger, but in lieu thereof each holder of shares of
Company Common Stock who would otherwise be entitled to a fraction of a share of
Parent Common Stock (after aggregating all fractional shares of Parent Common
Stock that otherwise would be received by such holder) shall, upon surrender of
such holder's Certificate(s) (as defined in Section 1.7(c)) (subject in any case
to Section 1.9), receive from Parent an amount of cash (rounded to the nearest
whole cent), without interest, equal to the product of (i) such fraction,
multiplied by (ii) the average closing price of one share of Parent Common Stock
for the five (5) most recent days that Parent Common Stock has traded ending on
the trading day immediately prior to the Effective Time, as reported on the
Nasdaq National Market System ("Nasdaq").
(g) Closing of the Company's Transfer Books. At the Effective Time: (a) all
shares of the Company Common Stock outstanding immediately prior to the
Effective Time shall automatically be canceled and retired and shall cease to
exist, and all holders of certificates representing shares of Company Common
Stock that were outstanding immediately prior to the Effective Time shall cease
to have any rights as stockholders of the Company; and (b) the stock transfer
books of the Company shall be closed with respect to all shares of Company
Common Stock outstanding immediately prior to the Effective Time. No further
transfer of any such shares of Company Common Stock shall be made on such stock
transfer books after the Effective Time. If, after the Effective Time, a
Certificate (as defined in Section 1.7(c)) is presented to the Exchange Agent
(as defined in Section 1.7) or to the Surviving Corporation or Parent, such
Company Stock Certificate shall be canceled and shall be exchanged as provided
in Section 1.7.
1.7 Surrender of Certificates.
(a) Exchange Agent. Parent shall select a bank or trust company reasonably
acceptable to the Company to act as the exchange agent in the Merger (the
"EXCHANGE AGENT").
(b) Parent to Provide Common Stock. Promptly after the Effective Time,
Parent shall make available to the Exchange Agent for exchange in accordance
with this Article I, certificates representing the shares of Parent Common Stock
issuable pursuant to Section 1.6 in exchange for outstanding shares of Company
Common Stock, and cash in an amount sufficient for payment in lieu of fractional
shares pursuant to Section 1.6(f) and any dividends or distributions to which
holders of shares of Company Common Stock may be entitled pursuant to Section
1.7(d).
(c) Exchange Procedures. As soon as practicable after the Effective Time,
Parent shall cause the Exchange Agent to mail to each holder of record (as of
the Effective Time) of a certificate or certificates (the "CERTIFICATES"), which
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock whose shares were converted into shares of Parent Common
Stock pursuant to Section 1.6, cash in lieu of any fractional shares pursuant to
Section 1.6(f) and any dividends or other distributions pursuant to Section
1.7(d), (i) a letter of transmittal in customary form (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates (or affidavit pursuant to Section
1.9) to the Exchange Agent and shall contain such other provisions as Parent may
reasonably specify)
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and (ii) instructions for use in effecting the surrender of the Certificates (or
affidavit pursuant to Section 1.9) in exchange for certificates representing
shares of Parent Common Stock, cash in lieu of any fractional shares pursuant to
Section 1.6(f) and any dividends or other distributions pursuant to Section
1.7(d). Upon surrender of Certificates for cancellation (or affidavit pursuant
to Section 1.9) to the Exchange Agent or to such other agent or agents as may be
appointed by Parent, together with such letter of transmittal, duly completed
and validly executed in accordance with the instructions thereto, the holders of
such outstanding shares of Company Common Stock shall be entitled to receive in
exchange therefor certificates representing the number of whole shares of Parent
Common Stock into which their shares of Company Common Stock were converted at
the Effective Time, payment in lieu of fractional shares which such holders have
the right to receive pursuant to Section 1.6(f) and any dividends or
distributions payable pursuant to Section 1.7(d), and the Certificates so
surrendered shall forthwith be canceled. Until so surrendered, outstanding
Certificates will be deemed from and after the Effective Time, for all corporate
purposes, subject to Section 1.7(d) as to the payment of dividends, to evidence
only the ownership of the number of full shares of Parent Common Stock into
which such shares of Company Common Stock shall have been so converted and the
right to receive an amount in cash in lieu of the issuance of any fractional
shares in accordance with Section 1.6(f) and any dividends or distributions
payable pursuant to Section 1.7(d).
(d) Distributions With Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the date of this Agreement with respect to
Parent Common Stock with a record date after the Effective Time will be paid to
the holders of any unsurrendered Certificates with respect to the shares of
Parent Common Stock represented thereby (subject to Section 1.9) until the
holders of record of such Certificates shall surrender such Certificates in
accordance with this Section 1.7 (subject to Section 1.9). Subject to applicable
law, following surrender of any such Certificates (or affidavit pursuant to
Section 1.9), the Exchange Agent shall deliver to the record holders thereof,
without interest, certificates representing whole shares of Parent Common Stock
issued in exchange therefor, along with payment in lieu of fractional shares
pursuant to Section 1.6(f) hereof and the amount of any such dividends or other
distributions with a record date after the Effective Time payable with respect
to such whole shares of Parent Common Stock.
(e) Transfers of Ownership. If certificates representing shares of Parent
Common Stock are to be issued in a name other than that in which the
Certificates surrendered in exchange therefor are registered, it will be a
condition of the issuance thereof that the Certificates so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the persons
requesting such exchange will have paid to Parent or any agent designated by it
any transfer or other taxes required by reason of the issuance of certificates
representing shares of Parent Common Stock in any name other than that of the
registered holder of the Certificates surrendered, or established to the
reasonable satisfaction of Parent or any agent designated by it that such tax
has been paid or is not payable.
(f) Required Withholding. Each of the Exchange Agent, Parent and the
Surviving Corporation shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable pursuant to this Agreement to any
holder or former holder of Company Common Stock such amounts as may be required
to be deducted or withheld
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therefrom under the Code or under any provision of state, local or foreign tax
law or under any other applicable Legal Requirement (as defined in Section
2.2(c)); provided that Parent shall timely deliver any amount so deducted or
withheld to the appropriate tax or other authority on behalf of each such holder
or former holder of Company Common Stock in accordance with such Legal
Requirements. To the extent such amounts are so deducted or withheld, such
amounts shall be treated for all purposes under this Agreement as having been
paid to the person to whom such amounts would otherwise have been paid.
(g) No Liability. Notwithstanding anything to the contrary in this Section
1.7, neither the Exchange Agent, Parent, the Surviving Corporation nor any party
hereto shall be liable to a holder of shares of Parent Common Stock or Company
Common Stock for any amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.
1.8 No Further Ownership Rights in Company Common Stock. All shares of Parent
Common Stock issued in accordance with the terms hereof (including any cash paid
in respect thereof pursuant to Section 1.6(f) and 1.7(d)) shall be deemed to
have been issued in full satisfaction of all rights pertaining to such shares of
Company Common Stock, and there shall be no further registration of transfers on
the records of the Surviving Corporation of shares of Company Common Stock which
were outstanding immediately prior to the Effective Time. If after the Effective
Time Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this Article I.
1.9 Lost, Stolen or Destroyed Certificates. In the event that any Certificates
shall have been lost, stolen or destroyed, the Exchange Agent shall issue in
exchange for such lost, stolen or destroyed Certificates, upon the making of a
reasonable affidavit of that fact by the holder thereof, certificates
representing the shares of Parent Common Stock into which the shares of Company
Common Stock represented by such Certificates were converted pursuant to Section
1.6, cash for fractional shares, if any, as may be required pursuant to Section
1.6(f) and any dividends or distributions payable pursuant to Section 1.7(d);
provided, however, that Parent may, in its discretion and as a condition
precedent to the issuance of such certificates representing shares of Parent
Common Stock, cash and other distributions, require the owner of such lost,
stolen or destroyed Certificates to agree to indemnify Parent against any claim
that may be made against Parent, the Surviving Corporation or the Exchange Agent
with respect to the Certificates alleged to have been lost, stolen or destroyed.
1.10 Tax Consequences. It is intended by the parties hereto that the Merger
shall constitute a reorganization within the meaning of Section 368 of the Code.
The parties hereto adopt this Agreement as a "plan of reorganization" within the
meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States Treasury
Regulations.
1.11 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub, the Company and Merger Sub will
take all such lawful and necessary action. Parent shall cause Merger Sub to
perform all of its obligations relating to this Agreement and the transactions
contemplated thereby.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub, subject to the
exceptions specifically disclosed in writing in the disclosure letter and
referencing a specific representation supplied by the Company to Parent dated as
of the date hereof and certified on behalf of the Company by a duly authorized
officer of the Company (the "COMPANY SCHEDULES"), as follows:
2.1 Organization of the Company.
(a) The Company has no subsidiaries, except for the corporations identified
in Part 2.1(a)(i) of the Company Schedules; and neither the Company nor any of
the other corporations identified in Part 2.1(a)(i) of the Company Schedules
owns any capital stock of, or any equity interest of any nature in, any other
entity, other than the entities identified in Part 2.1(a)(ii) of the Company
Schedules, except for passive investments in equity interests of public
companies as part of the cash management program of the Company. (Where
appropriate, the Company and each of its subsidiaries are referred to singularly
and/or collectively in this Agreement as the "COMPANY"). The Company has not
agreed and is not obligated to make, nor is bound by any written, oral or other
agreement, contract, subcontract, lease, binding understanding, instrument,
note, option, warranty, purchase order, license, sublicense, insurance policy,
benefit plan or legally binding commitment or undertaking of any nature, as in
effect as of the date hereof or as may hereinafter be amended or in effect
("CONTRACT") under which Contract it may become obligated to make, any future
investment in or capital contribution to any other entity. The Company has not,
at any time, been a general partner of any general partnership, limited
partnership or other entity.
(b) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
all necessary power and authority: (i) to conduct its business in the manner in
which its business is currently being conducted; (ii) to own and use its assets
in the manner in which its assets are currently owned and used; and (iii) to
perform its obligations under all Contracts by which it is bound. The Company,
as a newly incorporated Delaware corporation has substantially the same rights
under all Contracts to which its predecessor California corporation was a party
immediately prior to such reincorporation, except for those rights which have
terminated according to their terms (not by virtue of the reincorporation).
(c) The Company is qualified to do business as a foreign corporation, and
is in good standing, under the laws of all jurisdictions where the nature of its
business requires such qualification and where the failure to so qualify would
have a Material Adverse Effect (as defined in Section 8.3) on the Company.
(d) The Company has delivered or made available to Parent a true and
correct copy of the Certificate of Incorporation and Bylaws of the Company and
similar governing instruments of each of its subsidiaries, each as amended to
date (collectively, the "COMPANY CHARTER DOCUMENTS"), and each such instrument
is in full force and effect. The Company is not in violation of any of the
provisions of the Company Charter Documents.
(e) The Company has delivered or made available to parent all proposed or
considered amendments to the Company Charter Documents.
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2.2 Company Capital Structure.
(a) The authorized capital stock of the Company consists of: (i) 50,000,000
shares of Company Common Stock, $0.001 par value, of which 14,399,602 shares had
been issued and were outstanding as of October 12, 1998; and (ii) 5,000,000
shares of preferred stock, $0.001 par value per share (the "COMPANY PREFERRED
STOCK" and together with the Company Common Stock, the "COMPANY CAPITAL STOCK"),
of which no shares are outstanding as of the date of this Agreement. All of the
outstanding shares of Company Common Stock have been duly authorized and validly
issued, and are fully paid and nonassessable. As of the date of this Agreement,
there are no shares of Company Common Stock held in treasury by the Company.
Upon consummation of the Merger, (A) the shares of Parent Common Stock issued in
exchange for any shares of Company Common Stock that are subject to a Contract
pursuant to which the Company has the right to repurchase, redeem or otherwise
reacquire any shares of Company Common Stock will, without any further act of
Parent, the Company or any other person, become subject to the restrictions,
conditions and other provisions contained in such Contract, and (B) Parent will
automatically succeed to and become entitled to exercise the Company's rights
and remedies under any such Contract.
(b) As of October 12, 1998: (i) 2,256,453 shares of Company Common Stock
are subject to issuance pursuant to outstanding options to purchase Company
Common Stock under the Company Stock Option Plans; (ii) 1,050,000 shares of
Company Common Stock are reserved for future issuance under the Company Purchase
Plan; and (iii) a number of shares of Company Common Stock are subject to
issuance pursuant to warrants to purchase Company Common Stock as set forth on
Part 2.3 of the Company Schedules. (Stock options granted by the Company
pursuant to the Company Stock Option Plans are referred to in this Agreement as
"COMPANY OPTIONS"). Part 2.2(b) of the Company Schedules sets forth the
following information with respect to each Company Option outstanding as of
October 12, 1998: (i) the name and address of the optionee; (ii) the particular
plan or agreement pursuant to which such Company Option was granted; (iii) the
name of the optionee; (iv) the number of shares of Company Common Stock subject
to such Company Option; (v) the exercise price of such Company Option; (vi) the
date on which such Company Option was granted; (vii) the applicable vesting
schedule; (viii) the date on which such Company Option expires and (ix) whether
the exercisability of such option will be accelerated in any way by the
transactions contemplated by this Agreement, and indicates the extent of
acceleration. The Company has made available to Parent accurate and complete
copies of all stock option plans pursuant to which the Company has granted stock
options that are currently outstanding and the form of all stock option
agreements evidencing such options. All shares of Company Common Stock subject
to issuance as aforesaid, upon issuance on the terms and conditions specified in
the instruments pursuant to which they are issuable, would be duly authorized,
validly issued, fully paid and nonassessable. Except as set forth in Part
2.2(b)(i) of the Company Schedules, there are no commitments or agreements of
any character to which the Company is bound obligating the Company to accelerate
the vesting of any Company Option as a result of the Merger.
(c) All outstanding shares of Company Common Stock, all outstanding Company
Options, and all outstanding shares of capital stock of each subsidiary of the
Company have been issued and granted in compliance with (i) all applicable
securities laws and other applicable Legal Requirements (as defined below) and
(ii) all requirements set forth
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in applicable Contracts. For the purposes of this Agreement, "LEGAL
REQUIREMENTS" means any federal, state, local, municipal, foreign or other law,
statute, constitution, principle of common law, resolution, ordinance, code,
edict, decree, rule, regulation, ruling or requirement issued, enacted, adopted,
promulgated, implemented or otherwise put into effect by or under the authority
of any Governmental Entity.
(d) All of the outstanding shares of capital stock of each of the entities
identified in Part 2.1(a)(i) of the Company Schedules are validly issued, fully
paid and nonassessable and are owned beneficially and of record by the Company,
free and clear of any material Encumbrances. For the purposes of this Agreement
"ENCUMBRANCES" means any lien, pledge, hypothecation, charge, mortgage, security
interest, encumbrance, claim, infringement, interference, option, right of first
refusal, preemptive right, community property interest or restriction of any
nature (including any restriction on the voting of any security, any restriction
on the transfer of any security or other asset, any restriction on the receipt
of any income derived from any asset, any restriction on the use of any asset
and any restriction on the possession, exercise or transfer of any other
attribute of ownership of any asset).
2.3 Obligations With Respect to Capital Stock. Except as set forth in Section
2.2 or Part 2.3 of the Company Schedules, there are no equity securities,
partnership interests or similar ownership interests of any class of the Company
equity security, or any securities exchangeable or convertible into or
exercisable for such equity securities, partnership interests or similar
ownership interests, issued, reserved for issuance or outstanding. Except for
securities the Company owns free and clear of all claims and material
Encumbrances, directly or indirectly through one or more subsidiaries, and
except for shares of capital stock or other similar ownership interests of
certain subsidiaries of the Company that are owned by certain nominee equity
holders as required by the applicable law of the jurisdiction of organization of
such subsidiaries, as of the date of this Agreement, there are no equity
securities, partnership interests or similar ownership interests of any class of
equity security of any subsidiary of the Company, or any security exchangeable
or convertible into or exercisable for such equity securities, partnership
interests or similar ownership interests, issued, reserved for issuance or
outstanding. Except as set forth in Part 2.3 of the Company Schedules, there are
no subscriptions, options, warrants, equity securities, partnership interests or
similar ownership interests, calls, rights (including preemptive rights),
commitments or agreements of any character to which the Company or any of its
subsidiaries is a party or by which it is bound obligating the Company or any of
its subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, or repurchase, redeem or otherwise acquire, or cause the repurchase,
redemption or acquisition of, any shares of capital stock, partnership interests
or similar ownership interests of the Company or any of its subsidiaries or
obligating the Company or any of its subsidiaries to grant, extend, accelerate
the vesting of or enter into any such subscription, option, warrant, equity
security, call, right, commitment or agreement. As of the date of this
Agreement, except as contemplated by this Agreement, there are no registration
rights and there is no voting trust, proxy, rights plan, antitakeover plan or
other agreement or understanding to which the Company is a party or by which it
is bound with respect to any equity security of any class of the Company or with
respect to any equity security, partnership interest or similar ownership
interest of any class of any of its subsidiaries. Stockholders of the Company
will not be entitled to dissenters' rights under applicable state law in
connection with the Merger.
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2.4 Authority; Non-Contravention.
(a) The Company has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company, subject only to the approval and
adoption of this Agreement and the approval of the Merger by the Company's
stockholders and the filing of the Certificate of Merger pursuant to Delaware
Law. A vote of the holders of a majority of the outstanding shares of the
Company Common Stock is sufficient for the Company's stockholders to approve and
adopt this Agreement and approve the Merger. This Agreement has been duly
executed and delivered by the Company and, upon due execution and delivery by
Parent and Merger Sub, constitutes a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except as
enforceability may be limited by bankruptcy and other similar laws and general
principles of equity. The execution and delivery of this Agreement by the
Company does not, and the performance of this Agreement by the Company will not,
(i) conflict with or violate the Company Charter Documents, (ii) subject to
obtaining the approval and adoption of this Agreement and the approval of the
Merger by the Company's stockholders as contemplated in Section 5.2 and
compliance with the requirements set forth in Section 2.4(b) below, conflict
with or violate any law, rule, regulation, order, judgment or decree applicable
to the Company or any of its subsidiaries or by which the Company or any of its
subsidiaries or any of their respective properties is bound or affected, or
(iii) result in any material breach of or constitute a material default (or an
event that with notice or lapse of time or both would become a material default)
under, or impair the Company's rights or alter the rights or obligations of any
third party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a material
Encumbrance on any of the material properties or assets of the Company or any of
its subsidiaries pursuant to, any material note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise, concession, or other
instrument or obligation to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries or its or any of their
respective assets are bound or affected. Part 2.4(b) of the Company Schedules
lists all consents, waivers and approvals under any of the Company's or any of
its subsidiaries' agreements, contracts, licenses or leases required to be
obtained in connection with the consummation of the transactions contemplated
hereby, which, if individually or in the aggregate not obtained, would result in
a material loss of benefits to the Company, Parent or the Surviving Corporation
as a result of the Merger.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any court, administrative agency or commission or
other governmental authority or instrumentality, foreign or domestic
("GOVERNMENTAL ENTITY"), is required to be obtained or made by the Company in
connection with the execution and delivery of this Agreement or the consummation
of the Merger, except for (i) the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware, (ii) the filing of the
Prospectus/Proxy Statement (as defined in Section 2.20) with the Securities and
Exchange Commission ("SEC") in accordance with the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT"), (iii) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal, foreign and state securities (or related) laws and the
Hart-Scott-Rodino Antitrust Improvements
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Act of 1976, as amended (the "HSR ACT"), and the securities or antitrust laws of
any foreign country, and (iv) such other consents, authorizations, filings,
approvals and registrations which if not obtained or made would not be material
to the Company or Parent or materially effect the ability of the parties hereto
to consummate the Merger.
2.5 SEC Filings; Company Financial Statements.
(a) The Company has filed all forms, reports and documents required to be
filed by the Company with the SEC since January 1, 1997 and has made available
to Parent such forms, reports and documents in the form filed with the SEC. All
such required forms, reports and documents (including those that the Company may
file subsequent to the date hereof) are referred to herein as the "COMPANY SEC
REPORTS." As of their respective dates, the Company SEC Reports (i) were
prepared in accordance and complied in all material respects with the
requirements of the Securities Act of 1933, as amended (the "SECURITIES ACT"),
or the Exchange Act, as the case may be, and the rules and regulations of the
SEC thereunder applicable to such Company SEC Reports and (ii) did not at the
time they were filed (or if amended or superseded by a filing prior to the date
of this Agreement, then on the date of such 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
Company's subsidiaries is required to file any forms, reports or other documents
with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Company SEC Reports (the "COMPANY
FINANCIALS"), including each Company SEC Report filed after the date hereof
until the Closing, (i) complied as to form in all material respects with the
published rules and regulations of the SEC with respect thereto, (ii) was
prepared in accordance with United States generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto or, in the case of
unaudited interim financial statements, as may be permitted by the SEC on Form
10-Q under the Exchange Act) and (iii) fairly presented the consolidated
financial position of the Company and its subsidiaries as at the respective
dates thereof and the consolidated results of the Company's operations and cash
flows for the periods indicated, except that the unaudited interim financial
statements may not contain footnotes and were or are subject to normal and
recurring year-end adjustments. The balance sheet of the Company contained in
the Company's Annual Report on Form 10-K for the year ended December 31, 1997 is
hereinafter referred to as the "COMPANY BALANCE SHEET." Except as disclosed in
the Company Financials, since the date of the Company Balance Sheet neither the
Company nor any of its subsidiaries has any liabilities required under GAAP to
be set forth on a balance sheet (absolute, accrued, contingent or otherwise)
which are, individually or in the aggregate, material to the business, results
of operations or financial condition of the Company and its subsidiaries taken
as a whole, except for liabilities incurred since the date of the Company
Balance Sheet in the ordinary course of business consistent with past practices.
(c) The Company has heretofore furnished to Parent a complete and correct
copy of any amendments or modifications, which have not yet been filed with the
SEC but which are required to be filed, to agreements, documents or other
instruments which previously
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had been filed by the Company with the SEC pursuant to the Securities Act or the
Exchange Act.
(d) The Company has recognized revenues in accordance with GAAP and
Statement of Position 97-2, as amended by Statement of Position 98-4, issued by
the American Institute of Certified Public Accountants. The Company has
recognized (i) initial license fee revenues only after delivery of software
products and upon satisfaction of all significant post-delivery obligations;
(ii) revenues associated with the grant of additional licenses to the Company's
existing customers upon shipment and upon satisfaction of all significant
post-delivery obligations; (iii) maintenance revenues ratably over the term of
the maintenance period; and (iv) consulting and training revenues when the
services were performed.
2.6 Absence of Certain Changes or Events. Since the date of the Company Balance
Sheet there has not been: (i) any Material Adverse Effect (as defined in Section
8.3(c)) on the Company, (ii) any declaration, setting aside or payment of any
dividend on, or other distribution (whether in cash, stock or property) in
respect of, any of the Company's or any of its subsidiaries' capital stock, or
any purchase, redemption or other acquisition by the Company of any of the
Company's capital stock or any other securities of the Company or its
subsidiaries or any options, warrants, calls or rights to acquire any such
shares or other securities except for repurchases from employees following their
termination pursuant to the terms of their pre-existing stock option or purchase
agreements, (iii) any split, combination or reclassification of any of the
Company's or any of its subsidiaries' capital stock, (iv) any granting by the
Company or any of its subsidiaries of any increase in compensation or fringe
benefits, except for normal increases of cash compensation in the ordinary
course of business consistent with past practice, or any payment by the Company
or any of its subsidiaries of any bonus, except for bonuses made in the ordinary
course of business consistent with past practice, or any granting by the Company
or any of its subsidiaries of any increase in severance or termination pay or
any entry by the Company or any of its subsidiaries into any currently effective
employment, severance, termination or indemnification agreement or any agreement
the benefits of which are contingent or the terms of which are materially
altered upon the occurrence of a transaction involving the Company of the nature
contemplated hereby, (v) entry by the Company or any of its subsidiaries into
any licensing or other agreement with regard to the acquisition or disposition
of any material Intellectual Property (as defined in Section 2.9) other than
licenses in the ordinary course of business consistent with past practice or any
amendment or consent with respect to any licensing agreement filed or required
to be filed by the Company with the SEC, (vi) any material change by the Company
in its accounting methods, principles or practices, except as required by
concurrent changes in GAAP, or (vii) any revaluation by the Company of any of
its assets, including, without limitation, writing down the value of capitalized
inventory or writing off notes or accounts receivable other than in the ordinary
course of business.
2.7 Taxes.
(a) Definition of Taxes. For the purposes of this Agreement, "TAX" or
"TAXES" refers to any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions and liabilities
relating to taxes, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment,
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excise and property taxes, together with all interest, penalties and additions
imposed with respect to such amounts and any obligations under any agreements or
arrangements with any other person with respect to such amounts and including
any liability for taxes of a predecessor entity.
(b) Tax Returns and Audits.
(i) The Company and each of its subsidiaries have timely filed all
federal, state, local and foreign returns, estimates, information statements and
reports ("RETURNS") relating to Taxes required to be filed by the Company and
each of its subsidiaries with any Tax authority, except such Returns which are
not material to the Company, and have paid all Taxes shown to be due on such
Returns on a timely basis.
(ii) The Company and each of its subsidiaries as of the Effective Time
will have withheld with respect to its employees all federal and state income
taxes, Taxes pursuant to the Federal Insurance Contribution Act ("FICA"), Taxes
pursuant to the Federal Unemployment Tax Act ("FUTA") and other Taxes required
to be withheld.
(iii) Neither the Company nor any of its subsidiaries has any Tax
deficiency outstanding, proposed in writing (or otherwise to the Company's
knowledge proposed) or assessed against the Company or any of its subsidiaries,
nor has the Company or any of its subsidiaries executed any unexpired waiver of
any statute of limitations on or extending the period for the assessment or
collection of any Tax.
(iv) No audit or other examination of any Return of the Company or any
of its subsidiaries by any Tax authority is presently in progress, nor has the
Company or any of its subsidiaries been notified in writing (or otherwise to the
Company's knowledge notified) of any request for such an audit or other
examination.
(v) No adjustment relating to any Returns filed by the Company or any of
its subsidiaries has been proposed in writing by any Tax authority to the
Company or any of its subsidiaries.
(vi) Neither the Company nor any of its subsidiaries has any liability
for unpaid Taxes which has not been accrued for or reserved in accordance with
GAAP on the Company Balance Sheet (or in any Company SEC Report filed prior to
the date hereof, or for liabilities accruing following the date hereof, in any
Company SEC Report filed prior to the date of the Closing), whether asserted or
unasserted, contingent or otherwise, which is material to the Company, other
than any liability for unpaid Taxes that may have accrued since the date of the
Company Balance Sheet in connection with the operation of the business of the
Company and its subsidiaries in the ordinary course.
(vii) There is no contract, agreement, plan or arrangement to which the
Company is a party as of the date of this Agreement, including but not limited
to the provisions of this Agreement, covering any employee or former employee of
the Company or any of its subsidiaries that, individually or collectively, could
give rise to the payment of any amount that would not be deductible pursuant to
Sections 280G, 404 or 162(m) of the Code.
(viii) Neither the Company nor any of its subsidiaries has filed any
consent agreement under Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
defined in Section 341(f)(4) of the Code) owned by the Company.
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(ix) Neither the Company nor any of its subsidiaries is party to, or has
any obligation under, or will have any obligation as a result of the Merger
under any tax-sharing, tax indemnity or tax allocation agreement or arrangement.
(x) Except as may be required as a result of the Merger, the Company and
its subsidiaries have not been and will not be required to include any material
adjustment in Taxable income for any Tax period (or portion thereof) pursuant to
Section 481 or Section 263A of the Code or any comparable provision under state
or foreign Tax laws as a result of transactions, events or accounting methods
employed prior to the Closing and with respect to which the applicable statute
of limitations has not passed.
(xi) None of the Company's or its subsidiaries' assets are tax exempt
use property within the meaning of Section 168(h) of the Code.
(xii) Part 2.7 of the Company Schedules lists (A) any foreign Tax
holidays, (B) any intercompany transfer pricing agreements, or other
arrangements that have been established by the Company or any of its
subsidiaries with any Tax authority and (C) any expatriate programs or policies
affecting the Company or any of its subsidiaries.
2.8 Title to Properties; Absence of Liens and Encumbrances.
(a) Part 2.8(a)(i) of the Company Schedules lists all real property leases
to which the Company is a party as of the date of this Agreement and each
amendment thereto that is in effect as of the date of this Agreement. All such
current leases are in full force and effect, are valid and effective in
accordance with their respective terms, and there is not, under any of such
leases, any existing default or event of default (or event which with notice or
lapse of time, or both, would constitute a default) that would give rise to a
claim in an amount greater than $50,000. Other than the leaseholds created under
the real property leases identified in Part 2.8(a)(i) of the Company Schedules,
the Company owns no interest in real property.
(b) The Company has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any liens, pledges, charges, claims, security
interests or other encumbrances of any sort ("Liens"), except as reflected in
the Company Financials and except for Liens for taxes not yet due and payable
and such Liens or other imperfections of title and encumbrances, if any, which
are not material in character, amount or extent, and which do not materially
detract from the value, or materially interfere with the present use, of the
property subject thereto or affected thereby.
2.9 Intellectual Property. For the purposes of this Agreement, the following
terms have the following definitions:
"INTELLECTUAL PROPERTY" shall mean any or all of the following and all
rights in, arising out of, or associated therewith: (i) all United States,
international and foreign patents and applications therefor and all
reissues, divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof; (ii) all inventions (whether patentable or
not), invention disclosures, improvements, trade secrets, proprietary
information, know how, technology, technical data and customer lists, and
all documentation relating to any of the foregoing; (iii) all copyrights,
copyrights registrations and applications therefor, and all other rights
corresponding thereto throughout the world;
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(iv) all industrial designs and any registrations and applications therefor
throughout the world;
(v) all trade names, logos, common law trademarks and service marks,
trademark and service mark registrations and applications therefor
throughout the world; (vi) all databases and data collections and all
rights therein throughout the world; (vii) all moral and economic rights of
authors and inventors, however denominated, throughout the world, and
(viii) any similar or equivalent rights to any of the foregoing anywhere in
the world.
"COMPANY INTELLECTUAL PROPERTY" shall mean any Intellectual Property that
is owned by, or exclusively licensed to, the Company.
"REGISTERED INTELLECTUAL PROPERTY" means all United States, international
and foreign: (i) patents and patent applications (including provisional
applications); (ii) registered trademarks, applications to register
trademarks, intent-to-use applications, or other registrations or
applications related to trademarks; (iii) registered copyrights and
applications for copyright registration; and (iv) any other Intellectual
Property that is the subject of an application, certificate, filing,
registration or other document issued, filed with, or recorded by any
state, government or other public legal authority.
"COMPANY REGISTERED INTELLECTUAL PROPERTY" means all of the Registered
Intellectual Property owned by, or filed in the name of, the Company.
(a) No material Company Intellectual Property or product or service of the
Company is subject to any proceeding or outstanding decree, order, judgment,
agreement, or stipulation restricting in any manner the use, transfer, or
licensing thereof by the Company, or which may affect the validity, use or
enforceability of any Company Intellectual Property.
(b) Part 2.9(b) of the Company Schedules is a complete and accurate list of
all Company Registered Intellectual Property and specifies, where applicable,
the jurisdictions in which each such item of Company Registered Intellectual
Property has been issued or registered or in which an application for such
issuance and registration has been filed, including the respective registration
or application numbers. Each material item of Company Registered Intellectual
Property is valid and subsisting, all necessary registration, maintenance and
renewal fees currently due in connection with such Registered Intellectual
Property have been made and all necessary documents, recordations and
certificates in connection with such Registered Intellectual Property have been
filed with the relevant patent, copyright, trademark or other authorities in the
United States or foreign jurisdictions, as the case may be, for the purposes of
maintaining such Registered Intellectual Property.
(c) The Company owns and has good and exclusive title to, each material
item of Company Intellectual Property free and clear of any Lien or Encumbrance
(excluding licenses entered into in the ordinary course of the Company's
business); and the Company is the exclusive owner of all trademarks and trade
names used in connection with the operation or conduct of the business of the
Company, including the sale of any products or the provision of any services by
the Company.
(d) The Company owns exclusively, and has good title to, all copyrighted
works that are material Company products or which are material and which the
Company otherwise expressly purports to own.
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(e) To the extent that any material Intellectual Property has been
developed or created by a third party for the Company, the Company has a written
agreement with such third party with respect thereto and the Company thereby
either (i) has obtained ownership of, and is the exclusive owner of, or (ii) has
obtained a license (sufficient for the conduct of its business as currently
conducted and as proposed to be conducted) to all such third party's
Intellectual Property in such work, material or invention by operation of law or
by valid assignment, to the fullest extent it is legally possible to do so.
(f) The Company has not transferred ownership of, or granted any exclusive
license with respect to, any Intellectual Property that is or was material to
the Company Intellectual Property, to any third party.
(g) The Company Schedules list all material contracts, licenses and
agreements to which the Company is a party (i) with respect to Company
Intellectual Property licensed or transferred to any third party (other than
end-user licenses in the ordinary course); or (ii) pursuant to which a third
party has licensed or transferred any material Intellectual Property to the
Company.
(h) All material contracts, licenses and agreements relating to the Company
Intellectual Property are in full force and effect. The consummation of the
transactions contemplated by this Agreement will neither violate nor result in
the breach, modification, cancellation, termination, or suspension of such
material contracts, licenses and agreements. The Company is in material
compliance with, and has not materially breached any term any of such material
contracts, licenses and agreements and, to the knowledge of the Company, all
other parties to such material contracts, licenses and agreements are in
compliance with, and have not materially breached any term of, such contracts,
licenses and agreements. Following the Closing Date, the Surviving Corporation
will be permitted to exercise all of the Company's rights under such contracts,
licenses and agreements to the same extent the Company would have been able to
had the transactions contemplated by this Agreement not occurred and without the
payment of any additional amounts or consideration other than ongoing fees,
royalties or payments which the Company would otherwise be required to pay.
Neither this Agreement nor the transactions contemplated by this Agreement,
including the assignment by operation of law or otherwise of any Contracts which
the Company is a party will result in the Parent or the Merger Sub granting to
any third party any rights to, or with respect to, any Intellectual Property
owned by, or licensed to, either of them, or will result in either the Parent or
the Merger Sub being bound by, or subject to, any non-compete or other
restriction on the operation or scope of their respective businesses.
(i) The operation of the business of the Company as such business currently
is conducted, including the Company's design, development, manufacture,
marketing and sale of the products or services of the Company (including with
respect to products currently under development) has not and does not, and will
not, by virtue of the Merger, infringe or misappropriate the Intellectual
Property of any third party or, to its knowledge, constitute unfair competition
or trade practices under the laws of any jurisdiction.
(j) The Company has not received written notice from any third party that
the operation of the business of the Company or any act, product or service of
the Company, infringes or misappropriates the Intellectual Property of any third
party or constitutes unfair competition or trade practices under the laws of any
jurisdiction.
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(k) To the knowledge of the Company, no person has or is infringing or
misappropriating any Company Intellectual Property.
(l) The Company has taken reasonable steps to protect the Company's rights
in the Company's confidential information and trade secrets that it wishes to
protect or any trade secrets or confidential information of third parties
provided to the Company, and, without limiting the foregoing, the Company has
and enforces a policy requiring each employee and contractor to execute a
proprietary information/confidentiality agreement substantially in the form
provided to Parent and all current and former employees and contractors of the
Company have executed such an agreement, except where the failure to do so would
not have a Material Adverse Effect on the Company.
2.10 Compliance; Permits; Restrictions.
(a) Neither the Company nor any of its subsidiaries is, in any material
respect, in conflict with, or in default or in violation of (i) any law, rule,
regulation, order, judgment or decree applicable to the Company or any of its
subsidiaries or by which the Company or any of its subsidiaries or any of their
respective properties is bound or affected, or (ii) any material note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries or its or any of
their respective properties is bound or affected, except for conflicts,
violations and defaults that (individually or in the aggregate) would not cause
the Company to lose any material benefit or incur any material liability. No
investigation or review by any Governmental Entity is pending or, to the
Company's knowledge, has been threatened in a writing delivered to the Company
against the Company or any of its subsidiaries, nor, to the Company's knowledge,
has any Governmental Entity indicated an intention to conduct an investigation
of the Company or any of its subsidiaries. There is no material agreement,
judgment, injunction, order or decree binding upon the Company or any of its
subsidiaries which has or could reasonably be expected to have the effect of
prohibiting or materially impairing any business practice of the Company or any
of its subsidiaries, any acquisition of material property by the Company or any
of its subsidiaries or the conduct of business by the Company as currently
conducted.
(b) The Company and its subsidiaries hold, to the extent legally required,
all permits, licenses, variances, exemptions, orders and approvals from
Governmental Entities that are material to and required for the operation of the
business of the Company as currently conducted (collectively, the "Company
Permits") and the Company and its subsidiaries are in compliance in all material
respects with the terms of the Company Permits, except where the failure to so
hold or be in compliance with the terms of the Company Permits would not be
material to the Company.
2.11 Litigation. Except as disclosed in Part 2.11 of the Company Schedules,
there are no claims, suits, actions or proceedings pending or, to the knowledge
of the Company, threatened against, relating to or affecting the Company or any
of its subsidiaries, before any court, governmental department, commission,
agency, instrumentality or authority, or any arbitrator that seeks to restrain
or enjoin the consummation of the transactions contemplated by this Agreement or
which could reasonably be expected, either singularly or in the aggregate with
all such claims, actions or proceedings, to be material to the Company. No
Governmental Entity has at any time challenged or questioned in a writing
delivered to the Company the legal right of the Company to design, manufacture,
offer or
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sell any of its products in the present manner or style thereof. As of the date
hereof, to the knowledge of the Company, no event has occurred, and no claim,
dispute or other condition or circumstance exists, that will, or that would
reasonably be expected to, cause or provide a bona fide basis for a director or
executive officer of the Company to seek indemnification from the Company.
Except as disclosed in Part 2.11 of the Company Schedules, the Company has never
been subject to an audit, compliance review, investigation or like contract
review by the GSA office of the Inspector General or other Governmental Entity
or agent thereof in connection with any government contract (a "Government
Audit"), to the Company's knowledge no Government Audit is threatened or
reasonably anticipated, and in the event of such Government Audit, to the
knowledge of the Company no basis exists for a finding of noncompliance with any
material provision of any government contract or a refund of any amounts paid or
owed by any Governmental Entity pursuant to such government contract. For each
item disclosed in the Company Schedule pursuant to this Section 2.11 a true and
complete copy of all correspondence and documentation with respect thereto has
been provided to Parent.
2.12 Brokers' and Finders' Fees. Except for fees payable to Batchelder &
Partners, Inc. and SoundView Technology Group, Inc. pursuant to engagement
letters dated June 8, 1998, as amended by letter agreement dated September 16,
1998, and October 5, 1998, respectively, copies of which have been provided to
Parent, the Company has not incurred, nor will it incur, directly or indirectly,
any liability for brokerage or finders' fees or agents' commissions or any
similar charges in connection with this Agreement or any transaction
contemplated hereby.
2.13 Transactions with Affiliates. Except as set forth in the Company SEC
Reports, since the date of the Company's last proxy statement filed with the
SEC, no event has occurred as of the date of this Agreement that would be
required to be reported by the Company pursuant to Item 404 of Regulation S-K
promulgated by the SEC. Part 2.13 of the Company Schedules identifies each
person who is an "affiliate" (as that term is used in Rule 145 promulgated under
the Securities Act) of the Company as of the date of this Agreement.
2.14 Employee Benefit Plans.
(a) Definitions. With the exception of the definition of "Affiliate" set
forth in Section 2.14(a)(i) below (which definition shall apply only to Section
2.14), for purposes of this Agreement, the following terms shall have the
meanings set forth below:
(i) "AFFILIATE" shall mean any other person or entity under common
control with the Company within the meaning of Section 414(b), (c), (m) or (o)
of the Code and the regulations issued thereunder;
(ii) "COMPANY EMPLOYEE PLAN" shall mean any plan, program, policy,
practice, contract, agreement or other arrangement providing for compensation,
severance, termination pay, performance awards, stock or stock-related awards,
fringe benefits or other employee benefits, other than any International
Employee Plan, whether written or unwritten, funded or unfunded, including,
without limitation, each "employee benefit plan" (within the meaning of Section
3(3) of ERISA) which is or has been maintained, contributed to, or required to
be contributed to, by the Company or any Affiliate for the benefit of any
Employee;
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(iii) "COBRA" shall mean the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended;
(iv) "DOL" shall mean the Department of Labor;
(v) "EMPLOYEE" shall mean any current, former, or retired employee,
officer, or director of the Company or any Affiliate;
(vi) "EMPLOYEE AGREEMENT" shall mean each written management,
employment, severance, consulting, relocation, repatriation, expatriation, or
similar agreement or contract between the Company or any Affiliate and any
Employee or consultant;
(vii) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended;
(viii) "FMLA" shall mean the Family Medical Leave Act of 1993, as
amended;
(ix) "INTERNATIONAL EMPLOYEE PLAN" shall mean each plan, program,
policy, practice, contract or other agreement that has been adopted or is
maintained by the Company for the benefit of Employees outside the United States
that would constitute a Company Employee Plan if maintained in the United
States;
(x) "IRS" shall mean the Internal Revenue Service;
(xi) "MULTIEMPLOYER PLAN" shall mean any "Pension Plan" (as defined
below) which is a "multiemployer plan," as defined in Section 3(37) of
ERISA;
(xii) "PBGC" shall mean the Pension Benefit Guaranty Corporation; and
(xiii) "PENSION PLAN" shall mean each Company Employee Plan which is
an "employee pension benefit plan," within the meaning of Section 3(2) of
ERISA.
(b) Schedule. Part 2.14(b) of the Company Schedules contain an accurate and
complete list of each Company Employee Plan, each material Employee Agreement
and each material International Employee Plan. The Company does not have any
plan or commitment to establish any new Company Employee Plan, to modify any
Company Employee Plan or material Employee Agreement (except to the extent
required by law or to conform any such Company Employee Plan or Employee
Agreement to the requirements of any applicable law, or as required by this
Agreement), or to enter into any Company Employee Plan or material Employee
Agreement, nor does it have any intention or commitment to do any of the
foregoing.
(c) Documents. The Company has provided to Parent: (i) correct and complete
copies of all documents embodying each Company Employee Plan, each material
Employee Agreement and each material International Employee Plan, including all
amendments thereto; (ii) the most recent annual actuarial valuations, if any,
prepared for each Company Employee Plan and each material International Employee
Plan; (iii) the two (2) most recent annual reports (Form Series 5500 and all
schedules and financial statements attached thereto), if any, required under
ERISA or the Code in connection with each Company Employee Plan or related
trust; (iv) if the Company Employee Plan or International Employee Plan is
funded, the most recent annual and periodic accounting of Company Employee Plan
assets; (v) the most recent summary plan description together with the summary
of material modifications thereto, if any, required under ERISA with respect to
each Company Employee Plan; (vi) all IRS determination, opinion, notification
and advisory letters, and rulings relating to Company Employee Plans and copies
of all
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applications and correspondence to or from the IRS or the DOL with respect to
any Company Employee Plan; (vii) all material written agreements and contracts
under each Company Employee Plan and International Employee Plan, including, but
not limited to, administrative service agreements, group annuity contracts and
group insurance contracts; (viii) all written communications material to any
Employee or Employees relating to any Company Employee Plan or International
Employee Plan and any proposed Company Employee Plans or International Employee
Plans, in each case, relating to any amendments, terminations, establishments,
increases or decreases in benefits, acceleration of payments or vesting
schedules or other events which would result in any material liability to the
Company; (ix) all COBRA forms and related notices; and (x) all registration
statements and prospectuses prepared in connection with each Company Employee
Plan and International Employee Plan.
(d) Employee Plan Compliance. (i) The Company has performed in all material
respects all obligations required to be performed by it under, is not in
material default or violation of, and has no knowledge of any default or
violation by any other party to each Company Employee Plan, and each Company
Employee Plan has been established and maintained in all material respects in
accordance with its terms and in compliance with all applicable laws, statutes,
orders, rules and regulations, including but not limited to ERISA or the Code;
(ii) each Company Employee Plan intended to qualify under Section 401(a) of the
Code and each trust intended to qualify under Section 501(a) of the Code has
either received a favorable determination letter from the IRS with respect to
each such Plan as to its qualified status under the Code, including all
amendments to the Code effected by the Tax Reform Act of 1986 and subsequent
legislation, or has remaining a period of time under applicable Treasury
regulations or IRS pronouncements in which to apply for such a determination
letter and make any amendments necessary to obtain a favorable determination;
(iii) to the Company's knowledge, no "prohibited transaction," within the
meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA, and not
otherwise exempt under the Code or Section 408 of ERISA, has occurred with
respect to any Company Employee Plan; (iv) there are no actions, suits or claims
pending, or, to the knowledge of the Company, threatened or reasonably
anticipated (other than routine claims for benefits) against any Company
Employee Plan or against the assets of any Company Employee Plan; (v) each
Company Employee Plan can be amended, terminated or otherwise discontinued after
the Effective Time in accordance with its terms, without liability to Parent,
the Company or any of its Affiliates (other than ordinary administration
expenses typically incurred in a termination event); (vi) there are no audits,
inquiries or proceedings pending or, to the knowledge of the Company or any
Affiliates, threatened by the IRS or DOL with respect to any Company Employee
Plan; and (vii) neither the Company nor any Affiliate is subject to any penalty
or tax with respect to any Company Employee Plan under Section 502(i) of ERISA
or Sections 4975 through 4980 of the Code.
(e) Pension Plans. The Company does not now, nor has it ever, maintained,
established, sponsored, participated in, or contributed to, any Pension Plan
which is subject to Title IV of ERISA or Section 412 of the Code.
(f) Multiemployer Plans. At no time has the Company contributed to or been
requested to contribute to any Multiemployer Plan.
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(g) No Post-Employment Obligations. No Company Employee Plan provides, or
has any liability to provide, retiree life insurance, retiree health or other
retiree employee welfare benefits to any person for any reason, except as may be
required by COBRA or other applicable statute, and the Company has never
represented, promised or contracted (whether in oral or written form) to any
Employee (either individually or to Employees as a group) or any other person
that such Employee(s) or other person would be provided with retiree life
insurance, retiree health or other retiree employee welfare benefit, except to
the extent required by statute.
(h) Neither the Company nor any Affiliate has, prior to the Effective Time,
violated any of the health care continuation requirements of COBRA, the
requirements of FMLA or any similar provisions of state law applicable to its
Employees, except where any such violation would not have a Material Adverse
Effect on the Company.
(i) Effect of Transaction.
(i) The execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or upon the occurrence
of any additional or subsequent events) constitute an event under any Company
Employee Plan, Employee Agreement, trust or loan that will or may result in any
payment (whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any Employee.
(ii) No payment or benefit which will or may be made by the Company or
its Affiliates with respect to any Employee as a result of the transactions
contemplated by this Agreement will be characterized as an "excess parachute
payment," within the meaning of Section 280G(b)(1) of the Code.
(j) Employment Matters. The Company in all material respects: (i) is in
compliance in all material respects with all applicable foreign, federal, state
and local laws, rules and regulations respecting employment, employment
practices, terms and conditions of employment and wages and hours, in each case,
with respect to Employees; (ii) has withheld all amounts required by law or by
agreement to be withheld from the wages, salaries and other payments to
Employees; (iii) is not liable for any arrears of wages or any taxes or any
penalty for failure to comply with any of the foregoing; and (iv) is not liable
for any material payment to any trust or other fund or to any governmental or
administrative authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for Employees (other than
routine payments to be made in the normal course of business and consistent with
past practice). There are no material pending, threatened or reasonably
anticipated claims or actions against the Company under any worker's
compensation policy or long-term disability policy. To the Company's knowledge,
no employee of the Company has violated any material employment contract,
nondisclosure agreement or noncompetition agreement by which such employee is
bound due to such employee being employed by the Company and disclosing to the
Company or using trade secrets or proprietary information of any other person or
entity.
(k) Labor. No work stoppage or labor strike against the Company is pending,
threatened or reasonably anticipated. The Company does not know of any
activities or proceedings of any labor union to organize any Employees. There
are no actions, suits, claims, labor disputes or grievances pending, or, to the
knowledge of the Company, threatened or reasonably anticipated relating to any
labor, safety or discrimination matters
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involving any Employee, including, without limitation, charges of unfair labor
practices or discrimination complaints, which, if adversely determined, would,
individually or in the aggregate, have a Material Adverse Effect on the Company.
Neither the Company nor any of its subsidiaries has engaged in any unfair labor
practices within the meaning of the National Labor Relations Act. The Company is
not presently, nor has it been in the past, a party to, or bound by, any
collective bargaining agreement or union contract with respect to Employees and
no collective bargaining agreement is being negotiated by the Company.
(l) International Employee Plan. Each International Employee Plan has been
established, maintained and administered in material compliance with its terms
and conditions and with the requirements prescribed by any and all statutory or
regulatory laws that are applicable to such International Employee Plan.
Furthermore, no International Employee Plan has unfunded liabilities, that as of
the Effective Time, will not be offset by insurance or have not been fully
accrued. Each International Employee Plan can be amended, terminated or
otherwise discontinued after the Effective Time in accordance with its terms.
2.15 Environmental Matters.
(a) Hazardous Material. Except as would not result in material liability to
the Company, no underground storage tanks and no amount of any substance that
has been designated by any Governmental Entity or by applicable federal, state
or local law to be radioactive, toxic, hazardous or otherwise a danger to health
or the environment, including, without limitation, PCBs, asbestos, petroleum,
urea-formaldehyde and all substances listed as hazardous substances pursuant to
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, or defined as a hazardous waste pursuant to the United States
Resource Conservation and Recovery Act of 1976, as amended, and the regulations
promulgated pursuant to said laws, but excluding office and janitorial supplies,
(a "HAZARDOUS MATERIAL") are present, as a result of the actions of the Company
or any of its subsidiaries or any affiliate of the Company, or, to the Company's
knowledge, as a result of any actions of any third party or otherwise, in, on or
under any property, including the land and the improvements, ground water and
surface water thereof, that the Company or any of its subsidiaries has at any
time owned, operated, occupied or leased.
(b) Hazardous Materials Activities. Except as would not result in a
material liability to the Company (in any individual case or in the aggregate)
(i) neither the Company nor any of its subsidiaries has transported, stored,
used, manufactured, disposed of, released or exposed its employees or others to
Hazardous Materials in violation of any law in effect on or before the Closing
Date, and (ii) neither the Company nor any of its subsidiaries has disposed of,
transported, sold, used, released, exposed its employees or others to or
manufactured any product containing a Hazardous Material (collectively
"HAZARDOUS MATERIALS ACTIVITIES") in violation of any rule, regulation, treaty
or statute promulgated by any Governmental Entity in effect prior to or as of
the date hereof to prohibit, regulate or control Hazardous Materials or any
Hazardous Material Activity.
(c) Permits. The Company and its subsidiaries currently hold all
environmental approvals, permits, licenses, clearances and consents (the
"COMPANY ENVIRONMENTAL PERMITS") necessary for the conduct of the Company's and
its subsidiaries' Hazardous Material Activities and other businesses of the
Company and its subsidiaries as such activities and businesses are currently
being conducted.
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(d) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ or injunction is pending, and to the
Company's knowledge, no action, proceeding, revocation proceeding, amendment
procedure, writ or injunction has been threatened by any Governmental Entity
against the Company or any of its subsidiaries in a writing delivered to the
Company concerning any Company Environmental Permit, Hazardous Material or any
Hazardous Materials Activity of the Company or any of its subsidiaries. The
Company is not aware of any fact or circumstance which could involve the Company
or any of its subsidiaries in any environmental litigation or impose upon the
Company any material environmental liability.
2.16 Year 2000 Compliance.
(a) All of the Company's products and internal systems fully comply with
the "YEAR 2000 QUALIFICATION" requirements definition attached as Exhibit B (the
"COMPANY DEFINITION"). At Parent's request, the Company will provide evidence
demonstrating adequate testing of the products and internal systems to assure
compliance with the Definition.
(b) The Company's products and internal systems have been designed to
ensure Year 2000 Qualification, including date and time entry recognition,
calculations that accommodate same century and multi-century formulas and date
values, leap year recognition and calculations, and date data interface values
that reflect the century. The Company's products and internal systems manage and
manipulate data involving dates and times, including single century formulas and
multi-century formulas, and do not cause an abnormal ending scenario within the
application or generate incorrect values or invalid results involving such
dates.
2.17 Agreements, Contracts and Commitments. Except as otherwise set forth in
Part 2.17 of the Company Schedules, as of the date hereof neither the Company
nor any of its subsidiaries is a party to or is bound by:
(a) any employment or consulting agreement, contract or commitment with any
officer or director level employee or higher or member of the Company's Board of
Directors, other than those that are terminable by the Company or any of its
subsidiaries on no more than thirty days notice without liability or financial
obligation, except to the extent general principles of wrongful termination law
may limit the Company's or any of its subsidiaries' ability to terminate
employees at will;
(b) any agreement or plan, including, without limitation, any stock option
plan, stock appreciation right plan or stock purchase plan, any of the benefits
of which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement;
(c) any agreement of indemnification or any guaranty other than any
agreement of indemnification entered into in connection with the sale or license
of software products in the ordinary course of business;
(d) any agreement, contract or commitment containing any covenant limiting
(or which would limit following the Merger) in any respect the right of the
Company or any of its subsidiaries or affiliates to engage in any line of
business or to compete with any person or granting any exclusive distribution
rights;
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(e) any agreement, contract or commitment currently in force relating to
the disposition or acquisition by the Company or any of its subsidiaries after
the date of this Agreement of a material amount of assets not in the ordinary
course of business or pursuant to which the Company has any material ownership
interest in any corporation, partnership, joint venture or other business
enterprise other than the Company's subsidiaries;
(f) any joint marketing or development agreement currently in force under
which the Company or any of its subsidiaries has continuing material obligations
to jointly market any product, technology or service and which may not be
canceled without penalty upon notice of 90 days or less, or any material
agreement pursuant to which the Company or any of its subsidiaries has
continuing material obligations to jointly develop any intellectual property
that will not be owned, in whole or in part, by the Company or any of its
subsidiaries and which may not be canceled without penalty upon notice of 90
days or less;
(g) any agreement, contract or commitment currently in force to provide
source code to any third party for any product or technology that is material to
the Company and its subsidiaries taken as a whole; or
(h) any agreement, contract or commitment currently in force to license any
third party to manufacture or reproduce any Company product, service or
technology except as a non-exclusive partner, non-exclusive distributor or
non-exclusive reseller in the normal course of business.
Neither the Company nor any of its subsidiaries, nor to the Company's knowledge
any other party to a Company Contract (as defined below), is in breach,
violation or default under, and neither the Company nor any of its subsidiaries
has received written notice that it has breached, violated or defaulted under,
any of the material terms or conditions of any of the agreements, contracts or
commitments to which the Company or any of its subsidiaries is a party or by
which it is bound that are required to be disclosed in the Company Schedules
pursuant to clauses (a) through (h) above or pursuant to Section 2.9 hereof (any
such agreement, contract or commitment, a "COMPANY CONTRACT") in such a manner
as would permit any other party to cancel or terminate any such Company
Contract, or would permit any other party to seek material damages or other
remedies (for any or all of such breaches, violations or defaults, in the
aggregate).
2.18 Pooling of Interests. To the knowledge of the Company, based on
consultation with its independent accountants, neither the Company nor any of
its directors, officers, affiliates or stockholders has taken or agreed to take
any action which would preclude Parent's ability to account for the Merger as a
pooling of interests.
2.19 Change of Control Payments. Part 2.19 of the Company Schedules sets forth
each plan or agreement pursuant to which any amounts may become payable (whether
currently or in the future) to current or former officers and directors of the
Company as a result of or in connection with the Merger.
2.20 Disclosure. None of the information supplied or to be supplied by or on
behalf of the Company for inclusion or incorporation by reference in the
registration statement on Form S-4 (or similar successor form) to be filed with
the SEC by Parent in connection with the issuance of Parent Common Stock in the
Merger (the "REGISTRATION STATEMENT") will, at the time the Registration
Statement is filed with the SEC or at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact
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or omit to state any 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 are made, not misleading. None of the information supplied or to be
supplied by or on behalf of the Company for inclusion or incorporation by
reference in the Prospectus/Proxy Statement to be filed with the SEC as part of
the Registration Statement (the "PROSPECTUS/PROXY STATEMENT"), will, at the time
the Prospectus/Proxy Statement is mailed to the stockholders of the Company or
Parent, at the time of the Company Stockholders' Meeting or Parent Stockholders'
Meeting or as of the Effective Time, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading. The Prospectus/Proxy
Statement will comply as to form in all material respects with the provisions of
the Exchange Act and the rules and regulations promulgated by the SEC
thereunder, except that no representation or warranty is made by the Company
with respect to statements made or incorporated by reference therein based on
information supplied by Parent for inclusion or incorporation by reference in
the Prospectus/Proxy Statement.
2.21 Board Approval. The Board of Directors of the Company has, as of the date
of this Agreement, determined (i) that the Merger is fair to, and in the best
interests of the Company and its stockholders, and (ii) to recommend that the
stockholders of the Company approve and adopt this Agreement and approve the
Merger.
2.22 Fairness Opinion. The Company's Board of Directors has received a written
opinion from SoundView Technology Group, Inc. dated as of or prior to the date
hereof, to the effect that as of the date hereof, the Merger and the Exchange
Ratio are fair to the Company's stockholders from a financial point of view and
has delivered to Parent a copy of such opinion.
2.23 Section 203 of the Delaware General Corporation Law Not Applicable. The
Board of Directors of the Company has taken all actions so that the restrictions
contained in Section 203 of the Delaware General Corporation Law applicable to a
"business combination" (as defined in such Section 203), and all other similar
state laws and regulations, will not apply to the execution, delivery or
performance of this Agreement or to the consummation of the Merger or the other
transactions contemplated by this Agreement.
2.24 Customs. The Company has acted with reasonable care to properly value and
classify, in accordance with applicable tariff laws, rules and regulations, all
goods that the Company or any of its subsidiaries import into the United States
or into any other country (the "IMPORTED GOODS"). To the Company's knowledge,
there are currently no material claims pending against the Company by the U.S.
Customs Service (or other foreign customs authorities) relating to the
valuation, classification or marking of the Imported Goods.
2.25 Company Rights Plan. The execution, delivery and performance of this
Agreement and the consummation of the Merger will not cause any change, effect
or result under the Company Rights Plan which is adverse to the interests of
Parent. Without limiting the generality of the foregoing, if necessary to
accomplish the foregoing, the Company Rights Plan has been amended. The Company
has taken all actions to (i) render the Company Rights Plan inapplicable to the
Merger and the other transactions contemplated by this Agreement, the Company
Affiliate Agreements and the Company Voting Agreements,
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(ii) ensure that (y) neither Parent nor Merger Sub, nor any of their affiliates
shall be deemed to have become an Acquiring Person or a Transaction Person (as
such terms are defined in the Company Rights Plan) pursuant to the Company
Rights Plan by virtue of the execution of this Agreement, the Company Affiliate
Agreements or the Company Voting Agreements, the consummation of the Merger or
the consummation of the other transactions contemplated hereby and (z) a
Distribution Date, or a Transaction (as such terms are defined in the Company
Rights Plan) or similar event does not occur by reason of the execution of this
Agreement, the Company Affiliate Agreements and the Company Voting Agreements,
the consummation of the Merger, or the consummation of the other transactions,
contemplated hereby and (iii) provide that the Final Expiration Date (as defined
in the Company Rights Plan) shall be immediately prior to the Effective Time.
The Company hereby covenants and agrees that it will take all action to cause
this representation to remain true and will not take any action to cause this
representation to become untrue.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company, subject to the
exceptions specifically disclosed in writing in the disclosure letter and
referencing a specific representation supplied by Parent and Merger Sub to the
Company dated as of the date hereof and certified on behalf of Parent and Merger
Sub by a duly authorized officer of Parent (the "PARENT SCHEDULES"), as follows:
3.1 Organization of Parent.
(a) Parent has no subsidiaries, except for the corporations identified in
Part 3.1(a)(i) of the Parent Schedules; and neither Parent nor any of the
corporations identified in Part 3.1(a)(i) of the Parent Schedules owns any
capital stock of, or any equity interest of any nature in, any other entity,
other than the entities identified in Part 3.1(a)(ii) of the Parent Schedules,
except for passive investments in equity interests of public companies as part
of the cash management program of Parent. (Where appropriate, Parent and each of
its subsidiaries are referred to singularly and/or collectively in this
Agreement as the "PARENT"). Parent has not agreed and is not obligated to make,
nor bound by any Contract under which Contract it may become obligated to make,
any future investment in or capital contribution to any other entity. Parent has
not, at any time, been a general partner of any general partnership, limited
partnership or other entity.
(b) Parent is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
necessary power and authority: (i) to conduct its business in the manner in
which its business is currently being conducted; (ii) to own and use its assets
in the manner in which its assets are currently owned and used; and (iii) to
perform its obligations under all Contracts by which it is bound.
(c) Parent is qualified to do business as a foreign corporation, and is in
good standing, under the laws of all jurisdictions where the nature of its
business requires such qualification and where the failure to so qualify would
have a Material Adverse Effect on Parent.
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(d) Parent has delivered or made available to the Company a true and
correct copy of the Certificate of Incorporation and Bylaws of Parent and
similar governing instruments of each of its subsidiaries, each as amended to
date (collectively, the "PARENT CHARTER DOCUMENTS"), and each such instrument is
in full force and effect. Parent is not in violation of any of the provisions of
the Parent Charter Documents.
(e) Parent has delivered or made available to parent all proposed or
considered amendments to the Parent Charter Documents.
3.2 Parent Capital Structure.
(a) The authorized capital stock of Parent consists of: (i) 60,000,000
shares of Common Stock, $0.001 par value per share ("PARENT COMMON STOCK"), of
which 28,376,789 shares had been issued and were outstanding as of October 12,
1998; and (ii) 5,000,000 shares of Preferred Stock, $0.001 par value per share
("PARENT PREFERRED STOCK"), of which 500,000 shares are designated as Series A
Jr. Participating Preferred Stock, 2,490,000 shares are designated as Series B
Preferred Stock and 231,915 are designated as Series C Preferred Stock. As of
October 12, 1998, no shares of Series A Jr. Participating Preferred Stock or
Series B Preferred Stock were issued and outstanding and 95,305 shares of Series
C Preferred Stock were issued and outstanding. All of the outstanding shares of
Parent Common Stock and Parent Preferred Stock have been duly authorized and
validly issued, and are fully paid and nonassessable.
(b) As of October 12, 1998: (i) 4,933,703 shares of Parent Common Stock
were subject to issuance pursuant to outstanding options to purchase Common
Stock under Parent's stock option plans; and (ii) 141,896 shares of Common Stock
were reserved for future issuance under Parent's Employee Stock Purchase Plan
(the "PARENT PURCHASE PLAN"). (Stock options granted by Parent pursuant to
Parent's stock option plans are referred to in this Agreement as "PARENT
OPTIONS"). Parent has made available to the Company accurate and complete copies
of all stock option plans pursuant to which Parent has granted stock options
that are currently outstanding and the form of all stock option agreements
evidencing such options. All shares of Parent Common Stock subject to issuance
as aforesaid, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, would be duly authorized,
validly issued, fully paid and nonassessable.
(c) All outstanding shares of Parent Common Stock, all outstanding Parent
Options, and all outstanding shares of capital stock of each subsidiary of
Parent have been issued and granted in compliance with (i) all applicable
securities laws and other applicable Legal Requirements and (ii) all
requirements set forth in applicable Contracts.
(d) All of the outstanding shares of capital stock of each of Parent's
subsidiaries are validly issued, fully paid and nonassessable and are owned
beneficially and of record by Parent, free and clear of any Encumbrances.
3.3 Obligations With Respect to Capital Stock. Except as set forth in Part 3.3
of the Parent Schedules, there are no equity securities, partnership interests
or similar ownership interests of any class of Parent equity security, or any
securities exchangeable or convertible into or exercisable for such equity
securities, partnership interests or similar ownership interests, issued,
reserved for issuance or outstanding. Except for securities Parent owns free and
clear of all claims and Encumbrances, directly or indirectly through one or more
subsidiaries, and except for shares of capital stock or other similar ownership
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interests of certain subsidiaries of Parent that are owned by certain nominee
equity holders as required by the applicable law of the jurisdiction of
organization of such subsidiaries, as of the date of this Agreement, there are
no equity securities, partnership interests or similar ownership interests of
any class of equity security of any subsidiary of Parent, or any security
exchangeable or convertible into or exercisable for such equity securities,
partnership interests or similar ownership interests, issued, reserved for
issuance or outstanding. Except as set forth in Part 3.3 of the Parent
Schedules, there are no subscriptions, options, warrants, equity securities,
partnership interests or similar ownership interests, calls, rights (including
preemptive rights), commitments or agreements of any character to which Parent
or any of its subsidiaries is a party or by which it is bound obligating Parent
or any of its subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, or repurchase, redeem or otherwise acquire, or cause the
repurchase, redemption or acquisition of, any shares of capital stock,
partnership interests or similar ownership interests of Parent or any of its
subsidiaries or obligating Parent or any of its subsidiaries to grant, extend,
accelerate the vesting of or enter into any such subscription, option, warrant,
equity security, call, right, commitment or agreement. As of the date of this
Agreement, except as contemplated by this Agreement, there are no registration
rights and there is no voting trust, proxy, rights plan, antitakeover plan or
other agreement or understanding to which Parent is a party or by which it is
bound with respect to any equity security of any class of Parent or with respect
to any equity security, partnership interest or similar ownership interest of
any class of any of its subsidiaries. Stockholders of Parent will not be
entitled to dissenters' rights under applicable state law in connection with the
Merger.
3.4 Authority; Non-Contravention.
(a) Parent has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Parent, subject only to the approval of the
issuance of the shares of Parent Common Stock, pursuant to the Merger by
Parent's stockholders and the filing of the Certificate of Merger pursuant to
Delaware Law. A vote of the holders of a majority of the outstanding shares of
Parent Common Stock and Parent Preferred Stock voting together as a single class
on an as-converted basis is sufficient for Parent's stockholders to approve the
issuance of Parent Common Stock pursuant to the Merger. This Agreement has been
duly executed and delivered by Parent and Merger Sub, and upon execution and
delivery by the Company constitutes a valid and binding obligation of Parent and
Merger Sub, enforceable against Parent and Merger Sub in accordance with its
terms, except as enforceability may be limited by bankruptcy and other similar
laws and general principles of equity. The execution and delivery of this
Agreement by Parent and Merger Sub does not, and the performance of this
Agreement by Parent and Merger Sub will not, (i) conflict with or violate the
Parent Charter Documents, (ii) subject to obtaining the approval of the issuance
of the shares of Parent Common Stock pursuant to the Merger by Parent's
stockholders as contemplated in Section 5.3 and compliance with the requirements
set forth in Section 3.4(b) below, conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to Parent or any of its
subsidiaries or by which Parent or any of its subsidiaries or any of their
respective properties are bound or affected, or (iii) result in any material
breach of or constitute a material default (or an event that with
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notice or lapse of time or both would become a material default) under, or
impair Parent's rights or alter the rights or obligations of any third party
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a material Lien or Encumbrance on
any of the material properties or assets of Parent or any of its subsidiaries
pursuant to, any material note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise, concession, or other instrument or obligation
to which Parent or any of its subsidiaries is a party or by which Parent or any
of its subsidiaries or its or any of their respective assets are bound or
affected. Part 3.4(b) of the Parent Schedules lists all consents, waivers, and
approvals under any of Parent's or any of its subsidiaries' agreements,
contracts, licenses, or leases required to be obtained in connection with the
consummation of the transactions contemplated hereby, which, if individually or
in the aggregate not obtained, would result in a Material Adverse Effect on
Parent as a result of the Merger.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity, is required to be obtained
or made by Parent or Merger Sub in connection with the execution and delivery of
this Agreement or the consummation of the Merger, except for (i) the filing of
the Certificate of Merger with the Secretary of State of the State of Delaware,
(ii) the filing of the Registration Statement in accordance with the Exchange
Act, (iii) such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal, foreign
and state securities (or related) laws and the HSR Act, and the securities or
antitrust laws of any foreign country, and (iv) such other consents,
authorizations, filings, approvals and registrations which if not obtained or
made would not be material to Parent or materially effect the ability of the
parties hereto to consummate the Merger.
3.5 SEC Filings; Parent Financial Statements.
(a) Parent has filed all forms, reports and documents required to be filed
by Parent with the SEC since January 1, 1997 and has made available to the
Company such forms, reports and documents in the form filed with the SEC. All
such required forms, reports and documents (including those that Parent may file
subsequent to the date hereof) are referred to herein as the "PARENT SEC
REPORTS"). As of their respective dates, the Parent SEC Reports (i) were
prepared in accordance and complied in all material respects with the
requirements of the Securities Act, or the Exchange Act, as the case may be, and
the rules and regulations of the SEC thereunder applicable to such Parent SEC
Reports and (ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such 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 Parent's subsidiaries is required to file any
forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Parent SEC Reports (the "PARENT
FINANCIALS"), including each Parent SEC Report filed after the date hereof until
the Closing, (i) complied as to form in all material respects with the published
rules and regulations of the SEC with respect thereto, (ii) was prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto or, in the case of
unaudited interim financial statements, as may be permitted by the SEC on
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Form 10-Q under the Exchange Act) and (iii) fairly presented the consolidated
financial position of Parent and its subsidiaries as at the respective dates
thereof and the consolidated results of Parent's operations and cash flows for
the periods indicated, except that the unaudited interim financial statements
may not contain footnotes and were or are subject to normal and recurring
year-end adjustments. The balance sheet of Parent contained in Parent's Annual
Report on Form 10-K for the year ended June 30, 1998 is hereinafter referred to
as (the "PARENT BALANCE SHEET"). Except as disclosed in the Parent Financials,
since the date of the Parent Balance Sheet neither Parent nor any of its
subsidiaries has any liabilities required under GAAP to be set forth on a
balance sheet (absolute, accrued, contingent or otherwise) which are,
individually or in the aggregate, material to the business, results of
operations or financial condition of Parent and its subsidiaries taken as a
whole, except for liabilities incurred since the date of the Parent Balance
Sheet in the ordinary course of business consistent with past practices.
(c) Parent has heretofore furnished to the Company a complete and correct
copy of any amendments or modifications, which have not yet been filed with the
SEC but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by Parent with the SEC pursuant to
the Securities Act or the Exchange Act.
(d) Parent has recognized revenues in accordance with GAAP and Statement of
Position 97-2, as amended by Statement of Position 98-4, issued by the American
Institute of Certified Public Accountants. Parent has recognized (i) initial
license fee revenues only after delivery of software products and upon
satisfaction of all significant post-delivery obligations; (ii) revenues
associated with the grant of additional licenses to Parent's existing customers
upon shipment and upon satisfaction of all significant post-delivery
obligations; (iii) maintenance revenues ratably over the term of the maintenance
period; and (iv) consulting and training revenues when the services were
performed.
3.6 Absence of Certain Changes or Events. Since the date of the Parent Balance
Sheet there has not been: (i) any Material Adverse Effect (as defined in Section
8.3(c)) on Parent, (ii) any declaration, setting aside or payment of any
dividend on, or other distribution (whether in cash, stock or property) in
respect of, any of Parent's or any of its subsidiaries' capital stock, or any
purchase, redemption or other acquisition by Parent of any of Parent's capital
stock or any other securities of Parent or its subsidiaries or any options,
warrants, calls or rights to acquire any such shares or other securities except
for repurchases from employees following their termination pursuant to the terms
of their pre-existing stock option or purchase agreements, (iii) any split,
combination or reclassification of any of Parent's or any of its subsidiaries'
capital stock, (iv) any granting by Parent or any of its subsidiaries of any
increase in compensation or fringe benefits, except for normal increases of cash
compensation in the ordinary course of business consistent with past practice,
or any payment by Parent or any of its subsidiaries of any bonus, except for
bonuses made in the ordinary course of business consistent with past practice,
or any granting by Parent or any of its subsidiaries of any increase in
severance or termination pay or any entry by Parent or any of its subsidiaries
into any currently effective employment, severance, termination or
indemnification agreement or any agreement the benefits of which are contingent
or the terms of which are materially altered upon the occurrence of a
transaction involving Parent of the nature contemplated hereby, (v) entry by
Parent or any of its subsidiaries into any licensing or other agreement with
regard to the acquisition or disposition of any material Intellectual Property
(as defined in Section 2.9) other than
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licenses in the ordinary course of business consistent with past practice or any
amendment or consent with respect to any licensing agreement filed or required
to be filed by Parent with the SEC, (vi) any material change by Parent in its
accounting methods, principles or practices, except as required by concurrent
changes in GAAP, or (vii) any revaluation by Parent of any of its assets,
including, without limitation, writing down the value of capitalized inventory
or writing off notes or accounts receivable other than in the ordinary course of
business.
3.7 Taxes.
(a) Tax Returns and Audits.
(i) Parent and each of its subsidiaries have timely filed all Returns
relating to Taxes required to be filed by Parent and each of its subsidiaries
with any Tax authority, except such Returns which are not material to Parent,
and have paid all Taxes shown to be due on such Returns on a timely basis.
(ii) Parent and each of its subsidiaries as of the Effective Time will
have withheld with respect to its employees all federal and state income taxes,
Taxes pursuant to FICA, Taxes pursuant to the FUTA and other Taxes required to
be withheld.
(iii) There is no Tax deficiency outstanding, proposed in writing (or
otherwise to Parent's knowledge proposed) or assessed against Parent or any of
its subsidiaries, nor has Parent or any of its subsidiaries executed any
unexpired waiver of any statute of limitations on or extending the period for
the assessment or collection of any Tax.
(iv) No audit or other examination of any Return of Parent or any of its
subsidiaries by any Tax authority is presently in progress, nor has Parent or
any of its subsidiaries been notified in writing (or otherwise to Parent's
knowledge notified) of any request for such an audit or other examination.
(v) No adjustment relating to any Returns filed by Parent or any of its
subsidiaries has been proposed in writing by any Tax authority to Parent or any
of its subsidiaries.
(vi) Neither Parent nor any of its subsidiaries has any liability for
unpaid Taxes which has not been accrued for or reserved in accordance with GAAP
on Parent Balance Sheet (or in any Parent SEC Report filed prior to the date
hereof, or for liabilities accruing following the date hereof, in any Parent SEC
Report filed prior to the date of the Closing), whether asserted or unasserted,
contingent or otherwise, which is material to Parent, other than any liability
for unpaid Taxes that may have accrued since the date of Parent Balance Sheet in
connection with the operation of the business of Parent and its subsidiaries in
the ordinary course.
(vii) There is no contract, agreement, plan or arrangement to which
Parent is a party as of the date of this Agreement, including but not limited to
the provisions of this Agreement, covering any employee or former employee of
Parent or any of its subsidiaries that, individually or collectively, could give
rise to the payment of any amount that would not be deductible pursuant to
Sections 280G, 404 or 162(m) of the Code.
(viii) Neither Parent nor any of its subsidiaries has filed any consent
agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2)
of the Code apply to any disposition of a subsection (f) asset (as defined in
Section 341(f)(4) of the Code) owned by Parent.
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(ix) Neither Parent nor any of its subsidiaries is party to, or has any
obligation under, or will have any obligation as a result of the Merger under,
any tax-sharing, tax indemnity or tax allocation agreement or arrangement.
(x) Except as may be required as a result of the Merger, Parent and its
subsidiaries have not been and will not be required to include any material
adjustment in Taxable income for any Tax period (or portion thereof) pursuant to
Section 481 or Section 263A of the Code or any comparable provision under state
or foreign Tax laws as a result of transactions, events or accounting methods
employed prior to the Closing and with respect to which the applicable statute
of limitations has not passed.
(xi) None of Parent's or its subsidiaries' assets are tax exempt use
property within the meaning of Section 168(h) of the Code.
(xii) Parent Schedules list (A) any foreign Tax holidays, (B) any
intercompany transfer pricing agreements, or other arrangements that have been
established by Parent or any of its subsidiaries with any Tax authority and (C)
any expatriate programs or policies affecting Parent or any of its subsidiaries.
3.8 Title to Properties; Absence of Liens and Encumbrances.
(a) All of Parent's current leases with respect to real property are in
full force and effect, are valid and effective in accordance with their
respective terms, and there is not, under any of such leases, any existing
default or event of default (or event which with notice or lapse of time, or
both, would constitute a default) that would give rise to a claim in an amount
greater than $50,000. Other than the leaseholds created under real property
leases, Parent owns no interest in real property.
(b) Parent has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any Liens, except as reflected in Parent Financials
and except for Liens for taxes not yet due and payable and such Liens or other
imperfections of title and encumbrances, if any, which are not material in
character, amount or extent, and which do not materially detract from the value,
or materially interfere with the present use, of the property subject thereto or
affected thereby.
3.9 Intellectual Property. For the purposes of this Agreement, the following
terms have the following definitions:
"PARENT INTELLECTUAL PROPERTY" means any Intellectual Property that is
owned by, or exclusively licensed to, Parent.
"PARENT REGISTERED INTELLECTUAL PROPERTY" means all of the Registered
Intellectual Property owned by, or filed in the name of, Parent.
(a) No material Parent Intellectual Property or product or service of
Parent is subject to any proceeding or outstanding decree, order, judgment,
agreement, or stipulation restricting in any manner the use, transfer, or
licensing thereof by Parent, or which may affect the validity, use or
enforceability of material Parent Intellectual Property.
(b) Each material item of Parent Registered Intellectual Property is valid
and subsisting, all necessary registration, maintenance and renewal fees
currently due in connection with such Registered Intellectual Property have been
made and all necessary
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documents, recordations and certificates in connection with such Registered
Intellectual Property have been filed with the relevant patent, copyright,
trademark or other authorities in the United States or foreign jurisdictions, as
the case may be, for the purposes of maintaining such Registered Intellectual
Property.
(c) Parent owns and has good and exclusive title to, each material item of
Parent Intellectual Property free and clear of any Lien or Encumbrance
(excluding licenses entered into in the ordinary course of Parent's business);
and Parent is the exclusive owner of all trademarks and trade names used in
connection with the operation or conduct of the business of Parent, including
the sale of any products or the provision of any services by Parent.
(d) Parent owns exclusively, and has good title to, all copyrighted works
that are material Parent products or which are material and which Parent
otherwise expressly purports to own.
(e) To the extent that any material Intellectual Property has been
developed or created by a third party for Parent, Parent has a written agreement
with such third party with respect thereto and Parent thereby either (i) has
obtained ownership of, and is the exclusive owner of, or (ii) has obtained a
license (sufficient for the conduct of its business as currently conducted and
as proposed to be conducted) to all such third party's Intellectual Property in
such work, material or invention.
(f) Except as would not result in a Material Adverse Effect on Parent,
Parent has not transferred ownership of, or granted any exclusive license with
respect to, any Intellectual Property that is or was material to the Parent
Intellectual Property, to any third party.
(g) All material contracts, licenses and agreements relating to Parent
Intellectual Property are in full force and effect. Except as would not have a
Material Adverse Effect on Parent, the consummation of the transactions
contemplated by this Agreement will neither violate nor result in the breach,
modification, cancellation, termination, or suspension of such material
contracts, licenses and agreements. Parent is in material compliance with, and
has not materially breached any term any of such material contracts, licenses
and agreements and, to the knowledge of Parent, all other parties to such
material contracts, licenses and agreements are in compliance with, and have not
materially breached any term of, such contracts, licenses and agreements.
(h) The operation of the business of Parent as such business currently is
conducted, including Parent's design, development, manufacture, marketing and
sale of the products or services of Parent (including with respect to products
currently under development) has not and does not and will not, by virtue of the
Merger, infringe or misappropriate the Intellectual Property of any third party
or, to its knowledge, constitute unfair competition or trade practices under the
laws of any jurisdiction.
(i) Parent has not received written notice from any third party that the
operation of the business of Parent or any act, product or service written of
Parent, infringes or misappropriates the Intellectual Property of any third
party or constitutes unfair competition or trade practices under the laws of any
jurisdiction.
(j) To the knowledge of Parent, no person has or is infringing or
misappropriating any Parent Intellectual Property.
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(k) Parent has taken reasonable steps to protect Parent's rights in
Parent's confidential information and trade secrets that it wishes to protect or
any trade secrets or confidential information of third parties provided to
Parent, and, without limiting the foregoing, Parent has and enforces a policy
requiring each employee and contractor to execute a proprietary
information/confidentiality agreement substantially in the form provided to the
Company and all current and former employees and contractors of Parent have
executed such an agreement, except where the failure to do so is not reasonably
expected to be material to Parent.
3.10 Compliance; Permits; Restrictions.
(a) Neither Parent nor any of its subsidiaries is, in any material respect,
in conflict with, or in default or in violation of (i) any law, rule,
regulation, order, judgment or decree applicable to Parent or any of its
subsidiaries or by which Parent or any of its subsidiaries or any of their
respective properties is bound or affected (including without limitation ERISA),
or (ii) any material note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which
Parent or any of its subsidiaries is a party or by which Parent or any of its
subsidiaries or its or any of their respective properties is bound or affected
(including without limitation any Parent Employee Plan), except for conflicts,
violations and defaults that (individually or in the aggregate) would not cause
Parent to lose any material benefit or incur any material liability. No
investigation or review by any Governmental Entity is pending or, to Parent's
knowledge, has been threatened in a writing delivered to Parent against Parent
or any of its subsidiaries, nor, to Parent's knowledge, has any Governmental
Entity indicated an intention to conduct an investigation of Parent or any of
its subsidiaries. There is no material agreement, judgment, injunction, order or
decree binding upon Parent or any of its subsidiaries which has or could
reasonably be expected to have the effect of prohibiting or materially impairing
any business practice of Parent or any of its subsidiaries, any acquisition of
material property by Parent or any of its subsidiaries or the conduct of
business by Parent as currently conducted. For the purposes of this Section
3.10(a), (i) "Parent Employee Plan" shall mean any plan, program, policy,
practice, contract, agreement or other arrangement providing for compensation,
severance, termination pay, performance awards, stock or stock-related awards,
fringe benefits or other employee benefits, other than any International
Employee Plan of Parent, whether written or unwritten, funded or unfunded,
including, without limitation, each "employee benefit plan" (within the meaning
of Section 3(3) of ERISA) which is or has been maintained, contributed to, or
required to be contributed to, by Parent or any Affiliate for the benefit of any
Employee and (ii) "INTERNATIONAL EMPLOYEE PLAN OF PARENT" shall mean each plan,
program, policy, practice, contract or other agreement that has been adopted or
is maintained by Parent for the benefit of Employees outside the United States
that would constitute a Parent Employee Plan if maintained in the United States.
(b) Parent and its subsidiaries hold, to the extent legally required, all
permits, licenses, variances, exemptions, orders and approvals from Governmental
Entities that are material to and required for the operation of the business of
Parent as currently conducted (collectively, the "PARENT PERMITS"). Parent and
its subsidiaries are in compliance in all material respects with the terms of
Parent Permits, except where the failure to be in compliance with the terms of
Parent Permits would not be material to Parent.
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3.11 Litigation. Except as disclosed in Part 3.11 of the Parent Schedules,
there are no claims, suits, actions or proceedings pending or, to the knowledge
of Parent, threatened against, relating to or affecting Parent or any of its
subsidiaries, before any court, governmental department, commission, agency,
instrumentality or authority, or any arbitrator that seeks to restrain or enjoin
the consummation of the transactions contemplated by this Agreement or which
could reasonably be expected, either singularly or in the aggregate with all
such claims, actions or proceedings, to be material to Parent. No Governmental
Entity has at any time challenged or questioned in a writing delivered to Parent
the legal right of Parent to design, manufacture, offer or sell any of its
products in the present manner or style thereof. As of the date hereof, to the
knowledge of Parent, no event has occurred, and no claim, dispute or other
condition or circumstance exists, that will, or that would reasonably be
expected to, cause or provide a bona fide basis for a director or executive
officer of Parent to seek indemnification from Parent.
Except as disclosed in Part 3.11 of the Parent Schedules, Parent has never been
subject to a Government Audit, to Parent's knowledge no Government Audit is
threatened or reasonably anticipated, and in the event of such Government Audit,
to the knowledge of Parent no basis exists for a finding of noncompliance with
any material provision of any government contract or a refund of any amounts
paid or owed by any Governmental Entity pursuant to such government contract.
For each item disclosed in the Parent Schedules pursuant to this Section 3.11 a
true and complete copy of all correspondence and documentation with respect
thereto has been provided to the Company.
3.12 Brokers' and Finders' Fees. Except for fees payable to Broadview
International LLC pursuant to an engagement letter dated February 24, 1997, as
amended by letter dated September 8, 1998, copies of which have been provided to
the Company, Parent has not incurred, nor will it incur, directly or indirectly,
any liability for brokerage or finders' fees or agents' commissions or any
similar charges in connection with this Agreement or any transaction
contemplated hereby.
3.13 Environmental Matters.
(a) Hazardous Material. Except as would not result in material liability to
Parent, no Hazardous Materials are present, as a result of the actions of Parent
or any of its subsidiaries or any affiliate of Parent, or, to Parent's
knowledge, as a result of any actions of any third party or otherwise, in, on or
under any property, including the land and the improvements, ground water and
surface water thereof, that Parent or any of its subsidiaries has at any time
owned, operated, occupied or leased.
(b) Hazardous Materials Activities. Except as would not result in a
material liability to Parent (in any individual case or in the aggregate) (i)
neither Parent nor any of its subsidiaries has transported, stored, used,
manufactured, disposed of, released or exposed its employees or others to
Hazardous Materials in violation of any law in effect on or before the Closing
Date, and (ii) neither Parent nor any of its subsidiaries has disposed of,
transported, sold, used, released, exposed its employees or others to or
manufactured any product containing a Hazardous Material in violation of any
rule, regulation, treaty or statute promulgated by any Governmental Entity in
effect prior to or as of the date hereof to prohibit, regulate or control
Hazardous Materials or any Hazardous Material Activity.
(c) Permits. Parent and its subsidiaries currently hold all environmental
approvals, permits, licenses, clearances and consents (the "PARENT ENVIRONMENTAL
PERMITS") necessary for the conduct of Parent's and its subsidiaries' Hazardous
Material Activities
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and other businesses of Parent and its subsidiaries as such activities and
businesses are currently being conducted.
(d) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ or injunction is pending, and to Parent's
knowledge, no action, proceeding, revocation proceeding, amendment procedure,
writ or injunction has been threatened by any Governmental Entity against Parent
or any of its subsidiaries in a writing delivered to Parent concerning any
Parent Environmental Permit, Hazardous Material or any Hazardous Materials
Activity of Parent or any of its subsidiaries. Parent is not aware of any fact
or circumstance which could involve Parent or any of its subsidiaries in any
environmental litigation or impose upon Parent any material environmental
liability.
3.14 Year 2000 Compliance.
(a) All of Parent's products and internal systems fully comply with the
"YEAR 2000 QUALIFICATION" requirements definition attached as Exhibit C (the
"PARENT DEFINITION"). At the Company's request, Parent will provide evidence
demonstrating adequate testing of the products and internal systems to assure
compliance with the Definition.
(b) Parent's Products and internal systems have been designed to ensure
Year 2000 Qualification, including date and time entry recognition, calculations
that accommodate same century and multi-century formulas and date values, leap
year recognition and calculations, and date data interface values that reflect
the century. Parent's products and internal systems manage and manipulate data
involving dates and times, including single century formulas and multi-century
formulas, and do not cause an abnormal ending scenario within the application or
generate incorrect values or invalid results involving such dates.
3.15 Agreements, Contracts and Commitments. Neither Parent nor any of its
subsidiaries, nor to Parent's knowledge any other party to a material Contract
of Parent, is in breach, violation or default under, and neither Parent nor any
of its subsidiaries has received written notice that it has breached, violated
or defaulted under, any of the material terms or conditions of any material
Contract of Parent in such a manner as would permit any other party to cancel or
terminate any such material Contract of Parent, or would permit any other party
to seek material damages or other remedies (for any or all of such breaches,
violations or defaults, in the aggregate).
3.16 Pooling of Interests. To the knowledge of Parent, based on consultation
with its independent accountants, neither Parent nor any of its directors,
officers, affiliates, or stockholders has taken or agreed to take any action
which would preclude Parent's ability to account for the Merger as a pooling of
interests.
3.17 Disclosure. None of the information to be supplied by or on behalf of
Parent for inclusion in the Registration Statement will, at the time the
Registration Statement becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they are made, not misleading. None
of the information to be supplied by or on behalf of Parent for inclusion or
incorporation by reference in the Prospectus/Proxy Statement will, at the time
the Prospectus/Proxy Statement is mailed to the stockholders of the Company or
Parent, at the time of the Company or Parent Stockholders' Meeting or as of the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required
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to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they are made, not misleading. The
Registration Statement will comply as to form in all material respects with the
provisions of the Securities Act and the rules and regulations promulgated by
the SEC thereunder and the Prospectus/ Proxy Statement will comply as to form in
all material respects with the provisions of the Exchange Act and the rules and
regulations promulgated by the SEC thereunder, except that no representation or
warranty is made by Parent with respect to statements made or incorporated by
reference therein based on information supplied by the Company for inclusion or
incorporation by reference in the Prospectus/Proxy Statement.
3.18 Board Approval. The Board of Directors of Parent has, at or prior to the
date of this Agreement (i) determined that the Merger is fair to, and in the
best interests of Parent and its stockholders, (ii) determined to recommend that
the stockholders of Parent approve the issuance of Parent Common Stock in
connection with the Merger and (iii) approved the issuance of shares of Parent
Common Stock in connection with the Merger.
3.19 Fairness Opinion. Parent's Board of Directors has received a written
opinion from Broadview International LLC, dated as of or prior to the date
hereof, to the effect that as of the date of such opinion the Exchange Ratio is
fair, from a financial point of view, to Parent's shareholders and has delivered
to the Company a copy of such opinion.
3.20 Customs. Parent has acted with reasonable care to properly value and
classify, in accordance with applicable tariff laws, rules and regulations, all
goods that Parent or any of its subsidiaries import into the United States or
into any other country (the "Parent Imported Goods"). To the Parent's knowledge,
there are currently no material claims pending against Parent by the U.S.
Customs Service (or other foreign customs authorities) relating to the
valuation, classification or marking of the Parent Imported Goods.
3.21 Organization of Merger Sub.
(a) Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation.
(b) Merger Sub was formed in order to effect the consummation of the
Merger, and as of the date of this Agreement has performed no other operations.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business by the Company. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time, the Company and each of its
subsidiaries shall, except to the extent that Parent shall otherwise consent in
writing, carry on its business, in all material respects, in the usual, regular
and ordinary course, in substantially the same manner as heretofore conducted
and in compliance with all applicable laws and regulations, pay its debts and
taxes when due subject to good faith disputes over such debts or taxes, pay or
perform other material obligations when due, and use its commercially reasonable
efforts consistent with past practices and policies to (i) preserve intact its
present business organization, (ii) keep available the services of its present
officers and employees and (iii) preserve its relationships with customers,
suppliers, distributors, licensors, licensees, and others with which it has
business dealings.
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In addition, except as permitted by the terms of this Agreement, and except as
provided in Article 4 of the Company Schedules, without the prior written
consent of Parent, during the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement pursuant to
its terms or the Effective Time, the Company shall not do any of the following
and shall not permit its subsidiaries to do any of the following:
(a) Waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or restricted stock, or reprice options
granted under any employee, consultant, director or other stock plans or
authorize cash payments in exchange for any options granted under any of such
plans;
(b) Grant any severance or termination pay to any officer or employee
except pursuant to agreements outstanding, or policies existing, on the date
hereof and as disclosed in the Company Schedules, or adopt any new severance
plan;
(c) Transfer or license to any person or entity or otherwise extend, amend
or modify in any material respect any rights to the Company Intellectual
Property, or enter into grants to future patent rights, other than non-exclusive
licenses in the ordinary course of business and consistent with past practice;
(d) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in respect
of any capital stock or split, combine or reclassify any capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for any capital stock;
(e) Purchase, redeem or otherwise acquire, directly or indirectly, any
shares of capital stock of the Company or its subsidiaries, except repurchases
of unvested shares at cost in connection with the termination of the employment
relationship with any employee pursuant to stock option or purchase agreements
in effect on the date hereof;
(f) Issue, deliver, sell, authorize, pledge or otherwise encumber, any
shares of Company Capital Stock or any securities convertible into shares of
Company Capital Stock, or subscriptions, rights, warrants or options to acquire
any shares of Company Capital Stock or any securities convertible into shares of
Company Capital Stock, or enter into other agreements or commitments of any
character obligating it to issue any such shares or convertible securities,
other than the issuance delivery and/or sale of (i) stock options in the
ordinary course of business and consistent with past practice up to 200,000
shares, (ii) shares of the Company Common Stock pursuant to the exercise of
stock options therefor outstanding as of the date of this Agreement or granted
pursuant to the foregoing clause (i), (iii) shares of the Company Common Stock
issuable to participants in the Company Purchase Plan consistent with the terms
thereof and (iv) shares of Company Capital Stock pursuant to exercise of the
Warrants
(g) Cause, permit or propose any amendments to the Company Charter
Documents;
(h) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any equity interest in or a portion of the assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets which are material, individually or in the aggregate, to the
business of the Company or enter into any material joint ventures, strategic
partnerships or alliances;
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(i) Sell, lease, license, encumber or otherwise dispose of any properties
or assets which are material, individually or in the aggregate, to the business
of the Company, except sales of inventory in the ordinary course of business
consistent with past practice;
(j) Incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or options,
warrants, calls or other rights to acquire any debt securities of the Company,
enter into any "keep well" or other agreement to maintain any financial
statement condition or enter into any arrangement having the economic effect of
any of the foregoing other than (i) in connection with the financing of ordinary
course trade payables consistent with past practice or (ii) pursuant to existing
credit facilities in the ordinary course of business;
(k) Adopt or amend any employee benefit plan or employee stock purchase or
employee stock option plan, or enter into any employment contract or collective
bargaining agreement (other than offer letters and letter agreements entered
into in the ordinary course of business consistent with past practice with
employees who are terminable "at will"), pay any special bonus or special
remuneration to any director or employee, or increase the salaries or wage rates
or fringe benefits (including rights to severance or indemnification) of its
directors, officers, employees or consultants other than pursuant to written
agreements with such persons disclosed in the Company Schedules or in the
ordinary course of business, consistent with past practice, or change in any
material respect any management policies or procedures;
(l) Make any payments outside of the ordinary course of business in excess
of $250,000 other than in connection with the Merger or commitments preexisting
the date of this Agreement;
(m) Modify, amend or terminate any Company Contract or other material
contract or agreement to which the Company or any subsidiary thereof is a party
or waive, release or assign any material rights or claims thereunder;
(n) Enter into any contracts, agreements, or obligations relating to the
distribution, sale, license or marketing by third parties of the Company's
products or products licensed by the Company other than in the ordinary course
of business consistent with past practice but in no event will any exclusive
rights be granted or restrictions on the Company's business activities be agreed
to;
(o) Materially revalue any of its assets or, except as required by GAAP,
make any change in accounting methods, principles or practices;
(p) Take any action that would be reasonably likely to interfere with
Parent's ability to account for the Merger as a pooling of interests whether or
not otherwise permitted by the provisions of this Article IV;
(q) Agree in writing or otherwise to take any of the actions described in
(a) through (p) above.
4.2 Conduct of Business by Parent. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time, Parent shall, except to the extent
that the Company shall otherwise consent in writing, carry on its business, in
all material respects, in the usual, regular and ordinary course, in
substantially the same manner as heretofore conducted and in compliance with all
applicable laws and regulations, pay its debts and taxes when due,
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subject to good faith disputes over such debts or taxes, pay or perform other
material obligations when due, and use its commercially reasonable efforts
consistent with past practices and policies to (i) preserve intact its present
business organization, (ii) keep available the services of its present officers
and employees and (iii) preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others with which it has business
dealings.
In addition, except as permitted by the terms of this Agreement and except as
provided in Article 4 of the Parent Schedules, without the prior written consent
of the Company, during the period from the date of this Agreement and continuing
until the earlier of the termination of this Agreement pursuant to its terms or
the Effective Time, Parent shall not do any of the following:
(a) Waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or restricted stock, or reprice options
granted under any employee, consultant, director or other stock plans or
authorize cash payments in exchange for any options granted under any of such
plans;
(b) Transfer or license to any person or entity or otherwise extend, amend
or modify in any material respect any rights to the Parent Intellectual
Property, or enter into grants to future patent rights, other than in the
ordinary course of business and consistent with past practice;
(c) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in respect
of any capital stock or split, combine or reclassify any capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for any capital stock;
(d) Purchase, redeem or otherwise acquire, directly or indirectly, any
shares of capital stock of Parent or its subsidiaries, except repurchases of
unvested shares at cost in connection with the termination of the employment
relationship with any employee pursuant to stock option or repurchase agreements
in effect on the date hereof;
(e) Issue, deliver, sell, authorize, pledge or otherwise encumber any
shares of capital stock or any securities convertible into shares of capital
stock, or subscriptions, rights, warrants or options to acquire any shares of
capital stock or any securities convertible into shares of capital stock, or
enter into other agreements or commitments of any character obligating it to
issue any such shares or convertible securities, other than the issuance,
delivery and/or sale of (i) stock options in the ordinary course of business and
consistent with past practice, (ii) shares of Parent Common Stock pursuant to
the exercise of stock options therefor outstanding as of the date of this
Agreement or granted pursuant to the foregoing clause (i), and (iii) shares of
Parent Common Stock issuable to participants in the Parent Purchase Plan
consistent with the terms thereof.
(f) Cause, permit or propose any amendments to the Parent Charter
Documents;
(g) (x) Acquire or agree to acquire by (i) merging or consolidating with,
or (ii) purchasing any equity in or a portion of the assets of, or (iii) any
other manner, any business or any corporation, partnership, association or other
business organization or division thereof, for consideration in excess of $50
million in any individual acquisition or $100 million in the aggregate for all
such acquisitions;
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(h) Incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or options,
warrants, calls or other rights to acquire any debt securities of Parent, enter
into any "keep well" or other agreement to maintain any financial statement
condition or enter into any arrangement having the economic effect of any of the
foregoing other than (i) in connection with the financing of ordinary course
trade payables consistent with past practice or (ii) pursuant to existing credit
facilities in the ordinary course of business.
(i) Sell, lease, license, encumber or otherwise dispose of any properties
or assets which are material, individually or in the aggregate, to the business
of Parent, except sales of inventory in the ordinary course of business
consistent with past practice;
(j) Materially revalue any of its assets or, except as required by GAAP,
make any change in accounting methods, principles or practices;
(k) Take any action that would be reasonably likely to interfere with
Parent's ability to account for the Merger as a pooling of interests whether or
not otherwise permitted by the provisions of this Article IV; and
(l) Agree in writing or otherwise to take any of the actions described in
Section 4.2(a) through (k) above.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Prospectus/Proxy Statement; Registration Statement; Other Filings; Board
Recommendations.
(a) As promptly as practicable after the execution of this Agreement, the
Company and Parent will prepare, and file with the SEC, the Prospectus/Proxy
Statement and Parent will prepare and file with the SEC the Registration
Statement in which the Prospectus/Proxy Statement will be included as a
prospectus. Each of the Company and Parent will respond to any comments of the
SEC, will use its respective commercially reasonable efforts to have the
Registration Statement declared effective under the Securities Act as promptly
as practicable after such filing and the Company and Parent will cause the
Prospectus/Proxy Statement to be mailed to their respective stockholders at the
earliest practicable time after the Registration Statement is declared effective
by the SEC. As promptly as practicable after the date of this Agreement, each of
the Company and Parent will prepare and file any other filings required to be
filed by it under the Exchange Act, the Securities Act or any other Federal,
foreign or Blue Sky or related laws relating to the Merger and the transactions
contemplated by this Agreement (the "OTHER FILINGS"). Each of the Company and
Parent will notify the other promptly upon the receipt of any comments from the
SEC or its staff or any other government officials and of any request by the SEC
or its staff or any other government officials for amendments or supplements to
the Registration Statement, the Prospectus/Proxy Statement or any Other Filing
or for additional information and will supply the other with copies of all
correspondence between such party or any of its representatives, on the one
hand, and the SEC, or its staff or any other government officials, on the other
hand, with respect to the Registration Statement, the Prospectus/Proxy
Statement, the Merger or any Other Filing. Each of the Company and Parent will
cause all documents that it is responsible for filing with the SEC or other
regulatory authorities under this Section 5.1(a) to comply in all
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material respects with all applicable requirements of law and the rules and
regulations promulgated thereunder. Whenever any event occurs which is required
to be set forth in an amendment or supplement to the Prospectus/Proxy Statement,
the Registration Statement or any Other Filing, the Company or Parent, as the
case may be, will promptly inform the other of such occurrence and cooperate in
filing with the SEC or its staff or any other government officials, and/or
mailing to stockholders of the Company, such amendment or supplement.
(b) Subject to Section 5.2(c), the Prospectus/Proxy Statement will include
the recommendation of the Board of Directors of the Company in favor of adoption
and approval of this Agreement and approval of the Merger and the recommendation
of the Board of Directors of Parent in favor of the foregoing and the issuance
of shares of Parent Common Stock in connection with the Merger.
5.2 Meeting of Company Stockholders.
(a) Promptly after the date hereof, the Company will take all action
necessary in accordance with the Delaware Law and its Certificate of
Incorporation and Bylaws to convene the Company Stockholders' Meeting to be held
as promptly as practicable, and in any event (to the extent permissible under
applicable law) within 45 days after the declaration of effectiveness of the
Registration Statement, for the purpose of voting upon this Agreement and the
Merger. The Company will use its commercially reasonable efforts to solicit from
its stockholders proxies in favor of the adoption and approval of this Agreement
and the approval of the Merger and will take all other action necessary or
advisable to secure the vote or consent of its stockholders required by the
rules of Nasdaq or Delaware Law to obtain such approvals. Notwithstanding
anything to the contrary contained in this Agreement, the Company may adjourn or
postpone the Company Stockholders' Meeting to the extent necessary to ensure
that any necessary supplement or amendment to the Prospectus/Proxy Statement is
provided to the Company's stockholders in advance of a vote on the Merger and
this Agreement or, if as of the time for which the Company Stockholders' Meeting
is originally scheduled (as set forth in the Prospectus/ Proxy Statement) there
are insufficient shares of Company Common Stock represented (either in person or
by proxy) to constitute a quorum necessary to conduct the business of the
Company's Stockholders' Meeting. The Company shall ensure that the Company
Stockholders' Meeting is called, noticed, convened, held and conducted, and
subject to Section 5.2(c) that all proxies solicited by the Company in
connection with the Company Stockholders' Meeting are solicited, in compliance
with the Delaware Law, its Certificate of Incorporation and Bylaws, the rules of
Nasdaq and all other applicable legal requirements. The Company's obligation to
call, give notice of, convene and hold the Company Stockholders' Meeting in
accordance with this Section 5.2(a) shall not be limited to or otherwise
affected by the commencement, disclosure, announcement or submission to the
Company of any Acquisition Proposal, or by any withdrawal, amendment or
modification of the recommendation of the Board of Directors of the Company with
respect to the Merger.
(b) Subject to Section 5.2(c): (i) the Board of Directors of the Company
shall unanimously recommend that the Company's stockholders vote in favor of and
adopt and approve this Agreement and the Merger at the Company Stockholders'
Meeting; (ii) the Prospectus/Proxy Statement shall include a statement to the
effect that the Board of Directors of the Company has unanimously recommended
that the Company's stock-
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holders vote in favor of and adopt and approve this Agreement and the Merger at
the Company Stockholders' Meeting; and (iii) neither the Board of Directors of
the Company nor any committee thereof shall withdraw, amend or modify, or
propose or resolve to withdraw, amend or modify in a manner adverse to Parent,
the unanimous recommendation of the Board of Directors of the Company that the
Company's stockholders vote in favor of and adopt and approve this Agreement and
the Merger. For purposes of this Agreement, said recommendation of the Board of
Directors shall be deemed to have been modified in a manner adverse to Parent if
said recommendation shall no longer be unanimous.
(c) Nothing in this Agreement shall prevent the Board of Directors of the
Company from withholding, withdrawing, amending or modifying its unanimous
recommendation in favor of the Merger if (i) a Superior Offer (as defined below)
is made to the Company and is not withdrawn, (ii) neither the Company nor any of
its representatives shall have violated any of the restrictions set forth in
Section 5.4, and (iii) the Board of Directors of the Company or any committee
thereof concludes in good faith, after consultation with its outside counsel,
that, in light of such Superior Offer, the withholding, withdrawal, amendment or
modification of such recommendation is required in order for the Board of
Directors of the Company or any committee thereof to comply with its fiduciary
obligations to the Company's stockholders under applicable law. Subject to
applicable laws, nothing contained in this Section 5.2 shall limit the Company's
obligation to hold and convene the Company Stockholders' Meeting (regardless of
whether the unanimous recommendation of the Board of Directors of the Company
shall have been withdrawn, amended or modified). For purposes of this Agreement
("SUPERIOR OFFER") shall mean an unsolicited, bona fide written offer made by a
third party to consummate any of the following transactions: (i) a merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving the Company pursuant to which the stockholders
of the Company immediately preceding such transaction hold less than 50% of the
equity interest in the surviving or resulting entity of such transaction; (ii) a
sale or other disposition by the Company of assets (excluding inventory and used
equipment sold in the ordinary course of business) representing in excess of 50%
of the fair market value of the Company's business immediately prior to such
sale, or (iii) the acquisition by any person or group (including by way of a
tender offer or an exchange offer or issuance by the Company), directly or
indirectly, of beneficial ownership or a right to acquire beneficial ownership
of shares representing in excess of 50% of the voting power of the then
outstanding shares of capital stock of the Company in each case, on terms that
the Board of Directors of the Company determines, in its reasonable judgment,
after consultation with its financial advisor, to be more favorable to the
Company's stockholders than the terms of the Merger; provided, however, that any
such offer shall not be deemed to be a "Superior Offer" if any financing
required to consummate the transaction contemplated by such offer is not
committed and is not likely in the judgment of the Company's Board of Directors
to be obtained by such third party on a timely basis.
(d) Nothing contained in this Agreement shall prohibit the Company or its
Board of Directors from (x) taking and disclosing to its stockholders a position
contemplated by Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act or
(y) making any disclosure to the Company's stockholders if, in the good faith
judgment of the majority of the members of the Board of Directors of the
Company, after consultation with independent legal counsel, failure to so
disclose would be inconsistent with applicable laws.
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5.3 Meeting of Parent Stockholders.
(a) Promptly after the date hereof, Parent will take all action necessary
in accordance with the Delaware Law and its Certificate of Incorporation and
Bylaws to convene the Parent Stockholders' Meeting to be held as promptly as
practicable, and in any event (to the extent permissible under applicable law)
within 45 days after the declaration of effectiveness of the Registration
Statement, for the purpose of voting upon the issuance of the shares of Parent
Common Stock pursuant to the Merger. Parent will use its commercially reasonable
efforts to solicit from its stockholders proxies in favor of the issuance of the
shares of Parent Common stock pursuant to the Merger and will take all other
action necessary or advisable to secure the vote or consent of its stockholders
required by the rules of Nasdaq or Delaware Law to obtain such approvals.
Notwithstanding anything to the contrary contained in this Agreement, Parent may
adjourn or postpone the Parent Stockholders' Meeting to the extent necessary to
ensure that any necessary supplement or amendment to the Prospectus/Proxy
Statement is provided to Parent's stockholders in advance of a vote on the
issuance of the shares of Parent Common Stock pursuant to the Merger or, if as
of the time for which Parent Stockholders' Meeting is originally scheduled (as
set forth in the Prospectus/Proxy Statement) there are insufficient shares of
Parent Common Stock represented (either in person or by proxy) to constitute a
quorum necessary to conduct the business of the Parent's Stockholders' Meeting.
Parent shall ensure that the Parent Stockholders' Meeting is called, noticed,
convened, held and conducted, that all proxies solicited by the Company in
connection with the Parent Stockholders' Meeting are solicited, in compliance
with the Delaware Law, its Certificate of Incorporation and Bylaws, the rules of
Nasdaq and all other applicable legal requirements. Parent's obligation to call,
give notice of, convene and hold the Parent's Stockholders' Meeting in
accordance with this Section 5.3(a) shall not be limited to or otherwise
affected by the commencement, disclosure, announcement or submission to the
Company of any Acquisition Proposal, or by any withdrawal, amendment or
modification of the recommendation of the Board of Directors of Parent with
respect to the adoption and approval of this Agreement, the approval of the
Merger or the issuance of the shares of Parent Common Stock pursuant to the
Merger.
(b) The Board of Directors of Parent shall unanimously recommend that
Parent's stockholders vote in favor of the issuance of the shares of Parent
Common Stock pursuant to the Merger at the Parent Stockholders' Meeting. The
Prospectus/Proxy Statement shall include a statement to the effect that the
Board of Directors of the Parent has unanimously approved and adopted this
Agreement and approved the Merger and has unanimously recommended that Parent's
stockholders vote in favor of the issuance of the shares of Parent Common Stock
pursuant to the Merger at the Parent Stockholders' Meeting. Neither the Board of
Directors of Parent nor any committee thereof shall withdraw, amend or modify,
or propose or resolve to withdraw, amend or modify in a manner adverse to the
Company, the unanimous approval and adoption of this Agreement and approval of
the Merger or the unanimous recommendation of the Board of Directors of Parent
that Parent's stockholders vote in favor of the issuance of the shares of Parent
Common Stock pursuant to the Merger. For purposes of this Agreement, said
recommendation of the Board of Directors shall be deemed to have been modified
in a manner adverse to the Company if said recommendation shall no longer be
unanimous.
(c) Nothing contained in this Agreement shall prohibit Parent or its Board
of Directors from (x) taking and disclosing to its stockholders a position
contemplated by
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Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act or (y) making any
disclosure to Parent's stockholders if, in the good faith judgment of the
majority of the members of the Board of Directors of Parent, after consultation
with independent legal counsel, failure to so disclose would be inconsistent
with applicable laws.
5.4 Confidentiality; Access to Information.
(a) The parties acknowledge that the Company and Parent have previously
executed a Mutual Confidentiality Agreement, dated as of September 17, 1998 (the
"Confidentiality Agreement"), which Confidentiality Agreement will continue in
full force and effect in accordance with its terms.
(b) Access to Information. Each of the Company and Parent will afford the
other and their respective accountants, counsel and other representatives
reasonable access during normal business hours to the properties, books, records
and personnel of the Company or Parent, as the case may be, during the period
prior to the Effective Time to obtain all information concerning the business,
including the status of product development efforts, properties, results of
operations and personnel of the Company or Parent, as the case may be, as Parent
or the Company may reasonably request. No information or knowledge obtained by
Parent or the Company in any investigation pursuant to this Section 5.4 will
affect or be deemed to modify any representation or warranty contained herein or
the conditions to the obligations of the parties to consummate the Merger.
5.5 No Solicitation.
(a) From and after the date of this Agreement until the Effective Time or
termination of this Agreement pursuant to Article VII, the Company and its
subsidiaries will not, nor will they authorize or permit any of their respective
officers, directors, affiliates or employees or any investment banker, attorney
or other advisor or representative retained by any of them to, directly or
indirectly, (i) solicit, initiate, encourage or induce the making, submission or
announcement of any Acquisition Proposal (as hereinafter defined), (ii)
participate in any discussions or negotiations regarding, or furnish to any
person any non-public information with respect to, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes or may
reasonably be expected to lead to, any Acquisition Proposal, (iii) engage in
discussions with any person with respect to any Acquisition Proposal, except as
to the existence of these provisions, (iv) subject to Section 5.2(c), approve,
endorse or recommend any Acquisition Proposal or (v) enter into any letter of
intent or similar document or any contract agreement or commitment contemplating
or otherwise relating to any Acquisition Transaction; provided, however, that
prior to the approval of this Agreement by the required Company stockholder
vote, this Section 5.5(a) shall not prohibit the Company from furnishing
nonpublic information regarding the Company and its subsidiaries to, entering
into a confidentiality agreement with or entering into discussions with, any
person or group in response to a Superior Offer submitted by such person or
group (and not withdrawn) if (1) neither the Company nor any representative of
the Company and its subsidiaries shall have violated any of the restrictions set
forth in this Section 5.5, (2) the Board of Directors of the Company concludes
in good faith, after consultation with its outside legal counsel, that such
action is required in order for the Board of Directors of the Company to comply
with its fiduciary obligations to the Company's stockholders under applicable
law, (3) prior to furnishing any such nonpublic information to, or entering into
discussions with, such person or group, the Company gives Parent written notice
of the identity of such person or group and of the
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Company's intention to furnish nonpublic information to, or enter into
discussions with, such person or group and the Company receives from such person
or group an executed confidentiality agreement containing customary limitations
on the use and disclosure of all nonpublic written and oral information
furnished to such person or group by or on behalf of the Company, and (4)
contemporaneously with furnishing any such nonpublic information to such person
or group, the Company furnishes such nonpublic information to Parent (to the
extent such nonpublic information has not been previously furnished by the
Company to Parent). The Company and its subsidiaries will immediately cease any
and all existing activities, discussions or negotiations with any parties
conducted heretofore with respect to any Acquisition Proposal. Without limiting
the foregoing, it is understood that any violation of the restrictions set forth
in the preceding two sentences by any officer, director or employee of the
Company or any of its subsidiaries or any investment banker, attorney or other
advisor or representative of the Company or any of its subsidiaries shall be
deemed to be a breach of this Section 5.5 by the Company. In addition to the
foregoing, the Company shall provide Parent with at least 24 hours prior notice
(or such lesser prior notice as provided to the members of the Company's Board
of Directors but in no event less than eight hours) of any meeting of the
Company's Board of Directors at which the Company's Board of Directors is
reasonably expected to consider a Superior Offer, together with such notice a
copy of the definitive documentation relating to such Superior Offer.
For purposes of this Agreement, "ACQUISITION PROPOSAL" shall mean any offer or
proposal (other than an offer or proposal by Parent) relating to any Acquisition
Transaction. For the purposes of this Agreement, "ACQUISITION TRANSACTION" shall
mean any transaction or series of related transactions other than the
transactions contemplated by this Agreement involving: (A) any acquisition or
purchase from the Company by any person or "group" (as defined under Section
13(d) of the Exchange Act and the rules and regulations thereunder) of more than
a 5% interest in the total outstanding voting securities of the Company or any
of its subsidiaries or any tender offer or exchange offer that if consummated
would result in any person or "group" (as defined under Section 13(d) of the
Exchange Act and the rules and regulations thereunder) beneficially owning 5% or
more of the total outstanding voting securities of the Company or any of its
subsidiaries or any merger, consolidation, business combination or similar
transaction involving the Company pursuant to which the stockholders of the
Company immediately preceding such transaction hold less than 95% of the equity
interests in the surviving or resulting entity of such transaction; (B) any
sale, lease (other than in the ordinary course of business), exchange, transfer,
license (other than in the ordinary course of business), acquisition or
disposition of more than 10% of the assets of the Company; or (C) any
liquidation or dissolution of the Company.
(b) In addition to the obligations of the Company set forth in paragraph
(a) of this Section 5.5, the Company as promptly as practicable shall advise
Parent orally and in writing of any request for non-public information which the
Company reasonably believes would lead to an Acquisition Proposal or of any
Acquisition Proposal, or any inquiry with respect to or which the Company
reasonably should believe would lead to any Acquisition Proposal, the material
terms and conditions of such request, Acquisition Proposal or inquiry, and the
identity of the person or group making any such request, Acquisition Proposal or
inquiry. The Company will keep Parent informed in all material respects of the
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status and details (including material amendments or proposed material
amendments) of any such request, Acquisition Proposal or inquiry.
5.6 Public Disclosure. Parent and the Company will consult with each other, and
to the extent practicable, agree, before issuing any press release or otherwise
making any public statement with respect to the Merger, this Agreement or an
Acquisition Proposal and will not issue any such press release or make any such
public statement prior to such consultation, except as may be required by law or
any listing agreement with Nasdaq. The parties have agreed to the text of the
joint press release announcing the signing of this Agreement.
5.7 Reasonable Efforts; Notification.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use all reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by this
Agreement, including using reasonable efforts to accomplish the following: (i)
the taking of all reasonable acts necessary to cause the conditions precedent
set forth in Article VI to be satisfied, (ii) the obtaining of all necessary
actions or nonactions, waivers, consents, approvals, orders and authorizations
from Governmental Entities and the making of all necessary registrations,
declarations and filings (including registrations, declarations and filings with
Governmental Entities, if any) and the taking of all reasonable steps as may be
necessary to avoid any suit, claim, action, investigation or proceeding by any
Governmental Entity, (iii) the obtaining of all necessary consents, approvals or
waivers from third parties, (iv) the defending of any suits, claims, actions,
investigations or proceedings, whether judicial or administrative, challenging
this Agreement or the consummation of the transactions contemplated hereby,
including seeking to have any stay or temporary restraining order entered by any
court or other Governmental Entity vacated or reversed and (v) the execution or
delivery of any additional instruments necessary to consummate the transactions
contemplated by, and to fully carry out the purposes of, this Agreement. In
connection with and without limiting the foregoing, the Company and its Board of
Directors shall, if any state takeover statute or similar statute or regulation
is or becomes applicable to the Merger, this Agreement or any of the
transactions contemplated by this Agreement, use all reasonable efforts to
ensure that the Merger and the other transactions contemplated by this Agreement
may be consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such statute or regulation on
the Merger, this Agreement and the transactions contemplated hereby.
Notwithstanding anything herein to the contrary, nothing in this Agreement shall
be deemed to require Parent or the Company or any subsidiary or affiliate
thereof to agree to any divestiture by itself or any of its affiliates of shares
of capital stock or of any business, assets or property, or the imposition of
any material limitation on the ability of any of them to conduct their
businesses or to own or exercise control of such assets, properties and stock.
(b) The Company shall give prompt notice to Parent of any representation or
warranty made by it contained in this Agreement becoming untrue or inaccurate in
any material respect, or any failure of the Company to comply with or satisfy in
any material respect any covenant, condition or agreement to be complied with or
satisfied by it under
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this Agreement, in each case, such that the conditions set forth in Section
6.3(a) or 6.3(b) would not be satisfied, provided, however, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement.
(c) Parent shall give prompt notice to the Company of any representation or
warranty made by it or Merger Sub contained in this Agreement becoming untrue or
inaccurate in any material respect, or any failure of Parent or Merger Sub to
comply with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement, in each
case, such that the conditions set forth in Section 6.2(a) or 6.2(b) would not
be satisfied, provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
5.8 Third Party Consents. As soon as practicable following the date hereof,
Parent and the Company will each use its commercially reasonable efforts to
obtain any consents, waivers and approvals under any of its or its subsidiaries'
respective agreements, contracts, licenses or leases required to be obtained in
connection with the consummation of the transactions contemplated hereby.
5.9 Stock Options and Employee Benefits.
(a) At the Effective Time, each outstanding Company Option, whether or not
exercisable and regardless of the respective exercise prices thereof, will be
assumed by Parent. Each Company Option so assumed by Parent under this Agreement
will continue to have, and be subject to, the same terms and conditions set
forth in the applicable Company Stock Option Plan immediately prior to the
Effective Time (including, without limitation, any repurchase rights, vesting
provisions and vested status of any such Company Option), except that (i) each
Company Option will be exercisable (or will become exercisable in accordance
with its terms) for that number of whole shares of Parent Common Stock equal to
the product of the number of shares of Company Common Stock that were issuable
upon exercise of such Company Option immediately prior to the Effective Time
multiplied by the Exchange Ratio, rounded down to the nearest whole number of
shares of Parent Common Stock and (ii) the per share exercise price for the
shares of Parent Common Stock issuable upon exercise of such assumed Company
Option will be equal to the quotient determined by dividing the exercise price
per share of Company Common Stock at which such Company Option was exercisable
immediately prior to the Effective Time by the Exchange Ratio, rounded up to the
nearest whole cent.
(b) It is intended that Company Options assumed by Parent shall qualify
following the Effective Time as incentive stock options as defined in Section
422 of the Code to the extent Company Options qualified as incentive stock
options immediately prior to the Effective Time and the provisions of this
Section 5.9 shall be applied consistent with such intent.
(c) Rights outstanding under the Company Purchase Plan shall be treated in
a manner reasonably acceptable to Parent and the Company, provided that in no
event shall any such treatment interfere with Parent's ability to account for
the Merger as a pooling of interests.
(d) At the Effective Time, the Warrants will be assumed by Parent. Each
Warrant so assumed by Parent under this Agreement will continue to have, and be
subject to, the
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same terms and conditions set forth in the applicable warrant agreement
immediately prior to the Effective Time (including, without limitation, any
repurchase rights or vesting provisions), except that (i) each Warrant will be
exercisable (or will become exercisable in accordance with its terms) for that
number of whole shares of Parent Common Stock equal to the product of the number
of shares of Company Common Stock that were issuable upon exercise of such
Warrant immediately prior to the Effective Time multiplied by the Exchange
Ratio, rounded down to the nearest whole number of shares of Parent Common Stock
and (ii) the per share exercise price for the shares of Parent Common Stock
issuable upon exercise of such assumed Warrant will be equal to the quotient
determined by dividing the exercise price per share of Company Common Stock at
which such Warrant was exercisable immediately prior to the Effective Time by
the Exchange Ratio, rounded up to the nearest whole cent.
5.10 Form S-8. Parent agrees to file a registration statement on Form S-8 for
the shares of Parent Common Stock issuable with respect to assumed Company
Options within ten (10) days after the Effective Time and intends to maintain
the effectiveness of such registration statement thereafter for so long as any
of such options or other rights remain outstanding. Parent further agrees to
reserve a sufficient number of shares of Parent Common Stock for issuance upon
exercise of assumed Company Options and the Warrants.
5.11 Indemnification.
(a) From and after the Effective Time, Parent will cause the Surviving
Corporation to fulfill and honor in all respects the obligations of the Company
pursuant to any indemnification agreements between the Company and its directors
and officers as of the Effective Time (the "INDEMNIFIED PARTIES") and any
indemnification provisions under the Company's Certificate of Incorporation or
Bylaws as in effect on the date hereof. The Certificate of Incorporation and
Bylaws of the Surviving Corporation will contain provisions with respect to
exculpation and indemnification that are at least as favorable to the
Indemnified Parties as those contained in the Certificate of Incorporation and
Bylaws of the Company as in effect on the date hereof, which provisions will 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, immediately prior to the Effective Time, were directors,
officers, employees or agents of the Company, unless such modification is
required by law.
(b) For a period of six years after the Effective Time, Parent will cause
the Surviving Corporation to use its commercially reasonable efforts to maintain
in effect, if available, directors' and officers' liability insurance covering
those persons who are currently covered by the Company's directors' and
officers' liability insurance policy on terms comparable to those applicable to
the current directors and officers of the Company; provided, however, that in no
event will Parent or the Surviving Corporation be required to expend in excess
of 150% of the annual premium currently paid by the Company for such coverage
(or such coverage as is available for such 150% of such annual premium).
5.12 Board of Directors of Parent. The Board of Directors of Parent will take
all actions necessary to cause Stuart Clifton to be elected to the Board of
Directors of Parent immediately after the Effective Time.
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5.13 Nasdaq Listing. Parent agrees to authorize for listing on the Nasdaq
National Market the shares of Parent Common Stock issuable, and those required
to be reserved for issuance, in connection with the Merger, upon official notice
of issuance.
5.14 Company Affiliate Agreement. Set forth on Exhibit D-1 is a list of those
persons who may be deemed to be, in the Company's reasonable judgment,
affiliates of the Company within the meaning of Rule 145 promulgated under the
Securities Act (each a "COMPANY AFFILIATE"). The Company will provide Parent
with such information and documents as Parent reasonably requests for purposes
of reviewing such list. The Company will use its commercially reasonable efforts
to deliver or cause to be delivered to Parent, as promptly as practicable on or
following the date hereof, from each Company Affiliate an executed affiliate
agreement in substantially the form attached hereto as Exhibit D-2 (the "COMPANY
AFFILIATE AGREEMENT"), each of which will be in full force and effect as of the
Effective Time. Parent will be entitled to place appropriate legends on the
certificates evidencing any Parent Common Stock to be received by a Company
Affiliate pursuant to the terms of this Agreement, and to issue appropriate stop
transfer instructions to the transfer agent for the Parent Common Stock,
consistent with the terms of the Company Affiliate Agreement.
5.15 Parent Affiliate Agreement. Set forth on Exhibit E-1 is a list of those
persons who may be deemed in Parent's reasonable judgement affiliates of Parent
within the meaning of Rule 145 promulgated under the Securities Act (each a
"PARENT AFFILIATE"). Parent will provide the Company with such information and
documents as the Company reasonably requests for purposes of reviewing such
list. Parent will use commercially reasonable efforts to deliver or cause to be
delivered to the Company, as promptly on or following the date hereof, from each
Parent Affiliate an executed affiliate agreement in substantially the from
attached hereto as Exhibit E-2 (the "PARENT AFFILIATE AGREEMENT"), each of which
will be in full force and effect as of the Effective Time.
5.16 Regulatory Filings; Reasonable Efforts. As soon as may be reasonably
practicable, the Company and Parent each shall file with the United States
Federal Trade Commission (the "FTC") and the Antitrust Division of the United
States Department of Justice ("DOJ") Notification and Report Forms relating to
the transactions contemplated herein as required by the HSR Act, as well as
comparable pre-merger notification forms required by the merger notification or
control laws and regulations of any applicable jurisdiction, as agreed to by the
parties. The Company and Parent each shall promptly (a) supply the other with
any information which may be required in order to effectuate such filings and
(b) supply any additional information which reasonably may be required by the
FTC, the DOJ or the competition or merger control authorities of any other
jurisdiction and which the parties may reasonably deem appropriate.
5.17 Company 401(k) Plan and Benefit Arrangements. The Company and its
affiliates, as applicable, each agrees to terminate its 401(k) plan immediately
prior to the Closing, unless Parent, in its sole discretion, agrees to sponsor
and maintain such plans by providing Company with written notice of such
election at least three (3) days prior to the Effective Time. For the purpose of
employment plans or arrangements which Parent or the Surviving Corporation may
extend to Continuing Employees (as defined below), to the extent practicable,
Parent shall give full credit to each Continuing Employee for such Continuing
Employee's period of service with the Company prior to the Effective Time to the
extent such service was recognized under any comparable employment plans or
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arrangements of the Company prior to the Effective Time. For purposes of this
Section 5.17, "Continuing Employee" shall mean any employee of the Company who
continues as an employee of the Surviving Corporation or Parent or any of its
subsidiaries immediately after the Effective Time.
5.18 Tax Matters. At or prior to the filing of the Registration Statement, the
Company and Parent shall deliver to Cooley Godward LLP and to Wilson Sonsini
Goodrich & Rosati, Professional Corporation, tax representation letters,
including such reasonable representations as requested by such counsel for the
purpose of delivering the Tax Opinions (defined below). Parent, Merger Sub and
the Company shall each confirm to Cooley Godward LLP and to Wilson Sonsini
Goodrich & Rosati, Professional Corporation, the accuracy and completeness as of
the Effective Time of the tax representation letters delivered pursuant to the
prior sentence. Parent and the Company shall use all reasonable efforts prior to
the Effective Time to cause the Merger to qualify as a tax-free reorganization
under Section 368(a) of the Code. Following delivery of the tax representation
letters pursuant to the first sentence of this Section 5.18, each of the Company
and Parent shall use its reasonable efforts to cause Cooley Godward LLP and
Wilson Sonsini Goodrich & Rosati, Professional Corporation, respectively, to
deliver to it a tax opinion (a "TAX OPINION") satisfying the requirements of
Item 601 of the Regulation S-K promulgated under the Securities Act. In
rendering such Tax Opinions and the opinions referred to in Section 6.1(e), each
of such counsel shall be entitled to rely on the tax representation letters
described in this Section 5.18.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:
(a) Company Stockholder Approval. This Agreement shall have been approved
and adopted, and the Merger shall have been duly approved, by the requisite vote
under applicable law, by the stockholders of the Company.
(b) Parent Stockholder Approval. The issuance of the shares of Parent
Common Stock pursuant to the Merger shall have been duly approved by the
requisite vote under applicable Nasdaq rules by the stockholders of the Parent.
(c) Registration Statement Effective; Proxy Statement. The SEC shall have
declared the Registration Statement effective. No stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have been
issued and no proceeding for that purpose, and no similar proceeding in respect
of the Prospectus/Proxy Statement, shall have been initiated or threatened in
writing by the SEC.
(d) No Order; HSR Act. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which has the effect of making the Merger illegal or
otherwise prohibiting consummation of the Merger. All waiting periods, if any,
under the HSR Act relating to the transactions contemplated hereby shall have
expired or terminated early and all
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material foreign antitrust approvals required to be obtained prior to the Merger
in connection with the transactions contemplated hereby shall have been
obtained.
(e) Tax Opinions. Parent and the Company shall each have received written
opinions from their respective tax counsel (Wilson Sonsini Goodrich & Rosati,
Professional Corporation, and Cooley Godward LLP, respectively), in form and
substance reasonably satisfactory to them, to the effect that the Merger will
constitute a tax-free reorganization within the meaning of Section 368(a) of the
Code and such opinions shall not have been withdrawn; provided, however, that if
the counsel to either Parent or the Company does not render such opinion, this
condition shall nonetheless be deemed to be satisfied with respect to such party
if counsel to the other party renders such opinion to such party. The parties to
this Agreement agree to make representations as requested by such counsel for
the purpose of rendering the Tax Opinions and further agree to confirm the
accuracy and completeness of such representations as of the Effective Time as
requested by such counsel for the purpose of rendering those opinions discussed
in this Section 6.1(e).
6.2 Additional Conditions to Obligations of the Company. The obligation of the
Company to consummate and effect the Merger shall be subject to the satisfaction
at or prior to the Closing Date of each of the following conditions, any of
which may be waived, in writing, exclusively by the Company:
(a) Representations and Warranties. Each representation and warranty of
Parent and Merger Sub contained in this Agreement (i) shall have been true and
correct as of the date of this Agreement and (ii) shall be true and correct on
and as of the Closing Date with the same force and effect as if made on the
Closing Date except with regard to the foregoing clauses (i) and (ii), (A) in
each case, or in the aggregate, as does not constitute a Material Adverse Effect
on Parent and Merger Sub; provided, however, such Material Adverse Effect
qualification shall be inapplicable with respect to the representations and
warranties contained in Sections 3.2(a), 3.16, 3.18, 3.19, the first and last
sentences of Section 3.2(b) and the first four sentences of Section 3.4(a), and
(B) for those representations and warranties which address matters only as of a
particular date (which representations shall have been true and correct except
as does not constitute a Material Adverse Effect on Parent and Merger Sub as of
such particular date) (it being understood that, for purposes of determining the
accuracy of such representations and warranties, (i) all "Material Adverse
Effect" qualifications and other qualifications based on the word "material" or
similar phrases contained in such representations and warranties shall be
disregarded and (ii) any update of or modification to the Parent Schedules made
or purported to have been made after the date of this Agreement shall be
disregarded). The Company shall have received a certificate with respect to the
foregoing signed on behalf of Parent by an authorized officer of Parent.
(b) Agreements and Covenants. Parent and Merger Sub shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by them on or prior to the
Closing Date, and the Company shall have received a certificate to such effect
signed on behalf of Parent by an authorized officer of Parent.
(c) Material Adverse Effect. No Material Adverse Effect with respect to
Parent shall have occurred since the date of this Agreement.
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(d) Affiliate Agreements. Each of the Parent Affiliates shall have entered
into the Parent Affiliate Agreement and each of such agreements will be in full
force and effect as of the Effective Time.
(e) Opinion of Accountants. The Company shall have received letters from
Ernst & Young LLP, dated within two (2) business days prior to the Effective
Time, regarding that firm's concurrence with Parent's management's and the
Company's management's conclusions as to the appropriateness of pooling of
interest accounting for the Merger under the Accounting Principles Board Opinion
No. 16, if the Merger is consummated in accordance with this Agreement.
(f) Nasdaq Listing. The shares of Parent Common Stock to be issued in the
Merger shall have been authorized for listing on the Nasdaq National Market,
subject to notice of issuance.
6.3 Additional Conditions to the Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to consummate and effect the Merger shall
be subject to the satisfaction at or prior to the Closing Date of each of the
following conditions, any of which may be waived, in writing, exclusively by
Parent:
(a) Representations and Warranties. Each representation and warranty of the
Company contained in this Agreement (i) shall have been true and correct as of
the date of this Agreement and (ii) shall be true and correct on and as of the
Closing Date with the same force and effect as if made on and as of the Closing
Date except, with regard to the foregoing clauses (i) and (ii), (A) in each
case, or in the aggregate, as does not constitute a Material Adverse Effect on
the Company; provided, however, such Material Adverse Effect qualification shall
be inapplicable with respect to the representations and warranties contained in
Sections 2.2(a), 2.18, 2.21, 2,22, 2,25, the first and last sentences of Section
2.2(b) and the first four sentences of Section 2.4(a), and (B) for those
representations and warranties which address matters only as of a particular
date (which representations shall have been true and correct except as does not
constitute a Material Adverse Effect on the Company as of such particular date)
(it being understood that, for purposes of determining the accuracy of such
representations and warranties, (i) all "Material Adverse Effect" qualifications
and other qualifications based on the word "material" or similar phrases
contained in such representations and warranties shall be disregarded and (ii)
any update of or modification to the Company Schedules made or purported to have
been made after the date of this Agreement shall be disregarded). Parent shall
have received a certificate with respect to the foregoing signed on behalf of
the Company by an authorized officer of the Company.
(b) Agreements and Covenants. The Company shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it at or prior to the Closing
Date, and Parent shall have received a certificate to such effect signed on
behalf of the Company by the Chief Executive Officer and the Chief Financial
Officer of the Company.
(c) Material Adverse Effect. No Material Adverse Effect with respect to the
Company and its subsidiaries shall have occurred since the date of this
Agreement.
(d) Affiliate Agreements. Each of the Company Affiliates shall have entered
into the Company Affiliate Agreement and each of such agreements will be in full
force and effect as of the Effective Time.
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(e) Opinion of Accountants. Parent shall have received letters from Ernst &
Young LLP, dated within two (2) business days prior to the Effective Time,
regarding that firm's concurrence with Parent's management's and the Company's
management's conclusions as to the appropriateness of pooling of interest
accounting for the Merger under Accounting Principles Board Opinion No. 16, if
the Merger is consummated in accordance with this Agreement.
(f) Company Rights Plan. All necessary actions shall have been taken to
extinguish and cancel all outstanding Rights under the Company Rights Plan or
render such Rights inapplicable to the Merger and the other transactions
contemplated by this Agreement.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after the requisite approvals of the
stockholders of the Company or Parent:
(a) by mutual written consent duly authorized by the Boards of Directors of
Parent and the Company;
(b) by either the Company or Parent if the Merger shall not have been
consummated by February 28, 1999 (the "END DATE") for any reason; provided,
however, that the right to terminate this Agreement under this Section 7.1(b)
shall not be available to any party whose action or failure to act has been a
principal cause of or resulted in the failure of the Merger to occur on or
before such date and such action or failure to act constitutes a material breach
of this Agreement;
(c) by either the Company or Parent if a Governmental Entity shall have
issued an order, decree or ruling or taken any other action, in any case having
the effect of permanently restraining, enjoining or otherwise prohibiting the
Merger, which order, decree, ruling or other action is final and nonappealable;
(d) by the Company or Parent if the required approval of the stockholders
of Parent contemplated by this Agreement shall not have been obtained by reason
of the failure to obtain the required vote at a meeting of Parent stockholders
duly convened therefor or at any adjournment thereof; provided, however, that
the right to terminate this Agreement under this Section 7.1(d) shall not be
available to Parent where the failure to obtain Parent stockholder approval
shall have been caused by the action or failure to act of Parent and such action
or failure to act constitutes a material breach by Parent of this Agreement.
(e) by the Company or Parent if the required approval of the stockholders
of the Company contemplated by this Agreement shall not have been obtained by
reason of the failure to obtain the required vote at a meeting of the Company
stockholders duly convened therefore or at any adjournment thereof; provided,
however, that the right to terminate this Agreement under this Section 7.1(e)
shall not be available to the Company where the failure to obtain the Company
stockholder approval shall have been caused by the action or failure to act of
the Company and such action or failure to act constitutes a material breach by
the Company of this Agreement.
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(f) by Parent (at any time prior to the adoption and approval of this
Agreement and the Merger by the required vote of the stockholders of the
Company) if a Company Triggering Event (as defined below) shall have occurred;
(g) by the Company (at any time prior to the adoption and approval of this
Agreement and the Merger by the required vote of the stockholders of the Parent)
if a Parent Triggering Event shall have occurred;
(h) by the Company, upon a breach of any representation, warranty, covenant
or agreement on the part of Parent set forth in this Agreement, or if any
representation or warranty of Parent shall have become untrue, in either case
such that the conditions set forth in Section 6.2(a) or Section 6.2(b) would not
be satisfied as of the time of such breach or as of the time such representation
or warranty shall have become untrue, provided that if such inaccuracy in
Parent's representations and warranties or breach by Parent is curable by Parent
through the exercise of its commercially reasonable efforts, then the Company
may not terminate this Agreement under this Section 7.1(h) prior to the End
Date, provided Parent continues to exercise commercially reasonable efforts to
cure such breach (it being understood that the Company may not terminate this
Agreement pursuant to this paragraph (h) if it shall have materially breached
this Agreement or if such breach by Parent is cured prior to the End Date);
(i) by Parent, upon a breach of any representation, warranty, covenant or
agreement on the part of the Company set forth in this Agreement, or if any
representation or warranty of the Company shall have become untrue, in either
case such that the conditions set forth in Section 6.3(a) or Section 6.3(b)
would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, provided, that if such
inaccuracy in the Company's representations and warranties or breach by the
Company is curable by the Company through the exercise of its commercially
reasonable efforts, then Parent may not terminate this Agreement under this
Section 7.1(i) prior to the End Date, provided the Company continues to exercise
commercially reasonable efforts to cure such breach (it being understood that
Parent may not terminate this Agreement pursuant to this paragraph (i) if it
shall have materially breached this Agreement or if such breach by the Company
is cured prior to the End Date).
For the purposes of this Agreement, a "COMPANY TRIGGERING EVENT" shall be deemed
to have occurred if: (i) the Board of Directors of the Company or any committee
thereof shall for any reason have withdrawn or shall have amended or modified in
a manner adverse to Parent its unanimous recommendation in favor of, the
adoption and approval of the Agreement or the approval of the Merger; (ii) the
Company shall have failed to include in the Prospectus/Proxy Statement the
unanimous recommendation of the Board of Directors of the Company in favor of
the adoption and approval of the Agreement and the approval of the Merger; (iii)
the Board of Directors of the Company fails to reaffirm its unanimous
recommendation in favor of the adoption and approval of the Agreement and the
approval of the Merger within ten (10) business days after Parent requests in
writing that such recommendation be reaffirmed; (iv) the Board of Directors of
the Company or any committee thereof shall have approved or publicly recommended
any Acquisition Proposal; or (v) a tender or exchange offer relating to
securities of the Company shall have been commenced by a Person unaffiliated
with Parent and the Company shall not have sent to its securityholders pursuant
to Rule 14e-2 promulgated
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under the Securities Act, within ten (10) business days after such tender or
exchange offer is first published sent or given, a statement disclosing that the
Company recommends rejection of such tender or exchange offer.
For the purposes of this Agreement, a "PARENT TRIGGERING EVENT" shall be deemed
to have occurred if: (i) the Board of Directors of Parent or any committee
thereof shall for any reason have withdrawn or shall have amended or modified in
a manner adverse to the Company its unanimous recommendation in favor of, the
issuance of shares of Parent Common Stock pursuant to the Merger; (ii) Parent
shall have failed to include in the Prospectus/Proxy Statement the unanimous
recommendation of the Board of Directors of Parent in favor of the issuance of
shares of Parent Common Stock pursuant to the Merger; or (iii) the Board of
Directors of Parent fails to reaffirm its unanimous recommendation in favor of
the issuance of the shares of Parent Common Stock pursuant to the Merger within
ten (10) business days after the Company requests in writing that such
recommendation be reaffirmed.
7.2 Notice of Termination; Effect of Termination. Any termination of this
Agreement under Section 7.1 above will be effective immediately upon the
delivery of written notice of the terminating party to the other parties hereto.
In the event of the termination of this Agreement as provided in Section 7.1,
this Agreement shall be of no further force or effect, except (i) as set forth
in Section 5.4, this Section 7.2, Section 7.3 and Article 8 (miscellaneous),
each of which shall survive the termination of this Agreement, and (ii) nothing
herein shall relieve any party from liability for any breach of this Agreement.
No termination of this Agreement shall affect the obligations of the parties
contained in the Confidentiality Agreement, all of which obligations shall
survive termination of this Agreement in accordance with their terms.
7.3 Fees and Expenses.
(a) General. Except as set forth in this Section 7.3, all fees and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses whether or not the
Merger is consummated; provided, however, that Parent and the Company shall
share equally all fees and expenses, other than attorneys' and accountants fees
and expenses, incurred in relation to the printing and filing (with the SEC) of
the Prospectus/Proxy Statement (including any preliminary materials related
thereto) and the Registration Statement (including financial statements and
exhibits) and any amendments or supplements thereto.
(b) Company Payments. In the event that this Agreement is terminated by
Parent or the Company, as applicable, pursuant to Sections 7.1(b), (e) or (f),
the Company shall promptly, but in no event later than two days after the date
of such termination, pay Parent a fee equal to $3.25 million in immediately
available funds (the "TERMINATION FEE"); provided, that in the case of
termination under Section 7.1(b), such payment shall be made only if following
the date hereof and prior to the termination of this Agreement, a third party
has publicly announced an Acquisition Proposal for an Acquisition Transaction
and within 12 months following the termination of this Agreement the Company
enters into or announces an intention to enter into a Company Acquisition (as
defined below). The Company acknowledges that the agreements contained in this
Section 7.3(b) are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, Parent would not enter into this
Agreement; accordingly, if the Company fails promptly to pay the amounts due
pursuant to this Section 7.3(b) , and, in order to obtain
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such payment, Parent commences a suit which results in a judgment against the
Company for the amounts set forth in this Section 7.3(b), the Company shall pay
to Parent its reasonable costs and expenses (including attorneys' fees and
expenses) in connection with such suit, together with interest on the amounts
set forth in this Section 7.3(b) at the prime rate of The Chase Manhattan Bank
in effect on the date such payment was required to be made. For the purposes of
this Agreement "COMPANY ACQUISITION" shall mean any of the following
transactions (other than the transactions contemplated by this Agreement); (i) a
merger, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving the Company pursuant to which the
stockholders of the Company immediately preceding such transaction hold less
than 50% of the aggregate equity interests in the surviving or resulting entity
of such transaction or (ii) a sale or other disposition by the Company of assets
(excluding inventory and used equipment sold in the ordinary course of business)
representing in excess of 50% of the aggregate fair market value of the
Company's business immediately prior to such sale.
(c) Parent Payments. In the event that this Agreement is terminated by
Parent or the Company, as applicable, pursuant to Sections 7.1(d) or (g), Parent
shall promptly, but in no event later than two (2) days after the date of such
termination, pay to the Company the Termination Fee. Parent acknowledges that
the agreements contained in this Section 7.3(c) are an integral part of the
transactions contemplated by this Agreement, and that, without these agreements,
the Company would not enter into this Agreement; accordingly, if Parent fails
promptly to pay the amounts due pursuant to this Section 7.3(c) , and, in order
to obtain such payment, the Company commences a suit which results in a judgment
against Parent for the amounts set forth in this Section 7.3(c), Parent shall
pay to the Company its reasonable costs and expenses (including attorneys' fees
and expenses) in connection with such suit, together with interest on the
amounts set forth in this Section 7.3(c) at the prime rate of The Chase
Manhattan Bank in effect on the date such payment was required to be made.
(d) Payment of the fees described in Sections 7.3(b) and (c) above shall
not be in lieu of damages incurred in the event of breach of this Agreement.
7.4 Amendment. Subject to applicable law, this Agreement may be amended by the
parties hereto at any time by execution of an instrument in writing signed on
behalf of each of Parent and the Company.
7.5 Extension; Waiver. At any time prior to the Effective Time any party hereto
may (i) extend the time for the performance of any of the obligations or other
acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party. Delay in exercising any right under this Agreement shall not constitute a
waiver of such right.
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ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival of Representations and Warranties. The representations and
warranties of the Company, Parent and Merger Sub contained in this Agreement
shall terminate at the Effective Time, and only the covenants that by their
terms survive the Effective Time shall survive the Effective Time.
8.2 Notices. All notices and other communications hereunder shall be in writing
and shall be deemed given if delivered personally or by commercial delivery
service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
Platinum Software Corporation
195 Technology Drive
Irvine, California 92618
Attention: Chief Executive Officer
Telephone No.: (800) 999-1809
Telecopy No.: (949) 450-4496
with a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Larry W. Sonsini, Esq.
Marty Korman, Esq.
Telephone No.: (650) 493-9300
Telecopy No.: (650) 493-6811
(b) if to the Company, to:
DataWorks Corporation
5910 Pacific Center Boulevard
San Diego, California 92121
Attention: Chief Executive Officer
Telephone No.: (619) 546-9600
Telecopy No.: (619) 546-0682
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with a copy to:
Cooley Godward LLP
4365 Executive Drive
Suite 1100
San Diego, CA 92121
Attention: Frederick T. Muto, Esq.
Telephone No.: (619) 550-6000
Telecopy No.: (619) 453-3555
8.3 Interpretation; Knowledge.
(a) When a reference is made in this Agreement to Exhibits, such reference
shall be to an Exhibit to this Agreement unless otherwise indicated. When a
reference is made in this Agreement to Sections, such reference shall be to a
Section of this Agreement unless otherwise indicated the words "INCLUDE,"
"INCLUDES" and "INCLUDING" when used herein shall be deemed in each case to be
followed by the words "without limitation." The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. When reference is
made herein to "THE BUSINESS OF" an entity, such reference shall be deemed to
include the business of all direct and indirect subsidiaries of such entity.
Reference to the subsidiaries of an entity shall be deemed to include all direct
and indirect subsidiaries of such entity.
(b) For purposes of this Agreement the term "KNOWLEDGE" means with respect
to a party hereto, with respect to any matter in question, that any of the Chief
Executive Officer, Chief Financial Officer, General Counsel or Controller of
such party, has actual knowledge of such matter.
(c) For purposes of this Agreement, the term "MATERIAL ADVERSE EFFECT" when
used in connection with an entity means any change, event, violation,
inaccuracy, circumstance or effect that is materially adverse to the business,
material assets (including intangible assets), capitalization, financial
condition or results of operations of such entity and its subsidiaries taken as
a whole.
(d) For purposes of this Agreement, the term "PERSON" shall mean any
individual, corporation (including any non-profit corporation), general
partnership, limited partnership, limited liability partnership, joint venture,
estate, trust, company (including any limited liability company or joint stock
company), firm or other enterprise, association, organization, entity or
Governmental Entity.
8.4 Counterparts. This Agreement may be executed in one or more counterparts,
all of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other party, it being understood that all parties need not
sign the same counterpart.
8.5 Entire Agreement; Third Party Beneficiaries. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Company Schedules and the
Parent Schedules (a) constitute the entire agreement among the parties with
respect to the subject matter hereof and
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supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof, it being understood that
the Confidentiality Agreement shall continue in full force and effect until the
Closing and shall survive any termination of this Agreement; and (b) are not
intended to confer upon any other person any rights or remedies hereunder,
except as specifically provided in Sections 1.7, 5.9(a), 5.9(d) and 5.11.
8.6 Severability. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.
8.7 Other Remedies; Specific Performance. Except as otherwise provided herein,
any and all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby, or by
law or equity upon such party, and the exercise by a party of any one remedy
will not preclude the exercise of any other remedy. The parties hereto agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to seek an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in any
court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity.
8.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
8.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
8.10 Assignment. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other parties. Subject to the preceding sentence, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
8.11 Waiver of Jury Trial. EACH OF PARENT, THE COMPANY AND MERGER SUB HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT, THE COMPANY OR MERGER SUB
IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized respective officers as of the date first written above.
PLATINUM SOFTWARE CORPORATION
By: /s/ GEORGE KLAUS
--------------------------------------------------------
Name: George Klaus
-----------------------------------------------------
Title: President and Chief Executive Officer
------------------------------------------------------
ZOO ACQUISITION CORP.
By: /s/ PERRY TARNOFSKY
--------------------------------------------------------
Name: Perry Tarnofsky
-----------------------------------------------------
Title: Secretary
------------------------------------------------------
DATAWORKS CORPORATION
By: /s/ STUART CLIFTON
--------------------------------------------------------
Name: Stuart Clifton
-----------------------------------------------------
Title: President and Chief Executive Officer
------------------------------------------------------
**** REORGANIZATION AGREEMENT ****
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APPENDIX A-2
AMENDMENT NO. 1 TO
AGREEMENT AND PLAN OF REORGANIZATION
This AMENDMENT No. 1 TO AGREEMENT AND PLAN OF REORGANIZATION is made and entered
into as of October 30, 1998, among Platinum Software Corporation, a Delaware
corporation ("PARENT"), Zoo Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of Parent ("MERGER SUB"), and DataWorks Corporation, a
Delaware corporation (the "COMPANY").
RECITALS
A. Parent, Merger Sub and the Company are parties to that certain Agreement and
Plan of Reorganization dated as of October 13, 1998 (the "ORIGINAL AGREEMENT")
pursuant to which it is contemplated that Merger Sub will be merged with and
into the Company (the "MERGER").
B. The Original Agreement contemplates that the Merger shall be accounted for as
a pooling of interests.
C. Parent, Merger Sub and the Company expect to take certain actions that would
preclude the ability of Parent to account for the Merger as a pooling of
interests and wish therefore to amend the Original Agreement in contemplation
that the Merger will be accounted for under the rules of purchase accounting.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, and intending to be legal bound the parties
agree as follows.
1. Definitions. Capitalized terms used but not defined herein shall have the
meanings assigned thereto in the Original Agreement.
2. Pooling Representations, Covenants and Conditions. Sections 2.18, 3.16,
4.1(p), 4.2(k), 6.2(e) and 6.3(e) of the Original Agreement are hereby deleted
in their entirety. In addition, each cross-reference in the Original Agreement
to any of the foregoing sections is hereby deleted.
3. Treatment of Stock Purchase Plan. Section 5.9(c) of the Original Agreement is
hereby amended to read in its entirety as follows:
"Rights outstanding under the Company Purchase Plan shall be treated in a
manner reasonably acceptable to Parent and the Company."
4. Parent Option Repricing. The Company hereby consents to either:
(a) the issuance by Parent to holders of Parent Options, upon cancellation
of such Parent Options, new Parent Options with terms and conditions
substantially identical to the terms and conditions set forth in the canceled
Parent Options, except that such new Parent Options shall have an exercise price
equal to the fair market value of Parent Common Stock at the time of such
issuance (as determined in good faith by Parent with the Company's consent, not
to be unreasonably withheld) and such new Parent Options shall, subject to
reasonable exceptions relating to a change in control of Parent or
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<PAGE> 239
termination of the optionee, not be exercisable for twelve months following
their issuance, or
(b) the amendment by Parent of Parent Options to provide only that, as
amended, such Parent Options shall have an exercise price equal to the fair
market value of Parent Common Stock at the time of such amendment (as determined
in good faith by Parent with the Company's consent, not to be unreasonably
withheld) and that, as amended, such Parent Options shall, subject to reasonable
exceptions relating to a change in control of Parent or termination of the
optionee, not be exercisable for twelve months following their amendment.
5. Company Option Repricing. Parent and Merger Sub hereby consent to the Company
taking one of the following actions on one occasion contemporaneous with any
issuance by Parent of new Parent Options or amendment of Parent Options pursuant
to the preceding Section 4:
(a) the issuance by the Company to holders of Company Options, upon
cancellation of such Company Options, new Company Options with terms and
conditions substantially identical to the terms and conditions set forth in the
canceled Company Options, except that such new Company Options shall have an
exercise price equal to the fair market value of Parent Common Stock at the time
of such issuance multiplied by the Exchange Ratio and such new Company Options
shall, subject to reasonable exceptions relating to a change in control of the
Company (other than the transactions contemplated by the Original Agreement) or
termination of the optionee, not be exercisable for twelve months following
their issuance, or
(b) the amendment by the Company of Company Options to provide only that,
as amended, such Company Options shall have an exercise price equal to the fair
market value of Parent Common Stock at the time of such amendment multiplied by
the Exchange Ratio and that, as amended, such Company Options shall, subject to
reasonable exceptions relating to a change in control of the Company (other than
the transactions contemplated by the Original Agreement) or termination of the
optionee, not be exercisable for twelve months following their amendment.
6. No Further Modifications. Except as amended hereby, the Original Agreement
shall remain in full force and effect. After the execution and delivery of this
Amendment No. 1 to Agreement and Plan of Reorganization, all references to the
Original Agreement shall mean the Original Agreement as amended hereby. No
deletion of a section of the Original Agreement pursuant to the terms hereof
shall have the effect of renumbering any remaining section of the Original
Agreement.
7. Counterparts. This Agreement may be executed in one or more counterparts, all
of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other parties, it being understood that all parties need
not sign the same counterpart.
8. Miscellaneous. This Agreement, the Original Agreement and the documents and
instruments and other agreements among the parties hereto as contemplated by or
referred to herein or therein (a) constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, it being understood that the
Confidentiality Agreement shall continue in full force and effect until
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the Closing and shall survive any termination of the Original Agreement; and (b)
are not intended to confer upon any other person any rights or remedies
hereunder, except as specifically provided in Sections 1.7, 5.9(a), 5.9(d) and
5.11 of the Original Agreement.
9. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
*****
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<PAGE> 241
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to
Agreement and Plan of Reorganization to be executed by their duly authorized
respective officers as of the date first written above.
PLATINUM SOFTWARE CORPORATION
By: /S/ GEORGE KLAUS
--------------------------------------------------------
Name: George Klaus
------------------------------------------------------
Title: President and Chief Executive Officer
------------------------------------------------------
ZOO ACQUISITION CORP.
By: /S/ PERRY TARNOFSKY
--------------------------------------------------------
Name: Perry Tarnofsky
------------------------------------------------------------
Title: Secretary
------------------------------------------------------
DATAWORKS CORPORATION
By: /S/ STUART CLIFTON
--------------------------------------------------------
Name: Stuart Clifton
------------------------------------------------------
Title: President and Chief Executive Officer
------------------------------------------------------
**** AMENDMENT NO. 1 TO REORGANIZATION AGREEMENT ****
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<PAGE> 242
LIMITED WAIVER OF RESTRICTIONS UNDER AFFILIATE AGREEMENTS
To Certain of the Affiliated Stockholders of Platinum Software Corporation
and Certain of the Affiliated Stockholders of DataWorks Corporation:
In connection with the signing of the Agreement and Plan of Reorganization dated
October 13, 1998 (the "Reorganization Agreement"), by and among Platinum
Software Corporation ("Platinum"), Zoo Acquisition Corp. and DataWorks
Corporation ("DataWorks"), each of you entered into an Affiliate Agreement with
Platinum and DataWorks. Pursuant to Section 2 of the Affiliate Agreement
("Parent Affiliate Agreement") between Platinum, DataWorks and certain of the
affiliated stockholders of DataWorks, and Section 4 of the Affiliate Agreement
("Company Affiliate Agreement") between Platinum, DataWorks and certain of the
affiliated stockholders of Platinum, in accordance with SEC Staff Accounting
Bulletin No. 65 concerning pooling of interests, you agreed to certain
restrictions on the transfer of Platinum Common Stock, Platinum Series C
Preferred Stock, and DataWorks Common Stock, as appropriate.
The Reorganization Agreement has been amended pursuant to Amendment No. 1 to the
Reorganization Agreement, dated October 30, 1998, whereby, for reasons unrelated
to the subject matter herein, the parties contemplate that the Merger will be
accounted for under the rules of purchase accounting, rather than as a pooling
of interests. Accordingly, Platinum and DataWorks hereby irrevocably waive all
rights now and in the future to enforce any restrictions and any other claim,
power, right, privilege or remedy relating to Platinum Common Stock, Platinum
Series C Preferred Stock or DataWorks Common Stock under the Parent Affiliate
Agreement and Sections 4 and 5 of the Company Affiliate Agreement.
Except as specifically provided herein, the Company Affiliate Agreements shall
remain in full force and effect.
<TABLE>
<S> <C>
October 30, 1998 PLATINUM SOFTWARE CORPORATION
a Delaware corporation
By: /s/ GEORGE KLAUS
--------------------------------------------------
Title: President and Chief Executive Officer
--------------------------------------------------
October 30, 1998 DATAWORKS CORPORATION
a Delaware corporation
By: /s/ STUART CLIFTON
--------------------------------------------------
Title: President and Chief Executive Officer
--------------------------------------------------
</TABLE>
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<PAGE> 243
APPENDIX B
PARENT VOTING AGREEMENT
This Voting Agreement ("AGREEMENT") is made and entered into as of October 13,
1998, between DataWorks Corporation, a Delaware corporation (the "COMPANY"), and
the undersigned stockholder ("STOCKHOLDER") of Platinum Software Corporation, a
Delaware corporation ("PARENT").
RECITALS
A. Concurrently with the execution of this Agreement, Parent, the Company and
Zoo Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Parent ("MERGER SUB"), are entering into an Agreement and Plan of Reorganization
(the "MERGER AGREEMENT") which provides for the merger (the "MERGER") of Merger
Sub with and into the Company. Pursuant to the Merger, shares of capital stock
of the Company will be converted into Common Stock of Parent on the basis
described in the Merger Agreement.
B. The Stockholder is the record holder of such number of outstanding shares of
capital stock of Parent as is indicated on the final page of this Agreement. In
addition, the Stockholder holds options, warrants and other rights to acquire
such number of shares of capital stock of Parent as is indicated on the final
page of this Agreement.
C. As a material inducement to enter into the Merger Agreement, the Company
desires the Stockholder to agree, and the Stockholder is willing to agree, to
vote the Shares (as defined below) and other such shares of capital stock of the
Parent over which Stockholder has voting power so as to facilitate consummation
of the Merger.
NOW, THEREFORE, intending to be legally bound, the parties agree as follows:
1. Agreement to Vote Shares; Additional Purchases.
1.1 Agreement to Vote Shares. Until the termination of this Agreement
pursuant to Section 6 below, at every meeting of the stockholders of Parent
called with respect to any of the following, and at every adjournment thereof,
and on every action or approval by written consent of the stockholders of Parent
with respect to any of the following, Stockholder shall cause the Shares and any
New Shares (as defined below) to be voted in favor of approval of the issuance
of shares of Parent's Common Stock (the "PARENT COMMON STOCK"), to the
stockholders of the Company pursuant to the Merger Agreement.
1.2 Definitions. For purposes of this Agreement:
"Shares" shall mean all issued and outstanding shares of Common Stock and Series
C Preferred Stock of Parent owned of record or beneficially (over which
beneficially-owned shares the Stockholder exercises voting power) by the
Stockholder as of the record date for persons entitled (a) to receive notice of,
and to vote at the meeting of the stockholders of Parent called for the purpose
of voting on the matter referred to in Section 1.1, or (b) to take action by
written consent of the stockholders of Parent with respect to the matter
referred to in Section 1.1.
"Subject Securities" shall mean: (i) all securities of Parent (including all
shares of Parent capital stock and all options, warrants and other rights to
acquire shares of Parent capital stock) beneficially owned by Stockholder as of
the date of this Agreement; and (ii) all additional securities of Parent
(including all additional shares of Parent capital stock and
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<PAGE> 244
all additional options, warrants and other rights to acquire shares of Parent
capital stock) of which Stockholder acquires ownership during the period from
the date of this Agreement through the termination of this Agreement pursuant to
Section 6 below.
A person shall be deemed to have effected a "Transfer" of a security if such
person directly or indirectly: (i) sells, pledges, encumbers, grants an option
with respect to, transfers or disposes of such security or any interest in such
security; or (ii) enters into an agreement or commitment providing for the sale
of, pledge of, encumbrance of, grant of an option with respect to, transfer of
or disposition of such security or any interest therein.
1.3 Additional Purchases. Stockholder agrees that any shares of capital
stock of Parent that Stockholder purchases or with respect to which Stockholder
otherwise acquires beneficial ownership (over which beneficially-owned shares
the Stockholder exercises voting power) after the execution of this Agreement
and prior to the date of termination of this Agreement ("New Shares") shall be
subject to the terms and conditions of this Agreement to the same extent as if
they constituted Shares.
1.4 Transferee of Subject Securities to be Bound by this
Agreement. Stockholder agrees that, during the period from the date of this
Agreement through the termination of this Agreement pursuant to Section 6 below,
Stockholder shall not cause or permit any Transfer of any of the Subject
Securities to be effected unless such Transfer is in accordance with any
affiliate agreement between Stockholder and Company contemplated by the Merger
Agreement to which such Stockholder is bound and each person to which any of
such Subject Securities, or any interest in any of such Subject Securities, is
or may be transferred shall have: (a) executed a counterpart of this Agreement
and the Proxy (defined below) (with such modifications as Company may reasonably
request); and (b) agreed in writing to hold such Subject Securities (or interest
in such Subject Securities) subject to all of the terms and provisions of this
Agreement.
2. Irrevocable Proxy. Concurrently with the execution of this Agreement,
Stockholder agrees to deliver to the Company a proxy in the form attached hereto
as Exhibit A (the "PROXY"), which shall be irrevocable, with respect to the
Shares.
3. Representations and Warranties of the Stockholder. Stockholder (i) is the
owner of the shares of capital stock of Parent, and the options, warrants and
other rights to acquire shares of capital stock of Parent, indicated on the
final page of this Agreement, which at the date hereof are free and clear of any
liens, claims, options, charges or other encumbrances; (ii) does not
beneficially own any securities of Parent other than the shares of capital stock
of Parent, and options, warrants and other rights to acquire shares of capital
stock of Parent, indicated on the final page of this Agreement; and (iii) has
full power and authority to make, enter into and carry out the terms of this
Agreement.
4. Additional Documents. Stockholder and the Company hereby covenant and agree
to execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of the Company or Stockholder, as the case may be, to carry
out the intent of this Agreement.
5. Consent and Waiver. Stockholder (not in his capacity as a director or
officer of Parent) hereby gives any consents or waivers that are reasonably
required for the issuance of the Parent Common Stock under the terms of any
agreements to which Stockholder is a party or pursuant to any rights Stockholder
may have.
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<PAGE> 245
6. Termination. This Agreement shall terminate and shall have no further force
or effect as of the earlier to occur of (i) such date and time as the Merger
shall become effective in accordance with the terms and provisions of the Merger
Agreement or (ii) such date and time as the Merger Agreement shall have been
terminated pursuant to Article VII thereof.
7. Miscellaneous.
7.1 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, then the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
7.2 Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but, except as
otherwise specifically provided herein, neither this Agreement nor any of the
rights, interests or obligations of the parties hereto may be assigned by either
of the parties without prior written consent of the other.
7.3 Amendments and Modification. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
7.4 Specific Performance; Injunctive Relief. The parties hereto
acknowledge that the Company will be irreparably harmed and that there will be
no adequate remedy at law for a violation of any of the covenants or agreements
of Stockholder set forth herein. Therefore, it is agreed that, in addition to
any other remedies that may be available to the Company upon any such violation,
the Company shall have the right to enforce such covenants and agreements by
specific performance, injunctive relief or by any other means available to the
Company at law or in equity.
7.5 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and sufficient if delivered in
person, by cable, telegram or telex, or sent by mail (registered or certified
mail, postage prepaid, return receipt requested) or overnight courier (prepaid)
to the respective parties as follows:
<TABLE>
<S> <C>
If to Company: DataWorks Corporation
5910 Pacific Center Boulevard
Suite 300
San Diego, CA 92121
Attn: General Counsel
With a copy to: Cooley Godward LLP
4365 Executive Drive
Suite 1100
San Diego, CA 92121
Attn: Frederick T. Muto, Esq.
If to the Stockholder: To the address for notice set forth on the last page
hereof.
With a copy to: Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304
Attn: Larry W. Sonsini, Esq.
</TABLE>
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<PAGE> 246
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall only be
effective upon receipt.
7.6 Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the internal laws of the State of Delaware (without
regard to the principles of conflict of laws thereof).
7.7 Entire Agreement. This Agreement contains the entire understanding of
the parties in respect of the subject matter hereof, and supersedes all prior
negotiations and understandings between the parties with respect to such subject
matter.
7.8 Counterparts. This Agreement may be executed in several counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
7.9 Effect of Headings. The section headings herein are for convenience
only and shall not affect the construction or interpretation of this Agreement.
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<PAGE> 247
IN WITNESS WHEREOF, the parties have caused this Voting Agreement to be duly
executed on the date and year first above written.
COMPANY:
By:
Name:
Title:
STOCKHOLDER:
By:
Name:
Title:
Stockholder's Address for Notice:
--------------------------------------
--------------------------------------
--------------------------------------
---------------------------------------------------------
Outstanding Shares of Common Stock of
the Company
---------------------------------------------------------
Outstanding Shares of Series C
Preferred Stock of the Company
---------------------------------------------------------
Outstanding Shares of Common Stock of
the Company subject to outstanding
stock options to acquire Common Stock
of the Company
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<PAGE> 248
EXHIBIT A
IRREVOCABLE PROXY
The undersigned Stockholder of Platinum Software Corporation, a Delaware
corporation ("PARENT"), hereby irrevocably appoints the directors on the Board
of Directors of DataWorks Corporation, a Delaware corporation (the "COMPANY"),
and each of them, as the sole and exclusive attorneys and proxies of the
undersigned, with full power of substitution and resubstitution, to the full
extent of the undersigned's rights with respect to the voting of the Shares and
the New Sahres (each as defined in the Voting Agreement of even date between the
Company and the Stockholder (the "VOTING AGREEMENT")) on the matter described
below (and on no other matter), until such time as that certain Agreement and
Plan of Reorganization, dated as of October 13, 1998 (the "MERGER AGREEMENT"),
among Parent, Zoo Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Parent ("MERGER SUB"), and the Company, shall be terminated in
accordance with its terms or the Merger (as defined in the Merger Agreement)
becomes effective. Upon the execution hereof, all prior proxies given by the
undersigned with respect to the Shares and any and all other shares or
securities issued or issuable in respect thereof on or after the date hereof are
hereby revoked and no subsequent proxies will be given.
This proxy is irrevocable, is granted pursuant to the Voting Agreement and is
granted in consideration of the Company entering into the Merger Agreement. The
attorneys and proxies named above will be empowered at any time prior to the
earlier of termination of the Merger Agreement and the date on which the Merger
becomes effective to exercise all voting rights (including, without limitation,
the power to execute and deliver written consents with respect to the Shares) of
the undersigned at every annual, special or adjourned meeting of Parent's
stockholders, and in every written consent in lieu of such a meeting, or
otherwise, to vote the Shares in favor of approval of the issuance of shares of
Parent Common Stock to the stockholders of the Company pursuant to the Merger
Agreement.
The attorneys and proxies named above may only exercise this proxy to vote the
Shares subject hereto at any time prior to the earlier of termination of the
Merger Agreement and the date on which the Merger becomes effective, at every
annual, special or adjourned meeting of the Stockholders of Parent and in every
written consent in lieu of such meeting, in favor of approval of the issuance of
shares of Parent Common Stock to the stockholders of the Company pursuant to the
Merger Agreement. The undersigned Stockholder may vote the Shares on all other
matters.
Any obligation of the undersigned hereunder shall be binding upon the successors
and assigns of the undersigned.
This proxy is irrevocable.
Dated: October 13, 1998
Signature of Stockholder:
- ---------------------------------
Print Name of Stockholder:
- ------------------------------
***PROXY***
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<PAGE> 249
APPENDIX C
COMPANY VOTING AGREEMENT
This Company Voting Agreement ("AGREEMENT") is made and entered into as of
October 13, 1998, between Platinum Software Corporation, a Delaware corporation
("PARENT"), and the undersigned stockholder ("STOCKHOLDER") of DataWorks
Corporation, a Delaware corporation (the "COMPANY").
RECITALS
A. Concurrently with the execution of this Agreement, Parent, the Company and
Zoo Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Parent ("MERGER SUB"), are entering into an Agreement and Plan of Reorganization
(the "MERGER AGREEMENT") which provides for the merger (the "MERGER") of Merger
Sub with and into the Company. Pursuant to the Merger, shares of capital stock
of the Company will be converted into Common Stock of Parent on the basis
described in the Merger Agreement.
B. The Stockholder is the record holder of such number of outstanding shares of
Common Stock of the Company as is indicated on the final page of this Agreement.
In addition, the Stockholder holds options to purchase such number of shares of
Common Stock of the Company as is indicated on the final page of this Agreement.
C. As a material inducement to enter into the Merger Agreement, Parent desires
the Stockholder to agree, and the Stockholder is willing to agree, to vote the
Shares (as defined below) and other such shares of capital stock of the Company
over which Stockholder has voting power so as to facilitate consummation of the
Merger.
NOW, THEREFORE, intending to be legally bound, the parties agree as follows:
1. Agreement to Vote Shares; Additional Purchases.
1.1 Agreement to Vote Shares. Until the termination of this Agreement
pursuant to Section 6 below, at every meeting of the stockholders of the Company
called with respect to any of the following, and at every adjournment thereof,
and on every action or approval by written consent of the stockholders of the
Company with respect to any of the following, Stockholder shall cause the Shares
and any New Shares (as defined below) to be voted in favor of approval of the
Merger Agreement and the Merger.
1.2 Definitions. For purposes of this Agreement:
"Shares" shall mean all issued and outstanding shares of Common Stock of the
Company owned of record or beneficially (over which beneficially-owned shares
the Stockholder exercises voting power) by the Stockholder as of the record date
for persons entitled (a) to receive notice of, and to vote at the meeting of the
stockholders of the Company called for the purpose of voting on the matter
referred to in Section 1.1, or (b) to take action by written consent of the
stockholders of the Company with respect to the matter referred to in Section
1.1
"Subject Securities" shall mean: (i) all securities of Company (including all
shares of Company Common Stock and all options, warrants and other rights to
acquire shares of Company Common Stock) beneficially owned by Stockholder as of
the date of this Agreement; and (ii) all additional securities of Company
(including all additional shares of Company Common Stock and all additional
options, warrants and other rights to acquire
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<PAGE> 250
shares of Company Common Stock) of which Stockholder acquires ownership during
the period from the date of this Agreement through the termination of this
Agreement pursuant to Section 6 below.
A person shall be deemed to have effected a "Transfer" of a security if such
person directly or indirectly: (i) sells, pledges, encumbers, grants an option
with respect to, transfers or disposes of such security or any interest in such
security; or (ii) enters into an agreement or commitment providing for the sale
of, pledge of, encumbrance of, grant of an option with respect to, transfer of
or disposition of such security or any interest therein.
1.3 Additional Purchases. Stockholder agrees that any shares of capital
stock of the Company that Stockholder purchases or with respect to which
Stockholder otherwise acquires beneficial ownership (over which
beneficially-owned shares the Stockholder exercises voting power) after the
execution of this Agreement and prior to the date of termination of this
Agreement ("New Shares") shall be subject to the terms and conditions of this
Agreement to the same extent as if they constituted Shares.
1.4 Transferee of Subject Securities to be Bound by this
Agreement. Stockholder agrees that, during the period from the date of this
Agreement through the termination of this Agreement pursuant to Section 6 below,
Stockholder shall not cause or permit any Transfer of any of the Subject
Securities to be effected unless such Transfer is in accordance with any
affiliate agreement between Stockholder and Parent contemplated by the Merger
Agreement to which such Stockholder is bound and each person to which any of
such Subject Securities, or any interest in any of such Subject Securities, is
or may be transferred shall have: (a) executed a counterpart of this Agreement
and the Proxy (defined below) (with such modifications as Parent may reasonably
request); and (b) agreed in writing to hold such Subject Securities (or interest
in such Subject Securities) subject to all of the terms and provisions of this
Agreement.
2. Irrevocable Proxy. Concurrently with the execution of this Agreement,
Stockholder agrees to deliver to Parent a proxy in the form attached hereto as
Exhibit A (the "Proxy"), which shall be irrevocable, with respect to the Shares.
3. Representations and Warranties of the Stockholder. Stockholder (i) is the
owner of the shares of Common Stock of the Company, and the options to purchase
shares of Common Stock of the Company, indicated on the final page of this
Agreement, which at the date hereof are free and clear of any liens, claims,
options, charges or other encumbrances; (ii) does not beneficially own any
securities of the Company other than the shares of Common Stock of the Company,
and options to purchase shares of Common Stock of the Company, indicated on the
final page of this Agreement; and (iii) has full power and authority to make,
enter into and carry out the terms of this Agreement.
4. Additional Documents. Stockholder and Parent hereby covenant and agree to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of Parent or Stockholder, as the case may be, to carry out
the intent of this Agreement.
5. Consent and Waiver. Stockholder (not in his capacity as a director or officer
of the Company) hereby gives any consents or waivers that are reasonably
required for the consummation of the Merger under the terms of any agreements to
which Stockholder is a party or pursuant to any rights Stockholder may have.
6. Termination. This Agreement shall terminate and shall have no further force
or effect as of the earlier to occur of (i) such date and time as the Merger
shall become effective in
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<PAGE> 251
accordance with the terms and provisions of the Merger Agreement or (ii) such
date and time as the Merger Agreement shall have been terminated pursuant to
Article VII thereof.
7. Miscellaneous.
7.1 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, then the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
7.2 Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but, except as
otherwise specifically provided herein, neither this Agreement nor any of the
rights, interests or obligations of the parties hereto may be assigned by either
of the parties without prior written consent of the other.
7.3 Amendments and Modification. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
7.4 Specific Performance; Injunctive Relief. The parties hereto
acknowledge that Parent will be irreparably harmed and that there will be no
adequate remedy at law for a violation of any of the covenants or agreements of
Stockholder set forth herein. Therefore, it is agreed that, in addition to any
other remedies that may be available to Parent upon any such violation, Parent
shall have the right to enforce such covenants and agreements by specific
performance, injunctive relief or by any other means available to Parent at law
or in equity.
7.5 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and sufficient if delivered in
person, by cable, telegram or telex, or sent by mail (registered or certified
mail, postage prepaid, return receipt requested) or overnight courier (prepaid)
to the respective parties as follows:
<TABLE>
<S> <C>
If to Parent: Platinum Software Corporation
195 Technology Drive
Irvine, CA 92718
Attn: Vice President, General Counsel
With a copy to: Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304
Attn: Larry W. Sonsini, Esq.
If to the Stockholder: To the address for notice set forth on the last page
hereof.
With a copy to: Cooley Godward LLP
4365 Executive Drive
Suite 1100
San Diego, CA 92121
Attn: Frederick T. Muto, Esq.
</TABLE>
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall only be
effective upon receipt.
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<PAGE> 252
7.6 Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the internal laws of the State of Delaware (without
regard to the principles of conflict of laws thereof).
7.7 Entire Agreement. This Agreement contains the entire understanding of
the parties in respect of the subject matter hereof, and supersedes all prior
negotiations and understandings between the parties with respect to such subject
matter.
7.8 Counterparts. This Agreement may be executed in several counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
7.9 Effect of Headings. The section headings herein are for convenience
only and shall not affect the construction or interpretation of this Agreement.
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IN WITNESS WHEREOF, the parties have caused this Voting Agreement to be duly
executed on the date and year first above written.
PARENT:
By:
------------------------------------------------------------
Name:
------------------------------------------------------------
Title:
------------------------------------------------------------
STOCKHOLDER:
By:
------------------------------------------------------------
Name:
------------------------------------------------------------
Title:
------------------------------------------------------------
Stockholder's Address for Notice:
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
Outstanding Shares of Common Stock of the Company
Outstanding Shares of Common Stock of the
Company subject to outstanding stock options
***VOTING AGREEMENT***
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EXHIBIT A
IRREVOCABLE PROXY
The undersigned Stockholder of DataWorks Corporation, a Delaware corporation
(the "COMPANY"), hereby irrevocably appoints the directors on the Board of
Directors of Platinum Software Corporation, a Delaware corporation ("PARENT"),
and each of them, as the sole and exclusive attorneys and proxies of the
undersigned, with full power of substitution and resubstitution, to the full
extent of the undersigned's rights with respect to the voting of the Shares and
the New Shares (each as defined in the Voting Agreement of even date between
Parent and the Stockholder (the "VOTING AGREEMENT")) on the matter described
below (and on no other matter), until such time as that certain Agreement and
Plan of Reorganization dated as of October 13, 1998 (the "MERGER AGREEMENT"),
among Parent, Zoo Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Parent ("MERGER SUB"), and the Company, shall be terminated in
accordance with its terms or the Merger (as defined in the Merger Agreement)
becomes effective. Upon the execution hereof, all prior proxies given by the
undersigned with respect to the Shares and any and all other shares or
securities issued or issuable in respect thereof on or after the date hereof are
hereby revoked and no subsequent proxies will be given.
This proxy is irrevocable, is granted pursuant to the Voting Agreement and is
granted in consideration of Parent entering into the Merger Agreement. The
attorneys and proxies named above will be empowered at any time prior to the
earlier of termination of the Merger Agreement and the date on which the Merger
becomes effective to exercise all voting rights (including, without limitation,
the power to execute and deliver written consents with respect to the Shares) of
the undersigned at every annual, special or adjourned meeting of the Company's
stockholders, and in every written consent in lieu of such a meeting, or
otherwise, to vote the Shares in favor of approval of the Merger and the Merger
Agreement.
The attorneys and proxies named above may only exercise this proxy to vote the
Shares subject hereto at any time prior to the earlier of termination of the
Merger Agreement and the date on which the Merger becomes effective, at every
annual, special or adjourned meeting of the Stockholders of the Company and in
every written consent in lieu of such meeting, in favor of approval of the
Merger and the Merger Agreement. The undersigned Stockholder may vote the Shares
on all other matters.
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Any obligation of the undersigned hereunder shall be binding upon the successors
and assigns of the undersigned.
This proxy is irrevocable.
Dated: October 13, 1998
Signature of Stockholder:
- ---------------------------------------------
Print Name of Stockholder:
- ---------------------------------------------
***PROXY***
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APPENDIX D
COMPANY AFFILIATE AGREEMENT
THIS AFFILIATE AGREEMENT (this "AGREEMENT") is dated as of October 13, 1998, by
and between Platinum Software Corporation, a Delaware corporation ("PARENT")
DataWorks Corporation, a Delaware corporation ("COMPANY"), and the undersigned
("AFFILIATE").
WHEREAS, Affiliate is an officer and/or director of, and may be an affiliate of,
the Company.
WHEREAS, Parent, Zoo Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of Parent ("MERGER SUB"), and the Company have entered
into an Agreement and Plan of Reorganization dated as of even date herewith (the
"MERGER AGREEMENT"), providing for the merger of Merger Sub with and into the
Company (the "MERGER"). The Merger Agreement contemplates that, upon
consummation of the Merger, (i) the holders of the common stock of the Company
("Company Common Stock") will receive shares of common stock of Parent ("PARENT
COMMON STOCK") in exchange for their shares of Company Common Stock and (ii) the
Company will become a wholly-owned subsidiary of Parent. It is accordingly
contemplated that Affiliate will receive shares of Parent Common Stock in the
Merger.
WHEREAS, Affiliate understands that the Parent Common Stock being issued in the
Merger will be issued pursuant to a registration statement on Form S-4 and that
Affiliate may be deemed to be an "affiliate" of the Company, as the term
"affiliate" is used (i) for purposes of paragraphs (c) and (d) of Rule 145
("RULE 145") of the General Rules and Regulations of the Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), and (ii) in the SEC's Accounting Series Releases 130 and 135,
and, as such, Affiliate may only transfer, sell or dispose of such Parent Common
Stock in accordance with this Affiliate Agreement and Rule 145.
WHEREAS, it is a condition to the consummation of the Merger pursuant to the
Merger Agreement that the independent accounting firms that audit the annual
financial statements of Parent and the Company will have delivered the written
concurrences with the conclusions of management of Parent and the Company to the
effect that the Merger will be accounted for as a pooling of interests under
Accounting Principles Board Opinion No. 16.
NOW, THEREFORE, in order to induce Parent to consummate the transactions
contemplated by the Merger Agreement, and for other valuable consideration (the
receipt and sufficiency of which are hereby acknowledged by Affiliate),
Affiliate hereby covenants and agrees as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES. Affiliate represents and warrants to
Parent as follows:
(a) Affiliate is the holder and "beneficial owner" (as defined in Rule
13d-3 under the Securities Exchange Act of 1934, as amended) of the number of
shares of the Company Common Stock set forth under Affiliate's signature below
(the "COMPANY SHARES"), and Affiliate has good and valid title to the Company
Shares, free and clear of any liens, pledges, security interests, adverse
claims, equities, options, proxies, charges, encumbrances or restrictions of any
nature.
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<PAGE> 257
(b) Affiliate has carefully read this Agreement, and has discussed with
Affiliate's own independent counsel to the extent Affiliate felt necessary the
limitations imposed on Affiliate's ability to sell, transfer or otherwise
dispose of the shares of Parent Common Stock that Affiliate is to receive in the
Merger (the "PARENT SHARES"). Affiliate fully understands the limitations this
Agreement places upon Affiliate's ability to sell, transfer or otherwise dispose
of the Parent Shares.
(c) Affiliate understands that the representations, warranties and
covenants set forth herein will be relied upon by Parent, the Company, and their
respective affiliates, counsel and accounting firms for purposes of determining
Parent's eligibility to account for the Merger as a "pooling of interests," and
that substantial losses and damages may be incurred by these persons if
Affiliate's representations, warranties or covenants are breached.
SECTION 2. PROHIBITION AGAINST TRANSFER. In addition to the restrictions set
forth elsewhere herein, Affiliate agrees that Affiliate shall not effect any
sale, transfer or other disposition of the Parent Shares unless:
(A) such sale, transfer or other disposition is made in conformity with the
volume and other requirements of Rule 145 under the Securities Act, as evidenced
by a broker's letter and a representation letter executed by Affiliate
(reasonably satisfactory in form and content to Parent), each stating that such
requirements have been met;
(B) counsel reasonably satisfactory to Parent shall have advised Parent in
a written opinion letter (reasonably satisfactory in form and content to
Parent), upon which Parent may rely, that such sale, transfer or other
disposition will be exempt from registration under the Securities Act;
(C) such sale, transfer or other disposition is effected pursuant to an
effective registration statement under the Securities Act; or
(D) an authorized representative of the SEC shall have rendered written
advice to Affiliate to the effect that the SEC would take no action, or that the
staff of the SEC would not recommend that the SEC take action, with respect to
such proposed sale, transfer or other disposition, and a copy of such written
advice and all other related communications with the SEC shall have been
delivered to Parent.
SECTION 3. STOP TRANSFER INSTRUCTIONS; LEGEND. Affiliate acknowledges and agrees
that (a) stop transfer instructions will be given to Parent's transfer agent
with respect to the Parent Shares, and (b) each certificate representing any of
such shares of Parent Common Stock or any substitutions thereof shall bear a
legend (together with any other legend or legends required by applicable state
securities laws or otherwise), stating in substance:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION TO
WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES. THE
SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED EXCEPT IN
ACCORDANCE WITH THE PROVISIONS OF SUCH RULE AND IN ACCORDANCE WITH THE
TERMS OF AN AGREEMENT DATED AS OF OCTOBER 13, 1998, BETWEEN THE REGISTERED
HOLDER HEREOF AND PLATINUM SOFTWARE CORPORATION, A COPY OF WHICH AGREEMENT
IS ON FILE AT THE PRINCIPAL OFFICES OF PLATINUM SOFTWARE CORPORATION.
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SECTION 4. COVENANTS RELATED TO POOLING OF INTERESTS. In accordance with SEC
Staff Accounting Bulletin No. 65 ("SAB 65"), during the period contemplated by
SAB 65, until the earlier of (i) Parent's public announcement of financial
results covering at least 30 days of combined operations of Parent and the
Company or (ii) the Merger Agreement is terminated in accordance with its terms,
Affiliate will not sell, exchange, transfer, pledge, distribute, or otherwise
dispose of or grant any option, establish any "short" or put-equivalent position
with respect to or enter into any similar transaction (through derivatives or
otherwise) intended or having the effect, directly or indirectly, to reduce its
risk relative to: (i) any shares of Company Common Stock, except pursuant to and
upon the consummation of the Merger; or (ii) any shares of Parent Common Stock
received by Affiliate in the Merger or any shares of Parent Common Stock
received by Affiliate upon exercise of options assumed by Parent in connection
with the Merger. Parent may, at its discretion, cause a restrictive legend
covering the restrictions referred to in this Section 4 to be placed on Parent
Common Stock certificates issued to Affiliate in the Merger and place a stock
transfer notice consistent with the restrictions referred to in this Section 4
with its transfer agent with respect to such certificates, provided such
restrictive legend shall be removed and/or notice shall be countermanded
promptly upon expiration of the necessity therefor at the request of Affiliate.
SECTION 5. PERMITTED TRANSFERS. Notwithstanding anything to the contrary
contained in this Agreement, Affiliate (i) may transfer Affiliate's pro rata
portion (of the total number of shares available under the "de minimis"
exception referred to in this clause (i) to all affiliates of Parent and
Company) of the "de minimis" number of shares of Company Common Stock and Parent
Common Stock available for sale in accordance with SEC Staff Accounting Bulletin
No. 76 (the "DE MINIMIS POOL") contingent upon confirmation and approval by
legal counsel for Company and independent auditors to the Company and Parent
that such transfer qualifies as within Affiliate's pro rata portion of the De
Minimis Pool and does not otherwise adversely affect the Parent's ability to
account for the Merger as a "pooling of interests" (ii) may (with the written
consent of Parent, not to be unreasonably withheld): (A) transfer shares of
Company Common Stock or Parent Common Stock to the Company in payment of the
exercise price of options to purchase Company Common Stock; (B) transfer shares
of Parent Common Stock in payment of the exercise price of options to purchase
Parent Common Stock; (C) transfer shares of Company Common Stock or Parent
Common Stock to any organization qualified under Section 501(c)(3) of the
Internal Revenue Code of 1986, as amended, so long as such organization has
traditionally been supported by contributions from the general public (as
opposed to being supported largely by a specific donor); and (D) transfer shares
of Company Common Stock or shares of Parent Common Stock to a trust established
for the benefit of Affiliate and/or for the benefit of one or more members of
Affiliate's family, or make a bona fide gift of shares of Common Stock of the
Company or shares of Parent Common Stock to one or more members of Affiliate's
family, provided that in the case of a transfer or gift pursuant to this clause
(C) or (D), a transferee of such shares agrees to be bound by the limitations
set forth in this Agreement.
SECTION 6. SPECIFIC PERFORMANCE. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement was not
performed in accordance with its specific terms or was otherwise breached.
Affiliate agrees that, in the event of any breach or threatened breach by
Affiliate of any covenant or obligation contained in this Agreement, each of
Parent and the Company shall be entitled (in addition to any other
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remedy that may be available to it, including monetary damages) to seek and
obtain (a) a decree or order of specific performance to enforce the observance
and performance of such covenant or obligation, and (b) an injunction
restraining such breach or threatened breach.
SECTION 7. INDEPENDENCE OF OBLIGATIONS. The covenants and obligations of
Affiliate set forth in this Affiliate Agreement shall be construed as
independent of any other agreement or arrangement between Affiliate, on the one
hand, and the Company or Parent, on the other. The existence of any claim or
cause of action by Affiliate against the Company or Parent shall not constitute
a defense to the enforcement of any of such covenants or obligations against
Affiliate.
SECTION 8. NOTICES. Any notice or other communication required or permitted to
be delivered under this Agreement shall be in writing and shall be deemed
properly delivered, given and received when delivered (by hand, by registered
mail, by courier or express delivery service or by facsimile confirmation) to
the address or facsimile telephone number set forth beneath the name of such
party below (or to such other address or facsimile telephone number as such
party shall have specified in a written notice given to the other party):
<TABLE>
<S> <C>
IF TO PARENT: PLATINUM SOFTWARE CORPORATION
195 Technology Drive
Irvine, CA 92718
Attn: Vice President, General Counsel
Fax: (714) 450-4447
WITH A COPY TO: WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304
Attn: Larry W. Sonsini, Esq.
Fax: (650) 493-6811
IF TO COMPANY: DATAWORKS CORPORATION
5910 Pacific Center Boulevard
Suite 300
San Diego, CA 92121
Attn: General Counsel
Fax: (619) 453-3555
WITH A COPY TO: COOLEY GODWARD LLP
4365 Executive Drive
Suite 1100
San Diego, CA 92121
Attn: Frederick T. Muto, Esq.
Fax: (619) 453-3555
</TABLE>
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<PAGE> 260
<TABLE>
<S> <C>
IF TO AFFILIATE:
at the address or facsimile phone number set forth below Affiliate's
signature on the signature page hereof.
WITH A COPY TO: COOLEY GODWARD LLP
4365 Executive Drive
Suite 1100
San Diego, CA 92121
Attn: Frederick T. Muto, Esq.
Fax: (619) 453-3555
</TABLE>
SECTION 9. SEVERABILITY. If any provision of this Agreement or any part of any
such provision is held under any circumstances to be invalid or unenforceable in
any jurisdiction, then (a) such provision or part thereof shall, with respect to
such circumstances and in such jurisdiction, be deemed amended to conform to
applicable laws so as to be valid and enforceable to the fullest possible
extent, (b) the invalidity or unenforceability of such provision or part thereof
under such circumstances and in such jurisdiction shall not affect the validity
or enforceability of such provision or part thereof under any other
circumstances or in any other jurisdiction, and (c) the invalidity or
unenforceability of such provision or part thereof shall not affect the validity
or enforceability of the remainder of such provision or the validity or
enforceability of any other provision of this Agreement. Each provision of this
Agreement is separable from every other provision of this Agreement, and each
part of each provision of this Agreement is separable from every other part of
such provision.
SECTION 10. GOVERNING LAW. This Agreement shall be construed in accordance with,
and governed in all respects by, the laws of the State of California (without
giving effect to principles of conflicts of laws).
SECTION 11. WAIVER. No failure on the part of Parent or the Company to exercise
any power, right, privilege or remedy under this Agreement, and no delay on the
part of Parent or the Company in exercising any power, right, privilege or
remedy under this Agreement, shall operate as a waiver of such power, right,
privilege or remedy; and no single or partial exercise of any such power, right,
privilege or remedy shall preclude any other or further exercise thereof or of
any other power, right, privilege or remedy. Neither Parent or the Company shall
be deemed to have waived any claim arising out of this Agreement, or any power,
right, privilege or remedy under this Agreement, unless the waiver of such
claim, power, right, privilege or remedy is expressly set forth in a written
instrument duly executed and delivered on behalf of the party deemed to be
charged; and any such waiver shall not be applicable or have any effect except
in the specific instance in which it is given.
SECTION 12. CAPTIONS. The captions contained in this Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
SECTION 13. FURTHER ASSURANCES. Affiliate shall execute and/or cause to be
delivered to Parent or the Company such instruments and other documents and
shall take such other actions as Parent or the Company may reasonably request to
effectuate the intent and purposes of this Agreement.
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SECTION 14. ENTIRE AGREEMENT. This Agreement, the Merger Agreement and any
Voting Agreement or Employment Agreement between Affiliate and Parent or
Irrevocable Proxy executed by Affiliate in favor of Parent constitute the entire
agreement between the parties with respect to the subject matter hereof and
thereof and supersede all prior agreements and understandings between the
parties with respect thereto.
SECTION 15. NON-EXCLUSIVITY. The rights and remedies of Parent and the Company
hereunder are not exclusive of or limited by any other rights or remedies which
Parent or the Company may have, whether at law, in equity, by contract or
otherwise, all of which shall be cumulative (and not alternative). Nothing in
this Agreement shall limit any of Affiliate's obligations, or the rights or
remedies of Parent or the Company, under any Voting Agreement (including any
Irrevocable Proxy contained therein) or Employment Agreement between Parent and
Affiliate; and nothing in any such Voting Agreement (including any Irrevocable
Proxy) or Employment Agreement shall limit any of Affiliate's obligations, or
any of the rights or remedies of Parent or the Company, under this Agreement.
SECTION 16. AMENDMENTS. This Agreement may not be amended, modified, altered, or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of Parent, the Company and Affiliate.
SECTION 17. Binding Nature. This Agreement will be binding upon Affiliate and
Affiliate's representatives, executors, administrators, estate, heirs,
successors and assigns, and shall inure to the benefit of the Company, Parent
and their respective successors and assigns.
SECTION 18. Attorneys' Fees and Expenses. If any legal action or other legal
proceeding relating to the enforcement of any provision of this Agreement is
brought against Affiliate, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled).
SECTION 19. Assignment. This Agreement and all obligations of Affiliate
hereunder are personal to Affiliate and may not be transferred or delegated by
Affiliate at any time. The Company or Parent may freely assign any or all of its
rights under this Affiliate Agreement, in whole or in part, to any other person
or entity without obtaining the consent or approval of Affiliate.
SECTION 20. Survival. Each of the representations, warranties, covenants and
obligations contained in this Agreement shall survive the consummation of the
Merger.
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<PAGE> 262
The undersigned have executed this Agreement as of the date first set forth
above.
PLATINUM SOFTWARE CORPORATION
By:
--------------------------------------
Title:
--------------------------------------
DATAWORKS CORPORATION
By:
--------------------------------------
Title:
--------------------------------------
AFFILIATE:
--------------------------------------
Address:
--------------------------------------
--------------------------------------
--------------------------------------
Facsimile:
- --------------------------------------------------------------------------------
DATAWORKS CORPORATION
Stock Beneficially owned by Affiliate:
--------------------------------------
shares of Common Stock
--------------------------------------
shares of Common Stock issuable upon
exercise of outstanding options
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[SOUNDVIEW LETTERHEAD] APPENDIX E-1
October 13, 1998
Board of Directors
DataWorks Corporation
5910 Pacific Center Boulevard
San Diego, CA 92121
Gentlemen:
We understand that DataWorks Corporation (the "Company") is considering entering
into a merger agreement (the "Merger Agreement") whereby Platinum Software
Corporation ("Platinum") will acquire all of the outstanding common stock of the
Company. All outstanding Company Common Stock will be exchanged for Platinum
Common Stock in the ratio of 0.79 (the "Exchange Ratio") shares of Platinum for
each share of DataWorks. Based on share prices as of October 9, 1998, in
aggregate, the consideration to be paid for the Company will be approximately
$93.8 million (the "Consideration"), consisting of $6.32 per share for each of
DataWorks' shares of Common Stock outstanding (including the in-the-money
Options and Warrants) to be paid in stock and approximately $1.8 million in new
Options that will be exchanged for outstanding and out-of-the-money DataWorks
options. The terms and conditions of the transaction (the "Proposed
Transaction") are set forth in more detail in the draft merger agreement (the
"Draft Merger Agreement") dated October 5, 1998, which has been furnished to us.
We have been asked by the Board of Directors of the Company to render our
opinion as to whether the Exchange Ratio pursuant to the Draft Merger Agreement
is fair, from a financial point of view, to the Company's shareholders.
In conducting our analysis and arriving at our opinion as expressed herein, we
have reviewed and analyzed, among other things, the following:
(i) the Draft Merger Agreement dated October 5, 1998 and the specific terms
of the Proposed Transaction;
(ii) DataWorks' financial and operating information for the two year period
ended December 31, 1997 and the six month period ended June 30, 1998;
(iii) Platinum's financial and operating information for the two year
period ended December 31, 1997 and the six month period ended June 30, 1998;
(iv) certain financial and operating information regarding the business,
operations and prospects of DataWorks and Platinum, including forecasts and
projections, provided to us by the managements of the Company and Platinum,
respectively;
(v) a comparison of the historical and projected financial results and
financial condition of DataWorks and Platinum with those of other companies and
businesses that we deemed relevant; and
(vi) a comparison of the financial terms of the Proposed Transaction with
the financial terms of certain other selected transactions that we deemed
relevant.
In addition, in arriving at our opinion, we have held discussions with
DataWorks' and Platinum's managements concerning their businesses, operations,
assets, financial condi-
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<PAGE> 264
tions and prospects. We also undertook such other studies, analyses and
investigations, as we deemed appropriate.
In arriving at our opinion, we have not made, obtained or assumed any
responsibility for any independent evaluation or appraisal of the properties and
facilities or of the assets and liabilities (contingent or otherwise) of either
the Company or Platinum. We have assumed and relied upon the accuracy and
completeness of the financial and other information supplied to or otherwise
used by us in arriving at our opinion and have not attempted independently to
verify, or undertaken any obligation to verify, such information. We have
further relied upon the assurances of the managements of DataWorks and Platinum
that they were not aware of any facts that would make such information
inaccurate or misleading. In addition, we have assumed that the forecasts and
projections provided to SoundView Technology Group, Inc. by Platinum and the
Company represent the best currently available estimates and judgement of
Platinum's and the Company's managements as to the future financial condition
and results of operations of Platinum and the Company, respectively, and have
assumed that such forecasts and projections have been reasonably prepared based
on such currently available estimates and judgments. We assume no responsibility
for and express no view as to such forecasts and projections or the assumptions
on which they are based.
We have also taken into account our assessment of general economic, market and
financial conditions and our experience in similar transactions, as well as our
experience in securities valuation in general. Our opinion is necessarily based
upon conditions as they exist and can be evaluated on the date hereof.
We do not express any view as to what the value of the Company's stock will be
upon completion of the Proposed Transaction, or the price at which the Company's
stock will trade prior to the closing of the Proposed Transaction, or the price
at which Platinum's stock will trade prior to or subsequent to the closing of
the Proposed Transaction. This letter is for the benefit and use of the Board of
Directors of the Company in its consideration of the Proposed Transaction. This
letter does not constitute a recommendation of the Proposed Transaction over any
other alternative transactions which may be available to the Company and does
not address the underlying business decision of the Board of Directors of the
Company to proceed with or effect the Proposed Transaction.
As you are aware, we have, in the past, performed investment banking services
for the Company. In the ordinary course of our business, we may trade in the
equity securities of the Company for our own account and for the accounts of our
customers and, accordingly, may at any time hold a long or short position in
such securities. The Company has agreed to indemnify us for certain liabilities
that may arise out of the rendering this opinion.
Based upon and subject to the foregoing, it is our opinion as investment bankers
that, as of the date hereof, the Exchange Ratio pursuant to the Draft Merger
Agreement is fair, from a financial point of view, to the Company's
shareholders.
Very truly yours,
/s/ SOUNDVIEW TECHNOLOGY GROUP, INC.
SoundView Technology Group, Inc.
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<PAGE> 265
[SOUNDVIEW LETTERHEAD] APPENDIX E-2
October 28, 1998
Board of Directors
DataWorks Corporation
5910 Pacific Center Boulevard
San Diego, CA 92121
Gentlemen:
On October 13, 1998, SoundView presented its written fairness opinion to the
Board of Directors of DataWorks Corporation ("DataWorks" or the "Company") in
connection with the proposed merger in which Platinum Software Corporation
("Platinum") will acquire all of the outstanding common Stock of DataWorks.
Subsequent to the preparation of the analyses used in determining its opinion,
SoundView was informed that:
(i) The exchange ratio ("Exchange Ratio") of 0.79 shares of Platinum for
every share of DataWorks, used in SoundView's presentation to the Board, will
actually be 0.794;
(ii) the transaction will be accounted for as a purchase, not pooling of
interests;
(iii) due to purchase accounting, the transaction will create an
approximately $16.5 million goodwill/intangible asset on the combined company's
balance sheet, approximately $8.0 million of which will be written off as
purchased in-process research and development expenses during the quarter in
which the Transaction closes; and
(iv) the remaining $8.5 million of which will be expensed over the next
five years, causing the combined company's projected earnings per share to be
reduced by approximately $0.04 per year for the next five years.
Based upon and subject to the foregoing, it is our opinion as investment bankers
that, as of October 13 1998, the Exchange Ratio to be received by the Company's
shareholders in the proposed merger is fair, from a financial point of view, to
the Company's shareholders.
Very truly yours,
/s/ SOUNDVIEW TECHNOLOGY GROUP, INC.
SoundView Technology Group, Inc.
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<PAGE> 266
APPENDIX F-1
[BROADVIEW LETTERHEAD]
October 8, 1998
CONFIDENTIAL
Board of Directors
Platinum Software Corporation
195 Technology Drive
Irvine, CA 92618-2402
Dear Members of the Board:
We understand that Platinum Software Corp. ("Platinum" or "Parent"), Zoo
Acquisition Corp., a wholly owned subsidiary of Platinum ("Merger Sub"), and
DataWorks Corp. ("DataWorks" or "Company") propose to enter into an Agreement
and Plan of Reorganization (the "Agreement") pursuant to which, through the
merger of the Merger Sub with and into DataWorks (the "Merger"), each share of
DataWorks common stock ("DataWorks Common Stock") then outstanding shall be
converted into the right to receive 0.794 (the "Exchange Ratio") shares of
Common Stock of Platinum ("Platinum Common Stock"). The Merger is intended to be
a tax-free reorganization within the meaning of Section 368 of the United States
Internal Revenue Code of 1986, as amended, and to be accounted for as a pooling
of interests pursuant to Opinion No. 16 of the Accounting Principles Board. The
terms and conditions of the above described Merger are more fully detailed in
the Agreement.
You have requested our opinion as to whether the Exchange Ratio is fair, from a
financial point of view, to Platinum shareholders.
Broadview focuses on providing merger and acquisition advisory services to
information technology ("IT") companies. In this capacity, we are continually
engaged in valuing such businesses, and we maintain an extensive database of IT
mergers and acquisitions for comparative purposes. We are currently acting as
financial advisor to Platinum's Board of Directors and will receive a fee from
Platinum upon the successful conclusion of the Merger.
In rendering our opinion, we have, among other things:
1.) reviewed the terms of the Agreement and the associated schedules thereto in
the form of the draft dated October 7, 1998 furnished to us by Wilson
Sonsini Goodrich & Rosati on October 7, 1998 (which, for the purposes of
this opinion, we have assumed, with your permission, to be identical in all
material respects to the agreement to be executed);
2.) reviewed DataWorks' Form 10-K for its fiscal years ended December 31, 1996
and 1997, including the audited financial statements included therein, and
DataWorks' Form 10-Q for the three months ended June 30, 1998, including
the unaudited financial statements included therein;
3.) reviewed quarterly financial projections for DataWorks for its fiscal years
ending December 31, 1998 and 1999 prepared and provided to us by Platinum
management in consultation with DataWorks management;
F-1-1
<PAGE> 267
4.) participated in discussions with DataWorks management concerning the
operations, business strategy, financial performance and prospects for
DataWorks;
5.) discussed with DataWorks management its view of the strategic rationale for
the Merger;
6.) reviewed the reported closing prices and trading activity for DataWorks
Common Stock;
7.) compared certain aspects of the financial performance of DataWorks with
public companies we deemed comparable;
8.) analyzed available information, both public and private, concerning other
mergers and acquisitions we believe to be comparable in whole or in part to
the Merger;
9.) reviewed Platinum's annual report and Form 10-K for its fiscal years ended
June 30, 1997 and 1998, including the audited financial statements included
therein;
10.) participated in discussions with Platinum management concerning the
operations, business strategy, financial performance and prospects for
Platinum;
11.) discussed with Platinum management its view of the strategic rationale for
the Merger;
12.) reviewed the reported closing prices and trading activity for Platinum
Common Stock;
13.) compared certain aspects of the financial performance of Platinum with
public companies we deemed comparable;
14.) considered the total number of shares of Platinum Common Stock outstanding
and the average weekly trading volume of Platinum Common Stock;
15.) reviewed recent equity analyst reports covering DataWorks and Platinum;
16.) analyzed the anticipated effect of the Merger on the future financial
performance of the consolidated entity;
17.) assisted in negotiations and discussions related to the Merger among
Platinum, DataWorks and their financial and legal advisors; and
18.) conducted other financial studies, analyses and investigations as we deemed
appropriate for purposes of this opinion.
In rendering our opinion, we have relied, without independent verification, on
the accuracy and completeness of all the financial and other information
(including without limitation the representations and warranties contained in
the Agreement) that was publicly available or furnished to us by DataWorks or
Platinum. With respect to the financial projections examined by us, we have
assumed that they were reasonably prepared and reflected the best available
estimates and good faith judgments of the management of Platinum and DataWorks
as to the future performance of DataWorks.
Based upon and subject to the foregoing, we are of the opinion that the Exchange
Ratio is fair, from a financial point of view, to Platinum shareholders.
For purposes of this opinion, we have assumed that neither DataWorks nor
Platinum is currently involved in any material transaction other than the
Merger, any other transactions of which are aware and those activities
undertaken in the ordinary course of
F-1-2
<PAGE> 268
conducting their respective businesses. Our opinion is necessarily based upon
market, economic, financial and other conditions as they exist and can be
evaluated as of the date of this opinion, and any change in such conditions may
impact this opinion. We express no opinion as to the price at which Platinum
Common Stock will trade at any time.
This opinion speaks only as of the date hereof. It is understood that this
opinion is for the information of the Board of Directors of Platinum in
connection with its consideration of the Merger and does not constitute a
recommendation to any Platinum shareholder as to how such shareholder should
vote on the Merger. This opinion may not be published or referred to, in whole
or part, without our prior written permission, which shall not be unreasonably
withheld. Broadview hereby consents to references to and the inclusion of this
opinion in its entirety in the Proxy Statement/Prospectus to be distributed to
Platinum shareholders in connection with the Merger.
Sincerely,
/s/ BROADVIEW INTERNATIONAL LLC
-----------------------------------------
Broadview International LLC
F-1-3
<PAGE> 269
APPENDIX F-2
[BROADVIEW LETTERHEAD]
October 29, 1998
CONFIDENTIAL
Board of Directors
Platinum Software Corporation
195 Technology Drive
Irvine, CA 92618-2402
Dear Members of the Board:
We understand that Platinum Software Corp. ("Platinum" or "Parent"), Zoo
Acquisition Corp., a wholly owned subsidiary of Platinum ("Merger Sub"), and
DataWorks Corp. ("DataWorks" or "Company") are parties to an Agreement and Plan
of Reorganization (as amended by Amendment No. 1 thereto, the "Agreement")
pursuant to which, through the merger of the Merger Sub with and into DataWorks
(the "Merger"), each share of DataWorks common stock ("DataWorks Common Stock")
then outstanding shall be converted into the right to receive 0.794 (the
"Exchange Ratio") shares of Common Stock of Platinum ("Platinum Common Stock").
The Merger is intended to be a tax-free reorganization within the meaning of
Section 368 of the United States Internal Revenue Code of 1986, as amended, and
to be accounted for as a purchase transaction under the United States Generally
Accepted Accounting Principles. The terms and conditions of the above described
Merger are more fully detailed in the Agreement.
You have requested our opinion as to whether the Exchange Ratio is fair, from a
financial point of view, to Platinum shareholders.
Broadview focuses on providing merger and acquisition advisory services to
information technology ("IT") companies. In this capacity, we are continually
engaged in valuing such businesses, and we maintain an extensive database of IT
mergers and acquisitions for comparative purposes. We are currently acting as
financial advisor to Platinum's Board of Directors and will receive a fee from
Platinum upon the successful conclusion of the Merger.
In rendering our opinion, we have, among other things:
(1) reviewed the terms of the executed Agreement dated October 13, 1998
and the associated exhibits thereto;
(2) reviewed the terms of Amendment No. 1 to the Agreement in the form of
a draft dated October 26, 1998 furnished to us by Wilson Sonsini
Goodrich & Rosati on October 26, 1998 (which, for the purposes of this
opinion, we have assumed, with your permission, to be identical in all
material respects to the amendment to the Agreement to be executed);
(3) reviewed DataWorks' Form 10-K for its fiscal years ended December 31,
1996 and 1997, including the audited financial statements included
therein,
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<PAGE> 270
DataWorks' Form 10-Q for the three months ended June 30, 1998,
including the unaudited financial statements included therein, and the
press release issued by DataWorks dated October 22, 1998 with respect
to DataWorks' financial performance for the three months ended
September 30, 1998;
(4) reviewed quarterly financial projections for DataWorks for its fiscal
years ending December 31, 1998 and 1999 prepared by Platinum
management in consultation with DataWorks management and provided to
us by Platinum management;
(5) participated in discussions with DataWorks management concerning the
operations, business strategy, financial performance and prospects for
DataWorks;
(6) discussed with DataWorks management its view of the strategic
rationale for the Merger;
(7) reviewed the reported closing prices and trading activity for
DataWorks Common Stock;
(8) compared certain aspects of the financial performance of DataWorks
with public companies we deemed comparable;
(9) analyzed available information, both public and private, concerning
other mergers and acquisitions we believe to be comparable in whole or
in part to the Merger;
(10) review Platinum's annual report and Form 10-K for its fiscal years
ended June 30, 1997 and 1998, including the audited financial
statements included therein, and the press release issued by Platinum
dated October 27, 1998 with respect to Platinum's financial
performance for the three months ended September 30, 1998;
(11) participated in discussions with Platinum management concerning the
operations, business strategy, financial performance and prospects for
Platinum;
(12) discussed with Platinum management its view of the strategic rationale
for the Merger;
(13) reviewed the reported closing prices and trading activity for Platinum
Common Stock;
(14) compared certain aspects of the financial performance of Platinum with
public companies we deemed comparable;
(15) considered the total number of shares of Platinum Common Stock
outstanding and the average weekly trading volume of Platinum Common
Stock;
(16) reviewed recent equity analyst reports covering DataWorks and
Platinum;
(17) analyzed the anticipated effect of the Merger on the future financial
performance of the consolidated entity;
(18) assisted in negotiations and discussions related to the Merger among
Platinum, DataWorks and their financial and legal advisors; and
(19) conducted other financial studies, analyses and investigations as we
deemed appropriate for purposes of this opinion.
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<PAGE> 271
In rendering our opinion, we have relied, without independent verification, on
the accuracy and completeness of all the financial and other information
(including without limitation the representations and warranties contained in
the Agreement) that was publicly available or furnished to us by DataWorks or
Platinum. With respect to the financial projections examined by us, we have
assumed that they were reasonably prepared and reflected the best available
estimates and good faith judgments of the management of Platinum and DataWorks
as to the future performance of DataWorks.
Based upon and subject to the foregoing, we are of the opinion that the Exchange
Ratio is fair, from a financial point of view, to Platinum shareholders.
For purposes of this opinion, we have assumed that neither DataWorks nor
Platinum is currently involved in any material transaction other than the
Merger, other transactions of which we are aware, if any, and those activities
undertaken in the ordinary course of conducting their respective businesses. Our
opinion is necessarily based upon market, economic, financial and other
conditions as they exist and can be evaluated as of the date of this opinion,
and any change in such conditions may impact this opinion. We express no opinion
as to the price at which Platinum Common Stock will trade at any time.
This opinion speaks only as of the date hereof. It is understood that this
opinion is for the information of the Board of Directors of Platinum in
connection with its consideration of the Merger and does not constitute a
recommendation to any Platinum shareholder as to how such shareholder should
vote on the Merger. This opinion may not be published or referred to, in whole
or part, without our prior written permission, which shall not be unreasonably
withheld. Broadview hereby consents to references to and the inclusion of this
opinion in its entirety in the Proxy Statement/Prospectus to be distributed to
Platinum shareholders in connection with the Merger.
Sincerely,
/s/ BROADVIEW INTERNATIONAL LLC
-----------------------------------------
Broadview International LLC
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<PAGE> 272
PROXY
PLATINUM SOFTWARE CORPORATION
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Platinum Software Corporation, a Delaware
corporation ("Platinum"), hereby acknowledges receipt of the Notice of Special
Meeting of Stockholders and Joint Proxy Statement/Prospectus, and hereby
appoints L. George Klaus and Perry Tarnofsky, and each of them, proxies and
attorneys-in-fact, with full power to each of substitution, on behalf of and in
the name of the undersigned, to vote as designated on the reverse side, all
shares of Common Stock and all shares of Series C Preferred Stock of Platinum
that the undersigned is entitled to vote at the Special Meeting of Stockholders
of Platinum to be held on December 23, 1998 at 10:00 a.m., local time, at the
offices of Platinum, 195 Technology Drive, Irvine, California 92618-2402 and at
any adjournment thereof.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS INDICATED, THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED
FOR THE PROPOSAL ON THE REVERSE SIDE HEREOF AND FOR SUCH OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE MEETING AS THE PROXIES DEEM ADVISABLE.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE.)
- --------------------------------------------------------------------------------
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<PAGE> 273
Please mark
vote in square
in the follow-
ing using dark X
ink only ____
THE PLATINUM SOFTWARE CORPORATION BOARD OF DIRECTORS
RECOMMENDS A VOTE FOR PROPOSAL 1
<TABLE>
<S> <C> <C> <C>
FOR AGAINST ABSTAIN
1. Proposal to approve the issuance of shares of
Common Stock, par value $0.001 per share, of ___ ___ ___
Platinum to the stockholders of DataWorks
Corporation, a Delaware corporation ("DataWorks"),
pursuant to the merger of Zoo Acquisition Corp.,
a Delaware corporation and wholly-owned subsidiary
of Platinum ("Merger Sub") with and into DataWorks
pursuant to the Agreement and Plan of
Reorganization, dated as of October 13, 1998, as
amended as of October 30, 1998, among Platinum,
DataWorks and Merger Sub.
In their discretion, the proxies are authorized
to vote or otherwise represent the shares on any
and all such other business which may properly
come before the special meeting or any adjournment
thereof.
Please sign exactly as name appears on your stock
certificate.
</TABLE>
Signature(s) _______________________________________________ Dated _____________
Note: When shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee, guardian or corporate officer or
partner, please give full title as such. If a corporation, please sign in
corporate name by President or other authorized officer. If a partnership,
please sign partnership name by authorized person.
- --------------------------------------------------------------------------------
[ARROW UP] FOLD AND DETACH HERE [ARROW UP]
<PAGE> 274
PROXY
DATAWORKS CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR A SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 23, 1998
The undersigned hereby appoints Stuart W. Clifton, Norman R. Farquhar and
Bradley J. Thies, and each of them, as attorneys and proxies of the undersigned,
with full power of substitution, to vote all of the shares of stock of DataWorks
Corporation ("Dataworks") which the undersigned may be entitled to vote at a
Special Meeting of Stockholders of DataWorks to be held at the offices of
DataWorks at 5910 Pacific Center Boulevard, Suite 300, San Diego, California
92121, on Wednesday, December 23, 1998 at 10:00 a.m., local time, and at any and
all postponements, continuations and adjournments thereof (the "Special
Meeting"), with all powers that the undersigned would possess if personally
present, upon and in respect of the following matters and in accordance with the
following instructions, with discretionary authority as to any and all other
matters that may properly come before the Special Meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. UNLESS A CONTRARY DIRECTION IS
INDICATED, THIS PROXY WILL BE VOTED FOR PROPOSAL 1, AS MORE SPECIFICALLY
DESCRIBED IN THE JOINT PROXY STATEMENT/PROSPECTUS TRANSMITTED IN CONNECTION
WITH THE SPECIAL MEETING. ANY HOLDER WHO WISHES TO WITHHOLD THE DISCRETIONARY
AUTHORITY REFERRED TO BELOW SHOULD MARK A LINE THROUGH THE ENTIRE STATEMENT.
- -------------------------------------------------------------------------------
[ARROW UP] * FOLD AND DETACH HERE * [ARROW UP]
<PAGE> 275
Please mark
your vote as [X]
indicated in
this sample.
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 1.
PROPOSAL 1. To approve and adopt the FOR AGAINST ABSTAIN In their discretion,
Agreement and Plan of [X] [X] [X] to act upon any
Reorganization, dated as of matters incidental
October 13, 1998, as amended as of to the foregoing
October 30, 1998, among DataWorks, and such other
Platinum Software Corporation, a business as may
Delaware corporation ("Platinum"), properly come
and Zoo Acquisition Corp., a Delaware before the Special
corporation and wholly-owned subsidiary Meeting.
of Platinum ("Merger Sub"), which
is attached as Appendix A to the Joint
Proxy Statement/Prospectus that has been
transmitted in connection with the Receipt of the
Special Meeting, and to approve the Prospectus/Joint
merger of Merger Sub with and into DataWorks Proxy Statement
pursuant to which DataWorks will become dated November
a wholly-owned subsidiary of Platinum, all as 19, 1998 is
described in said Joint Proxy Statement/ hereby
Prospectus. acknowledged.
PLEASE VOTE, DATE
AND PROMPTLY RETURN
THIS PROXY IN THE
ENCLOSED RETURN
ENVELOPE WHICH IS
POSTAGE PREPAID IF
MAILED IN THE
UNITED STATES.
Signature(s) ___________________________________ Dated ___________________, 1998
Please sign exactly as your name appears herein. If the stock is registered in
the names of two or more persons, each should sign. Executors, administrators,
trustees, guardians and attorneys-in-fact should add their title. If trustee is
a corporation, please give full corporate name and have a duly authorized
officer sign, stating title. If signer is a partnership, please sign in
partnership name by an authorized person.
- --------------------------------------------------------------------------------
[Arrow Up] FOLD AND DETACH HERE [Arrow Up]
<PAGE> 276
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to award
a corporation's Board of Directors to grant indemnification to directors and
officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act. The Registrant's Second Restated
Certificate of Incorporation (Exhibit 3.1 hereto) and the Registrant's Bylaws
(Exhibit 3.2 hereto) provide for indemnification of its directors, officers,
employees and other agents to the maximum extent permitted by Delaware Law. In
addition the Registrant has entered into Indemnification Agreements (Exhibit
10.5 hereto) with its officers and directors.
Pursuant to the Reorganization Agreement, from and after the Effective Time,
Platinum has agreed to cause the Surviving Corporation to fulfill and honor in
all respects the obligations of DataWorks pursuant to any indemnification
agreements between DataWorks and its directors and officers as of the Effective
Time (the "Indemnified Parties") and any indemnification provisions under
DataWorks' Certificate and DataWorks' Bylaws as in effect on the date of the
Reorganization Agreement. The Certificate of Incorporation and Bylaws of the
surviving corporation in the Merger will contain provisions with respect to
exculpation and indemnification that are at least as favorable to the
Indemnified Parties as those contained in the DataWorks Certificate and Bylaws
as in effect on the date of the Reorganization Agreement, which provisions will
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, immediately prior to the Effective Time, were
directors, officers, employees or agents of DataWorks, unless such modification
is required by law.
Pursuant to the Reorganization Agreement, for a period of six years after the
Effective Time, Platinum has agreed to cause the surviving corporation in the
Merger to use its commercially reasonable efforts to maintain in effect, if
available, directors' and officers' liability insurance covering those persons
who are currently covered by DataWorks' directors' and officers' liability
insurance policy on terms comparable to those applicable to the current
directors and officers of DataWorks; provided, however, that in no event will
Platinum or the surviving corporation in the Merger be required to expend in
excess of 150% of the annual premium currently paid by DataWorks for such
coverage (or such coverage as is available for such 150% of such annual
premium).
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
2.1 Agreement and Plan of Reorganization, dated as of October
13, 1998, among the Registrant, Zoo Acquisition Corp. and
DataWorks Corporation, as amended as of October 30, 1998
(Incorporated by reference to the referenced exhibit to the
Registrant's Schedule 13D filed with the SEC on October 23,
1998, as amended)
</TABLE>
II-1
<PAGE> 277
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
2.2 Agreement and Plan of Reorganization and Merger, dated as of
June 27, 1997, among the Registrant, CSI Acquisition Corp.,
Clientele Software, Inc., Dale E. Yocum, Pamela Yocum,
William L. Mulert (Schedules not included pursuant to Rule
601(b)(2) of Reg. S-K) (Incorporated by reference to the
referenced exhibit to the Registrant's Current Report on
Form 8-K dated June 30, 1997)
2.3 Agreement and Plan of Reorganization, dated as of November
4, 1997, by and among the Registrant, FS Acquisition Corp.,
FocusSoft, Inc., John Lococo, Michael Zimmerman and Joseph
Brumleve (Schedules not included pursuant to Rule 601(b)(2)
of Reg. S-K) (Incorporated by reference to the referenced
exhibit to the Registrant's Current Report on Form 8-K dated
November 14, 1997)
3.1 Second Restated Certificate of Incorporation of the
Registrant (Incorporated by reference to the referenced
exhibit number to the Registrant's Registration Statement on
Form S-1, Reg. No. 33-57294)
3.2 Certificate of Amendment to Second Restated Certificate of
Incorporation of the Registrant (Incorporated by reference
to the referenced exhibit to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1996)
3.3 Amended and Restated Bylaws of the Registrant, as currently
in effect (Incorporated by reference to the referenced
exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1996)
3.6 Specimen Certificate of Common Stock (Incorporated by
reference to the referenced exhibit number to the
Registrant's Registration Statement on Form S-1, Reg. No.
33-51566)
4.1 Certificate of Designation of Rights, Preferences and
Privileges of Series A Junior Participating Preferred Stock
(Incorporated by reference to the referenced exhibit to the
Registrant's Registration Statement on Form 8-A, dated April
14, 1994)
4.2 Certificate of Designation of Preferences of Series B
Preferred Stock (Incorporated by reference to the referenced
exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1994)
4.3 Certificate of Designation of Preferences of Series C
Preferred Stock (Incorporated by reference to the referenced
exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1995
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, dated November 19, 1998
8.1 Tax Opinion of Cooley Godward LLP, dated November 19, 1998
8.2 Tax Opinion of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, dated November 19, 1998
9.1 Form of Voting Agreement, dated as of October 13, 1998 among
DataWorks Corporation and certain officers, directors and
certain affiliated stockholders of the Registrant
9.2 Form of Voting Agreement, dated as of October 13, 1998 among
the Registrant and certain officers, directors and certain
affiliated stockholders of DataWorks Corporation
10.1 Registrant's Option, Nonqualified Stock Option and
Restricted Stock Purchase Plan -- 1990 (the "1990 Plan")
(Incorporated by reference to the referenced exhibit number
to the Registrant's Registration Statement on Form S-1, Reg.
No. 33-51566)
10.2 Form of Incentive Option Agreement pertaining to the 1990
Plan (Incorporated by reference to the referenced exhibit
number to the Registrant's Registration Statement on Form
S-1, Reg. No. 33-51566)
10.3 Form of Nonqualified Stock Option Agreement pertaining to
the 1990 Plan (Incorporated by reference to the referenced
exhibit number to the Registrant's Registration Statement on
Form S-1, Reg. No. 33-51566)
</TABLE>
II-2
<PAGE> 278
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
10.4 Form of Restricted Share Agreement pertaining to the 1990
Plan (Incorporated by reference to the referenced exhibit
number to the Registrant's Registration Statement on Form
S-1, Reg. No. 33-51566)
10.5 Form of Indemnification Agreement for Officers and Directors
of the Registrant (Incorporated by reference to the
referenced exhibit number to the Registrant's Registration
Statement on Form S-1 Reg. No. 33-51566)
10.6 Registrant's Employee Stock Purchase Plan, as amended
(Incorporated by reference to the referenced exhibit number
to the Registrant's Registration Statement on Form S-1, Reg.
No. 33-51566)
10.7 Registrant's 1993 Nonqualified Stock Option Plan
(Incorporated by reference to the referenced exhibit to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1993)
10.8 Form of Nonqualified Stock Option Agreement pertaining to
the 1993 Nonqualified Stock Option Plan (Incorporated by
reference to the referenced exhibit to the Registrant's
Annual Report on Form 10-K for the fiscal year ended June
30, 1993)
10.9 Registrant's 1994 Incentive Stock Option, Non-qualified
Stock Option and Restricted Stock Purchase Plan (the "1994
Plan") (Incorporated by reference to the referenced exhibit
to the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1994)
10.10 Form of Non-qualified Stock Option Agreement pertaining to
the 1994 Plan (Incorporated by reference to the referenced
exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1994)
10.11 Stock Purchase Agreement, dated September 22, 1994, between
the Registrant and the Series B Preferred Stock Investors
(Incorporated by reference to the referenced exhibit to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1995)
10.12 Registration Rights Agreement, dated September 22, 1994,
between the Registrant and the Series B Preferred Stock
Investors (Incorporated by reference to the referenced
exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1995)
10.13 Amendment to Stock Purchase Agreement, dated May 26, 1995,
between the Registrant and the Series C Preferred Stock
Investors (Incorporated by reference to the referenced
exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1995)
10.14 Amendment to Registration Rights Agreement, dated May 26,
1995, between the Registrant and the Series C Preferred
Stock Investors (Incorporated by reference to the referenced
exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1995)
10.15 Employment Offer letter with L. George Klaus, dated February
7, 1996 (Incorporated by reference to the referenced exhibit
to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996)
10.16 Restricted Stock Purchase Agreement between the Registrant
and L. George Klaus, dated as of February 7, 1996
(Incorporated by reference to the referenced exhibit to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996)
10.17 Employment Offer letter with William L. Pieser, dated
February 7, 1996 (Incorporated by reference to the
referenced exhibit to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996)
</TABLE>
II-3
<PAGE> 279
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
10.18 Restricted Stock Purchase Agreement between the Registrant
and William L. Pieser, dated as of February 7, 1996
(Incorporated by reference to the referenced exhibit to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996)
10.19 Employment Offer letter with Ken Lally, dated as of April 1,
1996 (Incorporated by reference to the referenced exhibit to
the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996)
10.20 Restricted Stock Purchase Agreement between the Registrant
and Ken Lally, dated as of April 10, 1996 (Incorporated by
reference to the referenced exhibit to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996)
10.21 1996 Nonqualified Stock Plan and Form of Nonqualified Option
Agreement (Incorporated by reference to the referenced
exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1997)
10.22 Registrant's Clientele Incentive Stock Plan (Incorporated by
reference to the referenced exhibit to the Registrant's
Annual Report on Form 10-K for the fiscal year ended June
30, 1997)
10.23 1997 Nonqualified Stock Option Plan (Incorporated by
reference to Exhibit 4.1 to the Registrant's Registration
Statement on Form S-8, Reg. No. 333-41321)
10.24 Amended and Restated 1998 Nonqualified Stock Option Plan
(Incorporated by reference to the referenced exhibit to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1998)
10.25* Software Distribution License Agreement with FRx Software
Corporation, as amended to date(Incorporated by reference to
the referenced exhibit to the Registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 1998)
10.26 Executive Employment Agreement, effective as of October 13,
1998 between the Registrant and Stuart W. Clifton
10.27 Noncompetition Agreement, effective as of October 13, 1998
between the Registrant and Stuart W. Clifton.
21.1 Subsidiaries of the Registrant(Incorporated by reference to
the referenced exhibit to the Registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 1998)
23.1 Consent of Ernst & Young LLP, independent auditors
23.2 Consent of Ernst & Young LLP, independent auditors
23.3 Consent of PricewaterhouseCoopers LLP, independent
accountants
24.1 Power of Attorney (included on the signature page of this
Form S-4)
99.1 Letter to the stockholders of Registrant, dated November 23,
1998
99.2 Letter to the stockholders of DataWorks Corporation, dated
November 23, 1998
99.3 Notice of Special Meeting of Stockholders of Registrant,
dated November 23, 1998
99.4 Notice of Special Meeting of Stockholders of DataWorks
Corporation, dated November 23, 1998
</TABLE>
- ---------------
* Confidential treatment requested for portions of this exhibit.
(B) FINANCIAL STATEMENT SCHEDULES
The information required to be set forth herein is incorporated by reference to
Platinum's Annual Report on Form 10-K for the Fiscal year ended June 30, 1998.
II-4
<PAGE> 280
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(4) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of any
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(5) The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(6) The registrant undertakes that every prospectus (i) that is filed pursuant
to the paragraph immediately preceding, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities At of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE> 281
(7) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-6
<PAGE> 282
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Irvine, State of
California, on November 18, 1998.
PLATINUM SOFTWARE CORPORATION
/s/ L. GEORGE KLAUS
--------------------------------------
L. George Klaus
President, Chief Executive Officer and
Chairman of the Board
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints L. George Klaus as his attorney-in-fact,
with full power of substitution, for him in any and all capacities, to sign any
and all amendments to this Registration Statement, and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorney to any and all amendments
to said Registration Statement.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ L. GEORGE KLAUS Chief Executive November 18, 1998
- --------------------------------------------- Officer, President and
L. George Klaus Chairman of the Board
(Principal Executive
Officer)
/s/ PAUL G. MAZZARELLA Vice President, November 18, 1998
- --------------------------------------------- Corporate Controller
Paul G. Mazzarella (Principal Financial
and Accounting Officer)
/s/ W. DOUGLAS HAJJAR Director November 18, 1998
- ---------------------------------------------
W. Douglas Hajjar
/s/ L. JOHN DOERR Director November 18, 1998
- ---------------------------------------------
L. John Doerr
/s/ ARTHUR J. MARKS Director November 18, 1998
- ---------------------------------------------
Arthur J. Marks
/s/ DONALD R. DIXON Director November 18, 1998
- ---------------------------------------------
Donald R. Dixon
</TABLE>
II-7
<PAGE> 283
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C> <C>
2.1 Agreement and Plan of Reorganization, dated as of October
13, 1998, among the Registrant, Zoo Acquisition Corp. and
DataWorks Corporation, as amended as of October 30, 1998
(Incorporated by reference to the referenced exhibit to the
Registrant's Schedule 13D filed with the SEC on October 23,
1998, as amended)
2.2 Agreement and Plan of Reorganization and Merger, dated as of
June 27, 1997, among the Registrant, CSI Acquisition Corp.,
Clientele Software, Inc., Dale E. Yocum, Pamela Yocum,
William L. Mulert (Schedules not included pursuant to Rule
601(b)(2) of Reg. S-K) (Incorporated by reference to the
referenced exhibit to the Registrant's Current Report on
Form 8-K dated June 30, 1997)
2.3 Agreement and Plan of Reorganization, dated as of November
4, 1997, by and among the Registrant, FS Acquisition Corp.,
FocusSoft, Inc., John Lococo, Michael Zimmerman and Joseph
Brumleve (Schedules not included pursuant to Rule 601(b)(2)
of Reg. S-K) (Incorporated by reference to the referenced
exhibit to the Registrant's Current Report on Form 8-K dated
November 14, 1997)
3.1 Second Restated Certificate of Incorporation of the
Registrant (Incorporated by reference to the referenced
exhibit number to the Registrant's Registration Statement on
Form S-1, Reg. No. 33-57294)
3.2 Certificate of Amendment to Second Restated Certificate of
Incorporation of the Registrant (Incorporated by reference
to the referenced exhibit to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1996)
3.3 Amended and Restated Bylaws of the Registrant, as currently
in effect (Incorporated by reference to the referenced
exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1996)
3.6 Specimen Certificate of Common Stock (Incorporated by
reference to the referenced exhibit number to the
Registrant's Registration Statement on Form S-1, Reg. No.
33-51566)
4.1 Certificate of Designation of Rights, Preferences and
Privileges of Series A Junior Participating Preferred Stock
(Incorporated by reference to the referenced exhibit to the
Registrant's Registration Statement on Form 8-A, dated April
14, 1994)
4.2 Certificate of Designation of Preferences of Series B
Preferred Stock (Incorporated by reference to the referenced
exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1994)
4.3 Certificate of Designation of Preferences of Series C
Preferred Stock (Incorporated by reference to the referenced
exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1995
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, dated November 19, 1998
8.1 Tax Opinion of Cooley Godward LLP, dated November 19, 1998
8.2 Tax Opinion of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, dated November 19, 1998
9.1 Form of Voting Agreement, dated as of October 13, 1998 among
DataWorks Corporation and certain officers, directors and
certain affiliated stockholders of the Registrant
</TABLE>
<PAGE> 284
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C> <C>
9.2 Form of Voting Agreement, dated as of October 13, 1998 among
the Registrant and certain officers, directors and certain
affiliated stockholders of DataWorks Corporation
10.1 Registrant's Option, Nonqualified Stock Option and
Restricted Stock Purchase Plan -- 1990 (the "1990 Plan")
(Incorporated by reference to the referenced exhibit number
to the Registrant's Registration Statement on Form S-1, Reg.
No. 33-51566)
10.2 Form of Incentive Option Agreement pertaining to the 1990
Plan (Incorporated by reference to the referenced exhibit
number to the Registrant's Registration Statement on Form
S-1, Reg. No. 33-51566)
10.3 Form of Nonqualified Stock Option Agreement pertaining to
the 1990 Plan (Incorporated by reference to the referenced
exhibit number to the Registrant's Registration Statement on
Form S-1, Reg. No. 33-51566)
10.4 Form of Restricted Share Agreement pertaining to the 1990
Plan (Incorporated by reference to the referenced exhibit
number to the Registrant's Registration Statement on Form
S-1, Reg. No. 33-51566)
10.5 Form of Indemnification Agreement for Officers and Directors
of the Registrant (Incorporated by reference to the
referenced exhibit number to the Registrant's Registration
Statement on Form S-1 Reg. No. 33-51566)
10.6 Registrant's Employee Stock Purchase Plan, as amended
(Incorporated by reference to the referenced exhibit number
to the Registrant's Registration Statement on Form S-1, Reg.
No. 33-51566)
10.7 Registrant's 1993 Nonqualified Stock Option Plan
(Incorporated by reference to the referenced exhibit to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1993)
10.8 Form of Nonqualified Stock Option Agreement pertaining to
the 1993 Nonqualified Stock Option Plan (Incorporated by
reference to the referenced exhibit to the Registrant's
Annual Report on Form 10-K for the fiscal year ended June
30, 1993)
10.9 Registrant's 1994 Incentive Stock Option, Non-qualified
Stock Option and Restricted Stock Purchase Plan (the "1994
Plan") (Incorporated by reference to the referenced exhibit
to the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1994)
10.10 Form of Non-qualified Stock Option Agreement pertaining to
the 1994 Plan (Incorporated by reference to the referenced
exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1994)
10.11 Stock Purchase Agreement, dated September 22, 1994, between
the Registrant and the Series B Preferred Stock Investors
(Incorporated by reference to the referenced exhibit to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1995)
10.12 Registration Rights Agreement, dated September 22, 1994,
between the Registrant and the Series B Preferred Stock
Investors (Incorporated by reference to the referenced
exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1995)
10.13 Amendment to Stock Purchase Agreement, dated May 26, 1995,
between the Registrant and the Series C Preferred Stock
Investors (Incorporated by reference to the referenced
exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1995)
</TABLE>
<PAGE> 285
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C> <C>
10.14 Amendment to Registration Rights Agreement, dated May 26,
1995, between the Registrant and the Series C Preferred
Stock Investors (Incorporated by reference to the referenced
exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1995)
10.15 Employment Offer letter with L. George Klaus, dated February
7, 1996 (Incorporated by reference to the referenced exhibit
to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996)
10.16 Restricted Stock Purchase Agreement between the Registrant
and L. George Klaus, dated as of February 7, 1996
(Incorporated by reference to the referenced exhibit to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996)
10.17 Employment Offer letter with William L. Pieser, dated
February 7, 1996 (Incorporated by reference to the
referenced exhibit to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996)
10.18 Restricted Stock Purchase Agreement between the Registrant
and William L. Pieser, dated as of February 7, 1996
(Incorporated by reference to the referenced exhibit to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996)
10.19 Employment Offer letter with Ken Lally, dated as of April 1,
1996 (Incorporated by reference to the referenced exhibit to
the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996)
10.20 Restricted Stock Purchase Agreement between the Registrant
and Ken Lally, dated as of April 10, 1996 (Incorporated by
reference to the referenced exhibit to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996)
10.21 1996 Nonqualified Stock Plan and Form of Nonqualified Option
Agreement (Incorporated by reference to the referenced
exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1997)
10.22 Registrant's Clientele Incentive Stock Plan (Incorporated by
reference to the referenced exhibit to the Registrant's
Annual Report on Form 10-K for the fiscal year ended June
30, 1997)
10.23 1997 Nonqualified Stock Option Plan (Incorporated by
reference to Exhibit 4.1 to the Registrant's Registration
Statement on Form S-8, Reg. No. 333-41321)
10.24 Amended and Restated 1998 Nonqualified Stock Option Plan
(Incorporated by reference to the referenced exhibit to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1998)
10.25* Software Distribution License Agreement with FRx Software
Corporation, as amended to date(Incorporated by reference to
the referenced exhibit to the Registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 1998)
10.26 Executive Employment Agreement, effective as of October 13,
1998 between the Registrant and Stuart W. Clifton
10.27 Noncompetition Agreement, effective as of October 13, 1998
between the Registrant and Stuart W. Clifton.
21.1 Subsidiaries of the Registrant(Incorporated by reference to
the referenced exhibit to the Registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 1998)
23.1 Consent of Ernst & Young LLP, independent auditors
23.2 Consent of Ernst & Young LLP, independent auditors
</TABLE>
<PAGE> 286
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C> <C>
23.3 Consent of PricewaterhouseCoopers LLP, independent
accountants
24.1 Power of Attorney (included on the signature page of this
Form S-4)
99.1 Letter to the stockholders of Registrant, dated November 23,
1998
99.2 Letter to the stockholders of DataWorks Corporation, dated
November 23, 1998
99.3 Notice of Special Meeting of Stockholders of Registrant,
dated November 23, 1998
99.4 Notice of Special Meeting of Stockholders of DataWorks
Corporation, dated November 23, 1998
</TABLE>
- ---------------
* Confidential treatment requested for portions of this exhibit.
<PAGE> 1
EXHIBIT 5.1
November 19, 1998
Platinum Software Corporation
195 Technology Drive
Irvine, California 92618-2402
RE: Registration Statement on Form S-4
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-4 filed by you
with the Securities and Exchange Commission (the "Commission") on or about this
date (the "Registration Statement"), in connection with the registration under
the Securities Act of 1933, as amended, of shares of your Common Stock, par
value $0.001 per share (the "Shares"). As your counsel in connection with this
transaction, we have examined the proceedings taken and are familiar with the
proceedings proposed to be taken by you in connection with the sale and issuance
of the Shares.
It is our opinion that upon conclusion of the proceedings being taken
or contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, and upon completion of the proceedings being taken in order to permit
such transactions to be carried out in accordance with the securities laws of
the various states where required, the Shares, when issued and sold in the
manner described in the Registration Statement, will be legally and validly
issued, fully paid and non-assessable.
We consent to the use of this Opinion as an exhibit to the
Registration Statement, and further consent to the use of our name wherever
appearing in the Registration Statement, including the Joint Proxy
Statement/Prospectus constituting a part thereof, and any amendment thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ WILSON SONSINI GOODRICH & ROSATI
<PAGE> 1
EXHIBIT 8.1
[COOLEY GODWARD LLP LETTERHEAD]
November 19, 1998
Dataworks Corporation
5910 Pacific Center Boulevard
San Diego, CA 92121
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the Form S-4
Registration Statement (the "Registration Statement") filed pursuant to the
Agreement and Plan of Reorganization dated as of October 13, 1998, as amended
(the "Reorganization Agreement") by and among Platinum Software Corporation, a
Delaware corporation ("Parent"), Zoo Acquisition Corp., a Delaware corporation
and wholly-owned subsidiary of Parent ("Merger Sub"), and DataWorks Corporation,
a Delaware corporation (the "Company").
Except as otherwise provided, capitalized terms used but not defined herein
shall have the meanings set forth in the Reorganization Agreement. All section
references, unless otherwise indicated, are to the Internal Revenue Code of
1986, as amended (the "Code").
We have acted as counsel to the Company in connection with the Merger. As such,
and for the purpose of rendering this opinion, we have examined, and are relying
upon (without any independent investigation or review thereof) the truth and
accuracy, at all relevant times, of the statements, covenants, representations
and warranties contained in the following documents (including all exhibits and
schedules attached thereto):
(a) the Reorganization Agreement;
(b) those certain tax representation letters delivered to us by
Parent, Merger Sub and the Company containing certain representations of Parent,
Merger Sub and the Company (the "Tax Representation Letters"); and
(c) such other instruments and documents related to the formation,
organization and operation of Parent, Merger Sub and the Company and related to
the consummation of the Merger and the other transactions contemplated by the
Reorganization Agreement as we have deemed necessary or appropriate.
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof) that:
(a) Original documents submitted to us (including signatures thereto)
are authentic, documents submitted to us as copies conform to the original
documents, and that all such documents have been (or will be by the Effective
Time) duly and validly executed and delivered where due execution and delivery
are a prerequisite to the effectiveness thereof;
<PAGE> 2
DataWorks Corporation
November 19, 1998
Page Two
(b) All representations, warranties and statements made or agreed to
by Parent, Merger Sub and the Company, their managements, employees, officers,
directors and stockholders in connection with the Merger, including, but not
limited to, those set forth in the Reorganization Agreement (including the
exhibits thereto) and the Tax Representation Letters are true and accurate at
all relevant times;
(c) All covenants contained in the Reorganization Agreement
(including exhibits thereto) and the Tax Representation Letters are performed
without waiver or breach of any material provision thereof;
(d) The Merger will be reported by Parent and the Company on their
respective federal income tax returns in a manner consistent with the opinion
set forth below;
(e) Any representation or statement made "to the best of knowledge"
or similarly qualified is correct without such qualification; and
(f) The opinion dated November 19, 1998 rendered by Wilson Sonsini
Goodrich & Rosati, P.C. to Parent with respect to the qualification of the
Merger as a reorganization within the meaning of Section 368(a)(1) of the Code
has been delivered and has not been withdrawn.
Based on our examination of the foregoing items and subject to the limitations,
qualifications, assumptions and caveats set forth herein, we are of the opinion
that, for federal income tax purposes, the Merger will be a reorganization
within the meaning of Section 368(a)(1) of the Code.
In addition to your request for our opinion on this specific matter of federal
income tax law, you have asked us to review the discussion of federal income tax
issues contained in the Registration Statement. We have reviewed the discussion
entitled "Material Federal Income Tax Consequences" contained in the
Registration Statement and believe that, insofar as it relates to statements of
law and legal conclusions, is correct in all material respects.
This opinion does not address the various state, local or foreign tax
consequences that may result from the Merger or the other transactions
contemplated by the Reorganization Agreement. In addition, no opinion is
expressed as to any federal income tax consequence of the Merger or the other
transactions contemplated by the Reorganization Agreement except as specifically
set forth herein, and this opinion may not be relied upon except with respect to
the consequences specifically discussed herein. No opinion is expressed as to
the federal income tax treatment that may be relevant to a particular investor
in light of personal circumstances or to certain types of investors subject to
special treatment under the federal income tax laws (for example, insurance
companies, dealers in securities, taxpayers subject to the alternative minimum
tax, banks, tax-exempt organizations, foreign persons, and stockholders who
acquired their shares of Company
<PAGE> 3
DataWorks Corporation
November 19, 1998
Page Three
capital stock pursuant to the exercise of options or otherwise as compensation
or who hold their Company capital stock as part of a straddle or risk reduction
transaction).
No opinion is expressed as to any transaction other than the Merger as described
in the Reorganization Agreement, or as to any transaction whatsoever, including
the Merger, if all of the transactions described in the Reorganization Agreement
are not consummated in accordance with the terms of the Reorganization Agreement
and without waiver of any material provision thereof. To the extent that any of
the representations, warranties, statements and assumptions material to our
opinion and upon which we have relied are not accurate and complete in all
material respects at all relevant times, our opinion would be adversely affected
and should not be relied upon.
This opinion only represents our best judgment as to the federal income tax
consequences of the Merger and is not binding on the Internal Revenue Service or
any court of law, tribunal, administrative agency or other governmental body.
The conclusions are based on the Code, existing judicial decisions,
administrative regulations and published rulings. No assurance can be given that
future legislative, judicial or administrative changes or interpretations would
not adversely affect the accuracy of the conclusions stated herein.
Nevertheless, by rendering this opinion, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws.
This opinion is being delivered solely in connection with the filing of the
Registration Statement. It is intended for the benefit of the Company and the
stockholders of the Company and may not be relied upon or utilized for any other
purpose or by any other person and may not be made available to any other person
without our prior written consent.
We consent to the reference to our firm under the caption "Material Federal
Income Tax Consequences" in the Proxy Statement included in the Registration
Statement and to the reproduction and filing of this opinion as an exhibit to
the Registration Statement.
Sincerely,
/s/ SUSAN COOPER PHILPOT
- ----------------------------
Susan Cooper Philpot
<PAGE> 1
EXHIBIT 8.2
[WSGR LETTERHEAD]
November 19, 1998
Platinum Software Corporation
195 Techology Drive
Irvine, California 92618
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the Form
S-4 Registration Statement filed with the Securities and Exchange Commission
(which contains a prospectus and joint proxy statement) (the "Registration
Statement") filed pursuant to the Agreement and Plan of Reorganization (the
"Reorganization Agreement"), dated as of October 13, 1998, as amended, among
Platinum Software Corporation, a Delaware corporation ("Platinum"), Zoo
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Platinum ("Merger Sub"), and DataWorks Corporation, a Delaware corporation
("DataWorks").
Except as otherwise provided, capitalized terms used but not defined
herein shall have the meanings set forth in the Reorganization Agreement. All
section references, unless otherwise indicated, are to the Internal Revenue Code
of 1986, as amended (the "Code").
We have acted as counsel to Platinum and Merger Sub in connection
with the Merger. As such, and for the purpose of rendering this opinion, we have
examined, and are relying upon (without any independent investigation or review
thereof) the truth and accuracy, at all relevant times, of the statements,
covenants, representations and warranties contained in the following documents
(including all exhibits and schedules attached thereto):
1. the Reorganization Agreement;
2. the Registration Statement;
3. those certain tax representation letters delivered to us
by Platinum, Merger Sub and DataWorks containing certain
representations of
<PAGE> 2
Platinum, Merger Sub and DataWorks (the "Tax
Representation Letters"); and
4. such other instruments and documents related to the
formation, organization and operation of Platinum, Merger
Sub and DataWorks and related to the consummation of the
Merger and the other transactions contemplated by the
Reorganization Agreement as we have deemed necessary or
appropriate.
In connection with rendering this opinion, we have assumed (without
any independent investigation or review thereof) that:
a. Original documents submitted to us (including signatures
thereto) are authentic, documents submitted to us as copies
conform to the original documents, and that all such
documents have been (or will be by the Effective Time) duly
and validly executed and delivered where due execution and
delivery are a prerequisite to the effectiveness thereof;
b. All representations, warranties and statements made or
agreed to by Platinum, Merger Sub and DataWorks, their
managements, employees, officers, directors and
stockholders in connection with the Merger, including, but
not limited to, those set forth in the Reorganization
Agreement (including the exhibits thereto) and the Tax
Representation Letters are true and accurate at all
relevant times;
c. All covenants contained in the Reorganization Agreement
(including exhibits thereto) and the Tax Representation
Letters are performed without waiver or breach of any
material provision thereof;
d. The Merger will be reported by Platinum and DataWorks on
their respective federal income tax returns in a manner
consistent with the opinion set forth below; and
e. Any representation or statement made "to the best of
knowledge" or similarly qualified is correct without such
qualification.
Based on our examination of the foregoing items and subject to the
limitations, qualifications, assumptions and caveats set forth herein, we are of
the opinion that, if the Merger is consummated in accordance with the
Reorganization Agreement (and without any waiver, breach or amendment of any of
the provisions thereof) and the statements set forth in the Tax Representation
Letters are true and correct as of the Effective Time, then for federal income
tax purposes, the Merger will be a reorganization within the meaning of Section
368(a) of the Code.
<PAGE> 3
In addition to your request for our opinion on this specific matter
of federal income tax law, you have asked us to review the discussion of federal
income tax issues contained in the Registration Statement. We have reviewed the
discussion entitled "Material Federal Income Tax Consequences" contained in the
Registration Statement and believe that, insofar as it relates to statements of
law and legal conclusions, it is correct in all material respects.
We consent to the reference to our firm under the caption "Material
Federal Income Tax Consequences" in the proxy statement included in the
Registration Statement and to the filing of this opinion as an exhibit to the
Registration Statement.
This opinion does not address the various state, local or foreign tax
consequences that may result from the Merger or the other transactions
contemplated by the Reorganization Agreement. In addition, no opinion is
expressed as to any federal income tax consequence of the Merger or the other
transactions contemplated by the Reorganization Agreement except as specifically
set forth herein, and this opinion may not be relied upon except with respect to
the consequences specifically discussed herein.
No opinion is expressed as to any transaction other than the Merger
as described in the Reorganization Agreement, or as to any other transaction
whatsoever, including the Merger, if all of the transactions described in the
Reorganization Agreement are not consummated in accordance with the terms of the
Reorganization Agreement and without waiver of any material provision thereof.
To the extent that any of the representations, warranties, statements and
assumptions material to our opinion and upon which we have relied are not
accurate and complete in all material respects at all relevant times, our
opinion would be adversely affected and should not be relied upon.
This opinion only represents our best judgment as to the federal
income tax consequences of the Merger and is not binding on the Internal Revenue
Service or any court of law, tribunal, administrative agency or other
governmental body. The conclusions are based on the Code, existing judicial
decisions, administrative regulations and published rulings. No assurance can be
given that future legislative, judicial or administrative changes or
interpretations would not adversely affect the accuracy of the conclusions
stated herein. Nevertheless, by rendering this opinion, we undertake no
responsibility to advise you of any new developments in the application or
interpretation of the federal income tax laws.
<PAGE> 4
This opinion is being delivered solely in connection with the
Registration Statement. It is intended for the benefit of Platinum and Merger
Sub and may not be relied upon or utilized for any other purpose or by any other
person and may not be made available to any other person without our prior
written consent.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ WILSON SONSINI GOODRICH & ROSATI
<PAGE> 1
EXHIBIT 9.1
FORM OF COMPANY VOTING AGREEMENT
This Company Voting Agreement ("AGREEMENT") is made and entered into as
of October 13, 1998, between Platinum Software Corporation, a Delaware
corporation ("PARENT"), and the undersigned stockholder ("STOCKHOLDER") of
DataWorks Corporation, a Delaware corporation (the "COMPANY").
RECITALS
A. Concurrently with the execution of this Agreement, Parent, the
Company and Zoo Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Parent ("MERGER SUB"), are entering into an Agreement and Plan of
Reorganization (the "MERGER AGREEMENT") which provides for the merger (the
"MERGER") of Merger Sub with and into the Company. Pursuant to the Merger,
shares of capital stock of the Company will be converted into Common Stock of
Parent on the basis described in the Merger Agreement.
B. The Stockholder is the record holder of such number of outstanding
shares of Common Stock of the Company as is indicated on the final page of this
Agreement. In addition, the Stockholder holds options to purchase such number
of shares of Common Stock of the Company as is indicated on the final page of
this Agreement.
C. As a material inducement to enter into the Merger Agreement, Parent
desires the Stockholder to agree, and the Stockholder is willing to agree, to
vote the Shares (as defined below) and other such shares of capital stock of
the Company over which Stockholder has voting power so as to facilitate
consummation of the Merger.
NOW, THEREFORE, intending to be legally bound, the parties agree as
follows:
1. Agreement to Vote Shares; Additional Purchases.
1.1 Agreement to Vote Shares. Until the termination of this
Agreement pursuant to Section 6 below, at every meeting of the stockholders of
the Company called with respect to any of the following, and at every
adjournment thereof, and on every action or approval by written consent of the
stockholders of the Company with respect to any of the following, Stockholder
shall cause the Shares and any New Shares (as defined below) to be voted in
favor of approval of the Merger Agreement and the Merger.
-1-
<PAGE> 2
1.2 Definitions. For purposes of this Agreement:
"Shares" shall mean all issued and outstanding shares of Common Stock of
the Company owned of record or beneficially (over which beneficially-owned
shares the Stockholder exercises voting power) by the Stockholder as of the
record date for persons entitled (a) to receive notice of, and to vote at the
meeting of the stockholders of the Company called for the purpose of voting on
the matter referred to in Section 1.1, or (b) to take action by written consent
of the stockholders of the Company with respect to the matter referred to in
Section 1.1.
"Subject Securities" shall mean: (i) all securities of Company (including
all shares of Company Common Stock and all options, warrants and other rights
to acquire shares of Company Common Stock) beneficially owned by Stockholder
as of the date of this Agreement; and (ii) all additional securities of Company
(including all additional shares of Company Common Stock and all additional
options, warrants and other rights to acquire shares of Company Common Stock)
of which Stockholder acquires ownership during the period from the date of this
Agreement through the termination of this Agreement pursuant to Section 6 below.
A person shall be deemed to have affected a "Transfer" of a security if
such person directly or indirectly: (i) sells, pledges, encumbers, grants an
option with respect to, transfers or disposes of such security or any interest
in such security; or (ii) enters into an agreement or commitment providing for
the sale of, pledge of, encumbrance of, grant of an option with respect to,
transfer of or disposition of such security or any interest therein.
1.3 Additional Purchases. Stockholder agrees that any shares of
capital stock of the Company that Stockholder purchases or with respect to which
Stockholder otherwise acquires beneficial ownership (over which
beneficially-owned shares the Stockholder exercises voting power) after the
execution of this Agreement and prior to the date of termination of this
Agreement ("New Shares") shall be subject to the terms and conditions of this
Agreement to the same extent as if they constituted Shares.
1.4 Transferee of Subject Securities to be Bound by this Agreement.
Stockholder agrees that, during the period from the date of this Agreement
through the termination of this Agreement pursuant to Section 6 below,
Stockholder shall not cause or permit any Transfer of any of the Subject
Securities to be effected unless such Transfer is in accordance with any
affiliate agreement between Stockholder and Parent contemplated by the Merger
Agreement to which such Stockholder is bound and each person to which any of
such Subject Securities, or any interest in any of such Subject Securities, is
or may be transferred shall have: (a) executed a counterpart of this Agreement
and the Proxy (defined below) (with such modifications as Parent may reasonably
request); and (b) agreed in writing to hold such Subject Securities (or
interest in such Subject Securities) subject to all of the terms and provisions
of this Agreement.
-2-
<PAGE> 3
2. Irrevocable proxy. Concurrently with the execution of this Agreement,
Stockholder agrees to deliver to Parent a proxy in the form attached hereto as
Exhibit A (the "PROXY"), which shall be irrevocable, with respect to the Shares.
3. Representations and Warranties of the Stockholder. Stockholder (i) is
the owner of the shares of Common Stock of the Company, and the options to
purchase shares of Common Stock of the Company, indicated on the final page of
this Agreement, which at the date hereof are free and clear of any liens,
claims, options, charges or other encumbrances; (ii) does not beneficially own
any securities of the Company other than the shares of Common Stock of the
Company, and options to purchase shares of Common Stock of the Company,
indicated on the final page of this Agreement; and (iii) has full power and
authority to make, enter into and carry out the terms of this Agreement.
4. Additional Documents. Stockholder and Parent hereby covenant and agree
to execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of Parent or Stockholder, as the case may be, to carry out
the intent of this Agreement.
5. Consent and Waiver. Stockholder (not in his capacity as a director or
officer of the Company) hereby gives any consents or waivers that are
reasonably required for the consummation of the Merger under the terms of
any agreements to which Stockholder is a party or pursuant to any rights
Stockholder may have.
6. Termination. This Agreement shall terminate and shall have no further
force or effect as of the earlier to occur of (i) such date and time as the
Merger shall become effective in accordance with the terms and provisions of
the Merger Agreement or (ii) such date and time as the Merger Agreement shall
have been terminated pursuant to Article VII thereof.
7. Miscellaneous.
7.1 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, then the remainder of the terms, provisions, covenants
and restrictions of this Agreement shall remain in full force and effect and
shall in no way be affected, impaired or invalidated.
7.2 Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but, except as
otherwise specifically provided herein, neither this Agreement nor any of the
rights, interests or obligations of the parties hereto may be assigned by
either of the parties without prior written consent of the other.
7.3 Amendments and Modification. This Agreement may not be
modified, amended, altered or supplemented except upon the execution and
delivery of a written agreement executed by the parties hereto.
-3-
<PAGE> 4
7.4 Specific Performance; Injunctive Relief. The parties hereto
acknowledge that Parent will be irreparably harmed and that there will be no
adequate remedy at law for a violation of any of the covenants or agreements of
Stockholder set forth herein. Therefore, it is agreed that, in addition to any
other remedies that may be available to Parent upon any such violation, Parent
shall have the right to enforce such covenants and agreements by specific
performance, injunctive relief or by any other means available to Parent at law
or in equity.
7.5 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and sufficient if delivered in
person, by cable, telegram or telex, or sent by mail (registered or certified
mail, postage prepaid, return receipt requested) or overnight courier (prepaid)
to the respective parties as follows:
<TABLE>
<S> <C>
If to Parent: Platinum Software Corporation
195 Technology Drive
Irvine, CA 92718
Attn: Vice President, General Counsel
With a copy to: Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304
Attn: Larry W. Sonsini, Esq.
If to the Stockholder: To the address for notice set forth on the
last page hereof.
With a copy to: Cooley Godward LLP
4365 Executive Drive
Suite 1100
San Diego, CA 92121
Attn: Frederick T. Muto, Esq.
</TABLE>
or to such other address as any party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
only be effective upon receipt.
7.6 Governing Law. This Agreement shall be governed by, and construed
and enforced in accordance with, the internal laws of the State of Delaware
(without regard to the principles of conflict of laws thereof).
7.7 Entire Agreement. This Agreement contains the entire
understanding of the parties in respect of the subject matter hereof, and
supersedes all prior negotiations and understandings between the parties with
respect to such subject matter.
7.8 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
-4-
<PAGE> 5
7.9 Effect of Headings. The section headings herein are for
convenience only and shall not affect the construction or interpretation of
this Agreement.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties have caused this Voting Agreement to be
duly executed on the date and year first above written.
PARENT
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
STOCKHOLDER:
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
Stockholder's Address for Notice:
-------------------------------------
-------------------------------------
-------------------------------------
______ Outstanding Shares of Common Stock
of the Company
______ Outstanding Shares of Common Stock
of the Company subject to
outstanding stock options
***VOTING AGREEMENT***
-6-
<PAGE> 7
EXHIBIT A
IRREVOCABLE PROXY
The undersigned Stockholder of DataWorks Corporation, a Delaware
corporation (the "COMPANY"), hereby irrevocably appoints the directors on the
Board of Directors of Platinum Software Corporation, a Delaware corporation
("PARENT"), and each of them, as the sole and exclusive attorneys and proxies of
the undersigned, with full power of substitution and resubstitution, to the full
extent of the undersigned's rights with respect to the voting of the Shares and
the New Shares (each as defined in the Voting Agreement of even date between
Parent and the Stockholder (the "VOTING AGREEMENT")) on the matter described
below (and on no other matter), until such time as that certain Agreement and
Plan of Reorganization dated as of October 13, 1998 (the "MERGER AGREEMENT"),
among Parent, Zoo Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Parent ("MERGER SUB"), and the Company, shall be terminated in
accordance with its terms or the Merger (as defined in the Merger Agreement)
becomes effective. Upon the execution hereof, all prior proxies given by the
undersigned with respect to the Shares and any and all other shares or
securities issued or issuable in respect thereof on or after the date hereof are
hereby revoked and no subsequent proxies will be given.
This proxy is irrevocable, is granted pursuant to the Voting Agreement and
is granted in consideration of Parent entering into the Merger Agreement. The
attorneys and proxies named above will be empowered at any time prior to the
earlier of termination of the Merger Agreement and the date on which the Merger
becomes effective to exercise all voting rights (including, without limitation,
the power to execute and deliver written consent with respect to the Shares) of
the undersigned at every annual, special or adjourned meeting of the Company's
stockholders, and in every written consent in lieu of such a meeting, or
otherwise, to vote the Shares in favor of approval of the Merger and the Merger
Agreement.
The attorneys and proxies named above may only exercise this proxy to vote
the Shares subject hereto at any time prior to the earlier of termination of the
Merger Agreement and the date on which the Merger becomes effective, at every
annual, special or adjourned meeting of the Stockholders of the Company and in
every written consent in lieu of such meeting, in favor of approval of the
Merger and the Merger Agreement. The undersigned Stockholder may vote the Shares
on all other matters.
<PAGE> 8
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
This proxy is irrevocable.
Dated: October 13, 1998
Signature of Stockholder:
--------------------------------------
Print Name of Stockholder:
-------------------------------------
***PROXY***
-2-
<PAGE> 1
EXHIBIT 9.2
FORM OF PARENT VOTING AGREEMENT
This Voting Agreement ("AGREEMENT") is made and entered into as of October
13, 1998, between DataWorks Corporation, a Delaware corporation (the "COMPANY"),
and the undersigned stockholder ("STOCKHOLDER") of Platinum Software
Corporation, a Delaware corporation ("PARENT").
RECITALS
A. Concurrently with the execution of this Agreement, Parent, the Company
and Zoo Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary
of Parent ("MERGER SUB"), are entering into an Agreement and Plan of
Reorganization (the "MERGER AGREEMENT") which provides for the merger
(the "MERGER") of Merger Sub with and into the Company. Pursuant to the Merger,
shares of capital stock of the Company will be converted into Common Stock of
Parent on the basis described in the Merger Agreement.
B. The Stockholder is the record holder of such number or outstanding
shares of Common Stock of Parent as is indicated on the final page of this
Agreement. In addition, the Stockholder holds options, warrants and other
rights to acquire such number of shares of capital stock of Parent as is
indicated on the final page of this Agreement.
C. As a material inducement to enter into the Merger Agreement, the
Company desires the Stockholder to agree, and the Stockholder is willing to
agree, to vote the Shares (as defined below) and other such shares of capital
stock of Parent over which Stockholder has voting power so as to facilitate
consummation of the Merger.
NOW, THEREFORE, intending to be legally bound, the parties agree as
follows:
1. Agreement to Vote Shares; Additional Purchases.
1.1 Agreement to Vote Shares. Until the termination of this
Agreement pursuant to Section 6 below, at every meeting of the stockholders of
Parent called with respect to any of the following, and at every adjournment
thereof, and on every action or approval by written consent of the stockholders
of Parent with respect to any of the following, Stockholder shall cause the
Shares and any New Shares (as defined below) to be voted in favor of approval of
the issuance of shares of Parent's Common Stock (the "PARENT COMMON STOCK"), to
the stockholders of the Company pursuant to the Merger Agreement.
<PAGE> 2
1.2 Definitions. For purposes of this Agreement:
"Shares" shall mean all issued and outstanding shares of Common Stock and
Series C Preferred Stock of Parent owned of record or beneficially (over which
beneficially-owned shares the Stockholder exercises voting power) by the
Stockholder as of the record date for persons entitled (a) to receive notice
of, and to vote at the meeting of the stockholders of Parent called for
the purpose of voting on the matter referred to in Section 1.1, or (b) to take
action by written consent of the stockholders of Parent with respect to
the matter referred to in Section 1.1.
"Subject Securities" shall mean: (i) all securities of Parent (including
all shares of Parent Capital Stock and all options, warrants and other rights
to acquire shares of Parent Capital Stock) beneficially owned by Stockholder as
of the date of this Agreement; and (ii) all additional securities of Parent
(including all additional shares of Parent Capital Stock and all additional
options, warrants and other rights to acquire shares of Parent Capital Stock)
of which Stockholder acquires ownership during the period from the date of this
Agreement through the termination of this Agreement pursuant to Section 6 below.
A person shall be deemed to have affected a "Transfer" of a security if
such person directly or indirectly: (i) sells, pledges, encumbers, grants an
option with respect to, transfers or disposes of such security or any interest
in such security; or (ii) enters into an agreement or commitment providing for
the sale of, pledge of, encumbrance of, grant of an option with respect to,
transfer of or disposition of such security or any interest therein.
1.3 Additional Purchases. Stockholder agrees that any shares of
capital stock of Parent that Stockholder purchases or with respect to which
Stockholder otherwise acquires beneficial ownership (over which
benefically-owned shares the Stockholder exercises voting power) after the
execution of this Agreement and prior to the date of termination of this
Agreement ("New Shares") shall be subject to the terms and conditions of this
Agreement to the same extent as if they constituted Shares.
1.4 Transferee of Subject Securities to be Bound by this Agreement.
Stockholder agrees that, during the period from the date of this Agreement
through the termination of this Agreement pursuant to Section 6 below,
Stockholder shall not cause or permit any Transfer of any of the Subject
Securities to be effected unless such Transfer is in accordance with any
affiliate agreement between Stockholder and the Company contemplated by the
Merger Agreement to which such Stockholder is bound and each person to which any
of such Subject Securities, or any interest in any of such Subject Securities,
is or may be transferred shall have: (a) executed a counterpart of this
Agreement and the Proxy (defined below) (with such modifications as the Company
may reasonably request); and (b) agreed in writing to hold such Subject
Securities (or interest in such Subject Securities) subject to all of the terms
and provisions of this Agreement.
-2-
<PAGE> 3
2. Irrevocable Proxy. Concurrently with the execution of this Agreement,
Stockholder agrees to deliver to Parent a proxy in the form attached hereto as
Exhibit A (the "PROXY"), which shall be irrevocable, with respect to the Shares.
3. Representations and Warranties of the Stockholder. Stockholder (i) is
the owner of the shares of capital stock of Parent, and the options, warrants
and other rights to acquire shares of capital stock of Parent, indicated on the
final page of this Agreement, which at the date hereof are free and clear of
any liens, claims, options, charges or other encumbrances; (ii) does not
beneficially own any securities of the Company other than the shares of capital
stock of Parent, and options, warrants and other rights to acquire shares of
capital stock of Parent, indicate on the final page of this Agreement; and
(iii) has full power and authority to make, enter into and carry out the terms
of this Agreement.
4. Additional Documents. Stockholder and the Company hereby covenant and
agree to execute and deliver any additional documents necessary or desirable, in
the reasonable opinion of the Company or Stockholder, as the case may be, to
carry out the intent of this Agreement.
5. Consent and Waiver. Stockholder (not in his capacity as a director or
officer of Parent) hereby gives any consents or waivers that are
reasonably required for the issuance of the Parent Common Stock under the terms
of any agreements to which Stockholder is a party or pursuant to any rights
Stockholder may have.
6. Termination. This Agreement shall terminate and shall have no further
force or effect as of the earlier to occur of (i) such date and time as the
Merger shall become effective in accordance with the terms and provisions of the
Merger Agreement or (ii) such date and time as the Merger Agreement shall have
been terminated pursuant to Article VII thereof.
7. Miscellaneous.
7.1 Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, then the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
7.2 Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but, except as
otherwise specifically provided herein, neither this Agreement nor any of the
rights, interests or obligations of the parties hereto may be assigned by either
of the parties without prior written consent of the other.
7.3 Amendments and Modification. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
-3-
<PAGE> 4
7.4 Specific Performance; Injunctive Relief. The parties hereto
acknowledge that Parent will be irreparably harmed and that there will be no
adequate remedy at law for a violation of any of the covenants or agreements of
Stockholder set forth herein. Therefore, it is agreed that, in addition to any
other remedies that may be available to the Company upon any such violation, the
Company shall have the right to enforce such covenants and agreements by
specific performance, injunctive relief or by any other means available to the
Company at law or in equity.
7.5 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and sufficient if delivered in
person, by cable, telegram or telex, or sent by mail (registered or certified
mail, postage prepaid, return receipt requested) or overnight courier (prepaid)
to the respective parties as follows:
If to Parent: DataWorks Corporation
5910 Pacific Center Boulevard
Suite 300
San Diego, CA 92121
Attn: General Counsel
With a copy to: Cooley Godward LLP
4365 Executive Drive
Suite 1100
San Diego, CA 92121
Attn: Frederick T. Muto, Esq.
If to the Stockholder: To the address for notice set forth on
last page hereof.
With a copy to: Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304
Attn: Larry W. Sonsini, Esq.
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall only be
effective upon receipt.
7.6 Governing Law. This Agreement shall be governed by, and construed
and enforced in accordance with, the internal laws of the State of Delaware
(without regard to the principles of conflict of laws thereof).
7.7 Entire Agreement. This Agreement contains the entire understanding
of the parties in respect of the subject matter hereof, and supersedes all prior
negotiations and understandings between the parties with respect to such subject
matter.
7.8 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
-4-
<PAGE> 5
7.9 Effect of Headings. The section headings herein are for
convenience only and shall not affect the construction or interpretation of
this Agreement.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties have caused this Voting Agreement to be
duly executed on the date and year first above written.
COMPANY
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
STOCKHOLDER:
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
Stockholder's Address for Notice:
-----------------------------------------
-----------------------------------------
-----------------------------------------
Outstanding Shares of Common
------- Stock of the Company
Outstanding Shares of Series C
------- Preferred Stock of the Company
Outstanding Shares of Common
------- Stock of the Company subject to
outstanding stock options
***VOTING AGREEMENT***
-6-
<PAGE> 7
EXHIBIT A
IRREVOCABLE PROXY
The undersigned Stockholder of Platinum Software Corporation, a Delaware
corporation ("PARENT"), hereby irrevocably appoints the directors on the Board
of Directors of DataWorks Corporation, a Delaware corporation (the "COMPANY"),
and each of them, as the sole and exclusive attorneys and proxies of the
undersigned, with full power of substitution and resubstitution, to the full
extent of the undersigned's rights with respect to the voting of the Shares and
the New Shares (each as defined in the Voting Agreement of even date between the
Company and the Stockholder (the "VOTING AGREEMENT")) on the matter described
below (and on no other matter), until such time as that certain Agreement and
Plan of Reorganization dated as of October 13, 1998 (the "MERGER AGREEMENT"),
among Parent, Zoo Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Parent ("MERGER SUB"), and the Company, shall be terminated in
accordance with its terms or the Merger (as defined in the Merger Agreement)
becomes effective. Upon the execution hereof, all prior proxies given by the
undersigned with respect to the Shares and any and all other shares or
securities issued or issuable in respect thereof on or after the date hereof are
hereby revoked and no subsequent proxies will be given.
This proxy is irrevocable, is granted pursuant to the Voting Agreement and
is granted in consideration of the Company entering into the Merger Agreement.
The attorneys and proxies named above will be empowered at any time prior to
the earlier of termination of the Merger Agreement and the date on which the
Merger becomes effective to exercise all voting rights (including, without
limitation, the power to execute and deliver written consents with respect to
the Shares) of the undersigned at every annual, special or adjourned meeting of
Parent's stockholders, and in every written consent in lieu of such a meeting,
or otherwise, to vote the Shares in favor of approval of the issuance of shares
of parent Common Stock to the stockholders of the Company pursuant to the
Merger Agreement.
The attorneys and proxies named above may only exercise this proxy to vote
the Shares subject hereto at any time prior to the earlier of termination of
the Merger Agreement and the date on which the Merger becomes effective, at
every annual, special or adjourned meeting of the Stockholders of the Company
and in every written consent in lieu of such meeting, in favor of approval of
the issuance of shares of Parent Common Stock to the stockholders of the
Company pursuant to the Merger Agreement. The undersigned stockholder may vote
the Shares on all other matters.
<PAGE> 8
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
This proxy is irrevocable.
Dated: October 13, 1998
Signature of Stockholder:
------------------------------
Print name of Stockholder:
------------------------------
***PROXY***
-2-
<PAGE> 1
EXHIBIT 10.26
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (the "Agreement") is entered into
by and between Platinum Software Corporation (the "Parent"), a Delaware
corporation, and Stuart W. Clifton ("Executive"), effective as of October 13,
1998.
WHEREAS, Parent, Zoo Acquisition Corp., a Delaware corporation and a
wholly owned subsidiary of Parent ("Merger Sub"), and DataWorks Corporation, a
Delaware corporation (the "Company"), have entered into an Agreement and Plan of
Reorganization dated as of the date hereof (the "Reorganization Agreement"),
which provides (subject to the conditions set forth therein) for the merger of
Merger Sub with and into the Company (the "Merger") (capitalized terms used but
not otherwise defined in this Agreement have the meanings assigned to such terms
in the Reorganization Agreement);
WHEREAS, as of the Closing Date, Parent desires to employ Executive
and to assure itself of the continued services of Executive and Executive
desires to be employed by the Parent, under the terms and conditions herein; and
WHEREAS, the Company and Executive desire to terminate the terms of
Executive's existing Employment Agreement dated December 19, 1997, between
Executive and the Company (the "Prior Agreement").
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. EMPLOYMENT BY THE PARENT. Effective as of the Closing Date, the
Parent hereby employs Executive to render full-time services to the Parent as
its Vice Chairman. Executive shall have responsibilities, duties and authorities
that are customarily associated with the position of Vice Chairman, and such
other duties as mutually agreed upon by Executive and the Parent.
2. TERMINATION OF PRIOR AGREEMENT. Effective as of the Closing Date,
the Prior Agreement shall be terminated and be of no further force or effect.
3. TERM OF EMPLOYMENT, CONSULTING SERVICES, AND AGREEMENT. The term of
Executive's employment under this Agreement shall commence as of the Closing
Date and shall terminate on the first anniversary thereof, or such earlier or
later date upon termination of Executive's employment by either party in
accordance with Section 5. As used herein, "Term" refers to the period during
which Executive serves as an employee of or consultant to the Parent pursuant to
the terms of this Agreement. Notwithstanding anything else herein to the
contrary, this Agreement shall terminate and be of no force or effect in the
event of termination of the Reorganization Agreement pursuant to its terms.
1.
<PAGE> 2
4. COMPENSATION.
4.1 SALARY. The Parent agrees to pay Executive compensation
(including base salary, bonuses and equity compensation, if any) as an employee
of the Parent as provided in this Section 4, or as otherwise mutually agreed in
writing between the Parent and Executive. Executive's annualized base salary
("Base Salary") as of the Closing Date shall be $450,000, which shall be paid
pursuant to Parent's normal payroll practices. In addition, subject to the terms
of the following paragraph, Executive shall be entitled to a fiscal year 1999
bonus (and an annual bonus for fiscal years subsequent to fiscal year 1999,
subject to new calculations of revenue and net income projections consistent
with any new calculations used with respect to the Parent's other executive
officers) pursuant to Exhibit A, determined in accordance with such
determinations with respect to the Parent's other executive officers.
Executive will be paid bonuses concurrently with the payment of
bonuses to other of Parent's executive officers in accordance with Exhibit A.
Executive's bonus payments will be pro-rated as appropriate for any partial-year
of service as an employee of Parent during any of Parent's fiscal years, except
no bonus payments will accrue or otherwise be payable for any portion of the
Term that is prior to January 1, 1999, and in the event the Term begins
subsequent to January 1, 1999 Executive's bonus for fiscal 1999 shall
nevertheless be calculated as if Executive was an employee of the Parent
beginning January 1, 1999. If Parent changes its fiscal year to end on other
than June 30, then Exhibit A shall be deemed amended appropriately to account
for such change (subject to new calculations of revenue and net income
projections consistent with any new calculations used with respect to the
Parent's other executive officers).
4.2 STOCK OPTIONS. Effective as of the Closing Date, the Parent
shall grant to Executive an option to purchase up to 375,000 shares of Common
Stock of the Parent pursuant to the form of option agreement attached hereto as
Exhibit B (the "Option") and consistent with option agreements with other
executive officers of Parent. Notwithstanding any contrary term contained in
Exhibit B, however, the Option shall: (i) have an exercise price equal to the
fair market value of the Common Stock of Parent on the date of grant; (ii) vest
as to 125,000 shares on each of the first, second and third anniversaries of the
Closing Date, but such vesting, along with the vesting (as otherwise governed by
the terms of the plan or agreement under which they were granted and/or vesting
was determined) of all other options to acquire Company Common Stock which are
held by Executive immediately prior to Closing (a) shall be accelerated in
certain instances as provided in Section 5.4, (b) shall continue vesting
following termination of employment for so long as Executive shall provide
consulting services (or be deemed to be providing consulting services in the
event of death or disability of Executive as provided in Section 5.3) to the
Parent hereunder, and (c) such vesting shall terminate in the event of
Executive's termination for Cause.
4.3 BENEFITS; REIMBURSEMENT OF EXPENSES. While an employee of
Parent, Executive shall be eligible to participate in any incentive plan, stock
award plan, bonus, participation or extra compensation plan, pension, group
health, disability and life insurance plan or other benefit programs which the
Parent provides for its executives generally. Executive shall be entitled to
reimbursement of out of pocket expenses in accordance with Parent's policies,
applied to its executive officers generally, whether Executive is an employee or
consultant hereunder.
2.
<PAGE> 3
5. TERMINATION OF EMPLOYMENT; CONSULTING COMMITMENT. Subject to the
following provisions of this Section 5, notwithstanding the employment term
described in Section 3 hereof, the Parent and Executive shall have the right to
terminate Executive's employment at any time for any reason whatsoever, with or
without Cause (as defined below). The provisions of this Section 5 shall survive
any termination of Executive's employment.
5.1 PARENT-INITIATED TERMINATION WITHOUT CAUSE.
(a) Subject to Section 5.4 below, in the event the Parent
terminates Executive's employment without Cause and subject to (i) the execution
by Executive of the release attached hereto as Exhibit C and (ii) the expiration
of the seven (7) day revocation period provided for in such release during which
such release shall not have been revoked (collectively, the "Release
Condition"), Executive shall thereafter serve as a consultant to Parent pursuant
to Section 5.6, and the Parent shall pay, pursuant to COBRA or if COBRA coverage
is not available, coverage that is COBRA comparable, all costs (excluding
Execucare) associated with the continuation of coverage under the Parent's group
health plan(s) for the period following termination until the date that
Executive ceases to provide services as a consultant hereunder. Such continuing
coverage shall provide for the same terms under which Executive, Executive's
spouse, and Executive's dependents were covered immediately prior to
termination. Executive's compensation and benefits as an employee of the Parent
shall otherwise cease as of such termination date.
(b) For purposes of this Agreement, "Cause" shall mean (a)
willful breach or habitual neglect of Executive's duties hereunder and failure
to remedy such breach or neglect within 30 days after written notice to
Executive thereof, (b) material breach by Executive of his Noncompetition
Agreement entered into with Parent in connection with the Merger (provided that
any disagreement with respect to such breach has been resolved in accordance
with Section 7 hereof), or (c) misconduct, including, but not limited to: (i)
conviction of any felony or of any crime involving moral turpitude or
dishonesty; (ii) participation in any fraud against the Parent or any parent or
subsidiary of Parent; (iii) Executive's repeated insubordination or refusal to
comply with the reasonable request of the Parent's Board of Directors (the
"Board") relating to the scope or performance of Executive's duties; or (iv)
conduct by Executive which in the good faith and reasonable determination of the
Board demonstrates Executive's gross unfitness to serve.
5.2 PARENT-INITIATED TERMINATION FOR CAUSE. In the event
Executive's employment is terminated by the Parent or its successor at any time
for Cause, Executive's compensation, benefits and option vesting will
immediately cease in their entirety, and Executive shall not be entitled to any
severance or other benefits.
5.3 EXECUTIVE-INITIATED VOLUNTARY TERMINATION; DISABILITY OR
DEATH. Executive may voluntarily terminate his employment with the Parent or its
successor at any time by giving the Board thirty (30) days' written notice. In
the event Executive so terminates his employment with the Parent or its
successor, Executive shall thereafter serve as a consultant to Parent pursuant
to Section 5.6, and the Parent shall pay, pursuant to COBRA, or if COBRA
coverage is not available, coverage that is COBRA comparable, all costs
(excluding Execucare) associated with the continuation of coverage under the
Parent's group health plan(s) for the
3.
<PAGE> 4
period following termination until the date that Executive ceases to provide
services as a consultant hereunder. Such continuing coverage shall provide for
the same terms under which Executive, Executive's spouse, and Executive's
dependents were covered immediately prior to termination. Executive's
compensation and benefits as an employee of the Parent shall otherwise cease as
of such termination date. Notwithstanding anything in this Agreement to the
contrary, in the event Executive dies or becomes permanently disabled (as
defined in Section 22(e)(3) of the Internal Revenue Code) while an employee of
the Parent, such event will be deemed a termination of Executive's employment
pursuant to this Section 5.3, and Executive or Executive's estate, as
appropriate, will be entitled to all consulting fees and continuation of vesting
contemplated by Section 5.6 as if Executive provided consulting services
pursuant to Section 5.6 for the entire Consulting Period (as defined below), and
the other benefits described above shall inure to Executive's successors.
5.4 TERMINATION FOLLOWING CHANGE IN CONTROL.
(a) In the event that, at the time of or within twelve (12)
months following the occurrence of a Change in Control (as defined below), (i)
the Parent or its successor terminates Executive's employment without Cause or
(ii) Executive voluntarily terminates his employment for any reason or for no
reason, then, in either case, in lieu of the provisions of Sections 5.1 and 5.3,
following such termination and subject to the Release Condition, (A) Executive
shall thereafter serve as a consultant to Parent pursuant to Section 5.6; (B)
the Parent or its successor shall pay, pursuant to COBRA, or if COBRA coverage
is not available, coverage that is COBRA comparable, all costs (excluding
Execucare) associated with the continuation of coverage under the Parent's group
health plan(s) for the period following termination until the date that
Executive ceases to provide services as a consultant hereunder; and (C) the
vesting and exercisability of any and all options then owned by Executive to
purchase shares of the Parent's Common Stock shall immediately accelerate in
full and become fully vested and exercisable otherwise in accordance with their
terms.
(b) "Change in Control" shall mean the occurrence of any of
the following:
(i) Any "person," as such term is used in Section 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (other than the Parent, a Parent subsidiary, or a Parent employee benefit
plan, including any trustee of such plan acting as trustee) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Parent (or a successor to the Parent)
representing fifty percent (50%) or more of the combined voting power of the
then outstanding securities of the Parent or such successor; or
(ii) At least a majority of the directors of the Parent
constitute persons who were not at the time of their first election to the
Board, candidates proposed by a majority of the Board of Directors in office
prior to the time of such first election; or
(iii) A merger or consolidation in which the Parent is
not the surviving entity, except for a transaction, the principal purpose of
which is to change the state in which the Parent is incorporated; or
4.
<PAGE> 5
(iv) A sale, transfer or other disposition of assets
involving fifty percent (50%) or more in value of the assets of the Parent; or
(v) The dissolution of the Parent, or liquidation of
more than fifty percent (50%) in value of the Parent; or
(vi) Any reverse merger in which the Parent is a
surviving entity but in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Parent's outstanding securities
are transferred to a person or persons different from the persons holding those
securities immediately prior to such reverse merger.
5.5 CERTAIN REDUCTIONS IN PAYMENTS.
(a) In the event that the benefits under this Agreement,
when aggregated with any other payments or benefits received by Executive, or to
be received by Executive, would (i) constitute "parachute payments" within the
meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code"), and (ii) but for this provision, would be subject to the excise tax
imposed by Section 4999 of the Code or any similar or successor provision (the
"Excise Tax"), then Executive's benefits shall either be (A) delivered in full
or (B) delivered to such lesser amount or degree as would result in no portion
of such benefits being subject to the excise tax under Section 4999 of the Code,
whichever of the foregoing amounts, taking into account the applicable federal,
state and local taxes and the Excise Tax, results in the receipt by Executive on
an after-tax basis, of the greatest amount of benefits, notwithstanding that all
or some portion of such benefits may be subject to the Excise Tax.
(b) Unless Parent and Executive otherwise agree in writing,
any determination required under this Section shall be made in writing by the
Parent's primary independent public accounting firm (the "Accountant's), whose
determination shall be conclusive and binding upon Executive and Parent for all
purposes. For purposes of making the calculations required by this Section, the
Accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of Sections 280G and 4999 of the Code. Parent and
Executive shall furnish to the Accountants such information and documents as the
Accountants may reasonably request in order to make its determination under this
Section. Parent shall bear all costs the Accountants may reasonably incur in
connection with any calculations contemplated by this Section.
5.6 CONSULTING COMMITMENT.
(a) Executive shall, as provided in this Section 5.6, serve
as a consultant to Parent during the Consulting Period in the event of
Executive's termination of employment pursuant to Section 5.1, 5.3 or 5.4 above.
The "Consulting Period" (i) in the event of termination of Executive's
employment pursuant to Section 5.1 or 5.4 above shall be from the date of such
termination until the date that is the later of (x) the third anniversary of the
Closing Date and (y) the date that is two (2) years following such termination,
and (ii) in the event of termination of Executive's employment pursuant to
Section 5.3 above shall be from the date of such termination until the date that
is two (2) years following such termination.
5.
<PAGE> 6
(b) The Parent shall be entitled to require the Executive to
be available to render consulting services up to seventy-five (75) hours per
month, at times mutually agreed upon from time to time by Executive and the
Parent. Executive shall perform such services in San Diego County, California,
or such other place as may be mutually agreed upon in writing by Executive and
the Parent.
(c) In exchange for Executive's availability, the Parent
shall pay base consulting fees at a rate of $450,000 per year payable in equal
installments on dates coinciding with salary payments made to the Parent's other
executive officers, with payment for any partial pay period to be prorated
(based on the number of days during the Consulting Period in such pay period
relative to the number of days in such pay period). In addition, the Parent
shall pay "bonus consulting fees" for each fiscal year of the Parent in
accordance with Exhibit A and Executive shall continue options vesting pursuant
to Section 4.2, as if Executive were still a full-time employee of the Parent
(including with respect to partial-year service). If the Parent determines that
it is obligated to do so, it shall be entitled to withhold from the Executive's
consulting compensation such amounts as may be required by tax or other
government authorities. Notwithstanding anything in this Agreement to the
contrary, in the event Executive dies or is permanently disabled (as defined in
Section 22(e)(3) of the Internal Revenue Code) while a consultant of the Parent
pursuant to this Section 5.6, Executive or Executive's estate, as appropriate,
will be entitled to all consulting fees and continuation of option vesting
contemplated by Section 4.2 as if Executive provided consulting services
pursuant to Section 5.6 for the entire Consulting Period, and the other benefits
described above shall inure to Executive's successors.
(d) Executive shall perform such consulting services as an
independent contractor.
5.7 BREACH OF NONCOMPETITION AGREEMENT. Notwithstanding anything
else herein to the contrary, in the event Executive materially breaches his
Noncompetition Agreement entered into with the Parent in connection with the
Merger, the Parent may terminate Executive's employment with the Company and
Executive shall not provide consulting services to the Company hereunder; and as
a result the Parent shall have no obligation to pay Executive hereunder for
subsequent services and Executive's options to purchase shares of Parent's
Common Stock will immediately cease to vest.
6. NOTICES. Any notice which the Parent is required or may desire to
give to Executive shall be given by personal delivery, facsimile or registered
or certified mail, return receipt requested, addressed to Executive at the
address of record with the Parent, or at such other place as Executive may from
time to time designate in writing. Any notice which Executive is required or may
desire to give to the Parent hereunder shall be given by personal delivery,
facsimile or by registered or certified mail, return receipt requested,
addressed to the Parent at its principal office, or at such other office as the
Parent may from time to time
6.
<PAGE> 7
designate in writing. The date of personal delivery, facsimile or mailing any
such notice shall be deemed to be the date of delivery thereof.
7. CONFIDENTIAL AND PROPRIETARY INFORMATION.
7.1 CONFIDENTIAL AND PROPRIETARY INFORMATION. Executive hereby
acknowledges that, currently or as soon as possible after the signing of this
Agreement, Executive will enter into Parent's standard form of Employee
Proprietary Information and Inventions Agreement, a form of which is attached
hereto as Exhibit D.
8. GENERAL.
8.1 INDEMNIFICATION. The Parent agrees that it will enter into an
indemnification agreement with Executive consistent with that entered into
between the Parent and other of Parent's executive officers, and the parties
agree that such agreement shall cover the entire Term of this Agreement and
Executive's services provided to the Parent pursuant hereto.
8.2 ENTIRE AGREEMENT. Effective as of the Closing Date, this
Agreement shall supersede the Prior Agreement, and sets forth the complete,
final and exclusive embodiment of the entire agreement between Executive and the
Parent, and supersedes all prior agreements or understandings between the
parties, with respect to the subject matter hereof. This Agreement is entered
into without reliance upon any promise, warranty or representation, written or
oral, other than those expressly contained herein, and it supersedes any other
such promises, warranties, representations or agreements. This Agreement may not
be amended or modified except in a written instrument signed by Executive and a
duly authorized officer or director of the Parent.
8.3 SEVERABILITY. If a court of competent jurisdiction determines
that any term or provision of this Agreement is invalid or unenforceable, then
the remaining terms and provisions shall be unimpaired. Such court shall have
the authority to modify or replace the invalid or unenforceable term or
provision with a valid and enforceable term or provision which most accurately
represents the parties' intention with respect to the invalid or unenforceable
term or provision.
8.4 SUCCESSORS AND ASSIGNS. This Agreement shall bind the heirs,
personal representatives, successors, assigns, executors and administrators of
each party, and inure to the benefit of each party, its heirs, successors and
assigns. However, because of the unique and personal nature of Executive's
duties under this Agreement, Executive may not delegate the performance of his
duties under this Agreement.
8.5 APPLICABLE LAW. This Agreement shall be deemed to have been
entered into and shall be construed and enforced in accordance with the laws of
the State of California as applied to contracts made and to be performed
entirely within California.
8.6 HEADINGS. The section headings contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
7.
<PAGE> 8
8.7 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, all of which together
shall constitute one and the same instrument.
8.
<PAGE> 9
IN WITNESS WHEREOF, the parties have duly authorized and caused this
Agreement to be executed as follows:
STUART W. CLIFTON, PLATINUM SOFTWARE CORPORATION,
an Individual a Delaware corporation
/s/ Stuart W. Clifton
- ---------------------------------- By: /s/ L. George Klaus
---------------------------------
Name: L. George Klaus
-------------------------------
Title:
------------------------------
The Company hereby acknowledges and agrees to the provisions of
Sections 2, 4.5 and 8.2 hereof.
DATAWORKS CORPORATION,
a Delaware corporation
By: /s/ Stuart W. Clifton
-------------------------------
Name: Stuart W. Clifton
-----------------------------
Title:
----------------------------
9.
<PAGE> 10
EXHIBIT A
PLATINUM EXECUTIVE BONUS PLAN
<TABLE>
<CAPTION>
EMPLOYEE NAME TITLE CLOSING DATE DATE PREPARED REVISION #
------------- ----- ------------ ------------- ----------
<S> <C> <C> <C> <C>
Stuart W. Clifton Vice Chairman As defined in Clifton Executive
Employment Agreement
</TABLE>
AUTHORITY AND RESPONSIBILITY
Vice Chairman, Platinum Software Corporation
FY1999 ASSIGNMENT
<TABLE>
<CAPTION>
($ MILLIONS) QTR 1 QTR 2 QTR 3 QTR 4 TOTAL
------------ ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
A) Revenue TBD TBD TBD TBD TBD
B) Net Income TBD TBD TBD TBD TBD
</TABLE>
INCENTIVE COMPENSATION
INCENTIVE AT 100% OF TARGET
<TABLE>
<S> <C> <C> <C> <C>
LEVEL I Bonus Revenue $4,500 per % point 76% - 100% $112,500
LEVEL I Bonus Net Income $4,500 per % point 76% - 100% 112,500
----------------
TOTAL FOR 100% PORTION $225,000
----------------
</TABLE>
INCENTIVE ABOVE 100% OF TARGET
<TABLE>
<S> <C> <C> <C> <C>
LEVEL II Bonus Revenue $22,500 per % point 101% - 105% $112,500
LEVEL II Bonus Net Income $4,500 per % point 101% - 125% $112,500
LEVEL II Bonus Backlog $22,500 per million 106% - 110% $112,500
----------------
TOTAL FOR ABOVE 100% $337,500
----------------
TOTAL AT CAP $562,500
----------------
</TABLE>
COMMENTS
a) Payment of incentives beyond the above CAP can be achieved with approval of
the Board of Directors.
b) All bonuses will be earned on a pro-rata basis, but not paid until the end
of the fiscal year.
c) Backlog is defined as revenue which could have been recognized which was
held for the subsequent quarter. Backlog should be included in the net
income calculation and is used in the annual revenue calculation.
d) During the Consulting Period, Executive shall in any event be entitled to
the maximum amount of the "INCENTIVE at 100% of TARGET," without
consideration of whether projected revenue and net income are actually met
during a fiscal year.
e) This Exhibit A shall be amended for each new fiscal year during the Term,
in accordance with amendments generally applicable to Parent's executive
officers.
<TABLE>
<CAPTION>
Approved Approved
<S> <C> <C> <C>
Stuart W. Clifton Date Platinum Software Corporation Compensation Date
Committee
</TABLE>
<PAGE> 11
EXHIBIT B
FORM OF NONQUALIFIED OPTION AGREEMENT
THIS NONQUALIFIED OPTION AGREEMENT (the "Agreement"), made as of the
[Agreement_Date], between PLATINUM SOFTWARE CORPORATION, a Delaware
corporation (hereinafter referred to as the "Company"), and [FName] [LName],
an employee of the Company, its parent or one or more of its subsidiaries (the
"Optionee"), is made with reference to the following facts:
R E C I T A L S
A. Optionee is employed with the Company or a consultant to the Company
and is a valued and key employee of or a consultant to the Company.
B. The Company desires, by affording the Optionee an opportunity to
purchase shares of Common Stock of the Company (hereinafter called "Shares"), as
hereinafter provided, to carry out the purpose of the Nonqualified Stock Option
Plan - 1998, a copy of which is attached hereto or available from the Secretary
of the Company (the "Plan").
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants hereinafter set
forth, and for good and valuable consideration, the parties hereto have agreed,
and do hereby agree, as follows:
1. GRANT OF OPTION.
The Company hereby irrevocably grants to the Optionee the right and
option (hereinafter called the "Option") to purchase all or any part of an
aggregate of [Options] Shares (such number being subject to adjustment as
provided in Paragraph 7 hereof) on the terms and conditions herein set forth.
The Option granted herein is a "nonqualified option" and is not subject to the
provisions of Section 422A of the Internal Revenue Code of 1986, as amended.
2. PURCHASE PRICE.
The purchase price of the Shares covered by the Option shall be
$[Grant_Price] per share (the "Exercise Price"), representing one hundred
percent (100%) of the fair market value of the shares as determined pursuant to
Section 5 of the Plan as of the date hereof.
3. TERM OF OPTION.
The term of the Option shall commence on the date hereof and all rights
to purchase shares hereunder shall cease at 11:59 p.m. on the day before the
tenth (10th) anniversary of the date hereof, subject to earlier termination as
provided herein. Except as may otherwise be provided in this Agreement, options
granted hereunder may be cumulative and exercised as follows:
(i) From and after [Grant_Date] (the "Vesting Commencement Date") and
until one year from the Vesting Commencement Date, the Option may not be
exercised as to any of the Shares subject to the Option.
<PAGE> 12
(ii) During the period commencing one year from the Vesting Commencement
Date, the Option may be exercised for one-fourth (1/4) of the Shares subject to
the Option, and, thereafter, on each succeeding anniversary of the Vesting
Commencement Date, the Option may be exercised for an additional one-fourth
(1/4) of the Shares subject to the Option, such that on and after four (4) years
from the Vesting Commencement Date, the Option may be exercised as to all of the
Shares subject to the Option.
The purchase price of the Shares as to which the Option shall be
exercised shall be paid in full at the time of exercise, as provided in
Paragraph 9 below. Except as provided in Paragraph 5 hereof, the Option may not
be exercised at any time unless the Optionee shall have been continuously, from
the date hereof to the date of the exercise of the Option, a Service Provider to
the Company. The holder of the Option shall not have any of the rights of a
shareholder with respect to the Shares covered by the Option as to any Shares of
Common Stock not actually issued and delivered to Optionee.
4. NONTRANSFERABILITY.
The Option shall not be transferable other than by will or the laws of
descent and distribution or with the prior written consent of the Plan
Administrator, and the Option may be exercised, during the lifetime of the
Optionee, only by Optionee. More particularly (but without limiting the
generality of the foregoing), the Option may not be assigned, transferred
(except as provided in Paragraph 6 hereof), pledged or hypothecated in any way,
shall not be assignable by operation of law and shall not be subject to
execution, attachment or similar process. Any attempted assignment, transfer,
pledge, hypothecation or other disposition of the Option contrary to the
provisions hereof, and the levy of any execution, attachment or similar process
upon the Option, shall be null and void and without effect.
5. TERMINATION OF OPTION.
Except as provided below in this Section, this Option shall terminate on
the date Optionee ceases to be a Service Provider for the Company (the
"Termination Date"). Optionee shall be considered to be a Service Provider to
the Company for all purposes under this Agreement if the Board of Directors or
Administrator of the Plan determines that Optionee is rendering or available to
render substantial services as a part-time employee, consultant, contractor or
advisor to the Company or any Parent, Subsidiary or Affiliate of the Company. A
leave of absence (regardless of the reason therefor) shall be deemed to
constitute the cessation of Service Provider status as of the commencement date
of the leave, unless such leave is authorized by the Company in writing and the
Optionee recommences providing services prior to the expiration date of such
leave. Accordingly, the Optionee shall receive credit as a Service Provider to
the Company during a leave of absence only if the leave is authorized by the
Company and the Optionee recommences providing services on or prior to the
expiration date of the leave.
(a) TERMINATION GENERALLY. In the event Optionee ceases to be a Service
Provider to the Company for any reason except death or disability, this Option,
to the extent (and only to the extent) that it would have been exercisable by
Optionee on the Termination Date, may be exercised by Optionee within three (3)
months after the Termination Date, but in no event later than the Expiration
Date.
2
<PAGE> 13
(b) DEATH OR DISABILITY. In the event Optionee ceases to be a Service
Provider to the Company because of the death of Optionee or the disability of
Optionee within the meaning of Section 22(e)(3) of the Code, this Option, to the
extent (and only to the extent) that it would have been exercisable by Optionee
on the Termination Date, may be exercised by Optionee (or Optionee's legal
representative) within one year after the Termination Date, but in no event
later than the Expiration Date.
6. OTHER TERMINATIONS OR EXPIRATIONS.
(a) In addition to any other event causing an expiration or termination
of this Option, this Option shall expire and all rights to purchase Shares shall
cease (to the extent not theretofore terminated or expired as herein provided)
upon the effective date of a Change of Control. To the extent applicable, based
upon the event causing a Change of Control, the Company shall give written
notice to the Optionee of the proposed Change of Control not less than thirty
(30) days prior to the anticipated effective date of the Change of Control. The
Option shall be accelerated and, concurrent with the effective date of the
Change of Control, the Optionee shall have the right to either (i) exercise the
Option in respect to any or all of the Shares then subject thereto, or (ii)
exchange this Option for cash in an amount equal to the number of Shares which
as of the effective date of the Change of Control may be acquired upon the
exercise of the Option, multiplied by the difference between (1) the fair market
value of the consideration to be paid per Share in connection with the Change of
Control as determined by the Board of Directors, which determination shall be
final and binding on Optionee, and (2) The Exercise Price. Such cash payment
shall be paid within thirty (30) days following the consummation of the Change
of Control. Neither the approval of the Board or the Committee shall be required
in connection with such election and the cash distribution.
(b) For the purposes of this Agreement, the term "Change of Control"
shall mean the occurrence of any of the following:
(i) Any "person," as such term is used in Section 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other
than the Company, a Company subsidiary, or a Company employee benefit plan,
including any trustee of such plan acting as trustee) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company (or a successor to the Company)
representing fifty percent (50%) or more of the combined voting power of the
then outstanding securities of the Company or such successor; or
(ii) At least a majority of the directors of the Company
constitute persons who were not at the time of their first election to the
Board, candidates proposed by a majority of the Board of Directors in office
prior to the time of such first election; or
(iii) A merger or consolidation in which the Company is not the
surviving entity, except for a transaction, the principal purpose of which is to
change the state in which the Company is incorporated; or
(iv) A sale, transfer or other disposition of assets involving
fifty percent (50%) or more in value of the assets of the Company; or
(v) The dissolution of the Company, or liquidation of more than
fifty percent (50%) in value of the Company; or
3
<PAGE> 14
(vi) Any reverse merger in which the Company is a surviving
entity but in which securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities are
transferred to a person or persons different from the persons holding those
securities immediately prior to such reverse merger.
7. ADJUSTMENTS.
The number and class of shares subject to this Option, and the purchase
price per share (but not the total purchase price), and the minimum number of
shares as to which this Option may be exercised at any one time, shall all be
proportionately adjusted in the event of any change or increase or decrease in
the number of issued shares of Common Stock in the Company, without receipt of
consideration by the Company, which result from a split-up or consolidation of
shares, payment of a share dividend (in excess of two percent (2%)), a
recapitalization, combination of shares or other like capital adjustment, so
that, upon exercise of this Option, the Optionee shall receive the number and
class of shares Optionee would have received had Optionee been the holder of the
number of shares of Common Stock in the Company, for which this Option is being
exercised, on the date of such change or increase or decrease in the number of
issued shares of Common Stock in the Company. Adjustments under this paragraph
shall be made by the Board of Directors whose determination with respect thereto
shall be final and conclusive. No fractional share shall be issued under this
Option or upon any such adjustment.
8. NOTICE.
All notices, requests, consents and other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered or
mailed, by United States certified or registered mail, prepaid, to the parties
or their assignees at the addresses set forth opposite their signatures below
(or such other address as shall be given in writing by either party to the
other).
9. METHOD OF EXERCISING OPTION.
Subject to the terms and conditions of this Option Agreement, this
Option may be exercised by written notice to the Company, at its principal
office in the State of California, which presently is located at 195 Technology
Drive, Irvine, California 92618-2402. Such notice shall state the election to
exercise the Option and the number of shares in respect of which it is being
exercised and shall be signed by the person or persons so exercising the Option.
Such notice shall be accompanied by payment in (i) cash, certified check, bank
draft; (ii) (subject to the limitations and with the prior approval required
under Paragraph 3 above) certificates for shares of the Common Stock of the
Company; or (iii) (subject to the limitations and with the terms and provisions
specified pursuant to Paragraph 3 above) with the prior written consent and
approval of the Company, by the execution and delivery of Optionee's promissory
note in the principal amount of the exercise price, with such term, interest
rate and other terms and provisions, including, without limitation, requiring
the Shares acquired upon exercise to be pledged to the Company to secure payment
of the note, as the Board of Directors may specify, equal to at the time of
exercise, in the aggregate, the full purchase price of such shares, (iv) by
cancellation of indebtedness of the Company to Optionee, (v) by waiver of
compensation due or accrued to Optionee for services rendered, (vi) provided
that a public market for the Company's stock exists, through a "same day sale"
commitment from the Optionee and a broker-dealer that is a member of the
National Association of Securities Dealers (an "NASD" Dealer) whereby the
Optionee irrevocably elects to exercise his Option and to sell a portion of the
Shares so purchased to pay for the exercise price and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to forward the exercise price
directly to the Company, (vii) provided that a public market for the Company's
stock exists, through a "margin" commitment from the Optionee and NASD Dealer
whereby the Optionee irrevocably elects to exercise this Option and to pledge
the Shares so
4
<PAGE> 15
purchased to the NASD Dealer in a margin account as security for a
loan from the NASD Dealer in the amount of the exercise price, and whereby the
NASD Dealer irrevocably commits upon receipt of such Shares to forward the
exercise price directly to the Company, or (viii) any combination of (i), (ii),
(iii), (iv), (v), (vi) or (vii) above, and the Company shall deliver a
certificate or certificates representing the Shares subject to such exercise as
soon as practicable after the notice shall be received. The certificate or
certificates for the shares as to which the Option shall have been so exercised
shall be registered in the name of the person or persons so exercising the
Option and shall be delivered as provided above to or upon the written order of
the person or persons exercising the Option. In the event the Option shall be
exercised by any person or persons other than the Optionee in accordance with
the terms hereof, such notice shall be accompanied by appropriate proof of the
right of such person or persons to exercise the Option. All shares that shall be
purchased upon the exercise of the Option as provided herein shall be fully paid
and nonassessable. The holder of this Option shall not be entitled to the
privileges of share ownership as to any shares of Common Stock not actually
issued and delivered to Optionee. Until and unless the Plan and the issuance of
securities thereunder shall have been registered under the Securities Act of
1933, as amended (the "Securities Act"), the Optionee hereby certifies that all
shares of Common Stock in the Company purchased or to be purchased by Optionee
pursuant to the exercise of this Option are being or are to be acquired by
Optionee for investment and not with a view to the distribution thereof.
10. NO AGREEMENT TO EMPLOY.
Nothing in this Agreement shall be construed to constitute or be
evidence of any agreement or understanding, express or implied, on the part of
the Company to employ or retain Optionee for any specific period of time.
11. MARKET STANDOFF AGREEMENT.
Optionee agrees in connection with any underwritten registration of the
Company's securities that, upon the request of the Company or the underwriters
managing any public offering of the Company's securities, Optionee will not sell
or otherwise dispose of any Shares without the prior written consent of the
Company or such underwriters, as the case may be, for a period of time (not to
exceed 90 days) from the effective date of such registration as the Company or
the underwriters may specify.
12. STOP-TRANSFER NOTICES.
Optionee understands and agrees that, in order to ensure compliance with
the restrictions referred to herein, the Company may issue appropriate
"stop-transfer" instructions to its transfer agent, if any, and that, if the
Company transfers its own securities, it may make appropriate notations to the
same effect in its own records.
5
<PAGE> 16
13. GENERAL.
The Company shall at all times during the term of the Option reserve and
keep available such number of shares of Common Stock as will be sufficient to
satisfy the requirements of this Option Agreement, shall pay all original issue
and transfer taxes with respect to the issue and transfer of shares pursuant
hereto and all other fees and expenses necessarily incurred by the Company in
connection therewith, and will from time to time use its best efforts to comply
with all laws and regulations, which, in the opinion of counsel for the Company,
shall be applicable thereto.
IN WITNESS WHEREOF, the Company has caused this Nonqualified Option
Agreement to be duly executed by its officers thereunto duly authorized, and the
Optionee has hereunto set his hand, all as of the day and year first above
written.
COMPANY:
PLATINUM SOFTWARE CORPORATION
Address:
195 Technology Drive
Irvine, CA 92618-2402 By:
---------------------------------
OPTIONEE:
Address:
- --------------------------
- --------------------------
------------------------------------
[FName] [LName]
6
<PAGE> 17
EXHIBIT C
RELEASE AND WAIVER OF CLAIMS
In exchange for consideration described in my Executive Employment
Agreement, and subject to continuing obligations to me pursuant to Sections 4, 5
and 9.1 thereof, I hereby furnish Platinum Software Corporation (the "Parent")
with the following release and waiver:
I hereby release, and forever discharge the Parent, its officers,
directors, agents, employees, stockholders, successors, assigns and affiliates,
of and from any and all claims, liabilities, demands, causes of action, costs,
expenses, attorneys' fees, damages, indemnities and obligations of every kind
and nature, in law, equity, or otherwise, known and unknown, suspected and
unsuspected, disclosed and undisclosed, arising at any time prior to and
including the date eight days prior to the execution date of this Release with
respect to any claims relating to my employment and the termination of my
employment, including but not limited to, claims pursuant to any federal, state
or local law relating to employment, including, but not limited to,
discrimination claims, claims under the federal Age Discrimination in Employment
Act of 1967, as amended ("ADEA"), or claims for wrongful termination, breach of
the covenant of good faith, contract claims, tort claims, and wage or benefit
claims, including but not limited to, claims for salary, bonuses, commissions,
stock, stock options, vacation pay, fringe benefits, severance pay or any form
of compensation, and excluding claims relating to consulting services described
in Section 5.6 of my Executive Agreement.
I also acknowledge that I have read and understand Section 1542 of the
California Civil Code which reads as follows: "A GENERAL RELEASE DOES NOT EXTEND
TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT
THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY
AFFECTED HIS SETTLEMENT WITH THE DEBTOR." I hereby expressly waive and
relinquish all rights and benefits under that section and any law of California
or any other jurisdiction of similar effect with respect to any claims I may
have against the Parent.
I acknowledge that, among other rights, I am waiving and releasing any
rights I may have under ADEA, that this waiver and release is knowing and
voluntary, and that the consideration given for this waiver and release is in
addition to anything of value to which I was already entitled as an employee of
the Parent. I further acknowledge that I have been advised, as required by the
Older Workers Benefit Protection Act, that: (a) the waiver and release granted
herein does not relate to claims which may arise after this agreement is
executed; (b) I have the right to consult with an attorney prior to executing
this agreement (although I may choose voluntarily not to do so); (c) I have
twenty-one (21) days from the date I receive this agreement, in which to
consider this agreement (although I may choose voluntarily to execute this
agreement earlier); (d) I have seven (7) days following the execution of this
agreement to revoke my consent to the agreement; and (e) this agreement shall
not be effective until the seven (7) day revocation period has expired.
This release and waiver, the Executive Employment Agreement, the
Noncompetition Agreement and any option agreements between Executive and Parent
represent the entire agreement and understanding between Parent and Executive
concerning the subject matter hereof
<PAGE> 18
and supersede and replace any and all prior agreements and understandings,
whether written or oral, concerning the subject matter hereof.
Date: __________________ By:_________________________________
Stuart W. Clifton
<PAGE> 19
EXHIBIT D
PLATINUM SOFTWARE CORPORATION
EMPLOYEE PROPRIETARY INFORMATION AGREEMENT
In consideration and as a condition of my employment, or continued
employment, by PLATINUM SOFTWARE CORPORATION and/or by companies which it owns,
controls, or is affiliated with, or their successors in business (hereafter
referred to as "the Company"), and the compensation paid therefore:
1. CONFIDENTIALITY.
I agree to keep confidential, except as the Company may otherwise consent in
writing and not to disclose or make any use of except for the benefit of the
Company, at any time, either during or subsequent to my employment, any trade
secrets, confidential information, knowledge, data or other information of the
Company relating to products, processes, know-how, designs, formulas, test data,
customer lists, business plans, marketing plans and strategies, pricing
strategies or other subject matter pertaining to any business of the Company or
any of its clients, customers, consultants, licensees or affiliates, which I may
produce, obtain or otherwise acquire during the course of my employment, except
as herein provided. I further agree not to deliver, reproduce or in any way
allow any such trade secrets, confidential information, knowledge, data or other
information, or any documentation relating thereto, to be delivered or used by
any third parties without specific direction or consent of a duly authorized
representative of the Company.
2. CONFLICTING EMPLOYMENT/RETURN OF CONFIDENTIAL MATERIAL.
I agree that during my employment with the Company I will not engage in any
other employment, occupation, consulting or other activity relating to the
business in which the Company is now or may hereafter become engaged or which
would otherwise conflict with my obligations to the Company. In the event of my
termination of employment with the Company for any reason whatsoever, I agree to
promptly surrender and deliver to the Company all records, materials, equipment,
drawings, documents and data of any nature pertaining to any invention, trade
secret or confidential information of the Company or to my employment, and I
will not take with me any description containing or pertaining to any
confidential information, knowledge or data of the Company which I may produce
or obtain during the course of my employment. In the event of the termination of
my employment for any reason whatsoever, I agree to sign and deliver the
"Termination Certificate" attached hereto as Exhibit A.
3. ASSIGNMENT OF INVENTIONS.
I agree that all computer programs, documentation and other copyrightable
materials to which I contribute during my employment shall be considered "works
made for hire" and shall be the sole property of the Company. I hereby assign
and transfer to the Company my entire right, title and interest in and to all
inventions (as used in the Agreement, "inventions" shall include but not be
limited to ideas, improvements, designs and discoveries) whether or not
patentable and whether or not reduced to practice, made or conceived by me
(whether made solely by me or jointly with others) during the period of my
employment with the Company, which relate in any manner to the actual or
demonstrably anticipated business, work or research and development of the
Company or its subsidiaries, or result from or are suggested by any task
assigned to me or any work performed by me for or on behalf of the Company or
its subsidiaries. I agree that all such inventions are the sole property of the
Company provided, however, that this Agreement does not require assignment of an
invention which qualifies fully for protection under Section 2870 of the
California Labor Code (hereafter referred to as "Section 2870"). A copy of
Section 2870 is attached as Exhibit B.
4. DISCLOSURE OF INVENTIONS AND PATENTS.
I agree that in connection with any "invention" as defined in Paragraph 3
above:
a) I will disclose such invention promptly in writing to my immediate
superior at the Company, with a copy to the President, regardless of
whether I believe the invention is protected by Section 2870, in order to
permit the Company to claim rights to which it may be entitled under this
Agreement. Such disclosure shall be received in confidence by the Company.
b) I will, at the Company's request, promptly execute a written assignment of
title to the Company for any invention required to be assigned by
Paragraph 3 ("assignable invention"), and I will preserve any such
assignable invention as confidential information of the Company.
c) Upon request, I agree to assist the Company or its nominee (at its
expense) during and at any time subsequent to my employment in every
reasonable way to obtain for its own benefit patents and copyrights for
such assignable inventions in any and all countries, which inventions
shall be and remain the sole and exclusive property of the Company or its
nominee whether or not patented or copyrighted. I agree to execute such
papers and perform such lawful acts as the Company deems to be necessary
to allow it to exercise all right, title, and interest in such patents and
copyrights.
5. EXECUTION OF DOCUMENTS.
In connection with Paragraph 4(c), I further agree to execute, acknowledge
and deliver to the Company or its nominee upon request and at its expense all
such documents, including applications for patents and copyrights and
assignments of inventions, patents and copyrights to be issued therefore, as the
Company may determine necessary or desirable to apply for and obtain letters,
patents and copyrights on such assignable inventions in any and all countries
and/or to protect the interest of the Company or its nominee in such inventions,
patents and copyrights, and to vest title thereto in the Company or its nominee.
6. MAINTENANCE OF RECORDS.
I agree to keep and maintain adequate and current written records of all
inventions made by me (in the form of notes, sketches, drawings and as may be
specified by the Company),
<PAGE> 20
which records shall be available to and remain the sole property of the Company
at all times.
7. PRIOR INVENTIONS.
It is understood that all inventions if any, patented or unpatented, which I
made prior to my employment by the Company are excluded from the scope of this
Agreement. To preclude any possible uncertainty, I have set forth on Exhibit C
attached hereto a complete list of all my prior inventions, including numbers of
all patents and patent applications, and a brief description of all unpatented
inventions which are not the property of a previous employer. I represent and
covenant that the list is complete and that, if no items are on the list, I have
no such prior inventions. I agree to notify the Company in writing before I make
any disclosure or perform any work on behalf of the Company which appears to
threaten or conflict with proprietary rights I claim in any invention or idea.
In the event of my failure to give such notice, I agree that I will make no
claim against the Company with respect to any such inventions or ideas.
8. OTHER OBLIGATIONS.
I acknowledge that the Company from time to time may have agreements with
other persons or with the U.S. Government or governments of other countries, or
agencies thereof, which impose obligations or restrictions on the Company
regarding inventions made during the course of work thereunder or regarding the
confidential nature of such work. I agree to be bound by all such obligations
and restrictions and to take all action necessary to discharge the obligations
of the Company thereunder.
9. TRADE SECRETS OF OTHERS.
I represent that my performance of all the terms of this Agreement and as an
employee of the Company does not and will not breach any agreement to keep in
confidence proprietary information, knowledge or data acquired by me in
confidence or in trust prior to my employment with the Company, and I will not
disclose to the Company or induce the Company to use any confidential or
proprietary information or material belonging to any previous employer or
others. I agree not to enter into any agreement either written or oral in
conflict herewith.
10. MODIFICATION.
This Agreement may not be changed, modified, released, discharged, abandoned
or otherwise amended, in whole or in part, except by an instrument in writing,
signed by me and the Company. I agree that any subsequent change or changes in
my duties, salary, or compensation shall not affect the validity or scope of
this Agreement.
11. ENTIRE AGREEMENT.
I acknowledge receipt of this Agreement and agree that with respect to the
subject matter thereof it is my entire agreement with the Company, superseding
any previous oral or written communications, representations, understandings or
agreements with the Company or any officers or representative thereof.
12. SEVERABILITY.
In the event that any paragraph or provision of this Agreement shall be held
to be illegal or unenforceable in any jurisdiction, such paragraph or provision
shall, as to that jurisdiction, be adjusted and reformed, if possible, in order
to achieve the intent of the parties, and if such paragraph or provision cannot
be adjusted and reformed, such paragraph or provision shall, for the purposes of
that jurisdiction be voided and severed from this Agreement, and the entire
Agreement shall not fail on account thereof but shall otherwise remain in full
force and effect.
13. SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon my heirs, executors, administrators or
other legal representative and is for the benefit of the Company, its successors
and assigns.
14. GOVERNING LAW.
This Agreement shall be governed by the laws of the location of the
Company's corporate headquarters, which is presently located in the State of
California; provided, however, that in the event this provision is deemed to be
unenforceable by a local judicial authority or governmental agency, then the
laws of the location of my employment shall apply.
15. COUNTERPARTS.
This Agreement may be signed in two counterparts, each shall be deemed an
original and both of which shall together constitute one agreement.
EMPLOYEE PLATINUM SOFTWARE CORPORATION
- -------------------------- By:
(Employee's Signature) --------------------------
- -------------------------- Its:
(Print Name) -------------------------
Date: Date:
-------------------- ------------------------
2
<PAGE> 21
EXHIBIT A
TERMINATION CERTIFICATE
This is to certify that I do not have in my possession, nor have I failed to
return any records, documents, data, specifications, drawings, blueprints,
reproductions, sketches, notes, reports, proposals, or copies of them, or other
documents or materials, equipment, or other property belonging to the Company,
its successors and assigns (hereafter referred to as "the Company").
I further certify that I have complied with and will continue to comply with
all the terms of the Employee Proprietary Information Agreement signed by me
with the Company, including the reporting of any inventions (as defined therein)
conceived or made by me covered by the Agreement.
I further agree that in compliance with the Employee Proprietary and
Confidential Information Agreement, I will preserve as confidential all trade
secrets, confidential information, knowledge, data, or other information
relating to products, processes, know-how, designs, formulas, test data,
customer lists, or other subject matter pertaining to any business of the
Company or any of its clients, customers, consultants, licensees, or affiliates.
- ---------------------------
Employee's Signature
- ---------------------------
Print Name
- ---------------------------
Date
3
<PAGE> 22
EXHIBIT B
SECTION 2870
CALIFORNIA LABOR CODE
Any provision in an employment agreement which provides that an employee
shall assign or offer to assign any of his or her rights in an invention to his
or her employer shall not apply to an invention for which no equipment,
supplies, facility, or trade secret information of the employer was used, and
which was developed entirely on the employee's own, time, and:
a) which does not relate to the business of the employer or to the
employer's actual or demonstrably anticipated research or development
or
b) which does not result from any work performed by the employee for the
employer.
Any provision which purports to apply to such an invention is to that extent
against the public policy of this state and is to that extent void and
unenforceable.
4
<PAGE> 23
EXHIBIT C
LIST OF PRIOR INVENTIONS
<TABLE>
<CAPTION>
Identifying Number or
Title Date Brief Description
----- ---- ---------------------
<S> <C> <C>
</TABLE>
5
<PAGE> 1
EXHIBIT 10.27
NONCOMPETITION AGREEMENT
This NONCOMPETITION AGREEMENT (the "Agreement") is made as of October
13, 1998, by and among Platinum Software Corporation, a Delaware corporation
("Parent") Zoo Acquisition Corporation, a Delaware corporation ("Merger Sub"),
and Stuart W. Clifton ("Stockholder").
RECITALS
A. Stockholder is a stockholder of DataWorks Corporation, a Delaware
corporation ("Company"). Parent, Merger Sub and Company have entered into an
Agreement and Plan of and Reorganization dated as of October 13, 1998 (the
"Reorganization Agreement"), providing for the acquisition (the "Acquisition")
by Parent of Company pursuant to a merger of Merger Sub and Company (the
"Merger"). Capitalized terms used but not defined herein shall have the meanings
assigned to them in the Reorganization Agreement.
B. Stockholder plans to vote in favor of the Merger and receive all
the benefits of the Merger, and in connection therewith and in exchange for the
consideration described herein, Stockholder has agreed pursuant to and to the
extent permitted by Section 16601 of the Business and Professions Code of the
State of California not to compete with Company in the manner and to the extent
herein set forth.
C. Stockholder is entering into this Agreement as an inducement to
Parent and Merger Sub to consummate the Merger, with all of the attendant
financial benefits to Stockholder as a stockholder of Company. Stockholder has
also entered into an Executive Employment Agreement with Parent dated as of
October 13, 1998 ("the Employment Agreement").
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants herein
contemplated and intending to be legally bound hereby, Merger Sub, Parent and
Stockholder agree as follows:
1. ACKNOWLEDGMENTS BY STOCKHOLDER. Stockholder acknowledges that by virtue of
his position with Company he has developed considerable expertise in the
business operations of Company and has had access to extensive confidential
information with respect to Company. Stockholder recognizes that Merger Sub and
Parent would be irreparably damaged, and their substantial investment in Company
materially impaired, if Stockholder were to enter into an activity competing
with Company's business in violation of the terms of this Agreement or if
Stockholder were to disclose or make unauthorized use of any confidential
information concerning the business of Company. Accordingly, Stockholder
expressly acknowledges that he is voluntarily entering into this Agreement and
that the terms and conditions of this Agreement are fair and reasonable to
Stockholder in all respects and further acknowledges that the covenants of
Stockholder herein are given in part in consideration of Stockholder's
entitlement to and receipt of benefits of the Merger.
2. NONCOMPETITION. Commencing as of the Closing and until the later of (a) the
date three (3) years after the Closing Date, and (b) the time Stockholder ceases
to serve as an employee
1.
<PAGE> 2
and/or consultant to Parent pursuant to that certain Executive Employment
Agreement (the "Executive Employment Agreement") entered into between
Stockholder and Parent as of October __, 1998 (the "Restriction Period"),
Stockholder shall not, directly or indirectly, without the prior written consent
of Parent, (a) engage or participate in any business or activity that competes
with the business of the Parent or (b) be or become an officer, director,
stockholder, owner, salesperson, co-owner, partner, trustee, promoter,
technician, engineer, analyst, employee, agent, representative, consultant,
advisor or manager of or to, or otherwise acquire or hold any interest in, any
person or entity, which is competitive with the business of the Parent within
the Territory. For the purposes of this Section 3, the "business of the Parent"
shall be defined as the business of the Parent consisting of the selling,
implementation and support of multi-function integrated applications software
primarily relating to manufacturing, help desk, customer support, customer
service, human resource, payroll, salesforce automation or financial accounting.
Notwithstanding the above, Stockholder shall not be deemed to be engaged
directly or indirectly in any business in contravention of subparagraphs (a) or
(b) above, if (x) Stockholder participates in any such business solely as a
passive investor in up to 2% of the equity securities of a company or
partnership, the securities of which are publicly traded, or (y) Stockholder is
employed by a business or enterprise that is engaged primarily in a business
other than the business of the Parent and Stockholder does not apply his
expertise at such business or enterprise to that part of such business or
enterprise that is or could be competitive with the business of the Parent.
3. NONSOLICITATION. Stockholder agrees that he will not:
(a) personally or through others, encourage, induce, attempt to
induce, solicit or attempt to solicit (on Stockholder's own behalf or on behalf
of any other person or entity) during the Restriction Period any employee of
Company, Parent or any of Parent's subsidiaries to leave his or her employment
with Company, Parent or any of Parent's subsidiaries; or
(b) employ, or permit any entity over which Stockholder exercises
voting control to employ, during the Restriction Period any person who shall
have voluntarily terminated his or her employment with Company, Parent or any of
Parent's subsidiaries following October 21, 1998 (excluding any person who shall
have been involuntarily terminated by the act of the Company, Parent or any of
Parent's subsidiaries) until such time as the employee has not been an employee
of Company, Parent or any of Parent's subsidiaries for at least one (1) year.
4. NONCOMPETITION PAYMENT. In consideration of Stockholder's obligations
described herein, concurrent with the Effective Time (as defined in the
Reorganization Agreement) of the Merger, Parent shall pay to Stockholder the
amount of $1,000,000.
5. SEVERABILITY, ETC.
(a) If any provision of this Agreement shall be held by a court of
competent jurisdiction to be excessively broad as to duration, activity or
subject, it shall be deemed to extend only over the maximum duration, activity
and/or subject as to which such provision shall be valid and enforceable under
applicable law. If any provisions shall, for any reason, be held by a court of
competent jurisdiction to be invalid, illegal or unenforceable, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement, but this Agreement
2.
<PAGE> 3
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
(b) The parties intend that the covenant contained in Section 2 above
shall be construed as a series of separate covenants, one for each geographical
unit specified. Except for geographical coverage, each such separate covenant
shall be deemed identical in terms to the covenant contained in Section 2 above.
If, in any judicial proceeding, a court shall refuse to enforce any of the
separate covenants deemed included in this Agreement, then the unenforceable
covenant shall be deemed eliminated from these provisions for the purpose of
those proceedings to the extent necessary to permit the remaining separate
covenants to be enforced.
6. NOTICES. All notices or other communications hereunder shall be in writing
and deemed given if and when delivered to a party in person, or if and when
mailed by registered or certified mail, return receipt requested, to the parties
at the addresses set forth below or such other addresses as shall be specified
by notice to the other party hereunder:
To Parent or
Merger Sub at: Platinum Software Corporation
195 Technology Drive
Irvine, CA 92718
Attn: Vice President, General Counsel
Fax: (714) 450-4447
with a copy to: Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304
Attn: Larry W. Sonsini, Esq.
Fax: (650) 493-6811
To Stockholder at: Stuart W. Clifton
17688 Calle Mayor
Rancho Santa Fe, CA 92067
7. WAIVER OF BREACH. The failure or delay by Parent or Merger Sub in enforcing
any provision of this Agreement shall not operate as a waiver thereof, and the
waiver by Parent or Merger Sub or a breach of any provision of this Agreement by
Stockholder shall not operate or be construed as a waiver of any subsequent
breach or violation thereof. All waivers shall be in writing and signed by the
party to be bound.
8. ASSIGNMENT. This Agreement shall be assignable by Parent or Merger Sub only
to any person, firm or corporation which may become a successor in interest by
purchase, merger or otherwise to Parent, Merger Sub or Company or the business
operated by Parent, Merger Sub or Company. This Agreement is not assignable by
Stockholder.
3.
<PAGE> 4
9. ENTIRE AGREEMENT; AMENDMENT. This Agreement represents the entire agreement
and understanding of the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings of the parties in connection
therewith. This Agreement may not be altered or amended except by an agreement
in writing signed by the parties to be bound.
10. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of Parent and its permitted successors and assigns and Stockholder and
Stockholder's heirs and legal representatives.
11. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of California as applied to
contracts entered into between California residents and to be performed entirely
within California.
12. AGREEMENT SUBJECT TO CLOSING OF MERGER. Notwithstanding any other provision
of this Agreement, Stockholder shall have no obligations under this Agreement
until the Closing occurs and Stockholder's obligations under this Agreement
shall be subject to the Closing. This Agreement shall terminate in any event
upon the termination of the Reorganization Agreement in accordance with its
terms.
4.
<PAGE> 5
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date first above written.
STOCKHOLDER
/s/ STUART W. CLIFTON
--------------------------------------
Stuart W. Clifton
PLATINUM SOFTWARE CORPORATION
By: /s/ L. GEORGE KLAUS
-----------------------------------
L. George Klaus
-----------------------------------
[Print Name Title]
ZOO ACQUISITION CORPORATION
By: /s/ PERRY TARNOFSKY
-----------------------------------
Perry Tarnofsky
-----------------------------------
[Print Name Title]
5.
<PAGE> 6
APPENDIX A
TERRITORY
(1) All counties of California, (2) all other states and territories
of the United States of America and provinces and territories of Canada, and (3)
any other foreign country or territory in which the business of the Parent is
carried on.
6.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus of Platinum Software
Corporation for the registration of 16,950,379 shares of its common stock and
to the incorporation by reference therein of our reports dated July 29, 1998,
with respect to the consolidated financial statements and schedule of Platinum
Software Corporation included in its Annual Report (Form 10-K) for the year
ended June 30, 1998, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Orange County, California
November 18, 1998
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EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 26, 1998, with respect to the consolidated
financial statements of DataWorks Corporation for the year ended December 31,
1997, included in the Registration Statement (Form S-4) and related Joint Proxy
Statement/Prospectus of Platinum Software Corporation for the registration of up
to 16,950,379 shares of its common stock.
/s/ Ernst & Young LLP
San Diego, California
November 19, 1998
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EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of DataWorks Corporation of our report dated
April 5, 1996 relating to the financial statements of DCD Corporation, which
appears in such Prospectus. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
November 19, 1998
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Exhibit 99.1
JOINT PROXY STATEMENT/PROSPECTUS
November 23, 1998
LOGO
Dear Platinum Stockholder:
As you may be aware, Platinum Software Corporation, a Delaware corporation
("Platinum"), and DataWorks Corporation, a Delaware corporation ("DataWorks"),
have entered into an Agreement and Plan of Reorganization dated as of October
13, 1998, as amended as of October 30, 1998 (the "Reorganization Agreement")
providing for the acquisition of DataWorks by Platinum (the "Merger"). The
Merger is more fully described in the accompanying Joint Proxy
Statement/Prospectus. A special meeting of the stockholders of Platinum will be
held at 195 Technology Drive, Irvine, California 92618 on December 23, 1998 at
10:00 a.m. local time.
At the Platinum Special Meeting you will be asked to consider and vote upon
the issuance of shares of Common Stock, par value $0.001 per share, of Platinum
("Platinum Common Stock") to the stockholders of Dataworks pursuant to the
Reorganization Agreement.
After careful consideration, the Board of Directors of Platinum has
unanimously approved the Reorganization Agreement and the Merger, and has
concluded they are fair to, and in the best interests of, Platinum and its
stockholders. The Platinum Board unanimously recommends that you vote in favor
of the foregoing proposal.
In the materials accompanying this letter you will find a Notice of Special
Meeting of Stockholders, a Joint Proxy Statement/Prospectus relating to the
proposal to be voted upon at the Platinum Special Meeting and a Proxy Card. The
Joint Proxy Statement/ Prospectus more fully describes the proposed transaction
and the proposal before the Platinum stockholders.
All Platinum stockholders are cordially invited to attend the Platinum
Special Meeting in person. If you attend the Platinum Special Meeting, you may
vote in person even though you have previously returned your completed proxy
card.
WHETHER OR NOT YOU PLAN TO ATTEND THE PLATINUM SPECIAL MEETING, IT IS
IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED. APPROVAL OF THE ISSUANCE OF
SHARES OF PLATINUM COMMON STOCK REQUIRES THE AFFIRMATIVE VOTE OF A MAJORITY OF
SHARES CAST REGARDING SUCH PROPOSAL.
PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY CARD IN THE ENCLOSED
ENVELOPE. YOUR VOTE IS IMPORTANT-PLEASE RETURN YOUR PROXY CARD PROMPTLY.
Sincerely,
L. George Klaus
Chairman of the Board, President
and
Chief Executive Officer
<PAGE> 1
Exhibit 99.2
JOINT PROXY STATEMENT/PROSPECTUS
November 23, 1998
LOGO
Dear DataWorks Stockholder:
As you may be aware, DataWorks Corporation, a Delaware corporation
("DataWorks"), and Platinum Software Corporation, a Delaware corporation
("Platinum"), have entered into an Agreement and Plan of Reorganization dated as
of October 13, 1998, as amended as of October 30, 1998 (the "Reorganization
Agreement"), providing for the acquisition of DataWorks by Platinum (the
"Merger"). The Merger is more fully described in the accompanying Joint Proxy
Statement/Prospectus. A special meeting of the stockholders of DataWorks will be
held at 5910 Pacific Center Boulevard, Suite 300, San Diego, CA 92121 on
December 23, 1998 at 10:00 a.m. local time.
At the DataWorks Special Meeting, you will be asked to consider and vote
upon a proposal to approve and adopt the Reorganization Agreement and approve
the Merger.
After careful consideration, the Board of Directors of DataWorks has
unanimously approved the Reorganization Agreement and the Merger, and has
concluded they are fair to, and in the best interests of, DataWorks and its
stockholders. The DataWorks Board unanimously recommends that you vote in favor
of the adoption and approval of the Reorganization Agreement and approval of the
Merger.
In the materials accompanying this letter you will find a Notice of Special
Meeting of Stockholders, a Joint Proxy Statement/Prospectus relating to the
proposal to be voted upon at the DataWorks Special Meeting and a Proxy Card. The
Joint Proxy Statement/ Prospectus more fully describes the proposed transaction
and the proposal before the DataWorks stockholders.
All DataWorks stockholders are cordially invited to attend the DataWorks
Special Meeting in person. If you attend the DataWorks Special Meeting, you may
vote in person even though you have previously returned your completed proxy
card.
WHETHER OR NOT YOU PLAN TO ATTEND THE DATAWORKS SPECIAL MEETING, IT IS
IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED. APPROVAL OF THE MERGER
REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING
SHARES OF DATAWORKS COMMON STOCK. THEREFORE, PLEASE COMPLETE, SIGN, DATE AND
RETURN YOUR PROXY CARD IN THE ENCLOSED ENVELOPE. PLEASE DO NOT SEND THE STOCK
CERTIFICATE(S) REPRESENTING YOUR DATAWORKS COMMON STOCK AT THIS TIME.
YOUR VOTE IS IMPORTANT -- PLEASE RETURN YOUR PROXY CARD PROMPTLY.
Sincerely,
Stuart W. Clifton
Chairman of the Board, President
and
Chief Executive Officer
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Exhibit 99.3
LOGO
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 23, 1998
------------------------
TO THE STOCKHOLDERS OF PLATINUM SOFTWARE CORPORATION:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Platinum
Special Meeting") of Platinum Software Corporation, a Delaware corporation
("Platinum") will be held on December 23, 1998 at 10:00 a.m. local time at 195
Technology Drive, Irvine, California 92618 to consider and vote upon the
following proposal:
1. To approve the issuance of shares of Common Stock, $.001 par value per
share, of Platinum pursuant to the Agreement and Plan of Reorganization,
dated as of October 13, 1998, as amended as of October 30, 1998
("Reorganization Agreement") by and among Platinum, DataWorks
Corporation, a Delaware corporation ("DataWorks"), and Zoo Acquisition
Corp., a Delaware corporation and wholly-owned subsidiary of Platinum
("Merger Sub"). Pursuant to the Reorganization agreement, Merger Sub
will be merged with and into DataWorks and DataWorks will become a
wholly-owned subsidiary of Platinum (the "Merger"). A copy of the
Reorganization Agreement is attached as Appendix A to the Joint Proxy
Statement/Prospectus accompanying this Notice.
2. To transact such other business as may properly come before the Platinum
Special Meeting or any adjournment or postponement thereof.
The proposed Merger and other related matters are more fully described in the
attached Joint Proxy Statement/Prospectus.
Stockholders of record at the close of business on November 16, 1998, are
entitled to notice of, and to vote at, the Platinum Special Meeting and any
adjournments or postponements thereof.
All Platinum stockholders are cordially invited to attend the Platinum Special
Meeting in person. Whether or not you expect to attend, WE URGE YOU TO SIGN AND
DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED.
By Order of the Board of Directors
L. George Klaus
Chairman of the Board of
Directors, President and Chief
Executive Officer
Irvine, California
November 23, 1998
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Exhibit 99.4
LOGO
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 23, 1998
------------------------
TO THE STOCKHOLDERS OF DATAWORKS CORPORATION:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "DataWorks
Special Meeting") of DataWorks Corporation, a Delaware corporation
("DataWorks"), will be held on December 23, 1998 at 10:00 a.m. local time at
5910 Pacific Center Boulevard, Suite 300, San Diego, California 92121 to
consider and vote upon the following proposal:
1. To approve and adopt the Agreement and Plan of Reorganization (the
"Reorganization Agreement"), dated as of October 13, 1998, as amended as
of October 30, 1998 (the "Reorganization Agreement") among DataWorks,
Platinum Software Corporation, a Delaware corporation ("Platinum"), and
Zoo Acquisition Corp., a Delaware corporation and wholly-owned
subsidiary of Platinum ("Merger Sub"), and to approve the merger of
Merger Sub with and into DataWorks (the "Merger") pursuant to which
DataWorks will become a wholly-owned subsidiary of Platinum. A copy of
the Reorganization Agreement is attached as Appendix A to the Joint
Proxy Statement/Prospectus accompanying this Notice.
2. To transact such other business as may properly come before the
DataWorks Special Meeting or any adjournment or postponement thereof.
The Reorganization Agreement, the proposed Merger and other related matters are
more fully described in the attached Joint Proxy Statement/Prospectus.
Stockholders of record at the close of business on November 16, 1998 are
entitled to notice of, and to vote at, the DataWorks Special Meeting and any
adjournments or postponements thereof.
All DataWorks stockholders are cordially invited to attend the DataWorks Special
Meeting in person. Whether or not you expect to attend, WE URGE YOU TO SIGN AND
DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED.
By Order of the Board of
Directors,
Stuart W. Clifton
Chairman of the Board, President
and
Chief Executive Officer
San Diego, California
November 23, 1998
