<PAGE> 1
FILED PURSUANT TO RULE 424(b)1
REGISTRATION STATEMENT #333-48952
TALUS SOLUTIONS, INC.
OVERLOOK II
2839 PACES FERRY ROAD
SUITE 1000
ATLANTA, GEORGIA 30339-5770
On October 12, 2000, you were sent notice that Talus entered into an
Agreement and Plan of Merger with Manugistics Group, Inc., a Delaware
corporation, and Manu Acquisition Corp., a Delaware corporation and wholly owned
subsidiary of Manugistics. Pursuant to the terms of the merger agreement, Manu
Acquisition Corp. will merge with and into Talus, and Talus will survive as a
wholly owned subsidiary of Manugistics. The merger is expected to close prior to
February 28, 2001.
In the merger, each share of Talus capital stock will convert into a
fraction of a share of Manugistics common stock depending upon the average
closing price of Manugistics common stock during the 15 trading day period
ending two days before the closing of the merger. If the average closing price
is equal to or less than $65.00 per share, you will receive approximately .08820
of a share of Manugistics common stock per share of Talus common stock. If the
average closing price is equal to or greater than $78.00 per share, you will
receive approximately .07409 of a share of Manugistics common stock per share of
Talus common stock. If the average closing price is between $65.00 and $78.00
per share, you will receive between .08820 and .07409 of a share of Manugistics
common stock per share of Talus common stock, calculated proportionately based
upon the average closing price of Manugistics common stock between $65.00 and
$78.00. For example, if the average closing price of Manugistics common stock
during the measurement period is $100 and you own 100 shares of Talus common
stock, then after the merger you will receive 7 shares of Manugistics common
stock and a check in the amount of $40.90, a total value of $740.90, or $7.41
per share. Except as otherwise provided in the merger agreement and the Talus
Certificate of Incorporation, all shares of Talus preferred stock will be
converted into a number of shares of Manugistics common stock equal to the
exchange ratio multiplied by the number of shares of Talus common stock into
which such shares of preferred stock are convertible immediately prior to the
closing of the merger. A portion of each Talus stockholder's shares of
Manugistics common stock equal to 15% will be held in escrow to secure the
indemnification obligations of Talus set forth in the merger agreement.
Please note that Manugistics recently announced a 2-for-1 stock split of
its outstanding shares of common stock. For more information on this stock
split, please see page 27 of the prospectus.
Because the price of Manugistics' common stock fluctuates, the value of the
securities you will receive will fluctuate on a daily basis. In converting your
shares, you will generally not recognize a gain or a loss for tax purposes.
Manugistics common stock is traded on the Nasdaq National Market, and
Manugistics will register 4,300,000 shares of its common stock for issuance in
connection with the merger, including 3,505,597 shares of common stock for
resale by stockholders of Talus identified in this prospectus. There is no
public market for Talus capital stock.
PLEASE READ THE "RISK FACTORS" SECTION BEGINNING ON PAGE 15 OF THIS
DOCUMENT.
The board of directors of Talus has approved and declared advisable the
merger and the merger agreement. The holders of a majority of the voting capital
stock of Talus have approved the merger.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE MANUGISTICS COMMON STOCK TO BE
ISSUED IN THE MERGER OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR ADEQUATE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is November 22, 2000, and it is first being
mailed to Talus stockholders on or about November 22, 2000.
<PAGE> 2
REFERENCES TO ADDITIONAL INFORMATION
This document incorporates important business and financial information
about Manugistics from documents that are not included in or delivered with this
document. The information is available to you without charge upon your written
or oral request. You can obtain documents incorporated by reference in this
document, other than certain exhibits to those documents, by requesting them in
writing or by telephone from Manugistics at the following address:
Manugistics Group, Inc.
2115 East Jefferson Street
Rockville, Maryland 20852-4999
Attention: Investor Relations
Telephone: (301) 984-5000
TO OBTAIN TIMELY DELIVERY, STOCKHOLDERS MUST REQUEST THE INFORMATION NO
LATER THAN 15 CALENDAR DAYS FROM THE DATE OF MAILING OF THIS PROSPECTUS.
Please see "Where You Can Find More Information" on page 90 for further
information.
As used in the prospectus, unless the context otherwise requires, "we,"
"us," "our" or "Manugistics" refers to Manugistics Group, Inc. and its
subsidiaries.
ii
<PAGE> 3
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
We make "forward-looking statements" throughout this prospectus. Whenever
you read a statement that is not simply a statement of historical fact (such as
when we describe what we "believe," "expect" or "anticipate" will occur, and
other similar statements), you must remember that our expectations may not be
correct, even though we believe they are reasonable. We do not guarantee that
the transactions and events described in this prospectus will happen as
described (or that they will happen at all). You should read this prospectus
completely and with the understanding that actual future results may be
materially different from what we expect. We will not update these
forward-looking statements, even though our situation may change in the future.
Whether actual results will conform with our expectations and predictions is
subject to a number of risks and uncertainties including but not limited to:
- the significant considerations discussed in this prospectus;
- risks associated with the effect of economic conditions;
- future capital needs;
- restrictions imposed by the terms of our indebtedness;
- our ability to identify, complete and integrate acquisitions
successfully;
- risks associated with retaining our significant clients;
- our strategies for reducing the costs of our products;
- our product development efforts;
- the impact of competition and technological change on us;
- the timing of our introduction of new products and the extent of the
deployment of our products by our clients;
- our dependence on industry trends and the future growth in the markets
for supply chain optimization and electronic business, or eBusiness,
solutions;
- the impact of legislation and regulation; and
- the possible loss of key employees.
You should read carefully the section of this prospectus under the heading
"Risk Factors" beginning on page 15. We assume no responsibility for updating
forward-looking information contained in this prospectus.
iii
<PAGE> 4
<TABLE>
<CAPTION>
CAPTION PAGE
------- ----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY..................................................... 4
The Companies.......................................... 4
The Merger............................................. 5
Talus' Reasons for the Merger.......................... 5
Opinion of Financial Advisor to Talus.................. 6
Manugistics' Reasons for the Merger.................... 6
Conditions to the Merger; Effective Date of Merger..... 6
Accounting Treatment................................... 7
Tax Consequences....................................... 7
Appraisal Rights....................................... 7
Directors and Officers of the Surviving Corporation.... 7
Termination and Termination Fee........................ 7
No Solicitation........................................ 8
Interests of Talus Officers and Directors in the
Merger................................................ 8
Effect of Merger on Rights of Talus Stockholders....... 8
Market Price Information............................... 8
Selling Stockholders; Plan of Distribution............. 9
Talus Selected Consolidated Financial Data............. 9
Manugistics Selected Consolidated Financial Data....... 11
Manugistics Summary Unaudited Pro Forma Combined
Financial Data........................................ 12
Comparative Per Share Data............................. 13
RISK FACTORS................................................ 15
Risks Related to the Merger............................ 15
Risks Related to Our Business.......................... 17
Risks Related to Our Industry.......................... 26
RECENT DEVELOPMENTS......................................... 27
Sale of Convertible Subordinated Notes................. 27
Two-for-One Stock Split................................ 27
New Executive Officers................................. 28
Resignation of Director................................ 28
Retirement of Chairman................................. 28
THE MERGER.................................................. 28
The Merger............................................. 28
Terms of the Merger.................................... 28
Background of the Merger............................... 30
Recommendation of Talus Board and Reasons for the
Merger................................................ 33
Approval of Talus Stockholders......................... 34
Opinion of Financial Advisor to Talus.................. 34
Approval of Manugistics Board and Reasons for the
Merger................................................ 40
Opinion of Financial Advisor to Manugistics............ 41
Conditions to the Merger............................... 41
No Solicitation........................................ 42
Conduct of Business of Talus Pending the Merger........ 43
Additional Agreements of the Parties................... 43
Appointments to Manugistics Board of Directors......... 43
Regulatory Approvals................................... 43
Waiver and Amendment................................... 43
Directors and Officers................................. 43
Termination and Termination Fee........................ 44
</TABLE>
iv
<PAGE> 5
<TABLE>
<CAPTION>
CAPTION PAGE
------- ----
<S> <C>
Interests of Talus Directors and Officers in the
Merger................................................ 44
Support Agreements..................................... 46
Escrow and Indemnification Rights...................... 47
Share Transfer Restriction Agreements.................. 47
Employee Benefits...................................... 47
Stock Options and Warrants............................. 48
Material U.S. Federal Income Tax Consequences.......... 48
Accounting Treatment................................... 49
Expenses............................................... 49
Nasdaq National Market Listing......................... 49
SELLING STOCKHOLDERS........................................ 50
PLAN OF DISTRIBUTION........................................ 51
DESCRIPTION OF MANUGISTICS CAPITAL STOCK.................... 52
Capital Stock.......................................... 52
Preferred Stock........................................ 52
Dividend Rights........................................ 52
Voting Rights.......................................... 52
Staggered Board of Directors........................... 53
Liquidation Rights..................................... 53
Preemption, Conversion and Redemption.................. 53
Change of Control...................................... 53
Miscellaneous.......................................... 54
COMPARISON OF RIGHTS OF MANUGISTICS STOCKHOLDERS AND TALUS
STOCKHOLDERS.............................................. 55
Authorized Capital Stock............................... 55
Size of the Board...................................... 56
Classification of Board of Directors................... 56
Board Meetings......................................... 56
Removal of Directors................................... 56
Voting................................................. 57
Dividends.............................................. 57
Amendments to the Certificate of Incorporation......... 57
Amendments to the Bylaws............................... 58
Restrictions on Special Meetings of the Stockholders... 58
Notice of Board Nominations and Other Business......... 59
Transactions with Interested Stockholders.............. 60
APPRAISAL RIGHTS RELATED TO THE MERGER...................... 61
COMPARATIVE STOCK PRICES AND DIVIDENDS...................... 63
CAPITALIZATION OF MANUGISTICS............................... 64
DESCRIPTION OF MANUGISTICS.................................. 65
Business............................................... 65
Industry Background.................................... 65
Strategy............................................... 66
Products and eBusiness Solutions....................... 66
Global Consulting Services............................. 69
Client Support......................................... 69
Product Development.................................... 69
Sales and Marketing.................................... 70
Alliances.............................................. 70
Clients................................................ 70
</TABLE>
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<TABLE>
<CAPTION>
CAPTION PAGE
------- ----
<S> <C>
Competition............................................ 71
License Agreements and Pricing......................... 72
Proprietary Rights and Licenses........................ 72
Employees.............................................. 72
Management and Additional Information.................. 72
DESCRIPTION OF TALUS........................................ 72
Business............................................... 72
Principal Stockholders................................. 73
TALUS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 76
Overview............................................... 76
Results of Operations.................................. 77
Liquidity and Capital Resources........................ 81
Factors that May Affect Future Results................. 82
Forward-looking Statements............................. 82
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK OF
TALUS..................................................... 83
PRO FORMA FINANCIAL INFORMATION............................. 84
LEGAL MATTERS............................................... 90
EXPERTS..................................................... 90
STOCKHOLDER PROPOSALS....................................... 90
WHERE YOU CAN FIND MORE INFORMATION......................... 90
FINANCIAL STATEMENTS OF TALUS............................... F-1
APPENDIX "A" MERGER AGREEMENT............................... A-1
APPENDIX "B" FAIRNESS OPINION OF GOLDMAN, SACHS & CO........ B-1
APPENDIX "C" FAIRNESS OPINION OF DEUTSCHE BANK SECURITIES
INC....................................................... C-1
APPENDIX "D" TAX OPINION OF PAUL, HASTINGS, JANOFSKY &
WALKER LLP................................................ D-1
APPENDIX "E" TAX OPINION OF KING & SPALDING................. E-1
APPENDIX "F" SECTION 262 OF THE DELAWARE GENERAL CORPORATION
LAW 262 APPRAISAL RIGHTS.................................. F-1
</TABLE>
vi
<PAGE> 7
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY IS THE MERGER BEING CONSUMMATED?
A: The Talus board of directors believes that the merger is fair and in the best
interests of the Talus stockholders and will provide significant benefits to
the stockholders. To review the background and reasons for the merger in
greater detail, see pages 30 through 33.
Q: WHAT WILL TALUS STOCKHOLDERS RECEIVE IN THE MERGER?
A: Talus stockholders will receive a fraction of a share of Manugistics common
stock equal to a pre-determined ratio for each share of Talus capital stock
that they hold. The precise exchange ratio will be based upon the average
closing price of Manugistics common stock for the 15 trading days ending two
days before the closing of the merger.
If the average closing price is equal to or less than $65.00 per share, you
will receive approximately .08820 of a share of Manugistics common stock per
share of Talus common stock. If the average closing price is equal to or
greater than $78.00 per share, you will receive approximately .07409 of a
share of Manugistics common stock per share of Talus common stock. If the
average closing price is between $65.00 and $78.00 per share, you will
receive between .08820 and .07409 of a share of Manugistics common stock per
share of Talus common stock, calculated proportionately based upon the
average closing price of Manugistics common stock between $65.00 and $78.00.
If the holder of Talus Series A preferred stock elects to treat the merger as
a liquidation under the Talus Certificate of Incorporation, you may receive a
slightly lower number of shares of Manugistics common stock per share of
Talus common stock than indicated above. We anticipate that the holder of
Talus Series A preferred stock will make this election if the average closing
price during the measurement period is less than approximately $52.00.
Manugistics will not issue fractional shares in the merger. Instead, Talus
stockholders will receive a cash payment, without interest, for the value of
any fraction of a share of Manugistics common stock that they would otherwise
be entitled to receive based upon the average closing price of Manugistics
common stock during the measurement period.
For Example:
- If the average closing price of Manugistics common stock during the
measurement period is $80 and you own 100 shares of Talus common stock,
then after the merger you will receive 7 shares of Manugistics common stock
and a check in the amount of $32.72, a total value of $592.72, or $5.93 per
share.
- If the average closing price of Manugistics common stock during the
measurement period is $70 and you own 100 shares of Talus common stock,
then after the merger you will receive 8 shares of Manugistics common stock
and a check in the amount of $19.41, a total value of $579.41, or $5.79 per
share.
- If the average closing price of Manugistics common stock during the
measurement period is $60 and you own 100 shares of Talus common stock,
then after the merger you will receive 8 shares of Manugistics common stock
and a check in the amount of $49.20, a total value of $529.20, or $5.29 per
share.
- If the average closing price of Manugistics common stock during the
measurement period is $50, and you own 100 shares of Talus common stock,
then after the merger you will receive 8 shares of Manugistics common stock
and a check in the amount of $39.14, a total value of $439.14, or $4.39 per
share. This assumes that the holder of Talus Series A preferred stock
elects to treat the merger as a liquidation.
A portion of each Talus stockholder's shares of Manugistics common stock
equal to 15% will be held in escrow to secure the indemnification obligations
of Talus set forth in the merger agreement. The escrow arrangements are more
fully described below.
Except as otherwise provided in the merger agreement and the Talus
Certificate of Incorporation, all shares of Talus preferred stock will be
converted into a number of shares of Manugistics common stock equal to the
exchange ratio multiplied by the number of shares of Talus common stock into
which such shares of preferred stock are convertible immediately prior to the
closing of the merger.
1
<PAGE> 8
References in this document to the value of consideration received by you in
shares of Manugistics common stock or the worth of shares of Manugistics
common stock refer to such value or worth based on the average closing price
of Manugistics common stock during the 15 trading day period ending two days
prior to the closing of the merger. The market price of Manugistics common
stock fluctuates daily. On any given day, including the closing date of the
merger, the price of a share of Manugistics common stock may be higher or
lower than such average closing price.
Q: WHAT RISKS SHOULD I CONSIDER?
A: You should review "Risk Factors" beginning on page 15.
Q: WHEN IS THE MERGER EXPECTED TO BE COMPLETED?
A: We are working to complete the merger prior to February 28, 2001.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO ME?
A: We expect that as a result of the merger, Talus stockholders generally will
not recognize gain or loss for United States federal income tax purposes.
Talus stockholders will, however, recognize gain or loss on cash received for
fractional shares. To review the tax consequences to Talus stockholders in
greater detail, see pages 47-48.
Your tax consequences will depend on your personal situation. You should
consult your tax advisor for a full understanding of the tax consequences of
the merger to you.
Q: WHAT IS THE REQUIRED STOCKHOLDER APPROVAL?
A: Approval of the merger requires the affirmative vote of a majority of the
outstanding shares of voting capital stock of Talus. Talus stockholders
holding a majority of such shares of voting capital stock took action by
written consent on September 21, 2000 to approve the merger. In addition,
these stockholders granted to Manugistics a proxy to vote their shares in
favor of the merger. Therefore, to the extent a vote were to be taken at a
subsequent date, Manugistics currently holds proxies to vote enough shares of
Talus voting capital stock to approve the merger, and no further action by
Talus stockholders is necessary.
Q: WHAT SHOULD I DO NOW?
A: Talus stockholders should read this document carefully and determine whether
they desire to receive the Manugistics common stock, or whether they desire
to exercise their appraisal rights under Delaware law.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. If the merger is completed, we will send you written instructions for
exchanging your Talus capital stock certificates for Manugistics common stock
certificates.
Q: WHAT EFFECT WILL THE RECENTLY ANNOUNCED STOCK SPLIT BY MANUGISTICS HAVE ON
ME?
A: On November 8, 2000 we announced that our board of directors had declared a
2-for-1 split of the company's outstanding shares of common stock. The stock
split will be effected in the form of a 100% stock dividend and will entitle
each stockholder of record at the close of business on November 20, 2000 to
receive one additional share of common stock for every share held on the
record date. Certificates representing the additional shares will be
distributed by our transfer agent on the dividend payment date of December 7,
2000. Our common stock will begin trading on a post-split basis on December
8, 2000.
Because the merger is scheduled to close after December 8, 2000, the number
of shares of Manugistics common stock which you will be entitled to receive
in the merger will be adjusted to reflect the 2-for-1 stock split. For
example, if you are entitled to receive 100 shares of Manugistics common
stock prior to the close of business on December 7, 2000 (with an assumed
value of $10,000 based on a per share closing price of $100), then at the
closing of the merger, you will instead receive 200 shares of Manugistics
common stock (with an assumed value of $10,000 based on a per share closing
price of $50).
2
<PAGE> 9
WHO CAN HELP ANSWER YOUR QUESTIONS
If you want additional copies of this document, or if you want to ask any
questions about the merger, you should contact:
<TABLE>
<S> <C>
Talus Solutions, Inc. Manugistics Group, Inc.
Overlook II 2115 East Jefferson Street
2839 Paces Ferry Road Rockville, Maryland 20852-4999
Suite 1000 Attention: Investor Relations
Atlanta, Georgia 30339-5770 Telephone: (301) 984-5000
Attention: Michael R. Cote
Telephone: (678) 556-5000
</TABLE>
3
<PAGE> 10
SUMMARY
This summary highlights selected information from this document and may not
contain all the information that is important to you. For a more complete
understanding of the merger and for a more complete description of the legal
terms of the merger, you should read this entire document carefully, as well as
the additional documents to which we refer you, including the merger agreement.
THE COMPANIES (PAGE 65)
Manugistics Group, Inc.
2115 East Jefferson Street
Rockville, Maryland 20852-4999
(301) 984-5000
Manugistics Group, Inc., a Delaware corporation, is a leading global
provider of supply chain optimization and eBusiness solutions for enterprises
and evolving trading networks. Our solutions include infrastructure and
application software products, solution support, strategic consulting and
implementation services. Our solutions help our clients monitor and streamline
their core internal operational processes involving the design, purchase,
manufacture, storage, transportation, marketing and selling of their goods and
services. Our solutions also help integrate clients' internal processes with
trading partners and provide the collaboration and optimization required across
extended eBusiness trading networks. Our solutions help our clients improve
resource allocation through more effective operational decisions and improve
customer service -- driving costs lower and revenues higher.
Increasing global competition, shortening product life cycles and
developing eBusiness initiatives of new and existing competitors are driving
enterprises to provide greater levels of customer service while shortening their
time-to-market. We were an early innovator in trading partner collaboration,
with our first Internet-ready products commercially available in late 1997. Our
technology initiatives continue to focus on the changing needs of companies in
the markets we serve, as well as the requirements of the new eBusiness economy.
We have developed a web architecture for our Manugistics NetWORKS(TM)
collaborative solutions through our proprietary WebWORKS(TM) infrastructure and
have provided advanced integration to disparate systems through our WebConnect
products. Through our exchange platform ExchangeWORKS(TM), we are now addressing
the new eBusiness processes enabled by the Internet, such as auctions, dynamic
pricing, procurement, track and trace, as well as order and pipeline visibility.
We offer solutions to companies in a diverse array of industries including
agriculture, apparel, chemicals, consumer goods, electronics & high technology,
energy, food, government, healthcare, logistics, metals, motor vehicles & parts,
paper, pharmaceuticals and retail. Our customer base of over 900 clients
includes large, multinational enterprises such as 3Com, Coca-Cola Enterprises,
Cisco Systems, Compaq, Fuji Photo Film USA, Harley-Davidson, The Limited, Texas
Instruments and Unilever, as well as medium-sized enterprises and emerging
eBusinesses.
Our common stock is traded on the Nasdaq National Market under the symbol
"MANU." As of August 31, 2000, we had total assets of $166.5 million and
stockholders' equity of $96.6 million. For the six months ended August 31, 2000,
we reported total revenues of $108.7 million and had a net loss of $20.8
million, or $0.73 per basic and diluted share, and for the year ended February
29, 2000, we reported total revenues of $152.4 million and had a net loss of
$8.9 million, or $0.33 per diluted share.
We are incorporated in the State of Delaware. We have offices in Atlanta,
Chicago, Denver, Irving, Philadelphia and San Mateo in the United States, and
internationally in Australia, Belgium, Brazil, Canada, France, Germany, Italy,
Japan, Mexico, The Netherlands, Singapore, Sweden and the United Kingdom.
4
<PAGE> 11
Talus Solutions, Inc.
Overlook II
2839 Paces Ferry Road
Suite 1000
Atlanta, Georgia 30339-5770
(678) 556-5000
Talus Solutions, Inc. is a leading provider of pricing and revenue
optimization products and services. The software solutions of Talus enable
companies to maximize revenues and profits by determining optimal prices for
their goods and services. These solutions utilize Talus' proprietary
optimization technology, which is particularly suited for highly complex,
dynamic pricing environments.
Talus has traditionally delivered custom solutions to the travel,
transportation and hospitality industries. Over the last few years, Talus
initiated a strategic shift to new market verticals, including
telecommunications, electronics and high technology and motor vehicles and
parts. Ford Motor Company, UPS and Tickets.com are examples of clients that have
purchased these new solutions.
Talus is a privately owned company and is incorporated in the State of
Delaware. In addition to its principal executive offices located in Atlanta,
Georgia, Talus maintains offices in London, England, Vancouver, Canada, and
Silicon Valley, California. Its web site is located at www.talussolutions.com.
Information contained on its web site does not constitute a part of this
prospectus.
THE MERGER (PAGE 28)
If the merger is completed, Manu Acquisition Corp., a Delaware corporation
and a wholly owned subsidiary of Manugistics, will be merged with and into
Talus, and Talus will become a wholly owned subsidiary of Manugistics. The
merger requires the approval of the holders of at least a majority of the
outstanding shares of Talus voting capital stock. The holders of such a majority
have approved the merger, and Manugistics currently holds proxies to vote enough
shares of the Talus voting capital stock to approve the merger to the extent a
vote would be taken at a later date.
We have attached the merger agreement as Appendix "A" to this document. We
encourage you to read the merger agreement, as it is the legal document that
governs the merger.
TALUS' REASONS FOR THE MERGER (PAGE 33)
In reaching its decision to approve and recommend approval of the merger
agreement, the Talus board of directors considered a number of factors,
including the following:
- the fact that the shares of Manugistics common stock are a liquid
currency that would provide Talus' stockholders with the ability to
realize cash on their investments or to continue with their investments
with the potential for enhanced value;
- the numerous synergies that exist between Manugistics and Talus,
including potential cost savings and the creation of a unique solution by
combining Talus' pricing and revenue optimization technology with
Manugistics' supply chain optimization technology and the fact that no
other vendor, to Talus' knowledge, offers a comprehensive solution that
combines both supply and demand optimization technologies;
- the fact that the combined offering of Talus' pricing and revenue
management optimization products with Manugistics' supply chain
optimization products would have an improved opportunity for market
acceptance;
- the ability of the combined company to market its product offerings to
each party's respective customer base and the ability to leverage each
company's direct and indirect sales channels; and
- the financial presentation of Goldman, Sachs & Co., including its oral
opinion that, based upon and subject to various assumptions, the
conversion of all of the outstanding shares of Talus capital stock
5
<PAGE> 12
into Manugistics common stock pursuant to the merger agreement was fair
from a financial point of view to the holders, in the aggregate, of
shares of Talus capital stock.
You are urged to read "the Merger -- Recommendation of Talus Board and
Reasons for the Merger" for information on the factors considered by the Talus
Board.
OPINION OF FINANCIAL ADVISOR TO TALUS (PAGE 34)
On September 21, 2000, Goldman, Sachs & Co. delivered its oral opinion to
the board of directors of Talus that, as of that date, the conversion of all of
the outstanding shares of Talus capital stock into Manugistics common stock
pursuant to the merger agreement is fair from a financial point of view to the
holders, in the aggregate, of shares of Talus capital stock. Goldman Sachs
subsequently confirmed its earlier oral opinion by delivery of its written
opinion dated September 21, 2000. The opinion of Goldman Sachs does not
constitute a recommendation as to how any holder of Talus shares should vote
with respect to the transaction.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS IS ATTACHED AS
APPENDIX "B." STOCKHOLDERS OF TALUS ARE ENCOURAGED TO, AND SHOULD, READ THE
OPINION IN ITS ENTIRETY.
MANUGISTICS' REASONS FOR THE MERGER (PAGE 40)
In reaching its decision to approve the merger agreement, the Manugistics
board of directors considered a number of factors, including the following:
- the acquisition of Talus fits Manugistics' business strategy of
developing new products that lead the market and that differentiate
Manugistics in the marketplace;
- the use of pricing and revenue management in new market industries is the
next logical step in the yield management optimization process and the
next logical market for substantial growth in the optimization process;
- Talus has a unique and developed product suite of pricing and revenue
management optimization software solutions which has allowed it to
penetrate new market industries ahead of its competitors;
- the numerous synergies that exist between Manugistics and Talus,
including the creation of a unique pricing and revenue management
optimization and supply chain optimization technology which provides a
comprehensive solution that combines profit-based demand and supply
optimization solutions not currently offered, to Manugistics' knowledge,
by any other vendor; and
- the financial presentation of Deutsche Bank Securities Inc., including
its opinion that the ratio at which shares of Talus common stock will be
converted into Manugistics common stock in the merger is fair to
Manugistics from a financial point of view.
You are urged to read "The Merger -- Approval of Manugistics Board and
Reasons for the Merger" for more information on the factors considered by the
Manugistics board.
CONDITIONS TO THE MERGER; EFFECTIVE DATE OF MERGER (PAGE 41)
Consummation of the merger is subject to various conditions, including:
- the holders of not more than 7% of the outstanding shares of Talus
capital stock electing to exercise their appraisal rights;
- receipt of the necessary regulatory approvals;
- receipt of legal opinions regarding the tax aspects of the merger; and
- satisfaction of other customary closing conditions.
The merger will become effective when all of the conditions to the merger
have been satisfied and a certificate of merger is filed with the Secretary of
State of Delaware, or on such later date as the certificate of
6
<PAGE> 13
merger may specify. Subject to the conditions specified in the merger agreement,
the parties anticipate that the merger will become effective prior to February
28, 2001. There can be no assurances, however, as to whether or when the merger
will occur.
ACCOUNTING TREATMENT (PAGE 49)
The merger will be accounted for by Manugistics under the purchase method
of accounting. Accordingly, the purchase price will be allocated to the tangible
and intangible assets and liabilities of Talus based on their estimated fair
market values at the date of acquisition, and any excess of the purchase price
over such fair market values will be accounted for as goodwill, which will be
amortized over an estimated period of not more than five years. For this
purpose, the purchase price will be determined when the merger is closed. The
purchase price will be determined on the first date when the number of
Manugistics shares and other consideration become fixed without subsequent
revision. The financial statements of the combined company will reflect the
combined operations of Manugistics and Talus from the effective date of the
merger.
TAX CONSEQUENCES (PAGE 48)
The merger is structured so that Talus stockholders will not recognize gain
or loss for federal income tax purposes for the whole shares of Manugistics
common stock they receive in the merger. Legal counsel to each of Manugistics
and Talus have issued an opinion to this effect, copies of which are attached to
this document as Appendix "D" and Appendix "E." Talus stockholders will be taxed
on cash received instead of any fractional share of Manugistics common stock.
Tax matters are complicated, and tax results may vary among stockholders. We
urge you to contact your own tax advisor to understand fully how the merger will
affect you.
APPRAISAL RIGHTS (PAGE 61)
Holders of Talus capital stock are entitled to appraisal rights under
Delaware law, and if the merger is consummated, to receive payment in cash for
the statutory "fair value" of their shares, upon compliance with the provisions
of Section 262 of the Delaware General Corporation Law. Under Delaware law,
"fair value" would exclude any element of value arising from the accomplishment
or expectation of the merger. To preserve these rights, a stockholder must not
vote in favor of the merger and must deliver to Talus a written demand for
appraisal of such stockholder's shares no more than twenty calendar days from
the date of mailing of this prospectus. Failure to follow any of these or other
procedures may result in the loss of statutory appraisal rights.
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION (PAGE 43)
The merger agreement provides that the directors and officers of Manu
Acquisition Corp. immediately before the effective time will serve as directors
and officers of Talus following the merger.
TERMINATION AND TERMINATION FEE (PAGE 44)
Either Talus or Manugistics may terminate the merger under the following
circumstances, among others:
- both parties consent in writing;
- the merger is not completed by March 31, 2001; or
- there has been a breach of any representation, warranty or covenant
contained in the merger agreement by the other party, or if any
representation or warranty of the other party shall have become untrue
(except for those representations and warranties which address matters
only as of a particular date, which shall be true and correct only as of
such date), and such inaccuracy in such representation or warranty or
breach shall have a material adverse effect on such other party. If the
merger agreement is terminated for any such breach, failure or
inaccuracy, then Talus or Manugistics, as the case may be, shall pay to
the other party a termination fee of approximately $9.2 million.
7
<PAGE> 14
NO SOLICITATION (PAGE 42)
Talus has agreed that it will not, directly or indirectly, (1) solicit,
initiate or encourage the submission of any competing acquisition proposal, (2)
participate in or encourage, including by way of furnishing any non-public
information, any discussions or negotiations regarding any competing acquisition
proposal, or (3) enter into any definitive agreement relating to any competing
acquisition proposal.
INTERESTS OF TALUS DIRECTORS AND OFFICERS IN THE MERGER (PAGE 44)
You should note that certain directors and officers of Talus have interests
in the merger that are different from, or in addition to your interests. These
interests relate, among other things, to deferred distributions from indirect
ownership interests, potential accelerated vesting of stock options and
indemnification rights.
EFFECT OF MERGER ON RIGHTS OF TALUS STOCKHOLDERS (PAGE 55)
Talus is a Delaware corporation and, therefore, the rights of stockholders
of Talus currently are determined by reference to the Delaware General
Corporation Law and Talus' Certificate of Incorporation and bylaws. At the
effective time of the merger, stockholders of Talus will become stockholders of
Manugistics, which is a Delaware corporation. As a result, their rights as
stockholders of Manugistics will be determined by reference to the Delaware
General Corporation Law and by Manugistics' Certificate of Incorporation and
bylaws. While both corporations are governed by Delaware law, there are various
differences between the Certificate of Incorporation and bylaws of Manugistics
and Talus.
MARKET PRICE INFORMATION
Manugistics common stock is listed on the Nasdaq National Market under the
symbol "MANU." Talus capital stock is not publicly traded. The following table
presents:
- the last reported sale price of one share of Manugistics common stock, as
reported on the Nasdaq National Market; and
- the market value of one share of Talus common stock on an equivalent per
share basis.
On November 1, 2000, there were 387 holders of record of Talus Class A
voting common stock, 71 holders of record of Talus Class B non-voting common
stock, one holder of record of Talus Series A preferred stock, two holders of
record of Talus Series B preferred stock and 2 holders of record of Talus Series
C preferred stock. No established trading market for Talus capital stock exists.
Transactions in Talus capital stock are infrequent and are negotiated privately
between the persons involved in these transactions. These transactions are not
reported on an exchange or other organized trading system. For these reasons,
Talus lacks reliable data regarding recent trading activity in Talus capital
stock. To the best knowledge of management of Talus, the last arms-length
transaction in Talus capital stock before announcement of the merger was a sale
of Talus Class A voting common stock on August 18, 2000 at a price of $2.50 per
share.
Manugistics has never paid any cash dividends on its capital stock.
Manugistics currently anticipates that it will retain earnings to support its
operations and to finance the growth and development of its business, and it
does not anticipate paying any cash dividends for the foreseeable future.
Manugistics has an unsecured committed revolving credit facility with a
commercial bank that will expire on September 30, 2001, unless it is renewed.
Under the terms of the credit facility, Manugistics is prohibited from declaring
or paying cash dividends on its common stock. On November 17, 2000, there were
approximately 198 holders of record of Manugistics common stock.
In each case below, it is assumed that the merger had been completed on
each of September 21, 2000, the last full trading day before the public
announcement of the proposed merger, and on November 17, 2000, the last day for
which such information could be calculated before the date of this document. The
equivalent price per share data for Talus common stock has been determined by
multiplying the last reported sale price of one share of Manugistics common
stock on each of these dates by the exchange ratio assuming that the average
closing price equals the closing price on the date indicated. The table below
does not reflect the
8
<PAGE> 15
recently announced stock split of Manugistics. For more information on the stock
split, please see "Recent Developments -- Two-for-One Stock Split."
<TABLE>
<CAPTION>
EQUIVALENT PRICE PER
MANUGISTICS SHARE OF TALUS
DATE COMMON STOCK COMMON STOCK
---- ------------ --------------------
<S> <C> <C>
September 21, 2000.................................... $ 87.00 $6.45
November 17, 2000..................................... $ 115.44 $8.55
</TABLE>
SELLING STOCKHOLDERS; PLAN OF DISTRIBUTION (PAGES 50, 51)
This document also relates to the offer and resale by Talus stockholders,
identified in this document as the "selling stockholders," of up to
approximately 3,505,597 shares of Manugistics common stock issued to them in
connection with the merger. The selling stockholders have not advised
Manugistics of any specific plans for the distribution of the resale shares. It
is anticipated that the sale or distribution of all or any portion of the resale
shares offered hereby may be effected from time to time by the selling
stockholders directly, indirectly to or through brokers or dealers, or in a
distribution by one or more underwriters on a firm commitment or best efforts
basis, on the Nasdaq National Market, in the over-the-counter market, on any
national securities exchange on which the shares are listed or traded, in
privately negotiated transactions, or otherwise, at market prices prevailing at
the time of sale, at prices related to such prevailing market prices or at
negotiated prices.
TALUS SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data was derived from Talus' audited
consolidated financial statements presented elsewhere in this prospectus:
- Consolidated statements of operations for the years ended December 31,
1997, 1998 and 1999; and
- Consolidated balance sheets as of December 31, 1998 and 1999.
The following data was also derived from Talus' unaudited consolidated
financial statements included elsewhere in this prospectus:
- Consolidated statements of operations for the nine months ended September
30, 1999 and 2000; and
- Consolidated balance sheet as of September 30, 2000.
The following data was further derived from Talus' unaudited consolidated
financial statements not included elsewhere in this prospectus:
- Consolidated statements of operations for the years ended December 31,
1995 and 1996; and
- Consolidated balance sheets as of December 31, 1995, 1996 and 1997.
9
<PAGE> 16
Historical annual results of operations are not necessarily indicative of
results to be expected in the future. Historical interim results of operations
are not necessarily indicative of results to be obtained for the full year. When
you read this selected consolidated financial data, you should also read the
historical consolidated financial statements and related notes of Talus included
in this prospectus, which have been audited by KPMG LLP, independent auditors,
and the section of this prospectus titled, "Talus Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------- ------------------
1995 1996 1997 1998 1999 1999 2000
------- ------- ------- -------- -------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
License fees.................................... $ -- $ -- $ -- $ -- $ 224 $ -- $ 1,927
Consulting, solution support and custom software
development services.......................... 28,789 35,745 41,070 43,923 37,626 29,143 29,963
------- ------- ------- -------- -------- ------- --------
Total revenues................................ 28,789 35,745 41,070 43,923 37,850 29,143 31,890
------- ------- ------- -------- -------- ------- --------
Operating expenses:
Cost of revenue................................. 18,189 26,616 27,040 32,750 30,519 20,581 18,142
Sales and marketing............................. 3,329 3,431 5,542 6,341 9,481 6,451 6,357
Product development............................. -- -- 1,819 5,077 7,305 5,061 6,971
General and administrative...................... 5,341 3,448 4,171 6,403 6,098 4,281 6,703
Acquisition-related expenses(1)................. -- -- 1,005 -- -- -- 800
ESOP expense(2)................................. 824 1,086 778 3,284 -- -- --
Restructuring costs (income)(3)................. -- -- -- -- 3,956 481 (211)
Non-cash stock compensation expense(4).......... -- -- -- -- -- -- 650
------- ------- ------- -------- -------- ------- --------
Total operating expenses...................... 27,683 34,581 40,355 53,855 57,359 36,855 39,412
------- ------- ------- -------- -------- ------- --------
Income (loss) from operations..................... 1,106 1,164 715 (9,932) (19,509) (7,712) (7,522)
Interest income (expense), net.................... (96) (173) (512) (1,262) 284 1 690
(Increase) decrease in fair value of common stock
put warrant(5).................................. -- -- -- 360 -- -- (590)
------- ------- ------- -------- -------- ------- --------
Income(loss) before income taxes.................. 1,010 991 203 (10,834) (19,225) (7,711) (7,422)
Provision for income taxes........................ (443) (442) (370) -- -- -- --
------- ------- ------- -------- -------- ------- --------
Net income(loss).................................. 567 549 (167) (10,834) (19,225) (7,711) (7,422)
Dividends and accretion on redeemable preferred
stock........................................... (174) (400) (558) (627) (753) (564) (2,692)
------- ------- ------- -------- -------- ------- --------
Net income (loss) attributable to common
stockholders.................................... $ 393 $ 149 $ (725) $(11,461) $(19,978) $(8,275) $(10,114)
======= ======= ======= ======== ======== ======= ========
BALANCE SHEET DATA
Cash, cash equivalents and short-term
investments..................................... $ 2,602 $ 2,093 $ 3,973 $ 11,826 $ 25,277 $ 12,331
Working capital................................... 5,272 3,807 8,683 13,992 21,019 12,123
Total assets...................................... 13,725 15,891 22,197 30,746 41,683 30,373
Total long-term debt, less current portion........ 1,266 2,225 7,164 3,348 2,155 1,336
Redeemable convertible preferred stock............ 2,133 2,533 3,091 3,718 4,470 7,162
Total stockholders' equity (deficit).............. (3,990) (4,604) (9,368) 6,896 11,812 4,380
</TABLE>
---------------
(1) During 1997, Talus incurred a non-recurring charge to operations totaling
$1.0 million for certain acquisition-related expenses in connection with the
merger of Decision Focus Incorporated ("DFI") and Aeronomics Incorporated
("Aeronomics"). During the nine months ended September 30, 2000, Talus
recorded a $0.8 million charge for costs incurred to date related to the
Merger with Manugistics.
(2) The final allocation of shares to employee stock option plan participants
occurred in 1998. The Talus Employee Stock Ownership Plan was terminated in
December 1999.
(3) During 1999, Talus incurred charges to operations totaling $4.0 million for
certain restructuring costs including severance for headcount reductions
during the nine months ended September 30, 1999 ($0.4 million) and including
lease termination costs associated with relocating its corporate
headquarters ($3.6 million).
(4)During the nine months ended September 30, 2000, Talus recorded a charge of
$0.7 million related to stock options granted to employees and directors. In
addition, Talus issued common stock to vendors at prices below fair value for
services rendered at prices below fair value.
(5) See "Talus Management's Discussion and Analysis of Financial Condition and
Results of Operations."
10
<PAGE> 17
MANUGISTICS SELECTED CONSOLIDATED FINANCIAL DATA
The following historical consolidated statement of operations data for the
years ended February 29 or 28, 1996, 1997, 1998, 1999 and 2000 is derived from
our audited financial statements. The statement of operations data for the six
months ended August 31, 1999 and 2000 and consolidated balance sheet data as of
August 31, 2000 is unaudited.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
FEBRUARY 29 OR 28, AUGUST 31,
-------------------------------------------------- ------------------
1996 1997 1998 1999 2000 1999 2000
------- ------- -------- -------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
License fees............................ $33,111 $54,342 $107,547 $ 73,802 $ 60,421 $23,852 $ 54,483
Consulting, solution support and other
services.............................. 33,865 45,865 72,716 103,762 92,012 49,136 54,186
------- ------- -------- -------- -------- ------- --------
Total revenues...................... 66,976 100,207 180,263 177,564 152,433 72,988 108,669
------- ------- -------- -------- -------- ------- --------
Operating expenses:
Cost of license fees.................... 3,070 5,011 11,102 13,415 13,685 5,910 9,593
Cost of consulting, solution support and
other Services........................ 15,181 19,618 33,213 50,585 44,346 21,914 25,292
Sales and marketing..................... 22,933 34,961 66,228 103,006 61,439 28,138 48,134
Product development..................... 12,133 18,889 32,794 49,389 29,150 14,461 16,215
General and administrative.............. 6,664 9,344 14,639 19,828 15,837 7,840 10,310
Acquisition-related expenses(1)......... -- -- -- 3,095 -- -- --
Non-cash stock compensation
expense(2)............................ -- -- -- -- -- -- 20,711
Restructuring costs(1).................. -- -- -- 33,775 (1,506) (682) --
Purchased research and development(3)... -- 3,697 47,340 -- -- -- --
------- ------- -------- -------- -------- ------- --------
Total operating expenses............ 59,981 91,520 205,316 273,093 162,951 77,581 130,255
------- ------- -------- -------- -------- ------- --------
Income (loss) from operations............... 6,995 8,687 (25,053) (95,529) (10,518) (4,593) (21,586)
Other income -- net......................... 1,144 1,047 2,863 2,362 1,389 874 715
------- ------- -------- -------- -------- ------- --------
Income (loss) before income taxes........... 8,139 9,734 (22,190) (93,167) (9,129) (3,719) (20,871)
Provision (benefit) for income taxes........ 3,064 5,077 (9,025) 2,945 (184) (673) (36)
------- ------- -------- -------- -------- ------- --------
Net income (loss)........................... $ 5,075 $ 4,657 $(13,165) $(96,112) $ (8,945) $(3,046) $(20,835)
======= ======= ======== ======== ======== ======= ========
Basic income (loss) per share............... $ 0.24 $ 0.22 $ (0.56) $ (3.64) $ (0.33) $ (0.11) $ (0.73)
======= ======= ======== ======== ======== ======= ========
Shares used in basic share computation...... 20,909 21,657 23,484 26,402 27,486 27,151 28,541
======= ======= ======== ======== ======== ======= ========
Diluted income (loss) per share............. $ 0.23 $ 0.20 $ (0.56) $ (3.64) $ (0.33) $ (0.11) $ (0.73)
======= ======= ======== ======== ======== ======= ========
Shares used in diluted share computation.... 21,935 23,159 23,484 26,402 27,486 27,151 28,541
======= ======= ======== ======== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
AS OF
FEBRUARY 29 OR 28, AS OF
-------------------------------------------------- AUGUST 31,
1996 1997 1998 1999 2000 2000
------- ------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities.... $24,441 $22,465 $ 82,137 $ 43,362 $ 51,547 $ 34,849
Working capital..................................... 29,012 33,443 96,394 31,138 36,831 40,098
Total assets........................................ 62,497 86,306 225,215 172,336 152,428 166,512
Total stockholders' equity.......................... $43,846 $54,873 $173,746 $ 85,722 $ 86,718 $ 96,607
</TABLE>
---------------
(1) During fiscal 1999, we incurred a non-recurring charge to operations
totaling $3.1 million for certain acquisition-related expenses in connection
with the business combination involving TYECIN Systems, Inc. During fiscal
1999, we incurred charges to operations totaling $33.8 million for certain
restructuring costs related to management's plan to reduce costs and improve
operating efficiencies. The impact of these charges on basic and diluted
(loss) income per share was ($1.40) in fiscal 1999.
(2) During the six months ended August 31, 2000, we incurred non-cash stock
compensation expense totaling $20.7 million in connection with the
application of FASB Interpretation No. 44 ("FIN 44") "Account-
11
<PAGE> 18
ing for Certain Transactions Involving Stock Compensation" to the January
1999 repriced stock options. See our Current Report on Form 10-Q filed on
October 16, 2000 for the impact of the non-cash stock compensation on the
various expense line items.
(3) During fiscal 1998 and 1997, we incurred non-recurring, non-cash charges to
operations totaling $47.3 million (or $28.6 million, net of $18.7 million
tax benefit) and $3.7 million, respectively, in connection with the
write-off of purchased research and development, which had not yet reached
technological feasibility and had no alternative future use. The impact of
these charges on basic and diluted (loss) income per share was ($1.22) in
fiscal 1998 and ($0.17) and ($0.16), respectively, in fiscal 1997.
MANUGISTICS SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
In the table below, we provide you summary unaudited pro forma combined
financial data to give effect to our merger with Talus and the October and
November 2000 issuances totaling $250 million of convertible subordinated notes
as if these had been completed on March 1, 1999 for statement of operations
purposes and August 31, 2000 for balance sheet purposes. This summary unaudited
pro forma combined financial data should be read in conjunction with the
unaudited pro forma combined condensed financial information and accompanying
notes which are included in this prospectus, the separate historical financial
statements and accompanying notes of Manugistics, which are incorporated by
reference in this prospectus, and the historical financial statements of Talus
which are included in this prospectus. It is also important that you read our
2000 Annual Report on Form 10-K which we incorporate by reference. See "Where
You Can Find More Information" on Page 90.
On September 21, 2000, we entered into a definitive agreement to acquire
Talus in a transaction to be accounted for as a purchase. Under the agreement,
we will acquire all of the outstanding capital stock of Talus and will assume
all outstanding stock options of Talus, in exchange for approximately 3.5 to 4.2
million shares of our common stock, plus stock options, valued at approximately
$380 million including acquisition charges.
On October 20, 2000, we completed the private placement of $200 million of
5% convertible subordinated notes due 2007 and on November 2, 2000, we completed
the private placement of an additional $50 million of these notes. This private
placement is reflected in the "As Adjusted" column balance.
The summary unaudited pro forma combined financial data is presented for
illustrative purposes only and is not necessarily indicative of the combined
financial position or results of operations of future periods or the results
that actually would have been realized had the companies operated as a single
entity during this period. The unaudited pro forma combined condensed financial
information does not purport to represent what our operations or financial
position actually would have been had the acquisition occurred on the dates
specified, or to project our results of operation or financial position for any
future period or date. The selected unaudited pro forma combined financial data
derived from the unaudited pro forma combined condensed financial information
included elsewhere in this prospectus should be read in conjunction with that
information and the related notes. See "Unaudited Pro Forma Combined Condensed
Financial Information."
12
<PAGE> 19
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
FEBRUARY 29, 2000 AUGUST 31, 2000
----------------------- -----------------------
AS ADJUSTED AS ADJUSTED
PRO FORMA PRO FORMA PRO FORMA PRO FORMA
--------- ----------- --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
UNAUDITED PRO FORMA COMBINED STATEMENT OF
OPERATIONS DATA:
Revenue.......................................... $ 190,283 $ 190,283 $131,833 $131,833
Total operating expenses......................... 319,735 319,735 206,403 206,403
Other income (expense)........................... 1,673 (12,027) 1,191 (5,659)
Net loss......................................... (127,595) (141,295) (73,343) (80,193)
Net loss per basic and diluted share............. $ (4.12) $ (4.56) $ (2.29) $ (2.50)
Weighted average shares used in per share
calculation.................................... 30,972 30,972 32,027 32,027
</TABLE>
<TABLE>
<CAPTION>
AS OF AUGUST 31, 2000
-----------------------
AS ADJUSTED
PRO FORMA PRO FORMA
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............ $ 52,126 $294,126
Working capital............................................. 46,609 288,609
Total assets................................................ 566,749 816,749
Long term debt.............................................. -- 250,000
Stockholders' equity........................................ $471,224 $471,224
</TABLE>
COMPARATIVE PER SHARE DATA
The following table sets forth historical net loss and book value per share
data of Manugistics and Talus and unaudited pro forma combined net loss and book
value per share data after giving effect to the Talus acquisition.
This data should be read in conjunction with the unaudited pro forma
combined financial statements included in this prospectus, the consolidated
financial statements and related notes of Manugistics incorporated by reference
in this prospectus and the historical financial statements and related notes of
Talus included in this prospectus. The unaudited pro forma combined per share
data is not necessarily indicative of the net income (loss) or book value per
share that would have been achieved had the transactions been completed as of
the beginning of the periods presented.
References below to Manugistics' historical book value per share is
computed by dividing stockholders' equity by the number of shares of common
stock outstanding, net of treasury shares, as of August 31, 2000. Talus'
historical book value per share as of September 30, 2000 is computed by dividing
stockholders' equity by the sum of (1) the number of shares of common stock
outstanding, net of treasury shares, and (2) the number of shares of common
stock that would be outstanding upon conversion of the Series B and Series C
preferred stock, less the number of shares of common stock outstanding that are
subject to put rights by the holder. The pro forma combined book values per
share are computed by dividing pro forma stockholders' equity by the pro forma
number of shares of Manugistics common stock outstanding as of August 31, 2000.
13
<PAGE> 20
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED AND AS OF
FEBRUARY 29, 2000 AUGUST 31, 2000
----------------- ---------------
<S> <C> <C>
Manugistics historical:
Net loss per share, basic and diluted..................... $(0.33) $(0.73)
Book value per share(5)................................... $ 3.36
Talus historical:
Net loss per share, basic and diluted(1).................. $(1.21) $(0.35)
Book value per share(2)................................... $ 0.10
Pro forma combined Manugistics(3):
Net loss per share, basic and diluted:
Assuming stock price is $78.00 or greater.............. $(4.56) $(2.50)
Assuming stock price is $65.00 or less................. $(4.47) $(2.45)
Book value per share(5):
Assuming stock price is $78.00 or greater.............. $14.60
Assuming stock price is $65.00 or less................. $14.29
Talus equivalent pro forma combined(3)(4):
Net loss per share, basic and diluted(1)
Assuming stock price is $78.00 or greater.............. $(0.34) $(0.19)
Assuming stock price is $65.00 or less................. $(0.39) $(0.22)
Book value per share
Assuming stock price is $78.00 or greater.............. $ 1.08
Assuming stock price is $65.00 or less................. $ 1.26
</TABLE>
---------------
(1) Data is for the year ended December 31, 1999 and for the six months ended
June 30, 2000.
(2) Data is as of September 30, 2000.
(3) Net loss per basic and diluted share, includes the effect of Manugistics
$250.0 million private placement of notes.
(4) Calculated by multiplying the Manugistics pro forma combined per share
amounts by the merger exchange ratio as follows:
Assuming stock price is $78.00 or greater: .07409
Assuming stock price is $65.00 or less: .08820
(5) Book value per share is based on the shares outstanding at August 31, 2000.
14
<PAGE> 21
RISK FACTORS
Talus stockholders should consider carefully the following factors, in
addition to those factors discussed in the documents that we have filed with the
SEC which we have incorporated by reference into this document, and the other
information included in this prospectus.
RISKS RELATED TO THE MERGER
THE MERGER WILL ADVERSELY AFFECT MANUGISTICS COMBINED FINANCIAL RESULTS.
Manugistics will incur substantial dilution to its earnings per share in
accordance with generally accepted accounting principles for the foreseeable
future as a result of the merger. In connection with the merger, Manugistics
will amortize approximately $23.8 million of deferred compensation over three
years. Further, Manugistics will incur an annual amortization charge of
approximately $91.5 million related to goodwill and intangible assets over the
next four years.
THE EXCHANGE RATIO COULD BE SIGNIFICANTLY DIFFERENT FROM WHAT IT WOULD BE IF
DETERMINED UPON EXECUTION OF THE MERGER AGREEMENT.
In the merger, each share of Talus capital stock will convert into a
fraction of a share of Manugistics common stock depending on the average closing
price of Manugistics common stock during the 15 trading day period ending two
days before the closing of the merger. Because the exchange ratio will not be
determined until two days before the closing of the merger, Talus stockholders
may not know the actual exchange ratio prior to the date by which Talus
stockholders are required to deliver to Talus a written demand for the appraisal
of their stock under Section 262 of the Delaware General Corporation Law.
Changes in the price of Manugistics common stock between the date of execution
of the merger agreement and the closing of the merger may cause the actual
exchange ratio to differ significantly from the exchange ratio that would have
existed had it been calculated on or before the date of execution of the merger
agreement.
WE MAY ENCOUNTER PROBLEMS EFFECTIVELY INTEGRATING TALUS IF THE MERGER IS
COMPLETED.
Integrating the operations and personnel of Talus into Manugistics will be
a complex process, and Manugistics is uncertain that the integration will be
completed in a timely manner or will achieve the anticipated benefits of the
merger. This acquisition of Talus is substantially larger than all of our prior
acquisitions, not all of which have been successful. In addition to the risks
described below in connection with acquisitions generally, the ultimate success
of the merger is dependent on the following factors:
- our ability to complete the commercial release of Talus' custom-developed
solutions;
- our ability to protect and maintain Talus' intellectual property rights;
- our ability to successfully market the products Talus has developed and
is developing for commercial release;
- our ability to successfully integrate Talus' technologies;
- our ability to retain and incentivize Talus' employees;
- market acceptance of the products Talus has commercially released to
date;
- our ability to fulfill our strategic plan for the merger of Talus by
integrating Manugistics' supply chain and eBusiness capabilities and
products with Talus' pricing and revenue optimization products and
services;
- market acceptance of our combined supply chain, eBusiness and pricing and
revenue optimization products;
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- our ability, together with Talus, to cross-sell products and services
into our respective markets; and
- the outcome of current disputes and litigation arising in the ordinary
course of business.
IF MANUGISTICS DOES NOT SUCCESSFULLY INTEGRATE TALUS OR THE MERGER'S BENEFITS DO
NOT MEET THE EXPECTATIONS OF INVESTORS OR FINANCIAL OR INDUSTRY ANALYSTS, THE
MARKET PRICE OF MANUGISTICS' COMMON STOCK MAY DECLINE.
The market price of Manugistics common stock may decline as a result of the
merger if:
- the integration of Talus into Manugistics is not completed in a timely
and efficient manner;
- Manugistics does not achieve the benefits of the merger as rapidly as, or
to the extent, anticipated by financial or industry analysts;
- Manugistics' assumptions about Talus' business model and operations may
prove incorrect;
- the effect of the merger on Manugistics' financial results is not
consistent with the expectations of financial or industry analysts;
- Manugistics is unable to obtain additional capital on acceptable terms
when required; or
- significant stockholders of Manugistics following the merger may
determine to dispose of their shares because the results of the merger
are not consistent with their expectations.
FAILURE TO COMPLETE THE MERGER COULD NEGATIVELY IMPACT MANUGISTICS AND TALUS.
If the merger is not completed for any reason, Manugistics and Talus will
be subject to a number of material risks, including:
- the provision in the merger agreement that Manugistics or Talus could be
required to pay the other party a termination fee of approximately $9.2
million under certain circumstances;
- costs related to the merger, such as legal and accounting fees and a
portion of the expenses of the Manugistics' and Talus' investment bankers
must be paid even if the merger is not completed;
- benefits that the companies expect to realize from the merger, such as
the potentially enhanced financial and competitive position of the
combined company, would not be realized;
- potential adverse publicity and negative perceptions by analysts and
investors; and
- the diversion of management attention from day-to-day business, and the
potential to disrupt employees and relationships with customers and
suppliers during the period before consummation of the merger, may affect
the financial and market position of either or both companies if the
merger does not occur.
If the merger is terminated and the Talus board of directors seeks another
merger or business combination, Talus stockholders cannot be certain that Talus
will be able to find a partner willing to pay an equivalent or more attractive
price than the price to be paid by Manugistics in the merger.
DURING THE PENDENCY OF THE MERGER, TALUS MAY NOT BE ABLE TO ENTER INTO A MERGER
OR BUSINESS COMBINATION WITH ANOTHER PARTY AT A FAVORABLE PRICE BECAUSE OF
RESTRICTIONS IN THE MERGER AGREEMENT.
Until the merger is completed or the merger agreement is terminated, Talus
is prohibited from entering into or soliciting, initiating or encouraging any
inquiries or proposals that may lead to a proposal or offer for a merger,
consolidation, business combination, sale of substantial assets, tender offer,
sale of shares of capital stock or other similar transactions with any other
person. As a result of these restrictions, Talus may not be able to enter into
an alternative transaction at a favorable price.
A PORTION OF TALUS STOCKHOLDER'S SHARES OF MANUGISTICS COMMON STOCK WILL BE HELD
IN ESCROW.
A portion of each Talus stockholder's shares of Manugistics common stock
equal to 15% will be held in escrow to secure the indemnification obligations of
Talus as set forth in the merger agreement. The terms of this escrow arrangement
are more fully described below under "The Merger -- Escrow and Indemnification
Rights." If Talus stockholders are required to indemnify Manugistics and its
affiliates for losses resulting from the breach of representations, warranties,
covenants or agreements of Talus contained in the merger
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agreement, or for losses of Talus in connection with certain pending litigation
of Talus, Talus stockholders may not receive all, or a portion, of the shares of
Manugistics common stock held in escrow.
TALUS' OFFICERS AND DIRECTORS HAVE CONFLICTS OF INTEREST THAT MAY INFLUENCE THEM
TO SUPPORT OR APPROVE THE MERGER.
Some members of the Talus board of directors and management have interests
in the merger in addition to their interests generally as stockholders of Talus.
The interests of certain members of the Talus board of directors and management
in the merger are more fully described below under "The Merger -- Interests of
Talus Directors and Officers in the Merger."
UNCERTAINTIES ASSOCIATED WITH THE MERGER MAY CAUSE TALUS TO LOSE KEY PERSONNEL.
Current and prospective Talus employees may experience uncertainty about
their future roles with Manugistics. This uncertainty may adversely affect
Talus' ability to attract and retain key management, sales, marketing and
technical personnel. In addition, Manugistics' ability to successfully integrate
the two companies may be adversely affected if a significant number of key Talus
personnel depart prior to the closing of the merger, which would adversely
affect Manugistics' business and results of operations.
RISKS RELATED TO OUR BUSINESS
WE HAVE RECENTLY RESTRUCTURED OUR BUSINESS AND, AS A RESULT, YOU MAY HAVE
DIFFICULTY EVALUATING OUR PROSPECTS BASED ON OUR PAST OPERATING RESULTS.
We experienced operational difficulties in fiscal 1999 and the first half
of fiscal 2000. Problems with our direct sales operation and intense
competition, among other factors, contributed to net losses of $96.1 million in
fiscal 1999 and $8.9 million in fiscal 2000. We have also reported net losses of
$20.8 million for the first half of fiscal 2001. In response to our problems, we
hired a new executive management team, enhanced our supply chain optimization
and eBusiness products and services and improved our direct sales organization.
Our ability to continue to achieve operational improvements and improve our
financial performance will be subject to a number of risks and uncertainties,
including the following:
- slower growth in the market for supply chain and eBusiness software;
- our ability to introduce new software products and services to respond to
technological and client needs;
- our ability to manage our anticipated growth;
- our ability to hire, integrate and deploy our direct sales force
effectively;
- our ability to expand our distribution capability through indirect sales
channels;
- our ability to respond to competitive developments and pricing; and
- our dependence on our current executive officers and key employees.
If we fail to successfully address these risks and uncertainties, our
business could be harmed and we could continue to incur significant losses.
WE HAVE A HISTORY OF LOSSES AND EXPECT FUTURE LOSSES. IF WE DO NOT ACHIEVE OR
MAINTAIN PROFITABILITY IN THE FUTURE, OUR STOCK PRICE MAY DECLINE.
We have recently incurred significant losses, including net losses of $20.8
million for the first half of fiscal 2001, $8.9 million in fiscal 2000 and $96.1
million in fiscal 1999. We cannot assure you that our revenues will grow or that
we will achieve or maintain profitability in the future. Our ability to increase
revenues and achieve profitability will be affected by the other risks and
uncertainties described in this section. Our failure to
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achieve profitability could cause our stock price to decline, and our ability to
finance our operations could be impaired.
OUR OPERATING RESULTS FLUCTUATE, AND IF WE FAIL TO MEET THE EXPECTATIONS OF
SECURITIES ANALYSTS OR INVESTORS IN ANY PERIOD, OUR STOCK PRICE COULD DECLINE
SIGNIFICANTLY.
Our revenues and operating results are difficult to predict, and we believe
that period-to-period comparisons of our operating results will not necessarily
be meaningful or indicative of future performance. The factors that may cause
fluctuations of our quarterly operating results include the following:
- the size, timing and contractual terms of sales of our products and
services;
- the potentially long and unpredictable sales cycle for our products;
- technical difficulties in our software that could delay the introduction
of new products or increase their costs;
- introductions of new products or new versions of existing products by us
or our competitors;
- changes in prices or the pricing models for our products and services or
those of our competitors;
- changes in the mix of our software license revenues, consulting revenues
and solution support revenues; and
- changes in the mix of sales channels through which our products and
services are sold.
Due to fluctuations from quarter to quarter, our operating results may not
meet the expectations of securities analysts or investors. If this occurs, the
price of our common stock could decline significantly.
VARIATIONS IN THE TIME IT TAKES US TO SELL OUR SOLUTIONS MAY CAUSE FLUCTUATIONS
IN OUR OPERATING RESULTS.
The time it takes to sell our solutions to prospective clients varies
substantially, but typically ranges between six and twelve months. Variations in
the length of our sales cycles could cause our revenues to fluctuate widely from
period to period. Because we typically recognize a substantial portion of our
license revenues in the last month of a quarter, any delay in the sale of our
products could cause significant variations in our revenues from quarter to
quarter. Furthermore, because our operating expenses are relatively fixed over
the short term and we devote significant time and resources to prospective
clients, these fluctuations could cause our operating results to suffer in some
future periods. The length of our sales cycle depends on a number of factors,
including the following:
- the breadth of the solution required by the client, including the
technical, organizational and geographic scope of the license;
- the evaluation and approval process employed by the client;
- the sales channel through which the solution is sold; and
- any other delays arising from factors beyond our control.
THE SIZE AND SCOPE OF OUR CONTRACTS WITH CLIENTS ARE INCREASING, WHICH MAY CAUSE
FLUCTUATIONS IN OUR OPERATING RESULTS.
Our clients and prospective clients are seeking to solve increasingly
complex supply chain and eBusiness problems. Further, we are now focusing on
providing total solutions to our clients, as opposed to only licensing software.
As the size and scope of our contracts with clients increase, our operating
results could fluctuate due to the following factors:
- contractual terms may vary widely, which is likely to result in differing
methods of accounting for revenue from each contract;
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- losses of, or delays in, larger contracts could have a proportionately
greater effect on our revenues for a particular period; and
- the sales cycle related to larger contracts is likely to be longer and
subject to greater delays.
Any of these factors could cause our revenues to decline or fluctuate
significantly in any quarter and could cause a decline in our stock price.
WE HAVE EXPERIENCED DIFFICULTIES INTEGRATING ACQUISITIONS IN THE PAST AND MAY
EXPERIENCE PROBLEMS WITH FUTURE ACQUISITIONS THAT COULD MATERIALLY HARM OUR
BUSINESS.
Acquisitions involve the integration of companies that have previously
operated independently. In connection with any acquisition, there can be no
assurance that we will:
- effectively integrate employees, operations, products and systems;
- realize the expected benefits of the transaction;
- retain key employees;
- retain and develop key technologies and proprietary know-how;
- avoid conflicts with our clients that are competitors or clients of the
acquired company;
- avoid unanticipated operational difficulties or expenditures; and
- effectively operate our existing business lines, given the significant
diversion of resources and management attention to acquisitions.
In 1998, we experienced difficulties with the integration of the products
and operations of ProMIRA Software, Inc., or ProMIRA, which we acquired in
February 1998, and TYECIN Systems, Inc., or TYECIN, which we acquired in June
1998. These difficulties included problems integrating the prior ProMIRA sales
forces and the delayed releases of the in-process technology acquired as part of
the transaction. In addition, as a result of the poor financial performance we
experienced in fiscal 1999, the technology acquired in conjunction with the
TYECIN acquisition was not integrated into our solutions and, therefore,
revenues generated from this technology have been nominal. Difficulties like
those experienced with ProMIRA and TYECIN and as outlined above could materially
and adversely affect our business, results of operations and financial
condition.
WE DEPEND ON SALES OF OUR SUPPLY CHAIN OPTIMIZATION AND EBUSINESS SOLUTIONS, AND
OUR BUSINESS WILL BE MATERIALLY AND ADVERSELY AFFECTED IF THE MARKET FOR THESE
PRODUCTS DOES NOT CONTINUE TO GROW.
Substantially all of our software license fees, consulting revenues and
solution support revenues have arisen from, or are related directly to, our
supply chain optimization and eBusiness solutions. We expect to continue to be
dependent upon these products in the future, and any factor adversely affecting
the products or the market for supply chain and eBusiness solutions, in general,
would materially and adversely affect our ability to generate revenues.
While we believe the market for supply chain and eBusiness solutions will
continue to expand, it may grow more slowly than in the past. If the market for
our products does not grow as rapidly as we expect, revenue growth, operating
margins or both could be adversely affected.
OUR MARKET IS EXTREMELY COMPETITIVE, AND WE MAY NOT BE ABLE TO EFFECTIVELY
COMPETE.
The market for our solutions is intensely competitive. The intensity of
competition in our market has significantly increased and is expected to
increase in the future, particularly in the eBusiness software applications
market. Our current and potential competitors may make acquisitions of other
competitors and may establish cooperative relationships among themselves or with
third parties. Further, our current or prospective clients and partners may
become competitors in the future. Increased competition is likely to
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result in price reductions, lower gross margins, longer sales cycles and the
loss of market share. Each of these developments could materially and adversely
affect our growth and operating performance.
MANY OF OUR COMPETITORS HAVE SIGNIFICANTLY MORE RESOURCES THAN WE DO AND
THEREFORE WE MAY BE AT A DISADVANTAGE IN ATTEMPTING TO COMPETE WITH THEM.
We directly compete with other application software vendors including:
Adexa, Inc., Aspen Technology, Inc., The Descartes Systems Group Inc., i2
Technologies, Inc., Logility, Inc. and SynQuest, Inc. Some eBusiness software
companies that do not currently offer competitive products or solutions, such as
Ariba, Inc. and Commerce One, may begin to compete directly with us. In
addition, some enterprise resource planning, or ERP, companies such as Invensys
plc (which acquired Baan Company N.V.), J.D. Edwards & Company, Oracle
Corporation, PeopleSoft, Inc., and SAP AG have acquired or developed supply
chain planning software products. Some of our current and potential competitors,
particularly the ERP vendors, have significantly greater financial, marketing,
technical and other competitive resources than us, as well as greater name
recognition and a larger installed base of clients. In addition, many of our
competitors have well-established relationships with our current and potential
clients and have extensive knowledge of our industry. As a result, they may be
able to adapt more quickly to new or emerging technologies and changes in client
requirements or to devote greater resources to the development, promotion and
sale of their products than we can. Any of these factors could materially impair
our ability to compete and adversely affect our revenue growth and operating
performance.
IF WE FAIL TO DEVELOP NEW PRODUCTS AND SERVICES IN THE FACE OF OUR INDUSTRY'S
RAPIDLY EVOLVING TECHNOLOGY, OUR FUTURE RESULTS MAY BE MATERIALLY AND ADVERSELY
AFFECTED.
The market for supply chain optimization and eBusiness solutions is subject
to rapid technological change, changing client needs, frequent new product
introductions and evolving industry standards that may render existing products
and services obsolete. Our growth and future operating results will depend, in
part, upon our ability to enhance existing applications and develop and
introduce new applications or components that:
- meet or exceed technological advances in the marketplace;
- meet changing client requirements;
- comply with changing industry standards;
- achieve market acceptance;
- integrate third-party software effectively; and
- respond to competitive products.
Our product development and testing efforts have required, and are expected
to continue to require, substantial investment. We may not possess sufficient
resources to continue to make the necessary investments in technology. In
addition, we may not successfully identify new software opportunities or develop
and bring new software to market in a timely and efficient manner. If we are
unable, for technological or other reasons, to develop and introduce new and
enhanced software in a timely manner, we may lose existing clients and fail to
attract new clients, which would result in a decline in revenues.
SOFTWARE DEFECTS OR PROBLEMS IN THE IMPLEMENTATION OF SOFTWARE COULD LEAD TO
CLAIMS FOR DAMAGES BY OUR CLIENTS, LOSS OF REVENUES OR DELAYS IN THE MARKET
ACCEPTANCE OF OUR PRODUCTS.
Our software products are complex and are frequently integrated with a wide
variety of third-party software. We may sell products that contain undetected
errors or failures when new products are first introduced or as new versions are
released. We may also be unable to meet client expectations in implementing our
solutions. These problems may result in claims for damages suffered by our
clients or a loss of, or delays in, the market acceptance of our products. In
the past, we have discovered software errors in our new releases and new
products after their introduction. In the event that we experience significant
software
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errors in future releases, we could experience claims for damages, delays in
product releases, client dissatisfaction and potentially lost revenues during
the period required to correct these errors. In the future, we may discover
errors or limitations in new releases or new products after the commencement of
commercial shipments. Any of these errors or defects could materially harm our
business.
WE ARE DEPENDENT ON THIRD-PARTY SOFTWARE INCORPORATED IN OUR PRODUCTS AND
SOLUTIONS, AND IMPAIRED RELATIONS WITH THESE THIRD PARTIES, ERRORS IN
THIRD-PARTY SOFTWARE OR INABILITY TO ENHANCE THE SOFTWARE OVER TIME COULD HARM
OUR BUSINESS.
We incorporate third-party software into our products and solutions. We are
likely to incorporate additional third-party software into our products and
solutions as we expand our product offerings. The operation of our products
would be impaired if errors occur in the third-party software that we license.
It may be more difficult for us to correct any errors in third-party software
because the software is not within our control. Accordingly, our business could
be adversely affected in the event of any errors in this software. There can be
no assurance that these third parties will continue to invest the appropriate
levels of resources in their products and services to maintain and enhance the
software capabilities.
Furthermore, it may be difficult for us to replace any third-party software
if a vendor seeks to terminate our license to the software. Any impairment in
our relationship with these third parties could adversely impact our business
and financial condition.
WE ARE SUBSTANTIALLY DEPENDENT ON THIRD PARTIES TO INTEGRATE OUR SOFTWARE WITH
OTHER SOFTWARE PRODUCTS AND PLATFORMS.
We depend on companies such as Extricity, Inc. and Vignette Corporation to
integrate our software with software and platforms developed by third parties.
If these companies are unable to develop or maintain software that effectively
integrates our software and is free from errors, our ability to license our
products and provide solutions could be impaired. Further, we rely on these
companies to maintain relationships with the companies that provide the external
software that is vital to the functioning of our products and solutions. The
loss of any company that we use to integrate our software products could
adversely affect our business, results of operations and financial condition.
OUR EFFORTS TO DEVELOP RELATIONSHIPS WITH VENDORS SUCH AS SOFTWARE COMPANIES,
CONSULTING FIRMS, RESELLERS AND OTHERS TO IMPLEMENT AND PROMOTE OUR SOFTWARE
PRODUCTS MAY FAIL.
We are developing and maintaining significant working relationships with
complementary vendors, such as software companies, consulting firms, resellers
and others that we believe can play an important role in marketing our products.
We are currently investing, and intend to continue to invest, significant
resources to develop these relationships, which could adversely affect our
operating margins. We may be unable to develop relationships with organizations
that will be able to market our products effectively.
Our arrangements with these organizations are not exclusive and, in many
cases, may be terminated by either party without cause. Many of the
organizations with whom we are developing or maintaining marketing relationships
are also involved with competing products. Therefore, there can be no assurance
that any organization will continue its involvement with us and our products.
The loss of relationships with important organizations could materially and
adversely affect our results of operations.
WE HAVE LIMITED EXPERIENCE WITH GOVERNMENT CONTRACTS, WHICH OFTEN INVOLVE LONG
PURCHASE CYCLES AND COMPETITIVE PROCUREMENT PROCESSES.
We have recently begun providing our solutions to government agencies and
expect that a significant portion of our future revenues may be derived from
government agency clients. Obtaining government contracts may involve long
purchase cycles, competitive bidding, qualification requirements, performance
bond requirements, delays in funding, budgetary constraints and extensive
specification development and price negotiations. Each government agency
maintains its own rules and regulations with which we must comply and which can
vary significantly among agencies. Government agencies also often retain a
significant portion
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of fees payable upon completion of a project and collection of such fees may be
delayed for several months. Accordingly, our revenues could decline as a result
of these government procurement processes.
In addition, our government contracts are fixed price contracts which may
prevent us from recovering costs incurred in excess of our budgeted costs. Fixed
price contracts may require us to estimate the total project cost based on
preliminary projections of the project's requirements. The financial viability
of any given project depends in large part on our ability to estimate such costs
accurately and complete the project on a timely basis. In the event our actual
costs exceed the fixed contract cost, we will not be able to recover the excess
costs. If we fail to properly anticipate costs on fixed price contracts, our
profit margins will decrease. Some government contracts are also subject to
termination or renegotiation at the convenience of the government, which could
result in a large decline in revenue in any given quarter. Multi-year contracts
are contingent on overall budget approval by Congress and may be terminated due
to lack of funds.
INCREASED SALES THROUGH INDIRECT CHANNELS MAY ADVERSELY AFFECT OUR OPERATING
PERFORMANCE.
Even if our marketing efforts through indirect channels are successful and
result in increased sales, our average selling prices and operating margins
would be adversely affected because of the lower unit prices that we receive
when selling through indirect channels.
IF WE FAIL TO EFFECTIVELY EXPAND OUR SALES ORGANIZATION, OUR GROWTH WILL BE
LIMITED.
Our continuing efforts to expand our sales organization will require
significant resources. New sales personnel will require training and may take a
long time to achieve full productivity. Further, the competition for qualified
sales personnel is intense, and there is no assurance that we can attract and
retain sales people at levels sufficient to support our growth. Any failure to
adequately sell and support our products could limit our growth and adversely
affect our results of operations and financial condition.
THE LIMITED ABILITY OF LEGAL PROTECTIONS TO SAFEGUARD OUR INTELLECTUAL PROPERTY
RIGHTS COULD IMPAIR OUR ABILITY TO COMPETE EFFECTIVELY.
Our success and ability to compete are substantially dependent on our
internally developed technologies and trademarks, which we protect through a
combination of confidentiality procedures, contractual provisions, patent,
copyright, trademark and trade secret laws. Despite our efforts to protect our
proprietary rights, unauthorized parties may copy aspects of our products or
obtain and use information that we regard as proprietary. Policing unauthorized
use of our products is difficult and, although we are unable to determine the
extent to which piracy of our software products exists, we expect software
piracy to be a problem. In addition, the laws of some foreign countries do not
protect our proprietary rights to the same extent as the laws of the United
States. Furthermore, our competitors may independently develop technology
similar to ours.
OUR PRODUCTS MAY INFRINGE UPON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, WHICH
MAY CAUSE US TO INCUR UNEXPECTED COSTS OR PREVENT US FROM SELLING OUR PRODUCTS.
The number of intellectual property claims in our industry may increase as
the number of competing products grow and the functionality of products in
different industry segments overlap. In recent years, there has been a tendency
by software companies to file substantially increasing numbers of patent
applications. We have no way of knowing what patent applications third parties
have filed until a patent is issued. It can take as long as three years for a
patent to be granted after an application has been filed. Although we are not
aware that any of our products infringe upon the proprietary rights of third
parties, there can be no assurance that third parties will not claim
infringement by us with respect to current or future products. Any of these
claims, with or without merit, could be time-consuming to address, result in
costly litigation, cause product shipment delays or require us to enter into
royalty or license agreements. These royalty or license agreements might not be
available on terms acceptable to us or at all, which could materially and
adversely affect our business. As we have previously reported, we received a
letter in March 2000 from a foreign company asserting, on the basis of
information in our press releases, that certain of our supply chain planning
solutions which we sell
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infringe on that company's patents. We believe that our systems and solutions do
not infringe on the foreign company's patents. We have received no further
communication from the foreign company.
OUR INTERNATIONAL OPERATIONS POSE RISKS FOR OUR BUSINESS AND FINANCIAL
CONDITION.
We currently conduct operations in a number of countries around the world.
These operations require significant management attention and financial
resources and subject us to risks inherent in doing business internationally,
such as:
- regulatory requirements;
- difficulties in staffing and managing foreign operations;
- longer payment cycles;
- different accounting practices;
- problems in collecting accounts receivable;
- legal uncertainty regarding liability, ownership and protection of
intellectual property;
- tariffs and other trade barriers;
- seasonal reductions in business activities;
- potentially adverse tax consequences; and
- political instability.
Any of the above factors could adversely affect the success of our
international operations. One or more of these factors could have a material
adverse effect on our business and operating results.
FLUCTUATIONS IN FOREIGN CURRENCIES COULD ADVERSELY AFFECT OUR OPERATING RESULTS.
Although the majority of our contracts are denominated in U.S. dollars,
most of the revenues from sales outside the United States have been denominated
in foreign currencies, typically the local currency of our selling business
unit. We anticipate that the proportion of our revenues denominated in foreign
currencies will increase. A decrease in the value of foreign currencies relative
to the U.S. dollar could result in losses from foreign currency fluctuations.
With respect to our international sales that are U.S. dollar-denominated, an
increase in the value of the U.S. dollar relative to the value of foreign
currencies could make our products and services less competitive with respect to
price.
IF WE LOSE OUR KEY PERSONNEL, THE SUCCESS AND GROWTH OF OUR BUSINESS MAY SUFFER.
Our success depends significantly on the continued service of our executive
officers. We do not have fixed-term employment agreements with any of our
executive officers, and we do not maintain key person life insurance on our
executive officers. The loss of services of any of our officers for any reason
could have a material adverse effect on our business, operating results,
financial condition and cash flows.
THE FAILURE TO HIRE AND RETAIN QUALIFIED PERSONNEL WOULD HARM OUR BUSINESS.
We believe that our success also will depend significantly on our ability
to attract, integrate, motivate and retain additional highly skilled technical,
managerial, sales, marketing and services personnel. Competition for skilled
personnel is intense, and there can be no assurance that we will be successful
in attracting, motivating and retaining the personnel required to grow and
operate profitably. In addition, the cost of hiring and retaining skilled
employees is high, and this reduces our profitability. Failure to attract and
retain highly skilled personnel could materially and adversely affect our
business.
An important component of our employee compensation is stock options. A
decline in our stock price could adversely affect our ability to attract and
retain employees, as it has in the past.
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WE RECENTLY HIRED OUR SENIOR MANAGEMENT TEAM AND THERE IS NO ASSURANCE THEY WILL
WORK TOGETHER EFFECTIVELY.
We significantly changed our senior management team during fiscal 2000. As
a result, our senior management team has worked together at Manugistics for less
than 18 months. Gregory J. Owens, our Chief Executive Officer, joined us in
April 1999. With one exception, all of our other present executive officers
joined us after Mr. Owens. Our success depends on the ability of our management
team to work together effectively. Our business, revenues and financial
condition will be materially and adversely affected if our senior management
team does not manage our company effectively or if we are unable to retain our
senior management.
EXPENSES ARISING FROM OUR STOCK OPTION REPRICING MAY HAVE A MATERIAL ADVERSE
IMPACT ON FUTURE FINANCIAL PERFORMANCE.
In response to the poor performance of our stock price between May 1998 and
January 1999, we offered to reprice employee stock options, other than those
held by our executive officers or directors, effective January 29, 1999, to
bolster employee retention. The effect of this repricing resulted in options to
acquire approximately 1,520,000 shares being repriced and the four-year vesting
period starting over. The recently adopted FASB Interpretation No. 44 of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," requires us to record compensation expense associated with the
change in the price of these options. In September 2000, we announced that the
increase in our common stock market price since the FASB-mandated measurement
date of July 1, 2000 resulted in a non-cash stock compensation expense of $20.7
million being recorded for the six months ended August 31, 2000. This non-cash
stock compensation expense caused what would otherwise have been reported as net
loss for the six months of $124,000, or $0.00 per basic and diluted share, to be
reported as a net loss of $20.8 million, or $0.73 per basic and diluted share.
In each future quarter, we will record the additional expense or benefit related
to the repriced stock options still outstanding based on the change in our
common stock price as compared to the measurement date. As a result, the
repricing may continue to have a material adverse impact on reported financial
results and could therefore negatively affect our stock price.
WE MAY BE SUBJECT TO FUTURE PRODUCT LIABILITY CLAIMS, AND OUR COMPANY'S AND
PRODUCTS' REPUTATIONS MAY SUFFER.
Many of our implementations involve projects that are critical to the
operations of our clients' businesses and provide benefits that may be difficult
to quantify. Any failure in a client's system could result in a claim for
substantial damages against us, regardless of our responsibility for the
failure.
We have entered into and plan to continue to enter into agreements with
software vendors, consulting firms, resellers and others whereby they market our
solutions. If these vendors fail to meet their clients' expectations or cause
failures in their clients' systems, the reputation of our company and products
could be materially and adversely affected even if our software products perform
in accordance with their functional specifications.
OUR CHARTER AND BYLAWS AND DELAWARE LAW CONTAIN PROVISIONS THAT COULD DISCOURAGE
A TAKEOVER EVEN IF BENEFICIAL TO STOCKHOLDERS.
Our charter and our bylaws, in conjunction with Delaware law, contain
provisions that could make it more difficult for a third party to obtain control
of us even if doing so would be beneficial to stockholders. For example, our
bylaws provide for a classified board of directors and allow our board of
directors to expand its size and fill any vacancies without stockholder
approval. In addition, our bylaws require a two-thirds vote of stockholders to
remove a director from office. Furthermore, our board has the authority to issue
preferred stock and to designate the voting rights, dividend rate and privileges
of the preferred stock all of which may be greater than the rights of common
stockholders.
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OUR STOCK PRICE HAS BEEN AND IS LIKELY TO CONTINUE TO BE VOLATILE.
The trading price of our common stock has been and is likely to be highly
volatile. Our stock price could be subject to wide fluctuations in response to a
variety of factors, including the following:
- actual or anticipated variations in quarterly operating results;
- announcements of technological innovations;
- new products or services offered by us or our competitors;
- changes in financial estimates by securities analysts;
- conditions or trends in the supply chain and eBusiness software industry;
- changes in the economic or operational performance and/or market
valuations of other supply chain and eBusiness companies and the software
industry in general;
- our announcement of significant acquisitions, strategic partnerships,
joint ventures or capital commitments;
- adoption of industry standards and the inclusion of our technology in, or
compatibility of our technology with, such standards;
- adverse or unfavorable publicity regarding us or our products;
- additions or departures of key personnel;
- sales of common stock; and
- other events or factors that may be beyond our control.
In addition, the stock markets in general, the Nasdaq National Market and
the market for software companies in particular, have experienced extreme price
and volume volatility and a significant cumulative decline in recent months.
Such volatility and decline have affected many companies irrespective of or
disproportionately to the operating performance of these companies. These broad
market and industry factors may materially and adversely further affect the
market price of our common stock, regardless of our actual operating
performance.
SALES OF SIGNIFICANT AMOUNTS OF OUR COMMON STOCK IN THE PUBLIC MARKET MAY CAUSE
OUR STOCK PRICE TO DECLINE.
Sales of significant amounts of our common stock in the public market in
the future or the perception that sales will occur could materially and
adversely affect the market price of our common stock or our future ability to
raise capital through an offering of our equity securities. Such sales may occur
as a result of the following events:
SALE OF CONVERTIBLE SUBORDINATED NOTES
We have recently sold a total of $250.0 million of subordinated notes which
are convertible into shares of our common stock at an initial conversion price
of $88.125 per share. Commencing on January 18, 2001, these notes will be
convertible into a total of 2,836,879 shares of our common stock until the
maturity of the notes, unless previously redeemed or repurchased by us. Holders
of the notes are entitled to registration of the notes and the common stock
issued upon conversion of the notes. If holders of the notes sell significant
amounts of the common stock issued upon conversion of the notes, our stock price
may decline.
ACQUISITION OF TALUS SOLUTIONS
We may issue up to 5,000,000 new shares of our common stock in connection
with the merger. Upon closing of the merger and effectiveness of the
registration statement of which this prospectus is a part, up to approximately
900,000 of these shares will be freely tradable. Additionally, approximately
3,500,000 of the
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shares to be issued in connection with the merger, which are subject to transfer
restrictions, will become available for sale in stages under the merger
agreement beginning on January 18, 2001 with respect to various amounts of
shares.
These transfer restrictions expire as to all shares on October 31, 2001. If
Talus' stockholders sell significant amounts of our common stock received in the
merger, our stock price may decline.
OUR INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION; AND WE MAY
INCUR SUBSTANTIALLY MORE DEBT.
We recently completed a debt offering of $250.0 million in subordinated
convertible notes. Our total debt outstanding is now approximately $250.0
million. Our indebtedness could have important consequences to you. For example,
it could:
- increase our vulnerability to general adverse economic and industry
conditions;
- limit our ability to obtain additional financing;
- require the dedication of a substantial portion of our cash flow from
operations to the payment of principal of, and interest on, our
indebtedness, thereby reducing the availability of such cash flow to fund
our growth strategy, working capital, capital expenditures and other
general corporate purposes;
- limit our flexibility in planning for, or reacting to, changes in our
business and the industry; and
- place us at a competitive disadvantage relative to our competitors with
less debt.
We may incur substantial additional debt in the future. The terms of our
credit facility do not, and the terms of these notes do not, fully prohibit us
from doing so. If new debt is added to our current levels, the related risks
described above could intensify.
WE MAY HAVE INSUFFICIENT CASH FLOW TO MEET OUR DEBT SERVICE OBLIGATIONS.
We will be required to generate cash sufficient to pay all amounts due on
the notes and to conduct our business operations. We have net losses, and we may
not be able to cover our anticipated debt service obligations. This may
materially hinder our ability to make payments on the notes. Our ability to meet
our future debt service obligations is dependent upon our future performance,
which is subject to financial, business and other factors affecting our
operations, many of which are beyond our control.
RISKS RELATED TO OUR INDUSTRY
LACK OF GROWTH OR DECLINE IN INTERNET USAGE OR EBUSINESS COULD BE DETRIMENTAL TO
OUR FUTURE OPERATING RESULTS.
The growth of the Internet has increased demand for supply chain
optimization and eBusiness solutions, as well as created markets for new and
enhanced product offerings. Therefore, our future sales and profits are
substantially dependent upon the Internet as a viable commercial marketplace.
The Internet may not succeed in becoming a viable marketplace for a number of
reasons, including:
- potentially inadequate development of network infrastructure or delayed
development of enabling technologies and performance improvements;
- delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity;
- concerns that may develop among businesses and consumers about
accessibility, security, reliability, cost, ease of use and quality of
service;
- increased taxation and governmental regulation; or
- changes in, or insufficient availability of, communications services to
support the Internet, resulting in slower Internet user response times.
The occurrence of any of these factors could require us to modify our
technology and our business strategy. Any such modifications could require us to
expend significant amounts of resources. In the event that the Internet does not
become and remain a viable commercial marketplace, our business, financial
condition and results of operations could be materially and adversely affected.
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NEW LAWS OR REGULATIONS AFFECTING THE INTERNET, EBUSINESS OR COMMERCE IN GENERAL
COULD REDUCE OUR REVENUES AND ADVERSELY AFFECT OUR GROWTH.
Congress and other domestic and foreign governmental authorities have
adopted and are considering legislation affecting the use of the Internet,
including laws relating to the use of the Internet for commerce and
distribution. The adoption or interpretation of laws regulating the Internet, or
of existing laws governing such things as consumer protection, libel, property
rights and personal privacy, could hamper the growth of the Internet and its use
as a communications and commercial medium. If this occurs, companies may decide
not to use our products or services, and our business and operating results
could suffer.
THE VIABILITY OF ELECTRONIC EXCHANGES IS UNCERTAIN.
Electronic exchanges that allow collaboration over the Internet among
trading partners are relatively new and unproven. There can be no assurance that
trading partners will adopt exchanges as a method of doing business. Trading
partners may fail to participate in exchanges for a variety of reasons,
including:
- concerns about the confidentiality of information provided electronically
to exchanges;
- the inability of technological advances to keep pace with the volume of
information processed by exchanges; and
- regulatory issues, including antitrust issues, that may arise when
trading partners collaborate through exchanges.
Any of these factors could limit the growth of exchanges as an accepted
means of commerce. Slower growth or the abandonment of the exchange concept in
one or more industries could have a material adverse affect on our results of
operations and financial condition.
RECENT DEVELOPMENTS
SALE OF CONVERTIBLE SUBORDINATED NOTES
As previously announced, on November 2, 2000, we completed the private
placement of a total of $250.0 million of our 5% convertible subordinated notes
due 2007 pursuant to Rule 144A and Regulation S under the Securities Act of
1933. Commencing on January 18, 2001, the notes will be convertible into
Manugistics common stock at an initial conversion price of $88.125 per share.
We received total net proceeds of approximately $242 million from the
completed offering. We expect to use the net proceeds of this offering for
working capital and general corporate purposes, including capital expenditures
and research and development. We may also use portions of the net proceeds to
acquire businesses, products, and technologies that complement or expand our
business.
TWO-FOR-ONE STOCK SPLIT
On November 8, 2000 we announced that our board of directors had declared a
2-for-1 split of the company's outstanding shares of common stock. The stock
split will be effected in the form of a 100% stock dividend and will entitle
each stockholder of record at the close of business on November 20, 2000 to
receive one additional share of common stock for every share held on the record
date. Certificates representing the additional shares will be distributed by our
transfer agent on the dividend payment date of December 7, 2000. Our common
stock will begin trading on a post-split basis on December 8, 2000.
Because the merger is scheduled to close after December 8, 2000, the number
of shares of Manugistics common stock which you will be entitled to receive in
the merger will be adjusted to reflect the 2-for-1 stock split. For example, if
you are entitled to receive 100 shares of Manugistics common stock prior to the
close of business on December 7, 2000 (with an assumed value of $10,000 based on
a per share closing price of $100), then at the closing of the merger, you will
instead receive 200 shares of Manugistics common stock (with an assumed value of
$10,000 based on a per share closing price of $50).
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NEW EXECUTIVE OFFICERS
Gregory C. Cudahy. Mr. Cudahy, 37, joined Manugistics as Executive Vice
President, Pricing and Revenue Management in October 2000. From September 1999
through October 2000, Mr. Cudahy served as Partner-in-Charge of Andersen
Consulting's North America Supply Chain Management Line of Business. He
previously had served as Associate Partner in the same department from September
1996 through August 1999 and as Senior Manager from June 1995 through August
1996.
Andrew J. Hogensen. Mr. Hogensen, 36, has served as our Senior Vice
President, Engineering since October 2000. From October 1999 through October
2000, Mr. Hogensen served as our Vice President, Transportation, Products and
Solutions. From 1997 through October 1999, he served as a Senior Manager of
Andersen Consulting's Strategy Practice Group. Mr. Hogensen joined Andersen
Consulting in July 1995 as a Manager in the Strategy Practice Group.
RESIGNATION OF DIRECTOR
Jack A. Arnow resigned from our board of directors effective as of October
26, 2000. Mr. Arnow had served as a Class I director, whose term was scheduled
to expire in 2002.
RETIREMENT OF CHAIRMAN
William M. Gibson has announced his plans to retire as Chairman of our
board of directors effective at our fiscal year end, February 28, 2001. The
board of directors has named Gregory J. Owens, our Chief Executive Officer and
President, as Chairman designate, to succeed Mr. Gibson upon his retirement.
THE MERGER
The following is a description of the material information pertaining to
the merger. This description is qualified in its entirety by reference to the
full text of the merger agreement, a copy of which is attached as Appendix "A"
to this document and is incorporated by reference. All stockholders are urged to
read carefully the merger agreement, as well as the other appendices, in their
entirety.
The boards of directors of Manugistics, Manu Acquisition Corp. and Talus,
as well as the stockholders of Talus and Manu Acquisition Corp., have approved
the merger agreement, and the proper officers of each such party have executed
and delivered, the merger agreement.
THE MERGER
Manu Acquisition Corp. is a Delaware corporation and a wholly owned
subsidiary of Manugistics which was organized in September 2000. Pursuant to the
merger agreement, Manu Acquisition Corp. will merge with and into Talus. Talus
will be the surviving corporation and will become a wholly owned subsidiary of
Manugistics.
TERMS OF THE MERGER
On the effective date of the merger, which will be specified in the
certificate to be issued by the Secretary of State of Delaware causing the
merger to become effective, each issued and outstanding share of Talus capital
stock will be converted into the right to receive a certain fraction of a share
of Manugistics common stock. As of November 1, 2000, there were 56,688,946
shares of Talus common stock outstanding on a fully diluted basis.
The exact exchange ratio will be determined based on the average closing
price on the Nasdaq National Market of Manugistics common stock during the 15
trading days ending two days before the closing date. If the average closing
price of Manugistics common stock during the measurement period is equal to or
less than $65.00 per share, the exchange ratio will be set so that the Talus
stockholders will receive in the aggregate 5,000,000 shares of Manugistics
common stock (including shares reserved for issuance upon the exercise of stock
options and warrants) in exchange for the shares of Talus capital stock.
Accordingly, if the average
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closing price is equal to or less than $65.00 per share, you will receive
approximately .08820 of a share of Manugistics common stock per share of Talus
common stock, subject to the Talus Series A preferred stock election described
below. If such average closing price is equal to or greater than $78.00 per
share, the exchange ratio will be set so that the Talus stockholders will
receive in the aggregate 4,200,000 shares of Manugistics common stock (including
shares reserved for issuance upon the exercise of stock options and warrants).
Accordingly, if the average closing price is equal to or greater than $78.00 per
share, you will receive approximately .07409 of a share of Manugistics common
stock per share of Talus common stock.
If the average closing price of Manugistics common stock during the
measurement period is between $65.00 and $78.00 per share, the number of shares
of Manugistics common stock which the Talus stockholders will receive in the
aggregate will range proportionately from 5,000,000 to 4,200,000 (including
shares reserved for issuance upon the exercise of stock options and warrants).
Accordingly, if the average closing price is between $65.00 and $78.00 per
share, you will receive between .08820 and .07409 of a share of Manugistics
common stock per share of Talus common stock, calculated proportionately based
upon the average closing price of Manugistics common stock between $65.00 and
$78.00.
Notwithstanding the foregoing, prior to the closing date, the holder of the
Series A preferred stock of Talus may elect to treat the merger as a liquidation
in accordance with the Talus Certificate of Incorporation and receive that
number of shares of Manugistics common stock equal to the dollar amount
determined in accordance with the Talus Certificate of Incorporation
(approximately $5.3 million as of the date of this prospectus) divided by the
average closing price during the measurement period of Manugistics common stock.
It is assumed that the holder will elect this option if it would receive more
shares of Manugistics common stock than it would otherwise receive using the
exchange ratio as described in the previous paragraphs. The estimated stock
price of Manugistics common stock below which the holder would elect the
liquidation amount is approximately $53.00 per share assuming the transaction
closes on December 22, 2000. The amount of Manugistics common stock received by
the holder of Series A preferred stock if the holder elects to treat the merger
as a liquidation would be subtracted from the number of shares of Manugistics
common stock otherwise issuable in the merger and the remaining shares of
Manugistics common stock would then be issued to the holders of Talus capital
stock, other than the holder of Series A preferred stock. In no event will
Manugistics be obligated to issue more than 5,000,000 shares of its common stock
as merger consideration.
You should obtain current stock price quotations for Manugistics common
stock. The market price of Manugistics common stock will fluctuate before and
after completion of the merger. No assurance can be given that the market price
of Manugistics common stock at or after the effective date of the merger will be
equal to the average closing price during the measurement period.
After the effective date of the merger, outstanding certificates
representing shares of Talus capital stock will represent shares of Manugistics
common stock. Certificates representing shares of Talus capital stock will be
surrendered to Manugistics by the Talus stockholders after the effective date of
the merger for new certificates representing shares of Manugistics common stock.
Until so surrendered to Manugistics, the certificates which previously
represented shares of Talus capital stock will be deemed for all corporate
purposes to evidence the ownership of the respective number of shares of
Manugistics common stock which the holders are entitled to receive upon their
surrender to Manugistics except for the payment of dividends, which is subject
to the exchange of stock certificates. A portion of each Talus stockholder's
shares of Manugistics common stock equal to 15% will be held in escrow to secure
the indemnification obligations of Talus as set forth in the merger agreement.
The terms of these escrow arrangements are more fully described below under
"-- Escrow and Indemnification Rights."
Until the stock certificates representing shares of Talus capital stock are
surrendered to Manugistics in exchange for certificates representing shares of
Manugistics common stock, no dividends payable as of any date after the
effective date of the merger on the shares of Manugistics common stock
represented by the Talus capital stock certificates will be paid. However, Forms
1099 reporting the payment of such dividends will be filed with the Internal
Revenue Service and mailed to each stockholder. Upon the surrender to
Manugistics of the Talus capital stock certificates, Manugistics will pay to the
record holders the amount of
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dividends which previously had become payable, without interest, upon the shares
of Manugistics common stock represented by the outstanding Talus capital stock
certificates.
We will not issue fractional shares of Manugistics common stock in the
merger. Instead, we will pay cash, without interest, in lieu of fractional
shares, in an amount equal to such fractional part of a share of Manugistics
common stock multiplied by the average closing price per share of Manugistics
common stock during the measurement period.
The delivery of Manugistics stock certificates and other amounts may be
subject to forfeiture under applicable escheat laws if Talus stock certificates
are not surrendered for exchange within the legally specified periods of time,
which vary with the state of residence of the certificate holder. Therefore, we
urge all Talus stockholders to surrender their Talus stock certificates at the
earliest possible date after consummation of the merger in accordance with
instructions provided to you by Manugistics in the letter of transmittal
described in the following paragraph.
AS SOON AS PRACTICABLE FOLLOWING CONSUMMATION OF THE MERGER, WE WILL SEND
EACH HOLDER OF TALUS CAPITAL STOCK A LETTER OF TRANSMITTAL EXPLAINING THE
PROCEDURE TO BE FOLLOWED IN EXCHANGING CERTIFICATES REPRESENTING SHARES OF TALUS
CAPITAL STOCK FOR CERTIFICATES REPRESENTING SHARES OF MANUGISTICS COMMON STOCK.
UNTIL THE LETTER OF TRANSMITTAL IS RECEIVED, STOCKHOLDERS OF TALUS SHOULD
CONTINUE TO HOLD THEIR CERTIFICATES REPRESENTING SHARES OF TALUS CAPITAL STOCK.
After the effective date of the merger, each outstanding Talus stock option
and warrant will be converted into the right to acquire shares of Manugistics
common stock. The exercise price of the converted options and warrants and the
number of shares subject to the converted options and warrants will be adjusted
in accordance with the exchange ratio. Except as described below under
"Interests of Talus Directors and Officers in the Merger -- Change of Control
Provisions" or in the applicable option certificates, all unvested Talus stock
options will continue to vest on their existing vesting schedule without any
acceleration upon the completion of the merger.
BACKGROUND OF THE MERGER
In early 1999, Talus made the determination to change its business model.
Prior to such time, Talus had been a provider of customized software solutions
and consulting services targeted primarily to the travel, transportation and
hospitality industries. Talus' customized software solutions consisted of a
suite of proprietary software modules that allowed customers to perform revenue
management to optimize profit in connection with selling their products and
services. Talus performed business reengineering, consulting and programming
services around these software modules to create a customized solution, and
Talus' revenue was primarily attributable to consulting, implementation,
customization and solution support services. As part of its new business
strategy, Talus sought to productize its core software modules and expand its
market focus outside of the travel, transportation and hospitality industries.
Talus brought in a new management team during 1999 to implement its revised
business model, and in August 1999, Talus received $25.0 million in private
equity financing.
During the fall of 1999, Talus was having discussions with numerous
companies regarding strategic alliances and joint marketing efforts in an
attempt to establish rapid market penetration by leveraging their respective
sales forces. As a part of this effort, J. Michael Cline, a director of both
Manugistics and Talus, made the first call to Manugistics to introduce Thomas R.
Madison, Jr., President and Chief Executive Officer of Talus, whom Mr. Cline had
recruited to serve at Talus, to Gregory J. Owens, President and Chief Executive
Officer of Manugistics. Mr. Owens had worked previously with a predecessor of
Talus while serving as the Global Managing Partner for the Andersen Consulting
Supply Chain Practice. Mr. Owens and Mr. Madison then met in Atlanta, Georgia to
discuss possible alliance opportunities between the two companies. In late
December 1999, Manugistics' Senior Vice President, Strategic Solutions and
Alliances, Jeffrey L. Holmes, had a further meeting in Atlanta with a
representative of Talus to further discuss the possibility of a strategic
alliance between the companies. Thereafter, on January 11, 2000, Talus and
Manugistics entered into the Talus Mutual Nondisclosure Agreement. Intermittent
discussion followed, and on March 31, 2000, Manugistics made the decision at the
operating level to look more closely at specific opportunities to cross or
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joint market each company's products and services in the hotel industry. During
March 2000, Mr. Cline mentioned to Mr. Owens that it might make sense to look at
a possible business combination between Talus and Manugistics.
By May 2000, Manugistics and Talus determined to explore more fully an
alliance on an exclusive basis. On May 31, 2000, Manugistics and Talus entered
into a non-binding letter of intent, setting forth the proposed terms of a
strategic alliance. The letter of intent contemplated the joint marketing of
Talus' pricing and revenue management software with Manugistics' supply chain
optimization software and was subject to each company performing due diligence
and negotiating and finalizing definitive transaction documents. On June 6,
2000, Manugistics' Chief Financial Officer, Raghavan Rajaji, flew to Atlanta to
review financial information of Talus. During this same period of time,
Manugistics was also conducting some limited due diligence regarding the
compatibility of the Talus and Manugistics technologies and possible related
business opportunities. At or about the same time, Mr. Owens and Mr. Rajaji
discussed whether to consider the possibility of a business combination. On July
7, 2000, at the request of Mr. Owens, Mr. Owens, Mr. Cline, Thomas C. Tinsley, a
director of Talus, and Steven A. Denning, a former director of Talus and a
representative of Talus' largest stockholder, had a dinner meeting for the
purpose of introducing Mr. Owens to certain of the Talus directors.
Shortly before the July 27, 2000 scheduled quarterly meeting of
Manugistics' board of directors, management decided to consider the possibility
of a business combination with Talus and to make a presentation regarding that
possibility to the board at the quarterly board meeting. On July 27, 2000,
Manugistics' management made a presentation to its board of directors regarding
a possible business combination between Manugistics and Talus. At that time,
management discussed with the board, among other things, Manugistics' business
strategy and objectives, information regarding Talus, the possible objectives,
benefits and risks of a business combination with Talus, the status of
Manugistics' alliance with Talus, and the strategic focus of pricing and revenue
management and its relationship to supply chain optimization. On July 28, 2000,
the board authorized Mr. Owens to send a letter to Talus expressing an interest
in discussing a possible business combination of the two companies in the form
of a stock-for-stock merger. The transaction was contemplated to be a tax-free
merger in which a specified number of shares of Manugistics common stock would
be issued for all outstanding shares of Talus capital stock plus the assumption
of outstanding stock options and warrants. Discussions between representatives
of senior management of both companies continued while Talus' management
evaluated the proposal. On August 9, 2000, the Talus board of directors held its
regularly scheduled meeting at which time the proposed transaction with
Manugistics was discussed. Mr. Owens attended the August 9, 2000 meeting in
person and made a presentation to the Talus board regarding the material terms
of the proposed transaction, as well as Manugistics' strategic rationale for the
transaction.
On August 10, 2000, Mr. Madison sent a reply letter to Mr. Owens indicating
a willingness to discuss further the proposed business combination and outlining
areas of apparent agreement and areas of concern. The letter identified issues
related to the proposed exchange ratio, the significant closing conditions, the
rights of each party to terminate the merger agreement and the right of Talus to
designate two directors to the Manugistics board of directors, as well as the
proposed timeline for executing a definitive merger agreement.
Mr. Owens replied that same day with a letter responding to the issues
raised by Talus and setting forth the position of Manugistics on various issues.
Manugistics proposed that the exchange ratio in the merger be fixed with a
collar mechanism to adjust the number of shares of Manugistics common stock to
be issued in the merger, which would result in a constant value of the merger
consideration, if the average closing price of Manugistics common stock was
outside of a pre-determined range. In addition, Manugistics indicated that
neither party would have the right to terminate the merger prior to closing
based on the price of Manugistics common stock. Over the course of the next
month, the parties conducted significant due diligence and negotiations and
prepared a draft of the merger agreement. Mark F. Dzialga, who is a
representative of Talus' largest stockholder and a member of the Talus board,
participated in these negotiations with Manugistics.
During September 2000, the Talus board of directors retained Goldman, Sachs
& Co. to render a fairness opinion to the Talus board in connection with the
proposed business combination. Similarly, during
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September 2000, the Manugistics board of directors retained Deutsche Bank
Securities Inc. to render a fairness opinion to the Manugistics board in
connection with the proposed business combination.
On September 13, 2000, the Manugistics board of directors met to evaluate
the status of the transaction. During the course of this meeting, the board was
briefed on their fiduciary obligations in considering a proposed acquisition,
the status of the negotiations with Talus, including the material terms of the
proposed transaction, the status and results of management's continuing legal
and business diligence review (including operational issues and financial
impact) and the open legal and business issues yet to be resolved, by
Manugistics' management and legal and professional advisors. At the end of the
board meeting, the board of directors instructed the management of Manugistics
to continue its discussions with Talus and scheduled another board meeting for
September 19, 2000, at which time Deutsche Bank Securities Inc. was scheduled to
make a presentation to the board regarding the fairness of the proposed
transaction and the board was to be briefed again on the continuing due
diligence and status of the continuing negotiations.
On September 15, 2000, the Talus board of directors met to evaluate the
status of the transaction. During the course of this meeting, management
presented a financial analysis of the transaction and briefed the Talus board
members concerning the status of the negotiations with Manugistics and the open
business issues yet to be resolved. The parties had agreed that the number of
shares of Manugistics common stock to be issued in the merger would fluctuate if
the average closing price of Manugistics common stock was within a pre-
determined range and that the number of shares would become fixed if the average
closing price was outside of such range. The Talus board of directors provided
its management with input on how the remaining open issues should be resolved.
At the end of the meeting, the board of directors instructed the management of
Talus to continue its discussions with Manugistics and scheduled another board
of directors meeting for September 20, 2000.
On September 19, 2000, the Manugistics board of directors met again to
evaluate the status of the transaction and to hear the presentation by Deutsche
Bank Securities Inc. regarding the fairness of the proposed transaction. During
the course of this meeting, management briefed the Manugistics board members
concerning the status of the negotiations with Talus and the open business
issues yet to be resolved (including price, escrow and lock-up provisions), and
Deutsche Bank Securities Inc. made a presentation in which it provided the
Manugistics board with an overview of the transaction, strategic rationale for
the proposed transaction and the issues to be considered, an overview of
Manugistics, an overview of Talus and a valuation analysis. Following the
presentation, the board members raised and discussed with Deutsche Bank
Securities Inc. questions and issues regarding the transaction. Thereafter, the
board provided management with guidance as to the resolution of open business
and legal issues. At the end of the meeting, the board of directors instructed
the management of Manugistics to continue its negotiations with Talus and
scheduled a telephonic board meeting for September 21, 2000.
During the time period between September 13 and September 20, 2000,
representatives of Manugistics and Talus, including representatives of Talus'
largest stockholder, were continuing to negotiate the terms of the merger
agreement and related transaction documents.
On September 20, 2000, the Talus board of directors held a meeting at which
management of Talus updated the board on the status of the negotiations and
reviewed for the board the material terms of the proposed transaction. The board
of directors then engaged in a discussion of the transaction with management.
Management was instructed to continue to negotiate the terms of a merger, and
another board meeting was scheduled for the following day.
On September 21, 2000, the Talus board of directors held a meeting to
evaluate and approve the merger. Management of Talus informed the board that
certain open issues from the previous day's meeting had been resolved and then
presented an overview of the proposed merger to the Talus board. The material
terms of the proposed transaction were discussed, including the terms of the
exchange ratio, certain conditions to closing and the proposed timeline for
closing. Representatives of Goldman, Sachs & Co. presented the results of its
analysis and rendered its oral opinion to the Talus board that, based upon and
subject to various assumptions, the conversion of all of the outstanding shares
of Talus capital stock into Manugistics common stock pursuant to the merger
agreement was fair from a financial point of view to the holders, in the
aggregate, of Talus
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<PAGE> 39
capital stock. The board of directors then engaged in a discussion of the
transaction with management and its legal and financial advisors. The board
unanimously approved the merger and the merger agreement (with J. Michael Cline
having recused himself from the meeting and the vote taken because he
concurrently served as a director of Manugistics), authorized certain Talus
representatives to execute the merger agreement and recommended that the Talus
stockholders approve the merger and the merger agreement. Thereafter, on
September 21, 2000, the holders of the requisite number of shares of outstanding
Talus capital stock approved by written consent the merger and the merger
agreement, fulfilling one of the conditions of the merger.
On September 21, 2000, the Manugistics board of directors held a telephonic
board meeting, with representatives of Deutsche Bank Securities Inc. and
Manugistics' legal and professional advisors present. Management briefed the
board members on the resolution of the open business and legal issues and
Deutsche Bank Securities Inc. rendered its oral opinion to the Manugistics board
that the ratio at which shares of Talus common stock will be converted into
Manugistics common stock in the merger was fair to Manugistics from a financial
point of view. Thereafter, the board members discussed the transaction,
reviewing its material terms and the final results of Manugistics' due diligence
review with its legal and financial advisors, after which the board unanimously
approved the merger and the merger agreement and authorized certain Manugistics
representatives to execute the merger agreement. Mr. Cline recused himself from
the September 13, 19 and 21, 2000 Manugistics board meetings because he
concurrently served as a director of Talus and because he had an interest in the
merger. See "-- Interests of Talus Directors and Officers in the Merger."
Later that day, representatives of Manugistics and Talus executed the
merger agreement and issued a joint press release announcing the execution of
the merger agreement.
RECOMMENDATION OF TALUS BOARD AND REASONS FOR THE MERGER
On September 21, 2000, the board of directors of Talus approved and
recommended stockholder approval of the merger and the merger agreement. The
board of directors of Talus believes that the merger and the terms and
provisions of the merger agreement are fair to and in the best interests of
Talus' stockholders.
In reaching its decision to approve and recommend approval of the merger
agreement, the board of directors of Talus considered a number of factors,
including the following:
- the fact that the shares of Manugistics common stock are a liquid
currency that would provide Talus' stockholders with the ability to
realize cash on their investments or to continue with their investments
with the potential for enhanced value;
- the numerous synergies that exist between Manugistics and Talus,
including potential cost savings and the creation of a unique solution by
combining Talus' pricing and revenue optimization technology with
Manugistics' supply chain optimization technology and the fact that no
other vendor, to Talus' knowledge, offers a comprehensive solution that
combines both supply and demand optimization technologies;
- the fact that the combined offering of Talus' pricing and revenue
management optimization products with Manugistics' supply chain
optimization products would have an improved opportunity for market
acceptance;
- the ability of the combined company to market its product offerings to
each party's respective customer base and the ability to leverage each
company's direct and indirect sales channels;
- the financial presentation of Goldman, Sachs & Co., including its oral
opinion that, based upon and subject to various assumptions, the
conversion of all of the outstanding shares of Talus capital stock into
Manugistics common stock pursuant to the merger agreement was fair from a
financial point of view to the holders, in the aggregate, of shares of
Talus capital stock;
- Talus' need to raise additional capital during the first half of 2001 in
order for the company to continue on a stand-alone basis and the fact
that any such financing would likely result in significant dilution to
Talus' existing stockholders, particularly holders of common stock and
holders of options and warrants to purchase common stock; and
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<PAGE> 40
- the fact that Talus had been performing pricing and revenue management
services for many years and no other parties had offered to acquire the
company.
The foregoing discussion of the information and factors considered by the
Talus board is not intended to be exhaustive, but includes the material factors
considered. In view of the variety of factors considered in connection with its
evaluation of the merger and the offer price, the Talus board did not find it
practicable to, and did not, quantify or otherwise assign relative weight to the
specific factors considered in reaching its determinations and recommendations,
and individual directors may have given differing weight to different factors.
APPROVAL OF TALUS STOCKHOLDERS
On September 21, 2000, the merger agreement was approved pursuant to a
written consent by General Atlantic Partners 49, L.P., General Atlantic Partners
57, L.P., GAP Coinvestment Partners, L.P., GAP Coinvestment Partners II, L.P.,
The Goldman Sachs Group, Inc., Bridge Street Fund 1998, L.P., Stone Street Fund
1998, L.P., Noro-Moseley Partners III, L.P., Robert G. Cross and Patricia Cross,
who hold, in the aggregate, a majority of the issued and outstanding shares of
Talus capital stock then entitled to vote on the merger agreement.
OPINION OF FINANCIAL ADVISOR TO TALUS
On September 21, 2000, Goldman, Sachs & Co. delivered its oral opinion to
the board of directors of Talus that, as of that date, the conversion of all of
the outstanding shares of Talus capital stock into Manugistics common stock
pursuant to the merger agreement is fair from a financial point of view to the
holders, in the aggregate, of shares of Talus capital stock. Goldman Sachs
subsequently confirmed its earlier opinion by delivery of its written opinion
dated as of September 21, 2000.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS DATED SEPTEMBER 21,
2000, WHICH IDENTIFIES ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON
THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED AS APPENDIX
"B." STOCKHOLDERS OF TALUS ARE URGED TO, AND SHOULD, READ THIS OPINION IN ITS
ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed, among other things:
- the merger agreement;
- various audited, consolidated financial statements of Talus for the two
years ended December 31, 1999;
- the Annual Reports to Stockholders and Annual Reports on Form 10-K of
Manugistics for the five fiscal years ended February 29, 2000;
- various interim reports to stockholders and Quarterly Reports on Form
10-Q of Manugistics;
- various other communications from Talus to its board of directors;
- various other communications from Manugistics to its stockholders; and
- various internal financial analyses and forecasts for Talus and
Manugistics prepared by their respective managements.
Goldman Sachs also held discussions with members of the senior management
of Talus and Manugistics regarding their assessment of the strategic rationale
for, and the potential benefits of, the transactions contemplated by the merger
agreement and the past and current business operations, financial condition, and
future prospects of their respective companies. In addition, Goldman Sachs:
- reviewed the reported price and trading activity for the Manugistics
common stock, which like many Internet related stocks has been and is
likely to continue to be subject to significant short term price and
trading volatility;
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<PAGE> 41
- compared certain financial information for Talus and Manugistics and
stock market information for Manugistics with similar information for
other companies the securities of which are publicly traded; and
- reviewed the financial terms of recent business combinations in the
software industry specifically and other industries generally and
performed such other studies and analyses as it considered appropriate.
Goldman Sachs relied upon the accuracy and completeness of all financial
and other information reviewed by it and assumed such accuracy and completeness
for purposes of rendering its opinion. For the purposes of its analysis, and
with Talus' consent, Goldman Sachs took into account management's assessment of
the risks and uncertainties associated with Talus achieving its forecasts in the
amounts and at the times indicated therein. Pursuant to the merger agreement,
various stockholders of Talus have agreed to indemnify Manugistics against
breaches of various representations, warranties, agreements and covenants of
Talus in the merger agreement. In rendering its opinion, Goldman Sachs, with
Talus' consent, did not take into account any potential payments such
stockholders may be required to make pursuant to such indemnity obligations. In
rendering its opinion, with Talus' consent, Goldman Sachs did not take into
account any restrictions on the resale of the shares of Manugistics common stock
to be received by stockholders of Talus pursuant to the merger agreement.
Goldman Sachs did not express any opinion as to the prices at which Manugistics
common stock may trade in the future. In addition, Goldman Sachs did not make an
independent evaluation or appraisal of the assets and liabilities of Talus or
Manugistics or any of their respective subsidiaries and Goldman Sachs was not
furnished with any such evaluation or appraisal. Goldman Sachs was not requested
to solicit, and did not solicit, interest from other parties with respect to an
acquisition of or other business combinations with Talus. Goldman Sachs did not
express an opinion with respect to the allocation of shares of Manugistics
common stock among the holders of the various types of Talus capital stock in
the merger. The opinion of Goldman Sachs was provided for the information and
assistance of the board of directors of Talus in connection with its
consideration of the transaction contemplated by the merger agreement and such
opinion does not constitute a recommendation as to how any holder of shares of
Talus capital stock should vote with respect to such transaction.
The following is a summary of the material financial analyses used by
Goldman Sachs in connection with providing its oral opinion to the Talus board
of directors on September 21, 2000. Goldman Sachs utilized substantially the
same types of financial analyses in connection with providing the written
opinion attached as Appendix "B."
THE FOLLOWING SUMMARIES OF FINANCIAL ANALYSES INCLUDE INFORMATION PRESENTED
IN TABULAR FORMAT. YOU SHOULD READ THESE TABLES TOGETHER WITH THE TEXT OF EACH
SUMMARY.
(i) Selected Companies Analysis. Goldman Sachs reviewed and compared
certain financial information relating to Talus and Manugistics to corresponding
financial information, ratios and public market multiples for the following
three publicly traded pricing and revenue management companies:
- Calico Commerce
- FirePond
- Selectica
Goldman Sachs also reviewed and compared the financial information referred
to above to the corresponding financial information of the following ten
publicly traded supply chain management and e-commerce infrastructure companies:
- Ariba
- Broadbase
- BroadVision
- Commerce One
- E.piphany
- i2 Technologies
- Manhattan Associates
- PurchasePro.com
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<PAGE> 42
- Siebel Systems
- Vignette
These companies were chosen because they are companies with operations that
for purposes of this analysis may be considered similar to Talus and
Manugistics.
Goldman Sachs also calculated and compared various financial multiples and
ratios based on information it obtained from SEC filings and Institutional
Brokers Estimate System, or IBES. The analyses were based on market data and
IBES estimates as of September 20, 2000. Goldman Sachs' analyses of the selected
companies compared the following to the results for Talus and Manugistics:
- levered market capitalization, which is the market value of common equity
plus the outstanding indebtedness less cash, as a multiple of projected
calendar year 2000 and 2001 revenue; and
- the five-year forecasted compound annual growth rate provided by IBES.
Projections provided by Talus management were based on two scenarios: Under
the "internal case," projections were based on Talus' business plan dated August
18, 2000. Under the "sensitivity case," management accounted for the uncertainty
related to the development and market acceptance of new products planned by
Talus. These two scenarios were also the basis for other analyses. The results
of these analyses are summarized as follows:
<TABLE>
<CAPTION>
LEVERED MARKET CAPITALIZATION
AS A MULTIPLE OF IBES 5-YEAR
------------------------------- COMPOUND ANNUAL
CY2000 REVENUE CY2001 REVENUE GROWTH RATE
-------------- -------------- ---------------
<S> <C> <C> <C>
Talus -- internal case*......................... 7.9x 4.2x N/A
Talus -- sensitivity case*...................... 8.4x 5.4x N/A
Manugistics*.................................... 14.5x 10.8x 35%
Pricing and revenue management group:**
Range......................................... 2.6x-28.4x 1.6x-14.1x 50.0%-62.5%
Mean.......................................... 13.2x 7.1 56.3%
Median........................................ 8.6x 5.5x 56.3%
Supply chain management and e-commerce infrastructure group:**
Range......................................... 11.4x-135.2x 6.9x-69.8x 30.0%-55.0%
Mean.......................................... 41.8x 23.0x 46.9%
Median........................................ 31.5x 16.7x 50.0%
</TABLE>
---------------
* Using estimates for calendar year 2000 and calendar year 2001 revenue based
on Talus and Manugistics management projections.
** Using estimates for calendar year 2000 and calendar year 2001 revenue based
on IBES.
(ii) Fixed Price Collar Analysis: Goldman Sachs also calculated the
post-merger ownership interest of Talus in the new company based on a range of
assumed Manugistics 15-day average closing prices, as defined in the merger
agreement, and the corresponding number of common stock to be received in
exchange for shares of Talus common stock. This analysis indicated that based on
a hypothetical 15-day average closing price of:
- $55.00 and a corresponding number of 5.0 million shares to be received by
Talus stockholders, the implied value to Talus would be $275 million,
resulting in a Talus ownership in the new company of 12.1%;
- $60.00 and a corresponding number of 5.0 million shares to be received by
Talus stockholders, the implied value to Talus would be $300 million,
resulting in a Talus ownership in the new company of 12.1%;
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<PAGE> 43
- $65.00 and a corresponding number of 5.0 million shares to be received by
Talus stockholders, the implied value to Talus would be $325 million,
resulting in a Talus ownership in the new company of 12.1%;
- $71.50 and a corresponding number of 4.6 million shares to be received by
Talus stockholders, the implied value to Talus would be $329 million,
resulting in a Talus ownership in the new company of 11.2%;
- $78.00 and a corresponding number of 4.2 million shares to be received by
Talus stockholders, the implied value to Talus would be $328 million,
resulting in a Talus ownership in the new company of 10.3%;
- $84.00 and a corresponding number of 4.2 million shares to be received by
Talus stockholders, the implied value to Talus would be $353 million,
resulting in a Talus ownership in the new company of 10.3%; and
- $90.00 and a corresponding number of 4.2 million shares to be received by
Talus stockholders, the implied value to Talus would be $378 million,
resulting in a Talus ownership in the new company of 10.3%.
(iii) Consideration Multiple Analysis: Goldman Sachs also calculated the
total consideration to be received by Talus stockholders as a multiple of
estimated calendar year 2000 and 2001 revenue and net income. This analysis was
performed at a Manugistics stock price of $87.13, as of September 20, 2000. The
revenue and net income estimates were based on Manugistics management
projections. The results of such analysis were summarized as follows:
CONSIDERATION MULTIPLE ANALYSIS
(based on Manugistics' share price of $87.13, as of September 20, 2000)
<TABLE>
<S> <C> <C> <C>
Aggregate number of Manugistics shares issued
(millions)*................................... 4.2 4.6 5.0
Number of fully diluted Manugistics shares
issued (millions)............................. 4.1 4.5 4.9
Equity consideration (millions)................. $355.3 $390.1 $425.0
Levered consideration (millions)................ $341.5 $376.4 $411.2
LEVERED CONSIDERATION AS A MULTIPLE OF REVENUE
IN:
Internal Case**
CY2000..................................... 7.9x 8.7x 9.5x
CY2001..................................... 4.2x 4.7x 5.1x
Sensitivity Case**
CY2000..................................... 8.4x 9.3x 10.1x
CY2001..................................... 5.4x 5.9x 6.4x
EQUITY CONSIDERATION AS A MULTIPLE OF NET INCOME
IN:
Internal Case**
CY2000..................................... N/M*** N/M*** N/M***
CY2001..................................... 78.6x 86.4x 94.1x
Sensitivity Case**
CY2000..................................... N/M*** N/M*** N/M***
CY2001..................................... N/M*** N/M*** N/M***
</TABLE>
---------------
* As determined by the 15-day average closing price.
** Using estimates based on Talus management projections.
*** Not meaningful.
(iv) Pro Forma Merger Analysis. Goldman Sachs prepared pro forma analyses
of the financial impact of the merger using revenue and earnings estimates for
Talus and Manugistics prepared by Talus and
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<PAGE> 44
Manugistics management. For each of the fourth fiscal quarter of fiscal year
2001 and fiscal year 2002, Goldman Sachs analyzed the impact on Manugistics':
- revenue per share; and
- earnings per share, excluding goodwill.
Based on the Talus internal case, the proposed transaction would be:
- accretive in the fourth quarter of fiscal year 2001 on a revenue per
share basis;
- accretive in fiscal year 2002 on a revenue per share basis;
- dilutive on an earnings per share basis, excluding goodwill, in the
fourth quarter of fiscal year 2001; and
- accretive on an earnings per share basis, excluding goodwill, in fiscal
year 2002.
Based on the Talus sensitivity case, the proposed transaction would be:
- accretive in the fourth quarter of fiscal year 2001 on a revenue per
share basis;
- accretive in fiscal year 2002 on a revenue per share basis;
- dilutive in the fourth quarter of fiscal year 2001 on an earnings per
share basis, excluding goodwill; and
- dilutive in fiscal year 2002 on an earnings per share basis, excluding
goodwill.
(v) Contribution Analysis. Goldman Sachs analyzed and compared the
respective contributions of Talus and Manugistics for the fourth quarter of
fiscal year 2001 and for fiscal year 2002 to the combined company's :
- estimated license revenue;
- estimated total revenue;
- estimated gross profits;
- estimated earnings before income and taxes, or EBIT; and
- estimated net income.
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<PAGE> 45
Estimates were based on Talus and Manugistics management projections and
the existence of goodwill and synergies were not assumed. The results of these
analyses are summarized as follows:
<TABLE>
<CAPTION>
CONTRIBUTION TO COMBINED:
---------------------------------------------
(BASED ON THE TALUS
(BASED ON THE TALUS INTERNAL CASE AND A
SENSITIVITY CASE AND A MANUGISTICS UPSIDE
MANUGISTICS BASE CASE) CASE)
TALUS MANUGISTICS TALUS MANUGISTICS
------- ------------- ----- -----------
<S> <C> <C> <C> <C>
License revenue*
Q4 FY2001........................................... 4.3% 95.7% 5.7% 94.3%
FY2002.............................................. 10.6% 89.4% 14.9% 85.1%
Total revenue*
Q4 FY2001........................................... 13.9% 86.1% 16.4% 83.6%
FY2002.............................................. 17.6% 82.4% 20.7% 79.3%
Gross profit*
Q4 FY2001........................................... 7.3% 92.7% 10.2% 89.8%
FY2002.............................................. 12.9% 87.1% 16.8% 83.2%
Earnings before interest and taxes (EBIT)*
Q4 FY2001........................................... N/M** N/M** N/M** N/M**
FY2002.............................................. N/M** N/M** 25.2% 74.8%
Net income*
Q4 FY2001........................................... N/M** N/M** N/M** N/M**
FY2002.............................................. N/M** N/M** 26.1% 73.9%
</TABLE>
---------------
* Using estimates based on Talus and Manugistics management projections.
** Not meaningful.
The contribution analysis also indicated that based on a Manugistics share
price of $87.13, as of September 20, 2000, Talus stockholders would receive
10.3% in the outstanding common equity in the combined company after the merger.
(vi) Comparable Transactions Premium Analysis. Goldman Sachs analyzed
certain information relating to 45 selected transactions in the software
industry since January 1999. The results of these analyses are summarized as
follows:
<TABLE>
<CAPTION>
SELECTED TRANSACTIONS
--------------------------------
RANGE MEAN MEDIAN
-------------- ------ ------
<S> <C> <C> <C>
Premium (discount)/market................................... (36.7%)-196.2% 37.8% 28.8%
Premium (discount)/52-week high............................. (85.2%)-285.6% 0.3% (3.8%)
Aggregate consideration/LTM sales........................... 0.7x-301.5x 29.3x 6.9x
Aggregate consideration/LTM EBIT............................ 12.2x-2375.9x 149.6x 39.8x
Aggregate consideration/LTM net income...................... 19.1x-3418.1x 241.9x 62.9x
</TABLE>
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses. No company or
transaction used in the above analyses as a comparison is directly comparable to
Talus or Manugistics or the contemplated transaction.
The analyses were prepared solely for purposes of Goldman Sachs' providing
its opinion to the Talus board of directors as to the fairness from a financial
point of view to the holders, in the aggregate, of Talus common stock. These
analyses do not purport to be appraisals or necessarily reflect the prices at
which businesses or securities actually may be sold. Analyses based upon
forecasts of future results are not
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<PAGE> 46
necessarily indicative of actual future results, which may be significantly more
or less favorable than suggested by such analyses. Because such analyses are
inherently subject to uncertainty, being based upon numerous factors or events
beyond the control of the parties or their respective advisors, none of Talus,
Manugistics, Goldman Sachs or any other person assumes responsibility if future
results are materially different from those forecast.
As described above, Goldman Sachs' opinion to the board of directors of
Talus was one of many factors taken into consideration by the Talus board of
directors in making its determination to approve the merger agreement. The
foregoing summary does not purport to be a complete description of the analyses
performed by Goldman Sachs attached as Appendix "B."
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. While Goldman Sachs was
retained to undertake a study to enable it to render a fairness opinion with
respect to the merger, Goldman Sachs did not act as Talus' financial advisor
with respect to the merger and did not participate in any negotiations leading
to the merger agreement.
Goldman Sachs may also provide investment banking services to Manugistics
in the future. Talus selected Goldman Sachs as its financial advisor because it
is a nationally recognized investment banking firm that has substantial
experience in transactions similar to the proposed merger.
Goldman Sachs provides a full range of financial, advisory and brokerage
services and in the course of its normal trading activities may from time to
time effect transactions and hold securities, including derivative securities,
of Manugistics for its own account and for the accounts of customers. As of
September 21, 2000, entities affiliated with Goldman Sachs owned 95,292 shares
of Talus Class A common stock, 857,633 shares of Talus Series B preferred stock
and 3,113,973 shares of Talus Series C preferred stock. Randall A. Blumenthal, a
managing director of Goldman Sachs, is a board observer of Talus.
Pursuant to a letter agreement dated September 19, 2000, Talus engaged
Goldman Sachs to act as its financial advisor to render a fairness opinion to
the Talus board of directors relating to the conversion of all of the
outstanding shares of Talus capital stock into Manugistics common stock pursuant
to the merger agreement. Pursuant to the terms of this engagement letter, Talus
has agreed to pay Goldman Sachs a fee of $2.0 million, of which $250,000 was
payable upon delivery of the fairness opinion and the remainder is payable upon
the closing of the merger.
Talus has agreed to reimburse Goldman Sachs for its reasonable
out-of-pocket expenses, including attorneys' fees, and to indemnify Goldman
Sachs against certain liabilities, including certain liabilities under the
federal securities laws.
APPROVAL OF MANUGISTICS BOARD AND REASONS FOR THE MERGER
On September 21, 2000, the board of directors of Manugistics approved and
adopted the merger agreement. The board of directors of Manugistics believes
that the merger and the terms and provisions of the merger agreement are fair to
and in the best interests of Manugistics' stockholders.
In reaching its decision to approve the merger agreement, the board of
directors of Manugistics considered a number of factors, including the
following:
- the acquisition of Talus fits Manugistics' business strategy of
developing new products that lead the market and that differentiate
Manugistics in the marketplace;
- the use of pricing and revenue management in new market industries is the
next logical step in the yield management optimization process and the
next logical market for substantial growth in the optimization process;
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<PAGE> 47
- Talus has a unique and developed product suite of pricing and revenue
management optimization software solutions which has allowed it to
penetrate new market industries ahead of its competitors;
- the numerous synergies that exist between Manugistics and Talus,
including the creation of a unique pricing and revenue management
optimization and supply chain optimization technology which provides a
comprehensive solution that combines profit-based demand and supply
optimization solutions not currently offered, to Manugistics' knowledge,
by any other vendor;
- the improved opportunity for market acceptance which a combined offering
of Manugistics' supply chain optimization solutions with Talus' pricing
and revenue management optimization solutions presents;
- the ability of the combined company to market its individual solutions to
each party's respective client base and the ability to utilize each
company's direct and indirect sales channels;
- Talus is currently a market leader in pricing revenue management with
significant momentum, domain expertise and client success; and
- the financial presentation of Deutsche Bank Securities Inc., including
its opinion that the consideration to be paid to the Talus stockholders
is fair to Manugistics and its stockholders from a financial point of
view.
The foregoing discussion of the information and factors considered by the
Manugistics board is not intended to be exhaustive, but includes the material
factors considered. In view of the variety of factors considered in connection
with its evaluation of the merger and the offer price, the Manugistics board did
not find it practicable to, and did not, quantify or otherwise assign relative
weight to the specific factors considered in reaching its determinations and
recommendations, and individual directors may have given differing weight to
different factors.
OPINION OF FINANCIAL ADVISOR TO MANUGISTICS
Deutsche Bank Securities Inc. has acted as financial advisor to Manugistics
in connection with the merger. At the September 21, 2000 meeting of the
Manugistics board of directors, Deutsche Bank delivered its oral opinion,
subsequently confirmed in writing as of the same date, to the Manugistics board
of directors to the effect that, as of the date of such opinion, based upon and
subject to the assumptions made, matters considered and limits of the review
undertaken by Deutsche Bank, the ratio at which Talus common stock will be
converted into shares of Manugistics common stock in the merger was fair, from a
financial point of view, to Manugistics.
The full text of Deutsche Bank's written opinion, dated September 21, 2000,
which sets forth, among other things, the assumptions made, matters considered
and limits on the review undertaken by Deutsche Bank in connection with the
opinion, is attached as Appendix "C" to this prospectus and is incorporated
herein by reference. This discussion of Deutsche Bank's opinion is qualified in
its entirety by reference to the full text of the Deutsche Bank opinion.
CONDITIONS TO THE MERGER
Each party's obligation to effect the merger is subject to the satisfaction
or waiver of conditions which include, in addition to other closing conditions,
the following:
- each of the representations, warranties and covenants of the other party
contained in the merger agreement will be true on, or complied with by,
the closing date in all respects as if made on such date (or on the date
when made in the case of any representation or warranty which
specifically relates to an earlier date), except for such inaccuracies in
the representations and warranties which would not, individually or in
the aggregate, have a material adverse effect on such party, and each of
the parties will have received a certificate signed by the appropriate
officer of the other party, dated the closing date, to such effect;
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<PAGE> 48
- no temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the merger shall
be in effect, nor shall any proceeding brought by an administrative
agency or commission or other governmental authority or instrumentality,
domestic or foreign, seeking any of the foregoing be pending; nor shall
there be any action taken, or any statute, rule, regulation, injunction
order or decree enacted, entered, enforced, promulgated, issued or deemed
applicable to the merger which makes the consummation of the merger
illegal;
- the registration statement of which this prospectus forms a part will
have become effective and no stop order suspending the effectiveness of
the registration statement will have been issued and no proceedings for
that purpose will have been initiated or threatened by the SEC or any
other regulatory authority;
- all waiting periods under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, relating to the merger will have expired or been
terminated early; and
- the period of time under Delaware law, during which the Talus
stockholders may elect to exercise appraisal rights, will have expired.
The obligation of Manugistics to effect the merger is subject to the
satisfaction or waiver of conditions, which include, in addition to other
closing conditions, the following:
- receipt of an opinion from its legal counsel to the effect that the
merger will be treated for federal income tax purposes as a tax-free
reorganization within the meaning of Section 368 of the Internal Revenue
Code;
- receipt of an opinion from legal counsel to Talus to the effect that the
indemnification and escrow provisions of the merger agreement are
enforceable in accordance with their terms;
- the share transfer restriction agreements delivered by certain Talus
stockholders to Manugistics on the date of the merger agreement are in
full force and effect in accordance with their terms; and
- the holders of not more than 7% of the outstanding shares of Talus
capital stock have duly elected to exercise appraisal rights.
The obligation of Talus to effect the merger is subject to the satisfaction
or waiver of conditions, which include, in addition to other closing conditions,
the following:
- receipt of an opinion from its legal counsel to the effect that the
merger will be treated for federal income tax purposes as a tax-free
reorganization within the meaning of Section 368 of the Internal Revenue
Code.
NO SOLICITATION
In the merger agreement, Talus has agreed that it will not, nor will it
authorize or permit any of its officers, directors, employees, auditors,
attorneys, financial advisors, lenders or other agents to, directly or
indirectly:
- solicit, initiate or encourage the submission of any competitive
proposal, as described below;
- participate in or encourage, including by way of furnishing any
non-public information, any discussions or negotiations regarding any
competitive proposal; or
- enter into any definitive agreement relating to a competitive proposal.
The merger agreement provides that the term "competitive proposal" means
(1) any proposal or offer relating to any direct or indirect acquisition or
purchase of all or a substantial part of the assets of Talus, (2) any tender
offer or exchange offer that if consummated would result in any person
beneficially owning 20% or more of any class of existing securities of Talus,
(3) any merger, consolidation, business combination, sale of substantially all
of the assets, recapitalization, liquidation, dissolution, or similar
transaction involving Talus,
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<PAGE> 49
other than the transaction contemplated by the merger agreement and other than
transactions in the ordinary course of business consistent with past practice,
or (4) any other transaction the consummation of which would reasonably be
expected to impede or delay the merger. In addition, certain stockholders of
Talus who own a majority of the outstanding capital stock of Talus have agreed
not to directly or indirectly solicit or encourage any offer from any party
concerning a possible disposition of any portion of Talus' business, assets or
capital stock.
CONDUCT OF BUSINESS OF TALUS PENDING THE MERGER
The merger agreement provides that prior to the closing of the merger, each
of Talus and Manugistics will conduct its business only in the ordinary and
usual course and consistent with its prior practice.
ADDITIONAL AGREEMENTS OF THE PARTIES
Under the terms of the merger agreement, Manugistics and Talus have agreed
to use their reasonable best efforts to take all actions necessary, proper or
advisable to consummate and make effective the transactions contemplated by the
merger agreement.
APPOINTMENTS TO MANUGISTICS BOARD OF DIRECTORS
Manugistics has agreed to appoint to its board of directors (1) one
individual selected by Manugistics from among the representatives of General
Atlantic Partners 49, L.P., General Atlantic Partners 57, L.P., GAP Coinvestment
Partners, L.P. and GAP Coinvestment Partners II, L.P., as a group, and (2) one
individual selected by Manugistics from the current Talus board of directors, in
each case to serve as a member of Manugistics' board of directors in the
respective classes of directors which have the longest unexpired terms at the
time of each individual's election, such elections to be effective as of the
closing of the merger.
REGULATORY APPROVALS
Except for certain approvals required under the Hart-Scott-Rodino Act and
the filing of a certificate of merger with the Secretary of State of Delaware,
Manugistics and Talus are not aware of any governmental approvals or actions
that are required to consummate the merger. An application and notice has been
filed with the Federal Trade Commission and the Department of Justice, and the
applicable waiting period under the Hart-Scott-Rodino Act has expired. If any
other approval or action is required, Manugistics and Talus will seek the
approval or action. There can be no assurance as to whether or when any other
approval or action, if required, could be obtained.
WAIVER AND AMENDMENT
Before the effective date of the merger, any provision of the merger
agreement may be waived in writing by the party entitled to the benefits of such
provision or by both parties, to the extent allowed by law. In addition, the
merger agreement may be amended at any time, to the extent allowed by law, by an
agreement in writing between Manugistics and Talus after approval of their
respective boards of directors, and if required, after approval by the Talus
stockholders.
DIRECTORS AND OFFICERS
The merger agreement provides that the directors and officers of Manu
Acquisition Corp. immediately before the effective time of the merger will serve
as the directors and officers of Talus following the merger.
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<PAGE> 50
TERMINATION AND TERMINATION FEE
The merger agreement may be terminated by Manugistics:
- in writing with the mutual consent of Talus;
- if it is not in material breach of its obligations under the merger
agreement, and there has been a breach of any representation, warranty or
covenant contained in the merger agreement by Talus, or if any
representation or warranty of Talus shall have become untrue (except for
those representations and warranties which address matters only as of a
particular date, which shall be true and correct only as of such date),
and such inaccuracy in such representation or warranty or breach shall
have a material adverse effect on Talus. If terminated for any such
breach, failure or inaccuracy, Talus will pay to Manugistics a
termination fee of approximately $9.2 million;
- if the closing has not occurred by March 31, 2001, for any reason other
than delay or nonperformance of Manugistics;
- if there shall be any governmental action taken, or any statute or rule
enacted or deemed applicable to the merger by any governmental entity,
which would prohibit Manugistics' ownership or operation of any material
portion of the business of Talus or compel Manugistics or Talus to
dispose of or hold separate all or a material portion of the business
assets of Talus as a result of the merger; or
- if there shall be a final nonappealable order of a federal or state court
in effect preventing consummation of the merger or there shall be any
statute, rule, regulation, injunction, order or decree enacted, entered,
enforced, promulgated, issued or deemed applicable to the merger which
makes consummation of the merger illegal.
The merger agreement may be terminated by Talus:
- in writing with the mutual consent of Manugistics;
- if it is not in material breach of its obligations under the merger
agreement, and there has been a breach of any representation, warranty or
covenant contained in the merger agreement by Manugistics, or if any
representation or warranty of Manugistics shall have become untrue
(except for those representations and warranties which address matters
only as of a particular date, which shall be true and correct only as of
such date), and such inaccuracy in such representation or warranty or
breach shall have a material adverse effect on Manugistics. If terminated
for any such breach, failure or inaccuracy, Manugistics will pay to Talus
a termination fee of approximately $9.2 million;
- if the closing has not occurred by March 31, 2001, for any reason other
than delay or nonperformance of Talus;
- if there shall be any governmental action taken, or any statute or rule
enacted or deemed applicable to the merger by any governmental entity,
which would prohibit Manugistics' ownership or operation of any material
portion of the business of Talus or compel Manugistics or Talus to
dispose of or hold separate all or a material portion of the business
assets of Talus as a result of the merger; or
- if there shall be a final nonappealable order of a federal or state court
in effect preventing consummation of the merger or there shall be any
statute, rule, regulation, injunction, order or decree enacted, entered,
enforced, promulgated, issued or deemed applicable to the merger which
makes consummation of the merger illegal.
INTERESTS OF TALUS DIRECTORS AND OFFICERS IN THE MERGER
Some members of the Talus board of directors and management have interests
in the merger in addition to their interests generally as stockholders of Talus.
The Talus board of directors was aware of these interests and considered them,
in addition to other matters, in approving the merger agreement.
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<PAGE> 51
EMPLOYMENT AGREEMENTS
Talus has agreed to use its reasonable best efforts to cause five key
employees of Talus to enter into employment agreements with Manugistics, in form
and substance satisfactory to Manugistics, prior to the effective time of the
merger.
MANUGISTICS BOARD OF DIRECTORS
Manugistics has agreed to appoint to its board of directors (1) one
individual selected by Manugistics from among the representatives of General
Atlantic Partners 49, L.P., General Atlantic Partners 57, L.P., GAP Coinvestment
Partners, L.P. and GAP Coinvestment Partners II, L.P., as a group and (2) one
individual selected by Manugistics from the current Talus board of directors, in
each case to serve as a member of Manugistics' board of directors in the
respective classes of directors which have the longest unexpired terms at the
time of each individual's election, such elections to be effective as of the
closing of the merger.
COMMON DIRECTOR OF MANUGISTICS AND TALUS
Manugistics and Talus have a common director, J. Michael Cline, on their
respective boards. Prior to the negotiation of the merger agreement, Mr. Cline
disclosed his conflict of interest and recused himself from participating in the
board deliberations held by Manugistics and in the board meeting held by Talus
on September 21, 2000 during which the merger and the merger agreement were
approved. On the effective date of the merger, Mr. Cline will have the right to
exercise 100% of his options to acquire 25,000 shares of Talus common stock
which will be converted into the right to receive shares of Manugistics common
stock in accordance with the terms of the merger agreement. In addition, Mr.
Cline holds a limited partnership interest in each of GAP Coinvestment Partners,
L.P. and GAP Coinvestment Partners II, L.P. and a non-managing member interest
in General Atlantic Partners, LLC, which serves as the general partner of
General Atlantic Partners 49, L.P. and General Atlantic Partners 57, L.P. As a
result of these interests, Mr. Cline owns indirectly approximately 2.2% of the
outstanding shares of Talus capital stock. These shares will be converted into
the right to receive shares of Manugistics common stock in accordance with the
terms of the merger agreement. The shares of Manugistics common stock which he
will own indirectly would have a value of approximately $8.9 million based on
the closing price of $115.44 per share on November 17, 2000.
EMPLOYEE RETENTION PLAN
Pursuant to the terms of the merger agreement, Manugistics has agreed to
create an employee retention plan, acceptable to the Manugistics board of
directors, pursuant to which options to purchase shares of Manugistics common
stock will be granted to certain employees of Talus, on such terms and
conditions as are acceptable to Manugistics, and which shares will be subject to
forfeiture in the event such employee voluntarily resigns or is terminated with
cause by Manugistics. The allocation of options to be awarded under the employee
retention plan and all of the other terms and provisions of the awards
thereunder shall be made by the compensation committee of Manugistics' board of
directors, in consultation with two independent directors of the Talus board of
directors.
GOLDMAN, SACHS & CO. ENGAGEMENT
Talus retained Goldman, Sachs & Co. to render its fairness opinion based on
Goldman Sachs' experience and expertise in transactions similar to the merger.
Pursuant to the terms of its engagement letter with Goldman Sachs, Talus agreed
to pay Goldman Sachs a fee of $2.0 million, of which $250,000 was payable upon
delivery of the fairness opinion, and the remainder is payable upon the closing
of the merger. In addition, Talus agreed to reimburse Goldman Sachs for
reasonable out-of-pocket fees, expenses and costs in connection with the
performance of its activities under the engagement letter, including the fees
and expenses of its accountants and legal counsel, if any, and any other advisor
retained by Goldman Sachs. Talus also agreed to indemnify Goldman Sachs and
certain related persons against certain liabilities in connection with the
engagement of Goldman Sachs, including certain liabilities under the federal and
state securities laws. As of
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<PAGE> 52
the date of execution of the merger agreement and the date of this prospectus,
certain affiliates of Goldman Sachs own 857,633 shares of Series B preferred
stock, 3,113,973 shares of Series C preferred stock and 95,292 shares of Class A
voting common stock of Talus. See "Selling Stockholders."
CHANGE OF CONTROL ARRANGEMENTS
Pursuant to an employment agreement, dated June 15, 1999, with Thomas R.
Madison, Jr., Chief Executive Officer of Talus, the vesting of 50% of Mr.
Madison's unvested options to purchase Talus common stock will become fully
vested and immediately exercisable upon a change of control of Talus, subject to
certain additional restrictions contained in his employment agreement. In the
event that Mr. Madison is terminated without cause within one year of the change
of control and the value of Talus (measured immediately after the change of
control) is greater than $300.0 million, all of his unvested options will become
fully vested and immediately exercisable. In the event that Mr. Madison is
terminated without cause at any other time, an additional 10% of his outstanding
unvested options will become fully vested. In addition, in the event Mr. Madison
is terminated without cause, Talus will be required to provide all benefits and
a base salary for a period of one year after termination or until he is
re-employed with higher compensation.
Pursuant to a letter agreement, dated February 11, 2000, with Michael R.
Cote, Chief Financial Officer of Talus, Mr. Cote's options to purchase Talus
common stock will become fully vested and immediately exercisable upon a change
of control of Talus. In the event that Mr. Cote is terminated without cause at
any time, Talus will also be required to continue to provide all benefits and
base salary to Mr. Cote for a period of one year or until Mr. Cote becomes
employed in a position having equal or greater base salary than his Talus base
salary. If Mr. Cote becomes employed with another company in a position with a
lesser salary, Talus has the right to offset his payments which are otherwise
payable to Mr. Cote for the remainder of the one-year period.
Pursuant to the terms of the Talus Stock Option Plan for Outside Directors,
an outside director will have the right to exercise 100% of his or her options
in the event of a change of control of Talus. In addition, each of J. Michael
Cline, Tom Tinsley, Mark Dzialga and Charles Johnson, current directors of
Talus, has the right to exercise 100% of his options in the event of a change of
control of Talus.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The merger agreement provides that Manugistics will cause the surviving
corporation to indemnify each person who is or was a director or officer of
Talus as of the date of the merger for events occurring before the effective
time of the merger or to liabilities arising out of the merger agreement. Such
indemnification obligation includes advancement of expenses by the surviving
corporation to the fullest extent permitted under applicable law if the person
agrees to repay the advances if such person was not entitled to be indemnified.
SUPPORT AGREEMENTS
In connection with the merger agreement, certain stockholders of Talus
(General Atlantic Partners 49, L.P., General Atlantic Partners 57, L.P., GAP
Coinvestment Partners, L.P., GAP Coinvestment Partners II, L.P., The Goldman
Sachs Group, Inc., Bridge Street Fund 1998, L.P., Stone Street Fund 1998, L.P.,
Noro-Moseley Partners III, L.P., Robert G. Cross and Patricia Cross), who in the
aggregate own a majority of the outstanding shares of Talus voting capital
stock, have entered into support agreements with Manugistics and agreed to vote
their shares in favor of the merger and against certain competitive proposals.
Pursuant to the terms of these support agreements, the holders have also granted
irrevocable proxies to Manugistics to vote their shares for this purpose and
have granted to Manugistics an option to purchase their shares of Talus capital
stock if they do not continue to vote their shares in favor of the merger and
against certain competitive proposals. The stockholders have also agreed not to
sell, transfer or otherwise dispose of their shares. In addition, such
stockholders have agreed not to, directly or indirectly, solicit or encourage
any offer from any other party concerning the possible disposition of any
portion of Talus' business, assets or capital stock. The support agreements will
remain in effect until the termination of the merger agreement or the closing of
the merger.
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<PAGE> 53
ESCROW AND INDEMNIFICATION RIGHTS
At the effective time of the merger, Manugistics will deposit with an
escrow agent 15% of the shares of Manugistics common stock, rounded down to the
nearest whole number of shares, which are otherwise issuable to each of the
Talus stockholders. The escrowed shares will be held in deposit and will secure
the indemnification obligations of Talus and its stockholders for certain losses
incurred by Manugistics as a result of any breach of the representations,
warranties, covenants or agreements of Talus which are contained in the merger
agreement and as a result of certain identified contingencies. While the
escrowed shares are held in deposit, the Talus stockholders will be entitled to
vote those shares and to receive any dividends which may be declared on those
shares.
On the first anniversary of the closing date of the merger, but in no event
later than October 31, 2001 (the "First Release Date"), one third of the
escrowed shares will be distributed to the Talus stockholders if Manugistics has
not requested indemnification. Until that time, each of the Talus stockholders
will severally, and not jointly, indemnify Manugistics and its affiliates for
all losses resulting from a breach of the representations, warranties, covenants
or agreements of Talus which are contained in the merger agreement, or for
losses of Talus in connection with certain pending litigation of Talus related
to a contract dispute which in the aggregate exceed $100,000. The Talus
stockholders shall not be responsible for any indemnification claims to
Manugistics, other than certain specified claims related to taxes and the
litigation identified above, until the aggregate of all requested claims shall
exceed $500,000. After such amount is exceeded, the Talus stockholders shall be
responsible for all the claims of Manugistics from the initial dollar of loss.
All such indemnified losses will be paid solely and exclusively by the delivery
of escrowed shares to Manugistics, and the value of the escrowed shares so
distributed shall be equal to the average closing price for the ten trading days
immediately preceding the date that Manugistics requests indemnification.
From the First Release Date until June 30, 2002, the obligation to
indemnify Manugistics will be limited to losses associated with breaches of only
certain specified representations and warranties set forth in the merger
agreement, specifically, those made involving the absence of conflicts,
intellectual property, material contracts, litigation, employee benefit plans
and taxes. The stockholders will continue to indemnify Manugistics for losses
from the litigation identified above which in the aggregate exceed $100,000.
Each Talus stockholder's liability for indemnified losses will again be limited
to its escrowed shares.
On July 2, 2002, or upon the resolution of all claims for indemnification,
the remaining escrowed shares not required to pay indemnification losses will be
issued to the Talus stockholders in accordance with the pro rata interests in
Talus on the effective date of the merger.
SHARE TRANSFER RESTRICTION AGREEMENTS
In connection with the merger agreement, certain stockholders of Talus
(General Atlantic Partners 49, L.P., General Atlantic Partners 57, L.P., GAP
Coinvestment Partners, L.P., GAP Coinvestment Partners II, L.P., The Goldman
Sachs Group, Inc., Bridge Street Fund 1998, L.P., Stone Street Fund 1998, L.P.,
Noro-Moseley Partners III, L.P., Robert G. Cross and Patricia Cross) have
entered into share transfer restriction agreements, and one executive officer of
Talus, Thomas R. Madison, Jr., who holds stock options, has entered into a
lock-up agreement with Manugistics. Pursuant to the terms of these agreements,
the holders of Talus capital stock and the executive officer have agreed not to
sell or otherwise dispose of their shares of Manugistics common stock until
certain times and in certain quantities during 2001.
EMPLOYEE BENEFITS
Manugistics has agreed in the merger agreement that, following the
effective date of the merger and until December 31, 2000, Manugistics will
provide to employees of Talus employee benefits, including, without limitation,
pension benefits, health and welfare benefits, life insurance and vacation and
severance arrangements, on terms and conditions that in the aggregate are
comparable to those currently provided by Talus.
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STOCK OPTIONS AND WARRANTS
At the closing of the merger, each outstanding option or warrant to
purchase shares of Talus common stock, whether issued under Talus' stock option
plans or otherwise, will be converted into an option or warrant to acquire
shares of Manugistics common stock. As a result of the merger, an option or
warrant to purchase a share of Talus common stock will be exercisable for the
number of shares of Manugistics common stock equal to the product (rounded up to
the nearest whole share) of:
- the number of shares of Talus common stock subject to the original option
or warrant; and
- the exchange ratio.
The exercise price per share of common stock underlying each option or
warrant will be equal to the price obtained by dividing:
- the exercise price set forth in the original Talus stock option or
warrant; by
- the exchange ratio.
All terms and provisions of the Talus stock options and warrants, including
any vesting provisions, will remain unaffected by the merger. Manugistics has
agreed to file a registration statement with respect to the shares underlying
the assumed Talus stock options not later than 10 days following the closing of
the merger.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a summary description of the material anticipated U.S.
federal income tax consequences of the merger generally applicable to the
stockholders of Talus. This summary is not intended to be a complete description
of all of the federal income tax consequences of the transaction. No information
is provided with respect to the tax consequences of the transaction under any
other tax laws, including applicable state, local and foreign tax laws. In
addition, the following discussion may not be applicable with respect to
specific categories of stockholders, including but not limited to persons who
are corporations, trusts, dealers in securities, financial institutions,
insurance companies or tax exempt organizations; persons who are not U.S.
citizens or resident aliens or domestic entities (partnerships or trusts);
persons who are subject to alternative minimum tax (to the extent that tax
affects the tax consequences of the merger) or are subject to the "golden
parachute" provisions of the Internal Revenue Code (to the extent that tax
affects the tax consequences of the merger); persons who acquired Talus capital
stock with employee stock options or otherwise as compensation if such shares
are subject to any restriction related to employment; persons who do not hold
their shares as capital assets; or persons who hold their shares as part of a
"straddle" or "conversion transaction." No ruling has been or will be requested
from the IRS with respect to the tax effects of the merger. The federal income
tax laws are complex, and a stockholder's individual circumstances may affect
the tax consequences to the stockholder.
The material U.S. federal income tax consequences of the merger are as
follows:
- Except with respect to any cash you receive in lieu of a fractional share
of Manugistics common stock, you will not recognize income, gain or loss
in connection with your exchange of Talus capital stock for Manugistics
common stock pursuant to the merger.
- Your adjusted tax basis in the Manugistics common stock you receive in
the merger, including any fractional interest in Manugistics common
stock, will be the same as your adjusted tax basis in your Talus capital
stock.
- Your holding period in the Manugistics common stock you receive in the
merger will include your holding period in your Talus capital stock.
- You will recognize capital gain or loss in connection with any cash you
receive in lieu of a fractional share of Manugistics common stock equal
to the difference between the amount of cash you receive and your
adjusted tax basis in such fractional share.
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APPRAISAL RIGHTS. If you receive cash for your Talus capital stock as a
result of exercising your appraisal rights, you will recognize capital gain or
loss equal to the difference between the amount of cash you receive and your
adjusted tax basis in your Talus capital stock.
BACKUP WITHHOLDING. Any cash you receive in lieu of a fractional share of
Manugistics common stock may be subject to backup withholding at a 31% rate.
Backup withholding will not apply, however, if you:
- furnish a correct taxpayer identification number on IRS Form W-9 or an
appropriate substitute form and certify on such form that you are not
subject to backup withholding;
- provide a certificate of foreign status on IRS Form W-8 or an appropriate
substitute form; or
- are otherwise exempt from backup withholding.
Any amount paid as backup withholding will be credited against your U.S.
federal income tax liability.
INFORMATION REPORTING. If you exchange your Talus capital stock for
Manugistics common stock in connection with the merger, Section 1.368-3 of the
Treasury Regulations will require you to incorporate into your U.S. federal
income tax return, for the year in which the merger occurs and maintain in your
permanent records, a statement including:
- the cost or other basis of your Talus capital stock; and
- the number of shares and value of the Manugistics stock and cash you
receive in the merger.
You are encouraged to consult your tax advisor to determine the specific
information that you may need to file with your income tax return for the year
in which the merger occurs.
Manugistics has received an opinion from Paul, Hastings, Janofsky & Walker
LLP, and Talus has received an opinion from King & Spalding, each to the effect
that the merger of Manu Acquisition Corp., a wholly owned subsidiary of
Manugistics, with and into Talus will qualify as a tax-free reorganization under
Section 368(a) of the Internal Revenue Code, as amended. Each of the tax
opinions was issued on September 21, 2000 and each of the tax opinions is based
upon assumptions and representations by the management of Manugistics and/or
Talus.
All Talus stockholders are urged to consult their own tax advisors as to
the specific consequences to them of the merger under federal, state, local and
any other applicable income tax laws.
ACCOUNTING TREATMENT
The merger will be accounted for by Manugistics under the purchase method
of accounting. Accordingly, the purchase price will be allocated to the assets
and liabilities of Talus based on their estimated fair market values at the date
of acquisition, and any excess of the purchase price over such fair market
values will be accounted for as goodwill, which will be amortized over an
estimated period of not more than five years. For this purpose, the purchase
price will be determined when the merger is closed. The purchase price will be
determined on the first date when the number of Manugistics shares and other
consideration become fixed without subsequent revision. The financial statements
of the combined company will reflect the combined operations of Manugistics and
Talus from the effective date of the merger.
EXPENSES
The merger agreement provides that each of Manugistics and Talus will pay
its own expenses in connection with the merger and related transactions,
including, but not limited to, the fees and expenses of its own investment
advisors, brokers, legal counsel, accountants and other outside experts to
conduct due diligence.
NASDAQ NATIONAL MARKET LISTING
Manugistics common stock is listed on the Nasdaq National Market under the
symbol "MANU." The Manugistics common stock issued to the Talus stockholders
will be listed on the Nasdaq National Market.
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SELLING STOCKHOLDERS
The shares of Manugistics common stock issued in the merger will be
registered under the Securities Act. These shares will be freely transferable
under the Securities Act, except for shares issued to persons who may be deemed
to be "affiliates" of Talus for purposes of Rule 145 under the Securities Act.
Affiliates may not sell their shares of Manugistics common stock acquired in
connection with the merger except pursuant to an effective registration
statement under the Securities Act covering such shares or in compliance with
Rule 145 promulgated under the Securities Act or another applicable exemption
from the registration requirements of the Securities Act. Persons who may be
deemed to be affiliates of Talus generally include individuals or entities that
control, are controlled by or are under common control with Talus and may
include officers and directors of Talus as well as principal stockholders of
Talus.
Manugistics will receive an "affiliate letter" from persons deemed to be
"affiliates" of Talus under Section 2(11) of the Securities Act and Rule 145(c)
thereunder. An affiliate letter will constitute an agreement by each affiliate
of Talus with Manugistics to the effect that such affiliate will not sell,
transfer or otherwise dispose of any shares of Manugistics common stock issued
to such a person in connection with the merger except in compliance with the
applicable provisions of the Securities Act and the rules and regulations
thereunder. Because the selling stockholders listed in the table below may be
deemed to be affiliates of Talus, this document will also cover any offers or
sales of the resale shares sold by the selling stockholders.
The following table sets forth information with respect to the selling
stockholders. Because each holder of Talus capital stock will receive a number
of shares dependent upon the average closing price of Manugistics common stock
over a 15 day trading period and certain elections made by the Talus Series A
preferred stockholders, the column relating to the securities owned by the
selling stockholders before the offering sets forth the minimum and maximum
number of shares each selling stockholder will receive in the merger in exchange
for their Talus capital stock, assuming the Series A preferred stockholder
elects not to treat the merger as a liquidation and instead elects to convert
its shares of Series A preferred into common stock prior to the closing of the
merger. The notes to the table describe the relationship of the selling
stockholder to Talus.
<TABLE>
<CAPTION>
SECURITIES OWNED BEFORE SECURITIES OWNED
THE OFFERING SECURITIES OFFERED AFTER THE OFFERING
------------------------ FOR THE SECURITY ------------------
NAME OF SECURITY HOLDER MINIMUM MAXIMUM(1) HOLDER'S ACCOUNT AMOUNT PERCENT
----------------------- ---------- ----------- ------------------ ------- --------
<S> <C> <C> <C> <C> <C>
Partnerships Associated with General
Atlantic Partners, LLC(2)............ 1,921,763 2,287,752 2,287,752 0 0
Funds Associated with The Goldman Sachs
Group, Inc.(3)....................... 424,210 504,998 504,998 0 0
Noro-Moseley Partners-III, L.P.(4)..... 73,003 86,906 86,906 0 0
Robert G. Cross(5)..................... 184,047 219,098 219,098 0 0
Patricia B. Cross(6)................... 129,119 153,709 153,709 0 0
Thomas R. Madison, Jr.(7).............. 212,638 253,134 253,134 0 0
</TABLE>
---------------
(1) If the holder of Talus Series A preferred stock elects to treat the merger
as a liquidation under the Talus Certificate of Incorporation, the selling
stockholders will receive a slightly lower number of shares of Manugistics
common stock per share of Talus common stock than if the holder of Talus
Series A preferred stock elects to convert the Series A preferred stock into
shares of Talus Class B non-voting common stock. We anticipate that the
holder of Talus Series A preferred stock will make this election if the
average closing price during the measurement period is less than
approximately $53.00. We have assumed for the purposes of this table that
the holder will not make such an election.
(2) General Atlantic Partners, LLC and its affiliates (General Atlantic Partners
49, L.P., General Atlantic Partners 57, L.P., GAP Coinvestment Partners,
L.P., and GAP Coinvestment Partners II, L.P.) own in the aggregate 428,817
shares of Talus Class A voting common stock. This table assumes that General
Atlantic Partners, LLC, together with its affiliates, will elect to convert
the 3,859,348 shares of Talus Series B preferred stock it owns into
11,323,532 shares of Talus Class A voting common stock and the 14,185,878
shares of Talus Series C preferred stock it owns into 14,185,878 shares of
Talus Class A voting common stock. General Atlantic Partners, LLC, together
with its affiliates, is an affiliate of Talus
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<PAGE> 57
due to its ownership of Talus capital stock and due to the fact that an
affiliate of General Atlantic Partners, LLC is a director of Talus.
(3) The Goldman Sachs Group, Inc. and its affiliates (Bridge Street Fund 1998,
L.P. and Stone Street Fund 1998, L.P.) own in the aggregate 95,292 shares of
Talus Class A voting common stock. This table assumes that The Goldman Sachs
Group, Inc., together with its affiliates, will elect to convert the 857,663
shares of Talus Series B preferred stock it owns into 2,516,341 shares of
Talus Class A voting common stock and the 3,113,973 shares of Talus Series C
preferred stock it owns into 3,113,973 shares of Talus Class A voting common
stock. The Goldman Sachs Group, Inc., together with its affiliates, is an
affiliate of Talus due to its ownership of Talus stock.
(4) Noro-Moseley Partners III, L.P. owns 109 shares of Talus Class A voting
common stock and 831,635 shares of Talus Series A preferred stock. This
table assumes that Noro-Moseley Partners III, L.P. will elect to convert its
shares of Talus Series A preferred stock it owns into 985,219 shares of
Talus Class B non-voting common stock. Noro-Moseley Partners III, L.P. is an
affiliate of Talus due to the fact that an affiliate of Noro-Moseley
Partners III, L.P. is a director of Talus.
(5) Mr. Cross is the Chairman of the Talus board of directors.
(6) Mrs. Cross is an affiliate of Talus by virtue of the fact that she is the
spouse of Robert G. Cross, the Chairman of Talus.
(7) Mr. Madison is the President and Chief Executive Officer, as well as a
director, of Talus. Mr. Madison has options to purchase 2,870,000 shares of
Talus Class A common stock, of which 956,666 shares are currently vested and
exercisable. All of Mr. Madison's unvested options will become fully vested
upon consummation of the merger in certain circumstances. See "The
Merger -- Interests of Talus Directors and Officers in the Merger."
PLAN OF DISTRIBUTION
Manugistics will not receive any proceeds from the sale of the resale
shares. The selling stockholders and their donees, pledgees and other
successors-in-interest may offer their shares of Manugistics common stock at
various times in one or more of the following transactions:
- on any of the United States securities exchanges where our stock is
listed, including the Nasdaq National Market;
- in the over-the-counter market;
- in privately negotiated transactions;
- in connection with short sales of shares of Manugistics common stock;
- by pledge to secure debts and other obligations;
- in connection with the writing of non-traded and exchange-traded call
options, in hedge transactions and in settlement of other transactions in
standardized or over-the-counter options; or
- in a combination of any of the above transactions.
The selling stockholders may sell their shares of Manugistics common stock
at any of the following prices:
- at market prices prevailing at the time of sale;
- at prices related to such prevailing market prices;
- at negotiated prices; or
- at fixed prices.
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The selling stockholders may use broker-dealers to sell their shares of
Manugistics common stock. If this happens, broker-dealers may either receive
discounts or commissions from the selling stockholders, or they may receive
commissions from purchasers of shares of Manugistics common stock for whom they
acted as agents.
The selling stockholders and the broker-dealers they use to sell their
shares of Manugistics common stock may be deemed to be "underwriters" under the
Securities Act and any commission the broker-dealers receive and any profits
they may make in the resale of shares of Manugistics common stock while acting
as principals may be deemed "underwriting discounts or commissions" under the
Securities Act. If the broker-dealers purchase shares of Manugistics common
stock from the selling stockholders for their own accounts as principals, they
may make a profit by reselling the shares of Manugistics common stock.
The registration effected hereby is being effected under the merger
agreement. Manugistics will pay substantially all of the expenses incident to
the registration of the shares of Manugistics common stock including all costs
incident to the offering and sale of the shares by the selling stockholders to
the public other than any brokerage fees, selling commissions or underwriting
discounts. Manugistics has agreed to keep the registration statement of which
this prospectus is a part effective until the earlier of two years following the
closing of the merger or such time as all of the selling stockholders have
completed the sale or distribution of their Manugistics common stock registered
hereby.
DESCRIPTION OF MANUGISTICS CAPITAL STOCK
The following summary description of the capital stock of Manugistics does
not purport to be complete and is qualified in its entirety by the provisions of
Manugistics' Certificate of Incorporation, as amended, and Manugistics' bylaws
and by the applicable provisions of the Delaware General Corporation Law. For
information on how to obtain copies of the Manugistics Certificate of
Incorporation and bylaws, see "Where You Can Find More Information" on page 90.
CAPITAL STOCK
Manugistics is incorporated under the Delaware General Corporation Law, and
Manugistics is authorized to issue 100,000,000 shares of Manugistics common
stock, of which 28,944,849 shares were outstanding on October 31, 2000.
Manugistics is authorized to issue 4,620,253 shares of preferred stock, of which
no shares are currently outstanding. Manugistics' board of directors may at any
time, without additional approval of the holders of Manugistics common stock,
issue authorized but unissued shares of Manugistics common stock.
PREFERRED STOCK
The Manugistics Certificate of Incorporation provides that, in accordance
with Delaware law, the Manugistics board of directors may determine the
preferences, limitations and relative rights of shares of preferred stock. No
shares of preferred stock are currently designated, and there is no current plan
to designate or issue any class or series of preferred stock. However, because
the terms of the preferred stock may be fixed by the Manugistics board of
directors without stockholder action, preferred stock could be issued quickly
with terms designed to delay or prevent a proposed acquisition of Manugistics by
a third party.
DIVIDEND RIGHTS
Holders of Manugistics common stock are entitled to receive such dividends
as may be declared from time to time by the board of directors out of funds
legally available therefore.
VOTING RIGHTS
Each holder of Manugistics common stock is entitled to one vote for each
share held on any matter submitted to a vote of Manugistics stockholders,
including the election of directors. Manugistics stockholders do not have
cumulative voting rights for the election of directors. The affirmative vote of
a plurality of the shares present (in person or by proxy), provided that a
quorum is present, is required to elect nominees to the board of directors. All
other elections and matters submitted to a vote of Manugistics stockholders are
decided
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by the affirmative vote of a majority of the shares present (in person or by
proxy) and entitled to vote, provided that a quorum is present, except as
otherwise required by the Manugistics bylaws and Delaware law.
Under Delaware law, a corporation's certificate of incorporation may be
amended by the affirmative vote of a majority of its outstanding shares entitled
to vote upon the amendment, unless the corporation's certificate of
incorporation or bylaws specifies a higher percentage. The Manugistics
Certificate of Incorporation does not provide for an affirmative vote differing
from the statutory requirements.
STAGGERED BOARD OF DIRECTORS
The Manugistics board of directors is divided into three classes of
directors. Each class serves a staggered 3-year term and expires in each
succeeding year.
LIQUIDATION RIGHTS
In the event of liquidation, dissolution or winding up of Manugistics, the
holders of Manugistics common stock are entitled to share ratably in all assets
of Manugistics available for distribution to such holders after the payment of
all liabilities.
PREEMPTION, CONVERSION AND REDEMPTION
The holders of Manugistics common stock have no preemptive rights to
purchase additional securities issued by Manugistics or any conversion rights
and the Manugistics common stock is not subject to calls or further assessments
by Manugistics. The Manugistics stockholders have no rights to have their shares
redeemed by Manugistics.
CHANGE OF CONTROL
The Delaware General Corporation Law and the Manugistics bylaws contain
provisions that could discourage or make more difficult a change of control of
Manugistics.
MANUGISTICS BYLAWS. Under the Manugistics bylaws, special meetings of the
stockholders may only be called by a majority of the board of directors or by
the President. Manugistics stockholders are not entitled to request a special
meeting, and a stockholder must provide advanced written notice to Manugistics
for any business proposed by a stockholder for consideration at a meeting of
stockholders or for any nomination of persons for election to the board of
directors by a stockholder. For more information on advanced notice requirements
for stockholder proposals or nominees see "Comparison of Rights of Manugistics
Stockholders and Talus Stockholders -- Notice of Board Nomination and Other
Business." Additionally, the Manugistics bylaws require approval by 67% of the
holders of Manugistics shares to remove a director. For more information on
removal of directors see "Comparison of Rights of Manugistics Stockholders and
Talus Stockholders -- Removal of Directors."
DELAWARE GENERAL CORPORATION LAW. As a Delaware corporation, Manugistics
is subject to the provisions of Section 203 of the Delaware General Corporation
Law. Generally, this statute prohibits a publicly held Delaware corporation from
engaging in a "business combination" (as defined in the statute) with an
"interested stockholder" (as defined in the statute) for a period of three years
after the time that such stockholder became an interested stockholder, unless:
- prior to that time the corporation's board of directors has approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction was commenced (excluding certain specified shares); or
- at or after the time the stockholder became an interested stockholder,
the business combination is approved by the corporation's board of
directors and authorized by the affirmative vote at an annual or special
meeting and not by written consent, of at least 66 2/3% of the
outstanding voting stock of the corporation (excluding the stock owned by
the interested stockholder).
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Section 203 generally defines a "business combination" to include a merger,
asset sale or other transaction resulting in a financial benefit to the
interested stockholder. Section 203 generally defines an "interested
stockholder" as a person or entity, other than the corporation and any direct or
indirect majority owned subsidiary of the corporation, who (1) owns 15% or more
of a corporation's voting stock or (2) is an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting stock of
the corporation at any time within the prior three-year period, and the
affiliates or associates of such person. Section 203 expressly exempts from the
requirements described above any business combination by a corporation with an
interested stockholder who becomes an interested stockholder in a transaction
approved by that corporation's board of directors.
MISCELLANEOUS
The outstanding shares of Manugistics common stock are, and the shares of
Manugistics common stock to be delivered pursuant to the merger upon delivery
will be, duly authorized, validly issued, fully paid and nonassessable. The
outstanding shares of Manugistics common stock are, and the shares of
Manugistics common stock to be delivered pursuant to the merger upon notice of
issuance will be, listed on the Nasdaq National Market. EquiServe, L.P., Canton,
Massachusetts, is the transfer agent and registrar for Manugistics common stock.
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COMPARISON OF RIGHTS OF MANUGISTICS STOCKHOLDERS AND
TALUS STOCKHOLDERS
This section of the prospectus describes certain differences between
Manugistics common stock and Talus common stock. While we believe that the
description covers the material differences between the two, this summary may
not contain all of the information that is important to you, including the
certificates of incorporation and bylaws of each company. You should read this
entire document and the documents we refer to carefully for a more complete
understanding of the differences between Manugistics common stock and Talus
common stock. You may obtain the information incorporated by reference into this
prospectus without charge by following the instructions in the section entitled
"Where You Can Find More Information" on page 90.
After the merger, all holders of Talus common stock and preferred stock
will become holders of shares of Manugistics common stock. Any vested but
unexercised and any unvested options for Talus common stock will be converted
into options for shares of Manugistics common stock. Because Manugistics and
Talus are both Delaware corporations, the Delaware General Corporation Law will
continue to govern the rights of the stockholders. The Talus Certificate of
Incorporation and the Talus bylaws currently govern the rights of the
stockholders of Talus. As stockholders of Manugistics after the merger, the
Manugistics Certificate of Incorporation and the Manugistics bylaws will instead
govern their rights following the merger. The following table summarizes
material differences between the rights of Manugistics stockholders and Talus
stockholders under the certificates of incorporation and bylaws of Manugistics
and Talus, as applicable.
The following comparison of stockholder rights is a summary, is not
intended to be complete or to identify all differences that may, under given
situations, be material to stockholders and is subject, in all respects, and is
qualified by reference, to the Delaware General Corporation Law, the Talus
Certificate of Incorporation, the Talus bylaws, the Manugistics Certificate of
Incorporation and the Manugistics bylaws.
AUTHORIZED CAPITAL STOCK
<TABLE>
<CAPTION>
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MANUGISTICS TALUS
----------------------------------------------------------------------------------------------------
<S> <C>
The authorized capital stock of Manugistics The authorized capital stock of Talus
consists of 100 million shares of common stock, consists of 100 million shares of Class A
par value $0.002 per share, and 4,620,253 shares voting common stock, par value $.0001 per share,
of preferred stock, par value $0.01 per share. 5 million shares of Class B non- voting common
Manugistics may, by resolution of its board stock, par value $.0001 per share, 2 million
of directors, and without any further vote or shares of Series A cumulative convertible
action by its stockholders, authorize and issue, redeemable non-voting preferred stock, par value
subject to certain limitations prescribed by $.0001 per share, 5 million shares of Series B
law, up to an aggregate of 4,620,253 shares of convertible voting preferred stock, par value
preferred stock. The preferred stock may be $.0001 per share, and 18 million shares of
issued in one or more classes or series of Series C convertible voting preferred stock, par
shares of any class or series. With respect to value $.0001 per share.
any classes or series, the board of directors
may determine the designation and the number of The holders of Talus preferred stock have
shares, preferences, limitations and special additional rights, preferences, and privileges
rights, including dividend rights, conversion relating to the receipt of dividends, the
rights, voting rights, redemption rights and distribution of assets upon a liquidation,
liquidation preferences. Because of the rights dissolution or winding up of Talus, the
that may be granted, the issuance of preferred conversion of their preferred shares into common
stock may delay, defer or prevent a change of stock of Talus and the optional redemption of
control. No shares of preferred stock are their preferred stock which they will cease to
outstanding and Manugistics presently has no have as holders of Manugistics common stock
plans to issue shares of preferred stock. following the closing of the merger. The rights,
preferences and privileges of the Series A,
Series B and Series C preferred stock are set
forth in the Talus Certificate of Incorporation.
These rights will be extinguished upon
conversion of the Talus preferred stock into
shares of the Manugistics common stock.
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</TABLE>
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<PAGE> 62
SIZE OF THE BOARD
<TABLE>
<CAPTION>
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MANUGISTICS TALUS
----------------------------------------------------------------------------------------------------
<S> <C>
The Manugistics board currently consists of The Talus board currently consists of nine
nine directors. Under the Manugistics bylaws, directors. The number of members of the
the number of directors constituting the board board of directors may be increased at any time
is no fewer than five, but not more than 10 by the vote of a majority of the directors then
directors. The number of members of the board of in office.
directors may be increased at any time by the
vote of a majority of the directors then in
office. In connection with the merger,
Manugistics increased the number of directors to
10.
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</TABLE>
CLASSIFICATION OF BOARD OF DIRECTORS
<TABLE>
<CAPTION>
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MANUGISTICS TALUS
----------------------------------------------------------------------------------------------------
<S> <C>
The Manugistics board is divided into three The Talus board is not divided into classes.
classes. Each class must be as nearly equal in Directors are elected at each annual meeting
number as possible. Each class of directors of stockholders.
serves a staggered three-year term, and the term
of each class of directors expires each
succeeding year.
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</TABLE>
BOARD MEETINGS
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
MANUGISTICS TALUS
----------------------------------------------------------------------------------------------------
<S> <C>
Under the Manugistics bylaws, special Under the Talus bylaws, special meetings of
meetings of the board of directors may be called the board of directors may be called by the
by: President upon ten days prior notice to each
- the Chairman, director and shall be called by the President or
- the President, or Secretary in like manner on the written request
- the Secretary, if the Secretary receives a of two directors or the holders of at least 25%
written request from two or more of the outstanding Series A preferred stock.
directors.
Notice of the meeting must be mailed at
least two days before the meeting; or,
alternatively, each director may be notified
personally, by telephone or by electronic
transmission one day before the meeting.
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</TABLE>
REMOVAL OF DIRECTORS
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
MANUGISTICS TALUS
----------------------------------------------------------------------------------------------------
<S> <C>
Under the Manugistics bylaws, approval by Under the Talus bylaws, directors may be
67% of the holders of the Manugistics shares removed with or without cause by the holders
entitled to vote at an election of directors is of a majority of the Talus shares entitled to
required to remove a director. Additionally, vote at an election of directors.
Manugistics directors may be removed only for
cause.
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</TABLE>
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<PAGE> 63
VOTING
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
MANUGISTICS TALUS
----------------------------------------------------------------------------------------------------
<S> <C>
Holders of Manugistics common stock are Talus' common stock is divided into two
entitled to one vote per share on all matters as classes, Class A voting common stock and
to which the stockholders of Manugistics are Class B non-voting common stock. Holders of
entitled to vote. Class A common stock are entitled to one vote
per share on all matters as to which the
stockholders of Talus are entitled to vote.
Holders of Class B common stock have no right to
vote such shares, except as otherwise required
under the Delaware General Corporation Law.
Shares of Talus' Series A preferred stock are
convertible into shares of Class B non-voting
common stock, and shares of Talus' Series B
preferred stock and Series C preferred stock are
convertible into shares of Class A voting common
stock and have rights to vote as described in
the Talus Certificate of Incorporation and the
Stockholders Agreement dated August 27, 1999.
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</TABLE>
DIVIDENDS
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
MANUGISTICS TALUS
----------------------------------------------------------------------------------------------------
<S> <C>
Common stockholders are entitled to receive Holders of Talus' common stock, Series B
ratable dividends when, as and if declared by preferred and Series C preferred stock are
the board of directors. If Manugistics had entitled to receive ratable dividends when, as
outstanding shares of preferred stock, the and if declared by the board of directors.
entitlement of the common stockholders to However, the entitlement of the holders of the
receive dividends would be subject to the common, Series B preferred and Series C
preferential dividend rights (if any) of the preferred stock to receive dividends would be
preferred stock. subject to the preferential dividend rights of
the Series A preferred stockholders.
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</TABLE>
AMENDMENTS TO THE CERTIFICATE OF INCORPORATION
<TABLE>
<CAPTION>
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MANUGISTICS TALUS
----------------------------------------------------------------------------------------------------
<S> <C>
Manugistics is incorporated in the state of Talus is incorporated in the state of
Delaware. Under the Delaware General Corporation Delaware. Under the Talus Certificate of
Law, the board of directors must propose an Incorporation, Talus may not adversely alter or
amendment to the certificate of incorporation change the preferences, rights, privileges,
and a majority of all the outstanding shares powers or restrictions of the shares of Talus
entitled to vote on the amendment must approve preferred stock or authorize, create or increase
it. In addition, under the Delaware General the authorized amount of any class or series of
Corporation Law, any amendment or repeal of any shares of stock with rights as to dividends,
provision of the certificate of incorporation redemption and the distribution of assets
adversely altering or changing the preferences, ranking senior to or equal with the shares of
rights, privileges, powers or restrictions of a Talus preferred stock without first obtaining
class or series of capital stock must be the affirmative vote or written consent of not
approved by the majority of each class or series less than two- thirds of the outstanding shares
of capital stock affected, even if such stock of Series A preferred stock or a majority of the
would not otherwise have such voting rights. outstanding shares of Series B or Series C
The Manugistics Certificate of Incorporation preferred stock, as the case may be.
and bylaws do not provide for an affirmative
vote differing from the statutory requirements.
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</TABLE>
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<PAGE> 64
AMENDMENTS TO THE BYLAWS
<TABLE>
<CAPTION>
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MANUGISTICS TALUS
----------------------------------------------------------------------------------------------------
<S> <C>
The Manugistics bylaws may be altered, No difference.
amended or repealed:
- by the board of directors at any annual or
regular meeting of the board of directors,
or at a special meeting of the board of
directors if notice of such alteration,
amendment or repeal is contained in the
notice of such special meeting; or
- by the stockholders at any annual or
regular meeting of the stockholders, or at
a special meeting of the stockholders if
notice of such alteration, amendment or
repeal is contained in the notice of such
special meeting.
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</TABLE>
RESTRICTIONS ON SPECIAL MEETINGS OF THE STOCKHOLDERS
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
MANUGISTICS TALUS
----------------------------------------------------------------------------------------------------
<S> <C>
Under the Manugistics bylaws, special Under the Talus bylaws, special meetings of
meetings of the stockholders may only be called the stockholders may be called by the
by: President and shall be called by the President
- the President, or or Secretary on the written request of two
- a majority of the board of directors. directors or the holders of at least 25% of the
outstanding Series A preferred stock or
stockholders owning a majority of the Talus
common stock.
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</TABLE>
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<PAGE> 65
NOTICE OF BOARD NOMINATIONS AND OTHER BUSINESS
<TABLE>
<CAPTION>
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MANUGISTICS TALUS
----------------------------------------------------------------------------------------------------
<S> <C>
The Manugistics bylaws require that in order The Talus bylaws do not require such notices
for stockholders to nominate persons for by stockholders.
election to the board of directors or to propose
business for consideration at any annual or
special meeting of stockholders, advance written
notice must be given to Manugistics not later
than the following dates:
- with respect to an annual meeting of
stockholders, 60 days in advance of such
meeting if such meeting is to be held on a
day which is within 30 days preceding the
anniversary of the previous year's annual
meeting or 90 days in advance of such
meeting if such meeting is to be held on
or after the anniversary of the previous
year's annual meeting; and
- with respect to any other meeting of
stockholders or a special meeting of
stockholders, the close of business on the
tenth day following the date of public
disclosure of the date of such meeting.
A notice relating to the nomination by a
stockholder of persons for election to the board
of directors must include the following
information:
- the name, age, business address and
residence address of each nominee proposed
in the notice;
- the principal occupation or employment of
each nominee;
- the number of shares of Manugistics common
stock that are beneficially owned by each
nominee;
- any other information concerning the
nominee that must be disclosed of nominees
in proxy solicitations regulated by
regulation 14A of the Securities Exchange
Act of 1934;
- the name and record address of the
stockholder nominating the candidate for
election to the board of directors; and
- The number of shares of Manugistics common
stock that is beneficially owned by such
stockholder.
A notice relating to the proposal of
business by a stockholder for consideration at
any annual or special meeting of stockholders
must include the following information:
- a brief description of the business
desired to be brought before the meeting
and the reasons for conducting the
business at the meeting;
- the name and record address of the
stockholder proposing the business;
- the number of shares of Manugistics common
stock that are beneficially owned by the
stockholder; and
- any material interest of the stockholder
in the business proposed.
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</TABLE>
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<PAGE> 66
TRANSACTIONS WITH INTERESTED STOCKHOLDERS
<TABLE>
<CAPTION>
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MANUGISTICS TALUS
----------------------------------------------------------------------------------------------------
<S> <C>
As a publicly held corporation, Manugistics Talus is not publicly held, and accordingly,
is subject to Section 203 of the Delaware is not subject to Section 203 of the
General Corporation Law. Section 203 of the Delaware General Corporation Law.
Delaware General Corporation Law generally
prohibits certain "business combinations"
between a Delaware corporation and an
"interested stockholder." An "interested
stockholder" is generally defined as a person
who, together with any affiliates or associates
of such person, beneficially owns, or within
three years did own, directly or indirectly, 15%
or more of the outstanding voting shares of a
Delaware corporation. The statute broadly
defines business combinations to include:
- mergers;
- consolidations;
- sales or other dispositions of assets
having an aggregate value in excess of 10%
of the consolidated assets of the
corporation or aggregate market value of
all outstanding stock of the corporation;
and
- certain transactions that would increase
the "interested stockholder's"
proportionate share ownership in the
corporation.
The statute prohibits any such business
combination for a period of three years
commencing on the date the "interested
stockholder" becomes an "interested
stockholder," unless:
- the business combination is approved by
the corporation's board of directors prior
to the date the "interested stockholder"
becomes an "interested stockholder";
- the "interested stockholder" acquired at
least 85% of the voting stock of the
corporation (other than stock held by
directors who are also officers or by
certain employee stock plans) in the
transaction in which it becomes an
"interested stockholder"; or
- if the business combination is approved by
a majority of the board of directors and
by the affirmative vote of at least
two-thirds of the outstanding voting stock
that is not owned by the "interested
stockholder."
The Delaware General Corporation Law
contains provisions enabling a corporation to
avoid Section 203's restrictions if stockholders
holding a majority of the corporation's voting
stock approve an amendment to the corporation's
certificate of incorporation or by-laws to avoid
the restrictions. Manugistics has not and does
not currently intend to "elect out" of the
application of Section 203 of the Delaware
General Corporation Law.
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</TABLE>
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APPRAISAL RIGHTS RELATED TO THE MERGER
THE FOLLOWING SUMMARY OF SECTION 262 OF THE DELAWARE GENERAL CORPORATION
LAW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SECTION 262, THE COMPLETE TEXT
OF WHICH IS ATTACHED HERETO AS APPENDIX "F." THIS SUMMARY CONTAINS ALL OF THE
MATERIAL PROVISIONS OF SECTION 262.
Upon consummation of the merger, holders of record of shares of Talus
capital stock on the record date will be entitled to have the "fair value" of
their shares as of the date of completion of the merger, exclusive of any
element of value arising from the accomplishment or expectation of the merger,
judicially determined and paid to them by complying with the provisions of
Section 262. Holders of record of Talus capital stock who desire to exercise
their appraisal rights must satisfy all of the conditions contained in Section
262.
To exercise rights of appraisal, you must satisfy all of the following
conditions:
- you must be a stockholder of record on the date you demand your appraisal
rights and you must continue to be stockholder of record until the merger
is completed;
- you must have either voted against the merger or abstained from voting on
the merger;
- you must deliver a written demand for appraisal of your shares no more
than 20 calendar days from the date of mailing of this prospectus;
- within 120 days after the completion of the merger, you must file a
petition in the Delaware Court of Chancery for a determination of the
fair value of your stock; and
- if the Delaware Court of Chancery requests, you must send to the court
your stock certificates so that the court can note on each certificate
that a demand for appraisal has been made.
A written demand for appraisal of shares of Talus capital stock must be
delivered to Talus by a Talus stockholder seeking appraisal no more than 20
calendar days from the date of mailing of this prospectus to such stockholder. A
demand for appraisal will be sufficient if it reasonably informs Talus of the
identity of the Talus stockholder and that the Talus stockholder intends to
demand appraisal. If the Talus capital stock is owned of record in a fiduciary
capacity, such as by a trustee, guardian, or custodian, such demand must be
executed by the fiduciary. If the Talus capital stock is owned of record by more
than one person, as in a joint tenancy or tenancy in common, such demand must be
executed by all joint owners. An authorized agent, including an agent for two or
more joint owners, may execute the demand for appraisal for a Talus stockholder
of record; however, the agent must identify the record owner or owners and
expressly disclose the fact that, in exercising the demand, he or she is acting
as agent for the record owner or owners.
A record owner, such as a broker who holds Talus capital stock as a nominee
for others, may exercise his or her right of appraisal with respect to the
shares for all or less than all beneficial owners of shares as to which he or
she is the record owner. In such case, the written demand must set forth the
number of shares covered by such demand. Where the number of shares is not
expressly stated, the demand will be presumed to cover all shares of Talus
capital stock outstanding in the name of such record owner.
A Talus stockholder who elects to exercise appraisal rights should deliver
his or her written demand to Talus at the following address no more than 20
calendar days from the date of mailing of this prospectus:
Talus Solutions, Inc.
Overlook II
2839 Paces Ferry Road
Suite 1000
Atlanta, Georgia 30339-5770
Attention: Michael R. Cote
The demand must specify such Talus stockholder's name and mailing address
and the number of shares of Talus capital stock owned. It is the responsibility
of each Talus stockholder electing to exercise appraisal rights to ensure that
the written demand is received by Talus no more than 20 calendar days from the
date of mailing of this prospectus to such stockholder.
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Within ten days after the effective date of the merger, the surviving
corporation must provide notice as to the effective time of the merger (the
"Effective Time") to all Talus stockholders who have complied with Section
262(d), summarized above.
Within 120 days after the Effective Time, any Talus stockholder who has
complied with the provisions of Sections 262(a) and (d), summarized above, is
entitled, upon written request, to receive from the surviving corporation a
statement setting forth the aggregate number of shares of Talus capital stock
not voted in favor of approval and adoption of the merger and with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. Such statement must be mailed within ten days after the
written request therefor has been received by the surviving corporation or
within ten days after expiration of the time for delivery of demand for
appraisal under Section 262(d), whichever is later.
Within 120 days after the Effective Time, either the surviving corporation
or any holder of Talus capital stock who has complied with the required
conditions of Sections 262(a) and (d) and who is otherwise entitled to appraisal
rights may file a petition in the Court of Chancery of the State of Delaware
demanding a determination of the fair value of the shares of any such Talus
stockholders. If a petition for an appraisal is timely filed, at a hearing on
such petition, the Court will determine which Talus stockholders are entitled to
appraisal rights and will appraise the shares of Talus capital stock owned by
such Talus stockholders, determining the fair value of such shares, exclusive of
any element of value arising from the accomplishment or expectation of the
merger, together with a fair rate of interest, if any, to be paid upon the
amount determined to be the fair value.
Talus stockholders considering seeking appraisal should be aware that the
fair value of their shares determined under Section 262 could be more than, the
same as, or less than the value of the consideration they are to receive under
the merger agreement if they do not seek appraisal of their shares.
The cost of the appraisal proceeding may be determined by the Court of
Chancery and taxed against the parties as the Court of Chancery deems equitable
in the circumstances. Upon application for appraisal rights, the Court of
Chancery may order that all or a portion of the expenses incurred by any
dissenting stockholder in connection with the appraisal proceeding, including
without limitation reasonable attorneys' fees and the fees and expenses of
experts, be charged against the value of shares of Talus capital stock entitled
to appraisal. In the absence of such a determination or assessment, each party
bears its own expenses.
A Talus stockholder who has duly demanded appraisal in compliance with
Section 262 will not, after the Effective Time, have any rights in respect of
shares subject to such demand except for appraisal rights and the right to
receive payment of dividends or other distributions, if any, on such shares
payable to Talus stockholders of record as of a date before the Effective Time
of the merger.
At any time within 60 days after the Effective Time of the merger, a Talus
stockholder shall have the right to withdraw his or her demand for appraisal and
to accept the terms of the merger. After this period, the Talus stockholder may
withdraw his or her demand for appraisal only with the consent of Manugistics.
Any such withdrawal must be made in writing. If no petition for appraisal is
filed with the Court of Chancery within 120 days after the Effective Time, the
Talus stockholder's rights to appraisal shall cease. Because the surviving
corporation has no obligation to file such a petition, a Talus stockholder who
desires such a petition to be filed is advised to file it on a timely basis. A
petition timely filed in the Court of Chancery demanding appraisal may not be
dismissed as to a Talus stockholder without the approval of the Court of
Chancery. Such approval may be conditioned upon such terms as the Court of
Chancery deems just.
Your right to an appraisal of your Talus capital stock will terminate if:
- for any reason the merger is not completed;
- you fail to make a timely written demand on Talus;
- you fail to file a timely petition with the Court of Chancery;
- you do not, upon request of the court, timely surrender certificates for
notation that demand for appraisal has been made;
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- you withdraw your demand in writing within 60 days after the Effective
Time of the merger; or
- you withdraw your demand in writing more than 60 days after the Effective
Time of the merger with Manugistics' written approval.
If your right to an appraisal is terminated, you will receive the same
consideration that you would have received if you had not sought an appraisal of
your shares.
The provisions of Section 262 are technical in nature and complex. Talus
stockholders desiring to exercise their appraisal rights and obtain appraisal of
the fair value of their Talus capital stock should consult counsel, since
failure to comply strictly with the provisions of Section 262 may defeat their
appraisal rights.
If holders of more than 7% of the total amount of outstanding Talus common
stock (assuming conversion of all outstanding shares of Talus preferred stock
into shares of Talus common stock) exercise their appraisal rights, Manugistics
will have the right to terminate the merger agreement.
COMPARATIVE STOCK PRICES AND DIVIDENDS
Manugistics common stock is listed on the Nasdaq National Market under the
symbol "MANU." The table below shows the high and low sales prices per share of
Manugistics common stock and cash dividends declared per share for the periods
indicated. The table below also shows the cash dividends declared per share of
Talus common stock for the periods indicated. The table below does not reflect
the recently announced stock split at Manugistics. See "Recent
Developments -- Two-for-One Stock Split."
<TABLE>
<CAPTION>
MANUGISTICS TALUS
---------------------------- ---------
CASH CASH
HIGH LOW DIVIDENDS DIVIDENDS
------- ------ --------- ---------
<S> <C> <C> <C> <C>
Manugistics Fiscal Year 2001:
First Quarter.......................................... $ 70.25 $25.06 -0- -0-
Second Quarter......................................... 93.31 22.50 -0- -0-
Third Quarter (through November 17, 2000).............. 132.13 61.75 -0- -0-
Manugistics Fiscal Year 2000:
First Quarter.......................................... $ 11.25 $ 5.25 -0- -0-
Second Quarter......................................... 16.00 8.69 -0- -0-
Third Quarter.......................................... 17.88 9.06 -0- -0-
Fourth Quarter......................................... 58.13 17.00 -0- -0-
Manugistics Fiscal Year 1999:
First Quarter.......................................... $ 66.38 $25.25 -0- -0-
Second Quarter......................................... 31.50 14.00 -0- -0-
Third Quarter.......................................... 16.50 6.13 -0- -0-
Fourth Quarter......................................... 17.38 7.50 -0- -0-
</TABLE>
There is no trading market for the Talus Class A voting common stock, Class
B non-voting common stock, Series A preferred stock, Series B preferred stock or
Series C preferred stock. Shares of Series A preferred stock are entitled to
dividends at an annual rate of $0.1944 per share payable quarterly on or before
the end of each fiscal quarter of the company, but only as and when declared by
the Talus board of directors. Shares of Series B preferred stock and Series C
preferred stock share in dividends declared and paid on the common stock on a
pro rata basis, as if the shares had been converted into shares of common stock
pursuant to the Talus Certificate of Incorporation, as amended, immediately
prior to the record date. Accrued dividends on the Series A preferred stock have
not been declared or paid since the issuance of the preferred stock. In the two
most recent fiscal years, no cash dividends for Talus common stock have been
declared. Talus does not anticipate that dividends will be paid on Talus common
or preferred stock in the foreseeable future; however, the annual dividends to
which shares of Series A preferred stock are entitled pursuant to the Talus
Certificate of Incorporation may be paid in cash or additional shares of Class B
non-voting common stock at the option of Talus.
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CAPITALIZATION OF MANUGISTICS
The following table sets forth our capitalization as of August 31, 2000 on
an actual and as adjusted basis to reflect the issuance in October and November
2000 of a total of $250.0 million principal amount of 5% convertible
subordinated notes:
- the actual column sets forth our capitalization as of August 31, 2000,
without any adjustments for subsequent or anticipated events; and
- the as adjusted column gives effect to the receipt of the net proceeds
from the sale by us of $250.0 million principal amount of the notes in a
private placement, after deducting placement discounts and commissions
and offering costs.
The information below should be read in conjunction with our consolidated
financial statements and other financial information included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AS OF AUGUST 31, 2000
-----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash, cash equivalents and marketable securities............ $ 34,849 $ 276,849
========= =========
Long-term debt (mandatorily redeemable) 5% convertible
subordinated notes due 2007(1)............................ -- 250,000
========= =========
Stockholders' equity:
Preferred stock............................................. -- --
Common stock, $0.002 par value, 100,000,000 shares
authorized, 29,533,294 issued, 28,780,784
outstanding(2)(3)......................................... 59 59
Additional paid-in capital.................................. 230,863 230,863
Accumulated deficit......................................... (123,038) (123,038)
Deferred compensation....................................... (10,849) (10,849)
Treasury stock.............................................. (717) (717)
Accumulated other comprehensive income...................... 289 289
--------- ---------
Total stockholders' equity........................ 96,607 96,607
--------- ---------
Total capitalization.............................. $ 96,607 $ 346,607
========= =========
</TABLE>
---------------
(1) The notes are mandatorily redeemable upon a change of control.
(2) Based on the number of shares outstanding as of August 31, 2000. The above
table excludes:
- 1,498,650 shares of common stock issuable on the exercise of options
granted under our stock option plans between September 1, 2000 and
October 31, 2000 with a weighted average exercise price of $81.14;
- 8,109,564 shares of common stock issuable on exercise of options
outstanding as of August 31, 2000 with a weighted average exercise price
of $17.42 per share;
- 2,480,691 shares of common stock reserved for issuance upon exercise of
stock options that may be granted in the future under our various stock
option plans and our employee stock purchase plan;
- the shares of common stock issuable upon conversion of the notes; and
- up to 5,000,000 shares of common stock issuable in connection with the
merger.
(3)On November 8, 2000, the Manugistics' board of directors approved a 2-for-1
stock split of the outstanding shares of Manugistics' common stock. The stock
split will be effective on December 7, 2000. The share amounts have not been
adjusted to give effect to the stock split. See "Recent Developments --
Two-for-One Stock Split" for more information.
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DESCRIPTION OF MANUGISTICS
BUSINESS
We are a leading global provider of supply chain optimization and eBusiness
solutions for enterprises and evolving trading networks. Our solutions include
infrastructure and application software products, solution support, strategic
consulting and implementation services. Our solutions help our clients monitor
and streamline their core internal operational processes involving the design,
purchase, manufacture, storage, transportation, marketing and selling of their
goods and services. Our solutions also help integrate clients' internal
processes with trading partners and provide the collaboration and optimization
required across extended eBusiness trading networks. Our solutions help our
clients improve resource allocation through more effective operational decisions
and improve customer service -- driving costs lower and revenues higher.
Increasing global competition, shortening product life cycles and
developing eBusiness initiatives of new and existing competitors are driving
enterprises to provide greater levels of customer service while shortening their
time-to-market. We were an early innovator in trading partner collaboration,
with our first Internet-ready products commercially available in late 1997. Our
technology initiatives continue to focus on the changing needs of companies in
the markets we serve, as well as the requirements of the new eBusiness economy.
We have developed a web architecture for our Manugistics NetWORKS collaborative
solutions through our proprietary WebWORKS infrastructure and have provided
advanced integration to disparate systems through our WebConnect products.
Through our exchange platform ExchangeWORKS, we are now addressing the new
eBusiness processes enabled by the Internet, such as auctions, dynamic pricing,
procurement, track and trace, and order and pipeline visibility.
We offer solutions to companies in a diverse array of industries including
agriculture, apparel, chemicals, consumer goods, electronics & high technology,
energy, food, government, healthcare, logistics, metals, motor vehicles & parts,
paper, pharmaceuticals and retail. Our customer base of over 900 clients
includes large, multinational enterprises such as 3Com, Coca-Cola Enterprises,
Cisco Systems, Compaq, Fuji Photo Film USA, Harley-Davidson, The Limited, Texas
Instruments and Unilever, as well as medium-sized enterprises and emerging
eBusinesses.
INDUSTRY BACKGROUND
Today's leading companies know that an effective supply chain optimization
strategy will make them more competitive and profitable. In addition, companies
must combine their optimized supply chains with effective eBusiness strategies
to respond to increased global competition, to differentiate themselves and to
grow market share. We combine our traditional supply chain strengths with our
innovative eBusiness solutions to enable effective communication and real-time
collaboration among global trading partners. Once implemented, our solutions can
provide greater access to information, channel visibility and a consolidated
view of client requirements, ultimately delivering optimization across the
extended supply chain.
Clients are utilizing our solutions to share information within their
enterprises and among their trading partners in their supply chain to more
effectively coordinate and make decisions to meet or exceed the rapidly changing
requirements of their customers. Our solutions address the business processes
that enable responsive and intelligent decision-making and are uniquely focused
on managing decisions, events and plans with the flexibility of adapting to
different forms of a trading network. These processes cover the supply chain
needs of enterprises and trading networks. These processes range from design,
buy and make to the additional processes of move, store, market and sell. In
addition, our solutions allow companies to utilize the Internet, as a business
collaboration medium to collaborate, monitor, measure and improve their business
processes over time.
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STRATEGY
Our objective is to continue to be a leading global provider of supply
chain optimization and eBusiness solutions for enterprises and trading networks,
while achieving and maintaining profitability. Our strategy to achieve these
objectives includes the following elements:
EXPAND OUR SUPPLY CHAIN AND EBUSINESS OFFERINGS -- We believe that we have
significant experience and domain expertise, enhanced through our relationships
with clients, industry experts and third-party alliances, in developing and
providing intelligent supply chain and eBusiness solutions. We intend to
leverage our experience and domain expertise by continuing to extend the
capabilities and scope of our solutions to solve a broader range of problems and
improve processes within and among companies in trading networks.
PROVIDE ADVANCED TECHNOLOGICAL INNOVATION -- We develop and offer to our
clients leading technological software solutions. We do this through in-depth
expertise among our personnel and through our commitment to our research and
development initiatives. In addition, we will consider tactical and strategic
acquisitions with other companies to speed our time to market or to further
differentiate ourselves. We utilize tactical acquisitions to enhance or fill out
our existing offerings. We utilize strategic acquisitions to extend beyond our
existing offerings and to differentiate ourselves through new offerings. See
"-- Product Development."
PROVIDE A STANDARD MARKETPLACE PLATFORM BASED ON BEST-OF-BREED
PARTNERSHIPS -- We prefer to focus our resources on the development and
enhancement of our core competencies and to utilize the competencies of third
parties with best-of-breed capabilities in areas complementary to our core
areas. This permits us to offer our clients leading and complete solutions that
can better meet all their needs.
ENABLE AND OPTIMIZE INTELLIGENT TRADING NETWORKS -- Although the market
for eBusiness solutions is new, we believe that it is growing rapidly, will
become large and is a significant opportunity. We intend to take advantage of
this opportunity and continue expanding our role as a leading provider of
eBusiness solutions that enable and optimize intelligent trading networks.
EXPAND CURRENT AND EXPLORE NEW VERTICAL MARKETS -- We continue to expand
our presence and focus on vertical markets in sectors such as agriculture,
consumer durables, consumer packaged goods, electronics & high technology,
government, pharmaceutical, motor vehicles & parts, retail and services.
Additionally, we are examining opportunities outside of our current market
segments as we drive growth and expand penetration of our supply chain
optimization and eBusiness solutions.
DEVELOP STRATEGIC ALLIANCES AND NEW BUSINESS RELATIONSHIPS -- We continue
to expand and enhance our current solutions and solution implementation
capabilities through alliances with technology providers and consulting firms.
We believe that, together with our complementary technology and consulting
providers, we will continue to provide clients with a broad range of supply
chain and eBusiness solutions and expertise to assist businesses in implementing
supply chain optimization and eBusiness solutions to solve their business
problems.
PRODUCTS AND EBUSINESS SOLUTIONS
Manugistics' solutions footprint includes four distinctive components:
Manugistics NetWORKS intelligent engines, Manugistics NetWORKS collaborative
services, Manugistics WebConnect integration platform and Manugistics
ExchangeWORKS exchange platform. All of our solutions are powered by our
underlying WebWORKS architecture.
Manugistics NetWORKS family of products and solutions are designed to
collaborate, optimize, measure and analyze across each of the key supply chain
business process areas -- design, buy, make, store, move, market and sell.
Manugistics NetWORKS include the core optimization technologies and
algorithmic expertise that we have accumulated by many years of developing
supply chain solutions. The intelligent engines included in Manugistics NetWORKS
are designed to facilitate strategic, tactical and operational decision-making.
Strategic decisions typically consider a time-frame of quarters to years.
Tactical decisions typically consider a
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time-frame of weeks to months. Operational decisions typically consider a
time-frame of minutes to days. Detailed descriptions of the NetWORKS intelligent
engines follow:
NETWORKS COMMIT(TM) -- NetWORKS Commit(TM) helps drive accurate, reliable,
real-time promises of, and commitments for, delivery of products by
simultaneously performing availability checks of inventory, production,
materials, manufacturing scheduling, distribution and transportation and then
immediately allocating appropriate resources.
NETWORKS DEMAND(TM) -- NetWORKS Demand(TM) is designed to predict and
forecast future customer demand with a high degree of accuracy, alerting a
company to potential supply problems and finding patterns undetected by
traditional forecasting solutions.
NETWORKS FULFILLMENT(TM) -- NetWORKS Fulfillment(TM) is designed to
orchestrate the time-phased storage and flow of supply to match demand, giving
companies the end-to-end visibility to minimize inventory and reduce logistics
costs while maximizing customer service.
NETWORKS MASTER PLANNING(TM) -- NetWORKS Master Planning(TM) optimizes the
use of constrained resources to improve customer service levels and increase
profit margins by simultaneously optimizing across factors such as resource
capacity, availability of raw materials, inflow and outflow (throughput) for
facilities, transportation and availability of components and labor.
NETWORKS SCHEDULING(TM) -- NetWORKS Scheduling(TM) helps enable single and
multi-site planning, detailed scheduling, production sequencing, and real-time
communication with the plant floor.
NETWORKS SOURCING(TM) -- NetWORKS Sourcing(TM) helps further reduce
expenditures by expanding beyond simple, catalog-based procurement models to
complex procurement of direct materials. This solution streamlines procurement
of direct materials using integrated, strategic sourcing while leveraging the
Internet to provide the collaboration tools required for effective eBusiness.
NETWORKS STRATEGY(TM) -- NetWORKS Strategy(TM) enables enterprises and
extended trading networks to more efficiently design optimal supply chain
networks. By modeling end-to-end trading partner relationships, this product
helps optimize the most profitable supply chain strategy, including choice of
trading partners, optimal inventory levels, optimal lane volumes and appropriate
seasonal pre-builds and product mix, as well as determine optimal production,
storage and distribution locations.
NETWORKS SUPPLY(TM) -- NetWORKS Supply(TM) provides the tactical level
functionality in supply planning to help facilitate effective management of
material flow between trading partners on complex bills of material, while
simultaneously employing intelligent substitution and configuration of
constrained materials.
NETWORKS TRANSPORT(TM) -- NetWORKS Transport(TM) is designed to
simultaneously optimize transportation plans and execute all inbound, outbound
and intercompany transportation moves, including freight payment, tracking and
reporting. With a competitive advantage in multi-point to multi-point
transportation planning, this solution helps drive optimized transportation
plans to be shared with carriers and manufacturers via the Internet.
NETWORKS VMI(TM) -- NetWORKS VMI(TM) (Vendor Managed Inventory) gives
clients visibility into demand at the trading partner level -- often where the
consumer or purchaser is found -- to improve the flow of products, eliminate
inefficiencies, and lower costs. NetWORKS VMI creates a consumption-based demand
forecast, compares forecast to inventory on-hand and in-transit, develops
requirements at the customer sites, and recommends shipments.
STATGRAPHICS(TM) -- STATGRAPHICS(TM) contains a comprehensive set of
statistical tools to control, manage and improve the quality of production
processes in manufacturing companies.
STATGRAPHICS utilizes statistical quality control and a design of experiments to
implement quality management in individual locations throughout an enterprise or
manufacturing plant.
Our collaborative solutions provide collaboration and communication that
extend the intelligent engines into new business processes that are created in
concert with trading partners. These proven products enable businesses to expand
their supply chains into true eBusiness trading networks.
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NETWORKS COLLABORATE(TM) -- NetWORKS Collaborate(TM) is a comprehensive
solution that enables clients to collaboratively plan, monitor and measure
clients trading relationships. NetWORKS Collaborate is a business-to-business,
eCommerce solution that ensures the creation and maintenance of joint business
plans, monitors the execution of those plans, and measures their success.
NETWORKS MONITOR(TM) -- NetWORKS Monitor(TM) allows clients to monitor and
manage their pre-defined critical planning and event information and provides
robust alerting technology to all appropriate trading partners. NetWORKS Monitor
provides a web-based portal for all exception information across the entire
trading networks, enables role-based security for interaction with that data and
provides recommended and auto-resolution paths for repairing those exceptions.
NETWORKS ONEVIEW(TM) -- NetWORKS OneVIEW(TM) is based on industry-standard
OLAP technology that enables operational monitoring, performance measurement,
business process design, and network policy setting. Its multi-dimensional
analyses increases the speed, accuracy, and efficiency of knowledge discovery
and proactive decision-making. NetWORKS OneVIEW extends client decision support
by providing business process-specific analyses based on data sourced from other
Manugistics applications, ERP systems, financial systems, customer relationship
management systems, and POS data providers.
NETWORKS PROCUREMENT(TM) -- NetWORKS Procurement(TM) utilizes real-time
supplier connectivity to enable clients to share forecast projections and
materials requirements with suppliers, to request updates to outstanding orders,
and to request and auto-select supplier bids based upon pre-defined business
rules.
NETWORKS VISIBILITY(TM) -- NetWORKS Visibility(TM) provides real-time and
historical views of mission-critical pipeline and order status information from
one central web-based portal. Using role-based security, trading partners can
view orders and actions that pertain to their responsibilities within the
trading network.
WEBCONNECT INTEGRATION PLATFORM -- Our WebConnect integration platform
utilizes leading edge enterprise application integration, or EAI, technology.
WebConnect provides pre-built connectors to common enterprise systems such as
SAP AG, J.D. Edwards & Company and Oracle Corporation and automated data
transformation and mapping between these systems and ours. Through these
pre-built connectors, WebConnect provides seamless integration between our
solutions and the many disparate systems that are often resident within an
enterprise. In addition, WebConnect provides robust business process
coordination and messaging for integration to external trading partners and
heterogeneous trading network environments. The integration visualization tools
allow integrations to be easily updated and maintained by users.
EXCHANGEWORKS(TM) EXCHANGE PLATFORM -- ExchangeWORKS(TM) is an advanced,
configurable exchange platform for integrated supply chains and eBusiness
trading networks. ExchangeWORKS helps facilitate sustainable, real-time trading
environments and addresses key eBusiness requirements to drive critical
collaboration activities with trading partners. Since it is designed to enable
recurring trade between many buyers and sellers, ExchangeWORKS helps clients
develop and benefit from complex, online business relationships. ExchangeWORKS
supports a variety of transaction capabilities, such as auctions, negotiated
eCommerce, dynamic pricing, procurement, track and trace, and order and pipeline
visibility. In addition, it provides the underlying foundation for these
transactions with capabilities such as content aggregation, profile management
and personalization, information repository, real-time alerts, integration for
financial clearinghouse functions, and many-to-many data and functional
security. ExchangeWORKS' open architecture enables a modular, end-to-end
eBusiness platform that can be configured to fit each client's existing
technology infrastructure and integrate with other technology providers.
All of our solutions and products work within the bstreamz(TM) operating
environment:
BSTREAMZ(TM) -- bstreamz is an innovative eBusiness solution that enables
synchronized intelligence, transforming supply chains and Internet exchanges
into intelligent eBusiness trading networks. Comprised of a configurable
combination of intelligent engines, architecture, knowledge base, eBusiness
processes, and services, bstreamz solutions create an optimal environment for
intelligent decision-making within market-specific trading networks.
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GLOBAL CONSULTING SERVICES
A key element of our business strategy is to provide clients with
comprehensive solutions for their enterprise and trading network supply chain
and eBusiness optimization problems. By combining our products with professional
services we deliver an end-to-end solution that helps enable clients to derive
the maximum benefit from our solutions. In order to achieve the benefits of our
solutions for eBusiness trading networks, clients will typically make many
changes to their processes and overall operations, including their planning
functions, while implementing our solutions. To assist clients in making these
changes, we offer a wide range of solution-related services, including supply
chain and eBusiness development consulting to maximize competitive advantage,
business operations consulting, change management consulting, and end-user and
system administrator education and training. These services help clients
re-engineer their operations to take advantage of our solutions and effective
supply chain optimization in eBusiness.
These solution-related services are generally provided separately from our
software products in our software license agreements and are provided on a time
and materials basis. Our solution-related services group consisted of 227
employees as of August 31, 2000.
CLIENT SUPPORT
Another element of our comprehensive solutions is providing on-going
support to existing clients. Substantially all of our clients enter into annual
solution support agreements entitling them to receive solution support,
including access to a hotline and an electronic bulletin board and to receive
product revisions and enhancements. Our client support function also collects
information to assist in focusing future product development efforts and in
identifying market demand. As of August 31, 2000, our client support group
consisted of 60 employees.
PRODUCT DEVELOPMENT
Our product development efforts are directed toward the development of new
complementary products, the enhancement of the capabilities of existing
products, expansion of eBusiness capabilities, enhancements for use in foreign
countries and the development of products tailored to the specific requirements
of particular industries and foreign language translations. To date, most of our
products, including product documentation, have been developed by our internal
staff and occasionally supplemented by acquisitions and complementary business
relationships.
In developing new products or enhancements, we work closely with current
and prospective clients, as well as with other industry leaders, to address
client needs and requirements. We believe that these collaborative efforts will
lead to improved software functionality and will result in superior products and
solutions likely to have greater market demand. We maintain committees of users
and developers for our products which, among other things, define and rank
issues associated with products and discuss product enhancement priorities and
directions.
We conduct a Product Launch Program for new applications and major
enhancements, which allows clients to review design specifications and
prototypes and participate in product testing. We have also established channels
for client feedback, which include periodic surveys and focus groups. In
addition, our product development staff works closely with our marketing, sales,
support and services groups to develop products that meet the needs of our
current and prospective clients. As of August 31, 2000, our product development
staff consisted of 256 employees.
Since our inception, we have made substantial investments in product
development. We believe that getting products to market quickly, without
compromising quality, is critical to the success of these products. We continue
to make the product development expenditures that we believe are necessary for
us to rapidly deliver new product features and functions.
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SALES AND MARKETING
Our sales operation for North and South America is headquartered at our
offices in Rockville, Maryland and includes field sales personnel in the
Atlanta, Philadelphia, Hartford, Charlotte, Chicago, Columbus, Dallas, Denver,
Detroit, Los Altos, Los Angeles, Ottawa, San Francisco, Sao Paulo (Brazil) and
Toronto metropolitan areas. Our direct sales organization focuses on licensing
supply chain optimization and eBusiness solutions to large, multi-national
enterprises, as well as mid-sized enterprises with a variety of supply chain and
eBusiness issues.
We market our solutions in regions outside of North and South America,
primarily through subsidiaries. Our British, German, French, Belgian and Dutch
subsidiaries, located in Bracknell, England; Ratingen, Germany; Paris, France;
Brussels, Belgium; and Utrecht, The Netherlands, respectively, provide direct
sales, services and support primarily to clients located in continental Europe
and the United Kingdom. We established a subsidiary in Tokyo, Japan to license
and support our solutions in Japan. We also have a subsidiary in Australia for
sales and support to clients in the Pacific Rim, including Taiwan. We adapt our
solutions for use in international markets by addressing different languages,
different standards of weights and measures and other operational
considerations. We also license our STATGRAPHICS product in the U.S. and in
other countries through independent distributors, national resellers and local
dealers. In fiscal 2000, approximately 36% of our total licensing and services
revenues were attributable to sales outside the Americas.
We also use indirect sales channels to market our solutions, complementary
software vendors, third-party alliances and distributorships. See
"-- Alliances." Using these channels, we seek to increase the market penetration
of our solutions via joint marketing and sales activities. These relationships
enhance our sales resources in target markets and expand our expertise to bring
optimum supply chain and eBusiness solutions to prospects and clients.
We support our sales activities by conducting a variety of marketing
programs, including an annual industry supply chain and eBusiness event, client
"steering committees," and appearances at industry conferences such as those
organized by the American Production and Inventory Control Specialists (APICS)
organization, Supply Chain World, Retail Systems and Auto-Tech. We also
participate in solution demonstration seminars and client conferences hosted by
complementary software vendors. In addition, we conduct lead-generation programs
including advertising, direct mail, public relations, seminars, telemarketing
and ongoing client communication programs.
As of August 31, 2000, we had 129 employees engaged in sales activities, 43
employees engaged in marketing activities and 135 employees engaged in business
development consulting activities.
ALLIANCES
We have established business alliances with leading software companies,
consulting firms, resellers and other complementary vendors. We have entered
into agreements with a number of other prominent software companies such as BEA
Systems, Inc., ClearCross Inc., Extricity, Inc., Metiom, Inc., Moai
Technologies, Inc., Siebel Systems, Inc., Vastera, Inc. and Vignette
Corporation. In support of these joint efforts, our WebConnect framework will
continue to be enhanced to integrate our solutions with the software
applications of the companies mentioned above and other ERP, warehouse
management systems, manufacturing execution systems, customer relationship
management, configuration and other related application vendors.
We continue to develop relationships with leading consulting firms in order
to complement our own marketing efforts. We also have formal relationships with
many national and major regional consulting firms including Andersen Consulting,
Ernst & Young, IBM Consulting and others. In addition to formal programs, we
cooperate with other professional services firms informally on a
client-by-client basis.
CLIENTS
Our supply chain products have been licensed by organizations in process
manufacturing industries, such as consumer packaged goods, food & beverage,
chemicals, paper and pharmaceuticals industries and by clients in discrete and
high-volume repetitive industries, including the apparel, consumer durables,
electronics & high technology and motor vehicles & parts industries. We have
licensed various combinations of our software products to clients worldwide.
Here is a sample of some of our clients who have either licensed software
products from us or our distributors, purchased solution support, consulting or
other services or both during fiscal 2000. See "-- Sales and Marketing."
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<PAGE> 77
CONSUMER PACKAGED GOODS
Conopco
Eveready Battery
Revlon
Sweetheart Holdings
Unilever Home & Personal Care, USA
FOOD & BEVERAGE
Coca-Cola Bottling Co. Consolidated
Food Lion
Great Atlantic & Pacific Tea Company
Nabisco, Inc.
Ocean Spray
Safeway
Starbucks Corporation
RETAIL DRUG/MASS MERCHANDISE/SPECIALTY RETAIL
Canadian Tire Corp., Ltd.
Kmart
Rite Aid
Staples
Spalding Sports
Target (Dayton Hudson Corporation)
Toys R Us
APPAREL
The Limited, Inc
MOTOR VEHICLES & PARTS
Deere & Co.
Harley-Davidson, Inc.
Tenneco
CHEMICALS, PETROCHEMICALS AND PROCESS
BASF
BP Amoco plc
Fuji Photo Film, USA
ELECTRONICS & HIGH TECHNOLOGY
3Com Corporation
Analog Devices
Cisco Systems, Inc.
Compaq Computer Corporation
Hewlett Packard
IBM
Lexmark
Philips Lighting B.V.
Texas Instruments Incorporated
VEBA Electronics Company, LLC
TRADING NETWORKS
Commerx
EConnections
FreightWise, Inc
We generally provide our software products to clients under non-exclusive,
non-transferable license agreements. To protect our intellectual property rights
we do not sell or transfer title of our products to our clients. Under our
current standard license agreement, licensed software may be used solely for the
client's internal operations. We are expanding our products and services to
provide solutions to emerging e-commerce markets including engaging in joint
development efforts and providing non-exclusive software licenses to enable
trading exchanges.
COMPETITION
The market for supply chain optimization and eBusiness solutions is highly
competitive. Other application software vendors, including companies targeting
mainframe or mid-range clients and certain professional services organizations,
including such vendors as Adexa, Aspen Technology, The Descartes Systems Group,
Inc., i2 Technologies, Logility and SynQuest offer products that are directly
competitive with some of the software applications marketed by us. In addition,
certain ERP vendors, most of which are substantially larger than we are, have
acquired or developed supply chain planning software companies, products or
functionality or have announced intentions to develop and sell supply chain
planning solutions, including such vendors as Invensys plc (which acquired Baan
Company N.V.), J.D. Edwards & Company, Oracle Corporation, PeopleSoft, Inc. and
SAP AG.
The principal competitive factors in the supply chain optimization and
eBusiness solutions markets served by us include product functionality and
quality, domain expertise, product suite integration, ease of use, customer
service and satisfaction, the ability to provide client references, product
support, product-related services, compliance with industry standards and
requirements, the ability of the solution to generate business benefits, vendor
reputation and, in international markets, availability in foreign languages. We
believe that our principal competitive advantages are our comprehensive,
integrated solutions, our significant list of referenceable clients, our
substantial investment in product development, the strength of our solutions to
generate business benefits, the speed at which our solutions generate returns or
are implemented, our strong client support services and our extensive knowledge
of supply chain optimization and eBusiness solutions.
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<PAGE> 78
LICENSE AGREEMENTS AND PRICING
License fees consist principally of fees generated from licenses of our
software products. In consideration of the payment of license fees, we generally
grant nonexclusive, nontransferable, perpetual licenses which are primarily
business unit and user specific. License fee arrangements vary depending upon
the type of software product being licensed and the computer environment.
License fees are based primarily on which products are licensed, the complexity
of the client's problem and on the number of users and locations. Licensing
dollar amounts for supply chain optimization solutions may be tens of millions
of dollars for a large scope of supply chain and eBusiness initiatives.
Clients may obtain solution support for an annual fee, depending on the
level of support and the size of the license fee. The solution support fee is
generally billed annually and is subject to changes in solution support list
prices. We also provide pre-installation assistance, systems administration,
training and other product-related services, generally on a time and materials
basis. This allows our clients to determine the level of support or services
appropriate for their needs.
PROPRIETARY RIGHTS AND LICENSES
We regard our software as proprietary and rely on a combination of trade
secret, copyright and trademark laws, license agreements, confidentiality
agreements with our employees and nondisclosure and other contractual
requirements imposed on our clients, consulting partners and others to protect
proprietary rights in our products. We distribute our supply chain optimization
and eBusiness software under software license agreements, which typically grant
clients nonexclusive, nontransferable licenses to our products and have
perpetual terms unless terminated for breach. Under these types of license
agreements, we retain all rights to market our products.
Use of the licensed software is usually restricted to clients' internal
operations and to designated users. In sales to virtual service providers, the
licensed software is restricted to clients' internal operations of designated
users and the processing of defined customer's client data. Use is subject to
terms and conditions prohibiting unauthorized reproduction or transfer of the
software. We also seek to protect the source code of our software as a trade
secret and as an unpublished, copyrighted work.
EMPLOYEES
As of August 31, 2000, we had 982 full-time regular employees. None of our
employees are represented by a labor union. We have experienced no work
stoppages and believe that our employee relations are generally good.
MANAGEMENT AND ADDITIONAL INFORMATION
Information relating to executive compensation, various benefit plans,
voting securities and the principal holders of voting securities, relationships
and related transactions and other related matters as to Manugistics is
incorporated by reference or set forth in Manugistics' Annual Report on Form
10-K for the year ended February 29, 2000, which is incorporated into this
prospectus by reference. Stockholders desiring copies of such documents may
contact Manugistics at its address or phone number indicated under "Where You
Can Find More Information" on page 90.
DESCRIPTION OF TALUS
BUSINESS
Talus is a leading provider of pricing and revenue optimization products
and services. The software solutions of Talus enable companies to maximize
revenues and profits by determining optimal prices for their goods and services.
These solutions utilize Talus proprietary optimization technology, which is
particularly suited for highly complex, dynamic pricing environments.
Talus has generated substantially all of its historical revenue from
software developed specifically for the travel, transportation and hospitality
("TTH") industries, including airlines, hotels, rental cars, cruise lines, air
and ground cargo transportation and gaming. During 1998, Talus embarked on a
product development initiative to introduce pricing optimization products into
the marketplace to complement its revenue
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<PAGE> 79
management offerings typically sold to the TTH industries. Talus has developed
four new pricing products, which were introduced during 1999 and 2000:
- Dynamic Pricing -- Recommends the optimal transaction prices for products
or services sold to different customers through different channels.
- Target Pricing -- Calculates the optimal discount from list price to
maximize the probability of winning a bid in a competitive environment,
while optimizing profitability.
- Promotion Pricing -- Determines the right amount and type of promotional
spending and discounts to maximize revenue and profitability.
- Lease-Rent Optimizer -- Recommends the optimal rental rate for the
multi-family housing industry (e.g., apartments) to maximize rental
income and occupancy rates.
Talus' products and solutions focus on helping customers expand revenue
growth and ultimately increasing profits. Each product performs the following
fundamental tasks:
- segments the customer market;
- forecasts demand;
- optimizes price; and
- dynamically recalibrates customer response and price optimization.
Each of these tasks is based on sophisticated statistical analysis of sales
transaction data and forecasting algorithms that predict customer behavior at
the micro-market level, and ultimately lead to a recommendation on price
calculated to optimize overall company profitability. Talus believes that its
solutions address the pricing decision support needed in all businesses. Talus'
product development initiatives and enhancements of existing products will
continue to focus on the changing needs of its customers and on evolving market
conditions. Ford Motor Company, UPS and Tickets.com are examples of clients that
have purchased these new solutions.
Talus is a privately owned company and is incorporated in the State of
Delaware. Talus was formed on November 18, 1997, in connection with the merger
of Decision Focus Incorporated and Aeronomics Incorporated into Talus, a newly
formed corporation. As of October 15, 2000, Talus had approximately 300
employees. For the year ended December 31, 1999, Talus earned revenue of
approximately $37.9 million and had a net loss of approximately $19.2 million,
and for the nine months ended September 30, 2000, Talus earned revenue of
approximately $31.9 million and had a net loss of approximately $7.4 million. In
addition to its principal executive offices located in Atlanta, Georgia, Talus
maintains offices in London, England, Vancouver, Canada, and Silicon Valley,
California. Its web site is located at www.talussolutions.com. Information
contained on its web site does not constitute a part of this prospectus.
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of September 15, 2000, information
regarding the beneficial ownership by (1) persons known by Talus to own 5% or
more of any class of voting capital stock of Talus, (2) directors of Talus, (3)
named executive officers of Talus, and (4) executive officers and directors of
Talus as a group.
<TABLE>
<CAPTION>
CLASS A CLASS B SERIES A SERIES B
VOTING NON-VOTING NON-VOTING VOTING
COMMON STOCK COMMON STOCK PREFERRED STOCK PREFERRED STOCK
----------------------------- ----------------- ------------------- ---------------------
NAME OF PRINCIPAL PERCENT PERCENT PERCENT PERCENT
STOCKHOLDER(1,2) AMOUNT OF CLASS AMOUNT OF CLASS AMOUNT OF CLASS AMOUNT OF CLASS
----------------- --------- -------- ------ -------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert G. Cross........... 4,226,832(3) 28.8% -- -- -- -- -- --
John W. Alden............. 25,000(4) * -- -- -- -- -- --
J. Michael Cline.......... 25,000(6),(7),(8) * -- -- -- -- -- --
Thomas M. Cook............ 25,000(4) * -- -- -- -- -- --
Esther Dyson.............. 25,000(4) * -- -- -- -- -- --
Mark F. Dzialga........... 453,817(6) 3.1% -- -- -- -- 3,859,348(7) 81.8%
Charles A. Johnson........ 25,109(9) * -- -- 831,635(10) 100.0% -- --
Thomas Tinsley............ 25,000(5) * -- -- -- -- -- --
Thomas R. Madison, Jr..... 2,870,000(11) 16.4% -- -- -- -- -- --
Lawrence W. Hall.......... 51,471 * 47,869 12.0% -- -- -- --
Peter Janico.............. -- * -- -- -- -- -- --
Jeff Collins.............. 71,875(12) * -- -- -- -- -- --
Dean W. Boyd.............. 364,020(13) 2.5% 105 * -- -- -- --
Robert L. Phillips........ 459,125(14) 3.1% 105 * -- -- -- --
James L. Edwards.......... 1 * 7,509 1.9% -- -- -- --
<CAPTION>
SERIES C
VOTING
PREFERRED STOCK PERCENT OF
---------------------- COMMON
NAME OF PRINCIPAL PERCENT STOCK IF
STOCKHOLDER(1,2) AMOUNT OF CLASS CONVERTED
----------------- ---------- -------- ----------
<S> <C> <C> <C>
Robert G. Cross........... -- -- 9.0%
John W. Alden............. -- -- *
J. Michael Cline.......... -- -- *
Thomas M. Cook............ -- -- *
Esther Dyson.............. -- -- *
Mark F. Dzialga........... 14,185,878(8) 82.0% 55.0%
Charles A. Johnson........ -- -- 2.1%
Thomas Tinsley............ -- -- *
Thomas R. Madison, Jr..... -- -- 5.7%
Lawrence W. Hall.......... -- -- *
Peter Janico.............. -- -- *
Jeff Collins.............. -- -- *
Dean W. Boyd.............. -- -- *
Robert L. Phillips........ -- -- 1.0%
James L. Edwards.......... -- -- *
</TABLE>
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<PAGE> 80
<TABLE>
<CAPTION>
CLASS A CLASS B SERIES A SERIES B
VOTING NON-VOTING NON-VOTING VOTING
COMMON STOCK COMMON STOCK PREFERRED STOCK PREFERRED STOCK
----------------------------- ----------------- ------------------- ---------------------
NAME OF PRINCIPAL PERCENT PERCENT PERCENT PERCENT
STOCKHOLDER(1,2) AMOUNT OF CLASS AMOUNT OF CLASS AMOUNT OF CLASS AMOUNT OF CLASS
----------------- --------- -------- ------ -------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Paul S. Swope, Jr......... 828,820(15) 5.7% 37,544 9.4% -- -- -- --
Patricia B. Cross......... 4,226,832(3) 28.8% -- -- -- -- -- --
Graham E. Young........... 878,879(16) 6.0% 14,079 3.5% -- -- -- --
Partnerships Associated
with General Atlantic
Partners, LLC............ 428,817(17) 2.9% -- -- -- -- 3,859,348(18) 81.8%
Funds Associated with The
Goldman Sachs Group,
Inc...................... 95,292(20) * -- -- -- -- 857,633(21) 18.2%
All Executive Officers and
Directors as a Group..... 8,831,668 48.0% 105 * 831,635 100.0% 3,859,348 81.8%
<CAPTION>
SERIES C
VOTING
PREFERRED STOCK PERCENT OF
---------------------- COMMON
NAME OF PRINCIPAL PERCENT STOCK IF
STOCKHOLDER(1,2) AMOUNT OF CLASS CONVERTED
----------------- ---------- -------- ----------
<S> <C> <C> <C>
Paul S. Swope, Jr......... -- -- 1.8%
Patricia B. Cross......... -- -- 9.0%
Graham E. Young........... -- -- 1.9%
Partnerships Associated
with General Atlantic
Partners, LLC............ 14,185,878(19) 82.0% 55.0%
Funds Associated with The
Goldman Sachs Group,
Inc...................... 3,113,973(22) 18.0% 12.1%
All Executive Officers and
Directors as a Group..... 14,185,878 82.0% 69.4%
</TABLE>
---------------
* Indicates a value of less than 1.0%.
(1) A person is deemed to be the beneficial owner of voting securities that can
be acquired by such person within 60 days from September 15, 2000 upon the
exercise of options, warrants or convertible securities. The common stock
amounts assume the conversion of the Talus Series A preferred stock into
shares of Class B non-voting common stock and the conversion of Series B
preferred stock and Series C preferred stock into shares of Class A voting
common stock. The common stock amount also includes options and warrants,
currently exercisable or exercisable within 60 days, to the extent
indicated in the notes below. The common stock amount also includes
currently unvested options that will become vested upon consummation of the
merger to the extent indicated in the notes below.
(2) Each beneficial owner's percentage ownership is determined by assuming that
convertible securities, options or warrants held by such person (but not
those held by any other person) and which are exercisable within 60 days
from the date of this document have been exercised. Except as otherwise
indicated below, the address for each stockholder is c/o Talus Solutions,
Inc., Overlook II, 2839 Paces Ferry Road, SE, Suite 1000, Atlanta, Georgia
30339-5770.
(3) The Class A common stock amount includes 2,484,103 shares of Class A common
stock owned by Mr. Cross and 1,742,729 shares of Class A common stock owned
by his spouse, Patricia B. Cross. Each of Mr. Cross and Mrs. Cross
disclaims the beneficial ownership of the shares of Class A common stock
owned by his or her spouse.
(4) The Class A common stock amount includes an unexercised option to purchase
25,000 shares of Class A common stock granted on May 10, 2000. All 25,000
shares are currently unvested but will become fully vested upon
consummation of the merger.
(5) The Class A common stock amount includes an unexercised option to purchase
25,000 shares of Class A common stock granted on August 8, 2000. All 25,000
shares are currently unvested but will become fully vested upon
consummation of the merger. Mr. Tinsley is a special advisor to General
Atlantic Partners, LLC.
(6) The Class A common stock amount includes an unexercised option held by each
of Mr. Dzialga and Mr. Cline to purchase 25,000 shares of Class A common
stock granted on August 8, 2000. All 25,000 shares are currently unvested
but will become fully vested upon consummation of the merger. The Class A
common stock amount also includes 347,064 shares of Class A common stock
owned by General Atlantic Partners 49, L.P. and 81,753 shares owned by GAP
Coinvestment Partners, L.P. Mr. Dzialga is a managing member and Mr. Cline
is a non-managing member of General Atlantic Partners, LLC, the general
partner of General Atlantic Partners 49, L.P. Mr. Dzialga is also a general
partner and Mr. Cline is a limited partner of GAP Coinvestment Partners,
L.P. Mr. Dzialga and Mr. Cline each disclaim the beneficial ownership of
the shares of Class A common stock owned by General Atlantic Partners 49,
L.P. and GAP Coinvestment Partners, L.P., except to the extent of his
pecuniary interest therein. For the pecuniary interest of Mr. Cline in
shares of Talus capital stock, see "The Merger -- Interests of Talus
Directors and Officers in the Merger -- Common Director of Manugistics and
Talus."
(7) The Series B preferred stock amount includes 3,123,575 shares of Series B
preferred stock owned by General Atlantic Partners 49, L.P. and 735,773
shares of Series B preferred stock owned by GAP Coinvestment Partners, L.P.
Mr. Dzialga is a managing member and Mr. Cline is a non-managing member of
General Atlantic Partners, LLC, the general partner of General Atlantic
Partners 49, L.P. Mr. Dzialga is also a general partner and Mr. Cline is a
limited partner of GAP Coinvestment Partners, L.P. Mr. Dzialga and Mr.
Cline each disclaim the beneficial ownership of the shares of Series B
preferred stock owned by General Atlantic Partners 49, L.P. and GAP
Coinvestment Partners, L.P., except to the extent of his pecuniary interest
therein. For the pecuniary interest of Mr. Cline in shares of Talus capital
stock, see "The Merger -- Interests of Talus Directors and Officers in the
Merger -- Common Director of Manugistics and Talus."
(8) The Series C preferred stock amount includes 11,792,701 shares of Series C
preferred stock owned by General Atlantic Partners 57, L.P. and 2,393,177
shares of Series C preferred stock owned by GAP Coinvestment Partners II,
L.P. Mr. Dzialga is a managing member and Mr. Cline is a non-managing
member of General Atlantic Partners,
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<PAGE> 81
LLC, the general partner and Mr. Cline is a limited partner of General
Atlantic Partners 57, L.P. Mr. Dzialga is also a general partner and Mr.
Cline is a limited partner of GAP Coinvestment Partners II, L.P. Mr.
Dzialga and Mr. Cline each disclaim the beneficial ownership of the shares
of Series C preferred stock owned by General Atlantic Partners 57, L.P. and
GAP Coinvestment Partners II, L.P., except to the extent of his pecuniary
interest therein. For the pecuniary interest of Mr. Cline in shares of
Talus capital stock, see "The Merger -- Interests of Talus Directors and
Officers in the Merger -- Common Director of Manugistics and Talus."
(9) The Class A common stock amount includes an unexercised option to purchase
25,000 shares of Class A common stock granted on August 8, 2000. All 25,000
shares are currently unvested but will become fully vested upon
consummation of the merger. The Class A common stock amount also includes
109 shares of Class A common stock owned by Noro-Moseley Partners III,
L.P., of which Mr. Johnson is a general partner. Mr. Johnson disclaims the
beneficial ownership of the shares of Class A common stock owned by
Noro-Moseley Partners III, L.P., except to the extent of his pecuniary
interest therein.
(10) The Series A preferred stock amount includes 831,635 shares of Series A
preferred stock owned by Noro-Moseley Partners III, L.P., of which Mr.
Johnson is a general partner. Mr. Johnson disclaims the beneficial
ownership of the shares of Series A preferred stock owned by Noro-Moseley
Partners III, L.P., except to the extent of his pecuniary interest therein.
(11) The Class A common stock amount includes two unexercised, and partially
vested, options: (a) an incentive stock option to purchase 400,000 shares
of Class A common stock granted on May 10, 2000, of which 133,333 shares
are currently vested and exercisable; and (b) an option to purchase
2,470,000 shares of Class A common stock granted on May 10, 2000, of which
823,333 shares are currently vested and exercisable. All of Mr. Madison's
unvested options will become fully vested upon consummation of the merger
in certain circumstances. See "The Merger -- Interests of Talus Directors
and Officers in the Merger."
(12) The Class A common stock amount includes 71,875 shares underlying incentive
stock options to purchase 250,000 shares of Class A common stock granted on
August 2, 1999 and November 3, 1999, which are currently vested and
exercisable.
(13) The Class A common stock amount includes 25,000 shares underlying incentive
stock options to purchase 100,000 shares of Class A common stock granted on
November 3, 1999, which are currently vested and exercisable.
(14) The Class A common stock amount includes 34,750 shares underlying incentive
stock options to purchase 115,000 shares of Class A common stock granted on
May 27, 1998 and November 3, 1999, which are currently vested and
exercisable.
(15) Mr. Swope's address is 29 College Street, Newnan, Georgia 30263.
(16) The Class A common stock amount includes 13,759 shares underlying incentive
stock options to purchase 32,509 shares of Class A common stock granted on
February 5, 1996 and November 3, 1999, which are currently vested and
exercisable. Mr. Young's address is 4703 Woodley Drive, W. Vancouver, B.C.,
V7S 3A1.
(17) The Class A common stock amount includes 347,064 shares owned by General
Atlantic Partners 49, L.P. and 81,753 shares owned by GAP Coinvestment
Partners, L.P. The address of the General Atlantic partnerships is c/o
General Atlantic Service Corporation, 3 Pickwick Plaza, Greenwich,
Connecticut 06830. See footnote (6).
(18) The Series B preferred stock amount includes 3,123,575 shares of Series B
preferred stock owned by General Atlantic Partners 49, L.P. and 735,773
shares of Series B preferred stock owned by GAP Coinvestment Partners, L.P.
See footnote (7).
(19) The Series C preferred stock amount includes 11,792,701 shares of Series C
preferred stock owned by General Atlantic Partners 57, L.P. and 2,393,177
shares of Series C preferred stock owned by GAP Coinvestment Partners II,
L.P. See footnote (8).
(20) The Class A common stock amount includes 71,469 shares of Class A common
stock owned by Bridge Street Fund 1998, L.P., 18,300 shares of Class A
common stock owned by Stone Street Fund 1998, L.P. and 5,523 shares of
Class A common stock owned by The Goldman Sachs Group, Inc. The address of
the funds associated with The Goldman Sachs Group, Inc. is 85 Broad Street,
New York, NY 10004.
(21) The Series B preferred stock amount includes 49,707 shares of Series B
preferred stock owned by Bridge Street Fund 1998, L.P., 164,701 shares of
Series B preferred stock owned by Stone Street Fund 1998, L.P. and 643,225
shares of Series B preferred stock owned by The Goldman Sachs Group, Inc.
(22) The Series C preferred stock amount includes 180,481 shares of Series C
preferred stock owned by Bridge Street Fund 1998, L.P., 598,012 shares of
Series C preferred stock owned by Stone Street Fund 1998, L.P. and
2,335,480 shares of Series C preferred stock owned by The Goldman Sachs
Group, Inc.
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<PAGE> 82
TALUS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Talus is a leading provider of pricing and revenue optimization products
and services. The software solutions of Talus enable companies to maximize
revenues and profits by determining optimal prices for their goods and services.
These solutions utilize Talus proprietary optimization technology, which is
particularly suited for highly complex, dynamic pricing environments.
Talus has generated substantially all of its historical revenue from
software developed specifically for the travel, transportation and hospitality
("TTH") industries, including airlines, hotels, rental cars, cruise lines, air
and ground cargo transportation and gaming. During 1998, Talus embarked on a
product development initiative to introduce pricing optimization products into
the marketplace to complement its revenue management offerings typically sold to
the TTH industries. Talus has developed four new pricing products, which were
introduced during 1999 and 2000:
- Dynamic Pricing -- Recommends the optimal transaction prices for products
or services sold to different customers through different channels.
- Target Pricing -- Calculates the optimal discount from list price to
maximize the probability of winning a bid in a competitive environment,
while optimizing profitability.
- Promotion Pricing -- Determines the right amount and type of promotional
spending and discounts to maximize revenue and profitability.
- Lease-Rent Optimizer -- Recommends the optimal rental rate for the
multi-family housing industry (e.g., apartments) to maximize rental
income and occupancy rates.
Talus' products and solutions focus on helping customers expand revenue
growth and ultimately increasing profits. Each product performs the following
fundamental tasks:
- segments the customer market;
- forecasts demand;
- optimizes price; and
- dynamically recalibrates customer response and price optimization.
Each of these tasks is based on sophisticated statistical analysis of sales
transaction data and forecasting algorithms that predict customer behavior at
the micro-market level, and ultimately lead to a recommendation on price
calculated to optimize overall company profitability. Talus believes that its
solutions address the pricing decision support needed in all businesses. Talus'
product development initiatives and enhancements of existing products will
continue to focus on the changing needs of its customers and on evolving market
conditions.
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<PAGE> 83
RESULTS OF OPERATIONS
The following table presents selected consolidated financial data (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------ ---------------------------------
1999 CHANGE 1998 CHANGE 1997 2000 CHANGE 1999
-------- ------ -------- ------- ------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
License fees................. $ 224 $ -- $ -- $ -- $ -- $ 1,927 $ -- $ --
Consulting, solution support
and custom software
development services....... 37,626 (14.3)% 43,923 6.9% 41,070 29,963 2.8% 29,143
-------- ----- -------- ------- ------- -------- ----- -------
Total revenue.......... 37,850 (13.8)% 43,923 6.9% 41,070 31,890 9.4% 29,143
-------- ----- -------- ------- ------- -------- ----- -------
Operating Expenses:
Cost of revenue.............. 30,519 (6.8)% 32,750 21.1% 27,040 18,142 (11.9)% 20,581
Sales and marketing.......... 9,481 49.5% 6,341 14.4% 5,542 6,357 (1.5)% 6,451
Product development.......... 7,305 43.9% 5,077 179.1% 1,819 6,971 37.7% 5,061
General and administrative... 6,098 (4.8)% 6,403 53.5% 4,171 6,703 56.6% 4,281
Acquisition-related
expenses................... -- -- -- -- 1,005 800 -- --
ESOP expense................. -- -- 3,284 322.1% 778 -- -- --
Restructuring charge
(income)................... 3,956 -- -- -- -- (211) -- 481
Non-cash stock compensation
expense.................... -- -- -- -- -- 650 -- --
-------- ----- -------- ------- ------- -------- ----- -------
Total operating
expenses............. 57,359 6.5% 53,855 33.5% 40,355 39,412 6.9% 36,855
-------- ----- -------- ------- ------- -------- ----- -------
Operating income (loss)........ (19,509) 96.4% (9,932) -- 715 (7,522) (2.5)% (7,712)
Interest income (expense),
net.......................... 284 -- (1,262) 146.5% (512) 690 -- 1
Increase (decrease) in fair
value of common stock put
warrant...................... -- -- 360 -- -- (590) -- --
-------- ----- -------- ------- ------- -------- ----- -------
Income (loss) before income
taxes........................ (19,225) 77.5% (10,834) -- 203 (7,422) (3.7)% (7,711)
Provision for income taxes..... -- -- -- -- 370 -- -- --
-------- ----- -------- ------- ------- -------- ----- -------
Net loss....................... (19,225) 77.5% (10,834) -- (167) (7,422) (3.7)% (7,711)
Dividends and accretion on
redeemable preferred stock... (753) 20.1% (627) 12.4% (558) (2,692) 377.3% (564)
-------- ----- -------- ------- ------- -------- ----- -------
Net loss attributable to common
stockholders................. $(19,978) 74.3% $(11,461) 1480.8% $ (725) $(10,114) (22.2)% $(8,275)
======== ===== ======== ======= ======= ======== ===== =======
</TABLE>
The following table presents selected consolidated financial data as a
percentage of total revenues.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- ----------------
1999 1998 1997 2000 1999
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
License fees........................................... 0.6% -- -- 6.0% --
Consulting, solution support and custom software
development services................................. 99.4% 100.0% 100.0% 94.0% 100.0%
----- ----- ----- ----- -----
Total revenue.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
Operating expenses:
Cost of revenue........................................ 80.6% 74.6% 65.8% 56.9% 70.6%
Sales and marketing.................................... 25.0% 14.4% 13.5% 19.0% 22.1%
Product development.................................... 19.3% 11.6% 4.4% 21.9% 17.4%
General and administrative............................. 16.1% 14.6% 10.2% 21.0% 14.7%
Acquisition-related expenses........................... -- -- 2.5% 2.5% --
ESOP expense........................................... -- 7.5% 1.9% -- --
Restructuring charge (income).......................... 10.5% -- -- (0.7)% 1.7%
Non-cash stock compensation expense.................... -- -- -- 2.0% --
----- ----- ----- ----- -----
Total operating expenses......................... 151.5% 122.6% 98.3% 123.6% 126.5%
----- ----- ----- ----- -----
Operating income (loss).................................. (51.5)% (22.6)% 1.7% (23.6)% (26.5)%
Interest income (expense), net........................... 0.7% (2.9)% (1.2)% 2.2% --
Increase (decrease) in fair value of common stock put
warrant................................................ -- 0.8% -- (1.9)% --
----- ----- ----- ----- -----
Income (loss) before income taxes........................ (50.8)% (24.7)% 0.5% (23.3)% (26.5)%
Provision for income taxes............................... -- -- 0.9% -- --
----- ----- ----- ----- -----
Net loss................................................. (50.8)% (24.7)% (0.4)% (23.3)% (26.5)%
Dividends and accretion on redeemable preferred stock.... (2.0)% (1.4)% (1.4)% (8.4)% (1.9)%
----- ----- ----- ----- -----
Net loss attributable to common stockholders............. (52.8)% (26.1)% (1.8)% (31.7)% (28.4)%
===== ===== ===== ===== =====
</TABLE>
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<PAGE> 84
REVENUE
General
Talus generates revenue from the sale of software licenses, consulting,
solution support and custom software development services. License fee revenue
is recognized on the percentage of completion method since Talus believes that
implementation services typically provided to install its software products are
essential to its customers use of the software. Consulting and custom software
development services are provided under both fixed-price and time and materials
arrangements. Revenue from fixed-price contracts is recognized on a percentage
of completion basis while revenue from time and materials contracts is
recognized as the related services are performed. Solutions support revenue is
recognized ratably over the contract period, which is generally twelve months.
Comparison of Years ended December 31, 1999, 1998 and 1997
Talus' average annual revenue for the three-year period ended December 31,
1999 was approximately $40.9 million. The value of new customer contracts were
approximately $48.5 million and $36.2 million in 1999 and 1998, respectively.
Talus' revenues during the three years ended December 31, 1999 were impacted by
the following trends:
- Revenue from the U.S. increased from $28.8 million in 1997 to $33.1
million and $33.0 million, respectively, in 1998 and 1999.
- Revenue from outside of the U.S. decreased from $12.3 million in 1997 to
$10.8 million and $4.9 million, respectively, in 1998 and 1999. These
decreases are attributable to less favorable global economic conditions
outside of the U.S. during portions of 1998 and 1999 and the absence of a
foreign-based direct sales force.
- Talus' revenue from the rental car market was $2.9 million, $12.3 million
and $6.7 million in 1999, 1998 and 1997, respectively, or a decrease of
$9.4 million in 1999 and an increase of $5.6 million in 1998.
Substantially all of Talus' revenue from the rental car market in 1999
was attributable to one customer. During 1997 and 1998, Talus had several
relationships with rental car companies that yielded over $1.0 million in
revenue each. To Talus' knowledge, all of the major rental car companies
in the U.S. have an operational revenue management system.
- Talus' relationship with a major auto manufacturer, which began during
1998, yielded less than $1.0 million in revenue in 1998 and increased to
$4.2 million in 1999. This auto manufacturer represents one of Talus'
first major customers in its non-traditional markets. Other major
customers outside TTH industries include United Parcel Service (UPS) and
the American Broadcasting Company (ABC). This manufacturer was the first
customer of Talus to license Target Pricing. In addition, Talus has
recently completed a customized version of Promotion Pricing for this
automotive manufacturer.
Comparison of nine months ended September 30, 2000 to nine months ended
September 30, 1999
Talus signed two license fee agreements totaling $2.3 million during the
fourth quarter of 1999. Talus recognized approximately $1.9 million in license
fee revenue during the nine months ended September 30, 2000 related to these
contracts. Consulting, solution support and custom software development services
revenue increased primarily as a result of improved contract pricing during the
second half of 1999 and a resulting increase in revenue per billable hour of 16%
during the nine months ended September 30, 2000 offset by lower billable hours
during the nine month period in 2000. Talus revenues from TTH customers
decreased slightly during the nine month period in 2000, particularly in the
passenger airline market, while revenue from the relationship with the auto
manufacturer mentioned above, increased by approximately $4.2 million during the
nine month period in 2000.
OPERATING EXPENSES
Comparison of Years ended December 31, 1999, 1998 and 1997
Cost of revenue includes the costs of license fees (including media,
product packaging and other related costs), salaries and related benefits of
delivery and solutions support personnel, training costs, the costs of
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<PAGE> 85
third-party consultants, loss contract charges and bad debt expense, as well as
other costs. The changes in cost of revenue were primarily attributable to
ongoing changes in staffing and contractor levels during the periods based on
the number of open customer contracts plus changes in overhead allocations as a
result of staffing levels.
Sales and marketing expenses include personnel costs, commissions,
promotional events, marketing collateral and travel costs. The changes in sales
and marketing expenses were primarily attributable to the following factors:
- Enhancing the marketing function and increased spending beginning in the
second half of 1999.
- Increased direct sales force in each period and increased commissions in
1999 as a result of increased volume of signed contracts.
Product development expenses include personnel costs and the cost of
third-party consultants. Talus has not historically capitalized any software
development costs since the cost incurred between reaching technological
feasibility and product release is insignificant. The increases in product
development costs were primarily attributable to the establishment of a
stand-alone product development group for the first time in 1997 and the
addition of personnel to support the development of the new pricing products
(e.g., Dynamic Pricing, Target Pricing and Promotion Pricing) in 1998 and 1999.
General and administrative expenses include personnel costs, legal,
accounting, information technology and human resource costs, as well as other
costs. Certain overhead costs, including rent, utilities and depreciation are
allocated to cost of revenue, sales and marketing and product development based
on proportionate headcount. The changes in general and administrative expenses
were primarily attributable to changes in headcount levels during the periods
and the related impact on salaries, benefits and overhead allocations.
Acquisition-related expenses in 1997 relate to the merger between DFI and
Aeronomics, which was accounted for as a pooling of interests.
Expenses associated with Talus' Employee Stock Ownership Plan, or ESOP, in
1998 and 1997 consists of the following:
- Charges for the allocation of shares to participants in the ordinary
course of business ($1.0 million and $0.8 million in 1998 and 1997,
respectively).
- Plan expenses incurred by the Company of $0.3 million in 1998.
- Charge of $2.0 million related to allocating the remaining shares to the
participants in anticipation of terminating the ESOP.
The ESOP was terminated in 1999.
The restructuring charge in 1999 consisted of the following:
- Lease abandonment charge of $3.6 million in connection with the
relocation of Talus corporate headquarters within the Atlanta, Georgia
metropolitan area.
- Severance charge of $0.4 million related to an internal reorganization
and costs savings plan that was implemented during January 1999.
Comparison of nine months ended September 30, 2000 to nine months ended
September 30, 1999
The decrease in cost of revenue was primarily attributable to the
settlement of a customer claim that resulted in a $2.2 million reduction in cost
of revenue during the nine months ended September 30, 2000. Salaries and related
benefits and outside contractor costs were higher during the nine months ended
September 30, 1999 due to higher headcount levels, which was offset by
reductions in the loss contract reserve as a result of delivery staff working
towards completion of such engagements.
Sales and marketing expenses were relatively unchanged during the
comparative nine month periods. Talus began increasing marketing expenditures in
the second half of 1999. Average headcount during the comparative nine month
periods was relatively unchanged.
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<PAGE> 86
The increase in product development expenses was primarily attributable to
increased headcount and higher use of third-party contractors to help meet
internal product release goals during the nine months ended September 30, 2000.
The increase in general and administrative expenses was primarily
attributable to increased compensation costs for certain members of the new
management team hired in late 1999 and early 2000 and increased professional
services costs. Talus hired a new senior management team in 1999, as well as
other executive level positions in the accounting, finance, legal and human
resource areas in 1999 and early 2000.
Acquisition-related expenses during the nine months ended September 30,
2000 relate to the merger with Manugistics. Costs include investment banking,
legal and accounting fees that were incurred through September 30, 2000.
During the nine months ended September 30, 2000, Talus executed a sublease
for a portion of its former corporate headquarters and moved into its new
corporate headquarters. Talus recorded restructuring income of $0.2 million to
reflect the reduction of its remaining net lease obligation previously accrued
in 1999 offset by the costs associated with its office move.
Non-cash stock compensation expenses during the nine months ended September
30, 2000 relate to stock options granted to employees and directors. In
addition, Talus issued common stock to vendor at prices below fair value for
services rendered at prices below fair value.
INTEREST INCOME (EXPENSE), NET
Interest income (expense), net, was $0.3 million, $(1.3) million and $(0.5
million) in 1999, 1998 and 1997, respectively, and $0.7 million and $0.0 during
the nine months ended September 30, 2000 and 1999, respectively. The changes in
each period resulted primarily from the following factors:
- Changes in average borrowings during the periods.
- Timing of receiving cash proceeds from the issuance of convertible
preferred stock ($25.0 million and $20.0 million in August 1999 and
September 1998, respectively).
- Decreases in cash and cash equivalents in all periods to fund operating
losses.
- Non-cash charges to interest expense of $0.5 million in 1998 related to
the early extinguishment of debt for the remaining discount associated
with detachable stock purchase warrants.
INCREASE (DECREASE) IN FAIR VALUE OF COMMON STOCK PUT WARRANT
Talus has certain common stock put warrants that are presented outside of
stockholders' equity since redemption is beyond the control of Talus. These put
warrants must be adjusted to fair value at each reporting date. Such adjustment
is reflected as an increase or decrease to net income (loss) during each
reporting period.
PROVISION FOR INCOME TAXES
Talus incurred losses before income taxes during 1999 and 1998 and during
the nine months ended September 30, 2000 and 1999. Due to the uncertainties
surrounding the realization of Talus' net operating loss carryforwards in future
periods, no benefit from income taxes has been reflected in the financial
statements in such periods. Talus had income before income taxes of $0.2 million
in 1997 and a provision for income taxes of $0.4 million. The difference between
Talus' effective tax rate of 183% and the federal statutory rate relates
primarily to non-deductible merger costs incurred as a result of the
DFI/Aeronomics merger.
DIVIDENDS AND ACCRETION OF REDEEMABLE PREFERRED STOCK
Talus' Series A preferred stock may be redeemed during July 2002 or later
at the option of the holder. The Series A preferred stock is presented outside
of stockholders' equity since redemption is beyond the control of Talus. The
Series A preferred stock accretion was recorded at a compound annual rate of 20%
in accordance with its terms during all periods presented to accrete to the
minimum redemption amount payable in July 2002. During the nine months ended
September 30, 2000, Talus determined that the fair value of the Series A
preferred stock was $7.2 million, or $2.0 million higher than the minimum
redemption amount
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<PAGE> 87
calculated through September 30, 2000. The fair value of the Series A preferred
stock was determined based on the value per share of Talus stock in the merger
with Manugistics.
LIQUIDITY AND CAPITAL RESOURCES
Talus has historically financed its operations through borrowings under a
former revolving credit facility, borrowings under a term loan and the issuance
of convertible preferred stock. Talus has not historically generated cash flows
from operations.
Net cash used in operating activities was $6.0 million, $2.2 million and
$3.9 million during 1999, 1998 and 1997, respectively, and $8.9 million and $4.6
million during the nine months ended September 30, 2000 and 1999, respectively.
Net cash used in operating activities in each period is impacted most
significantly by the size of Talus' net loss, excluding non-cash expenses, plus
changes in billed and unbilled accounts receivable, deferred revenue, accrued
compensation, accounts payable and other accrued liabilities.
During 1999, Talus incurred a net loss of $19.2 million, which included
$7.1 million of non-cash charges. Changes in assets and liabilities provided
$6.1 million of working capital during 1999. Billed accounts receivable and
deferred revenue increased by $2.0 million and $1.4 million, respectively. Both
of these increases were primarily attributable to higher than normal bookings
and related billings during the fourth quarter of 1999. Unbilled receivables
decreased by $3.0 million during 1999 as a result of the cycle of bookings and
completion of projects. Accrued compensation increased by $1.7 million in 1999
primarily as a result of Talus accruing an annual incentive payment as compared
to $0 at December 31, 1998. Other accrued liabilities increased by $1.6 million
in 1999 primarily as a result of increased loss contract reserves and contract
settlement reserves.
For the nine months ended September 30, 2000, Talus incurred a net loss of
$7.4 million, which included $2.5 million of non-cash expenses. Changes in
assets and liabilities used $4.0 million of working capital during the nine
months ended September 30, 2000. Billed accounts receivable and deferred revenue
decreased by $1.8 million and $2.7 million, respectively, as a result of Talus
completing or nearing completion of many of its projects that were open at
December 31, 1999. Unbilled receivables increased by $1.0 million as a result of
delays in achieving billing milestones on certain fixed-price contracts.
Net cash used in investing activities consist primarily of capital
expenditures, which includes purchased software, computer equipment and
furniture and fixtures. Capital expenditures were $1.1 million, $2.7 million and
$1.8 million in 1999, 1998 and 1997, respectively, and were $2.5 million and
$0.9 million for the nine months ended September 30, 2000 and 1999,
respectively. Capital expenditures generally increase or decrease in conjunction
with the size of Talus' workforce. During the nine months ended September 30,
2000, Talus had capital expenditures of approximately $1.0 million related to
moving its corporate headquarters. Talus also invested $1.9 million in
certificates of deposit with an original maturity in excess of 90 days during
the six months ended June 30, 2000.
Net cash provided by financing activities was $20.6 million, $12.7 million
and $7.6 million during 1999, 1998 and 1997, respectively, and $0.1 million and
$24.5 million for the nine months ended September 30, 2000 and 1999,
respectively. Financing activities consist primarily of borrowings and
repayments of long-term debt, issuance of convertible preferred stock, net of
issuance costs, of $24.8 million and $19.9 million in 1999 and 1998,
respectively, and treasury stock purchases.
Talus' current liquidity and capital resources consists of cash and cash
equivalents ($12.1 million as of September 30, 2000). Talus does not have a
revolving credit facility or other readily available capital resources.
Talus believes that its existing cash balances will be sufficient to meet
its anticipated liquidity and working capital requirements over the next six to
nine months. In light of its operating and cash flows performance in 1999 and
the nine months ended September 30, 2000 and expected operating and cash flows
performance over the next six to nine months, Talus anticipates that it will
need to raise additional capital during the first half of 2001. Talus has begun
exploring the possible sources of such capital and has been analyzing its
long-term capital requirements to determine the amount of capital needed. Such
capital may or may not be available in the amount or on terms that are
satisfactory to Talus. If Talus is unable to obtain
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<PAGE> 88
sufficient capital during the first half of 2001, its liquidity, results of
operations and financial condition could be adversely affected.
Certain information regarding commitments and contingencies, including
pending litigation, claims and assessments and ESOP termination obligations,
which may have an adverse impact on our liquidity and financial condition, are
set forth in Notes 13 and 15 in the Talus Financial Statements, which are
included elsewhere in this prospectus.
FACTORS THAT MAY AFFECT FUTURE RESULTS
General
In addition to the other information in this prospectus, the following
factors and those previously described should be considered in evaluating the
future prospects of Talus. Talus operating results have varied significantly in
the past and may vary significantly in future periods. Factors that may impact
future operating results include, but are not limited to:
- General economic conditions in the U.S. and abroad;
- Timely availability and acceptance of Talus' new pricing products;
- Ability to sell new software products and services to existing major
customers;
- Market saturation of revenue management solutions in certain TTH
industries;
- Effectiveness of Talus' direct sales force and alliance program;
- Ability of Talus' delivery organization to install software in a timely
and cost effective manner;
- Ability of Talus to estimate the resources required to complete
fixed-price contracts;
- Ability of Talus to attract and retain qualified employees in all
functions;
- Levels of operating expenses;
- Competition and new product offerings by competitors;
- Capital budget levels and cycles of prospective customers; and
- Capital availability during the first half of 2001.
Talus historically has experienced losses since its inception and expects
to report a loss in fiscal 2000.
Management has taken the following actions during 2000 to help improve
operating performance in 2001:
- Increased product development spending to accelerate market introduction
of enhancements to Talus' products;
- Accelerated the hiring and training of direct sales people in the U.S.;
- Built a direct sales force in Europe to improve visibility and reduce the
length of the sales cycle for potential European customers; and
- Built a strategic alliance program intended to include other software
vendors and consulting organizations to help expand sales channels.
However, management cannot predict whether these actions will result in any
improvement in operating performance in 2001.
FORWARD-LOOKING STATEMENTS
This "Talus Management's Discussion and Analysis of Financial Condition and
Results of Operations" section of the prospectus contains certain
forward-looking statements that are subject to risks and uncertainties. The
Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. In order to comply with the terms of the safe
harbor, Talus notes a variety of factors in this prospectus that could cause our
actual results to differ significantly from anticipated results or other
expectations. The risks and uncertainties that may affect Talus' business,
operating results or financial condition include those set forth above in
"Factors That May Affect Future Results."
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<PAGE> 89
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK OF TALUS
Talus manages its interest rate risk by maintaining an investment portfolio
of instruments with high credit quality and maturities of 90 days or less. These
instruments include, but are not limited to, money-market instruments and bank
time deposits in accordance with an investment policy approved by the Talus
board of directors. These instruments are denominated in U.S. dollars.
Talus also holds cash balances in accounts with commercial banks primarily
in the United States. These cash balances represent operating balances only and
are invested in short-term time deposits of the local bank.
Many of Talus' investments carry a degree of interest rate risk. When
interest rates fall, Talus' income from investments in variable-rate securities
declines. When interest rates rise, the fair market value of Talus' investments
in fixed-rate securities declines. Talus attempts to mitigate interest rate risk
by holding fixed-rate securities to maturity. However, if Talus' liquidity needs
force it to sell fixed-rate securities prior to maturity, it may experience a
loss of principal. Talus has no long-term debt with variable interest rates.
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<PAGE> 90
MANUGISTICS GROUP, INC.
PRO FORMA FINANCIAL INFORMATION
UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL INFORMATION
Manugistics is expecting to complete the acquisition of Talus during the
fourth quarter of fiscal year 2001. The acquisition will be accounted for as a
purchase.
The accompanying unaudited pro forma combined condensed balance sheet has
been prepared as if the acquisition had been consummated as of August 31, 2000.
The unaudited pro forma combined condensed statements of operations for six
months ended August 31, 2000 and the fiscal year ended February 29, 2000, have
been prepared as if the proposed acquisition had occurred on March 1, 1999, and
combines Manugistics' and Talus' statements of operations.
Adjustments have been made to Talus' financial statements to conform to
Manugistics' presentation. Manugistics has a fiscal year end of February 28 or
29 and Talus has a fiscal year end of December 31. The twelve month period ended
December 31, 1999 for Talus was combined with the twelve month period ended
February 29, 2000 for Manugistics. The unaudited balance sheet for Talus as of
June 30, 2000 was combined with the unaudited balance sheet for Manugistics as
of August 31, 2000. The unaudited pro forma combined statement of operations
includes the six month period ended June 30, 2000 for Talus combined with the
six month period ended August 4, 2000 for Manugistics.
As noted above, the acquisition of Talus by Manugistics is expected to
close during the fourth quarter of fiscal 2001. The unaudited pro forma combined
condensed financial information has been prepared using the purchase method of
accounting whereby the assets and liabilities of Talus are adjusted to estimated
fair value, based upon preliminary estimates, which are subject to change as
additional information is obtained. The allocations of the purchase costs are
subject to final determination based upon estimates and other evaluations of
fair market value, identification and valuation of identifiable intangible
assets, and potentially based upon changes in Manugistics stock price and the
actual closing date. Therefore, the allocations reflected in the following
unaudited pro forma combined condensed financial information may differ from the
amounts ultimately determined.
The method of combining historical financial statements for the preparation
of the unaudited pro forma combined condensed financial statements is for
presentation only. Actual statements of operations of the companies will be
consolidated commencing on the date of acquisition. The unaudited pro forma
combined condensed financial information does not purport to represent what
Manugistics' operations or financial position actually would have been had the
acquisition occurred on the dates specified, or to project Manugistics' results
of operation or financial position for any future period or date.
In the opinion of management, all material adjustments necessary to reflect
the acquisition of Talus by Manugistics have been made. The accompanying
unaudited pro forma combined condensed financial statements should be read in
conjunction with the historical financial statements and related notes thereto
for both Manugistics and Talus.
The "As Adjusted" column reflects the issuance of a total of $250.0 million
5% convertible subordinated notes in October and November 2000.
The accompanying pro forma financial information does not reflect the
impact of Manugistics' stock split announced on November 8, 2000. See "Recent
Developments -- Two-for-One Stock Split" for more information.
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<PAGE> 91
MANUGISTICS GROUP, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AUGUST 31, 2000
(IN THOUSANDS, EXCEPT PAR VALUE)
<TABLE>
<CAPTION>
AS ADJUSTED
HISTORICAL HISTORICAL PRO FORMA PRO FORMA AS PRO FORMA
MANUGISTICS TALUS(a) ADJUSTMENTS MANUGISTICS ADJUSTED MANUGISTICS
----------- ---------- ----------- ----------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents..... $ 23,758 $ 17,003 $ 40,761 $ 40,761
Marketable securities......... 11,091 274 11,365 $242,000(l) 253,365
Accounts receivable -- net.... 64,205 5,241 69,446 69,446
Unbilled receivables.......... 4,359 4,359 4,359
Other current assets.......... 8,347 1,626 9,973 9,973
--------- -------- --------- ---------
Total current assets...... 107,401 28,503 135,904 377,904
Property and equipment -- net... 14,382 3,994 18,376 18,376
Noncurrent Assets:
Software development
costs -- net................ 16,484 -- 16,484 16,484
Intangibles and other
assets -- net............... 10,576 1,815 $365,925(c) 378,316 8,000(l) 386,316
Deferred tax asset............ 17,669 -- --(e) 17,669 -- 17,669
--------- -------- -------- --------- -------- ---------
Total assets.............. $ 166,512 $ 34,312 $365,925 $ 566,749 $250,000 $ 816,749
========= ======== ======== ========= ======== =========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities:
Accounts payable.............. $ 5,932 $ 1,852 $ 4,000(c) $ 11,784 $ 11,784
Accrued compensation.......... 11,030 4,699 15,729 15,729
Other current liabilities..... 12,784 4,826 3,793(c) 22,306 22,306
903(h)
Restructuring accruals........ 2,381 903 (903)(h) 2,381 2,381
Line of credit................ 6,000 -- 6,000 6,000
Current portion of long-term
liabilities................. -- 1,144 1,144 1,144
Deferred revenue.............. 29,176 775 29,951 29,951
--------- -------- -------- --------- ---------
Total current
liabilities............ 67,303 14,199 7,793 89,295 89,295
Long-term liabilities........... 187 1,590 2,038(h) 3,815 $250,000(l) 253,815
Long-term restructuring
accrual....................... 2,415 2,038 (2,038)(h) 2,415 2,415
ESOP put obligation............. -- 2,166 (2,166)(k) -- --
Convertible redeemable preferred
stock, $0.0001 par value...... -- 6,350 (6,350)(c) -- --
Common stock put warrant........ -- 609 (609)(c) -- --
Stockholders' equity:
Preferred stock............... -- 2 (2)(b) -- --
Common stock.................. 59 2 (2)(b) 66 66
7(c)
Additional paid-in-capital.... 230,863 44,064 337,400(c) 629,303 629,303
(44,064)(b)
61,040(c)
Accumulated deficit........... (123,038) (34,703) 34,703(b) (123,038) (123,038)
Treasury stock................ (717) (2,005) 2,005(b) (717) (717)
Deferred compensation......... (10,849) -- (23,830)(c) (34,679) (34,679)
Accumulated other
comprehensive income........ 289 -- 289 289
--------- -------- -------- --------- -------- ---------
Total stockholders'
equity................. 96,607 7,360 367,257 471,224 -- 471,224
--------- -------- -------- --------- -------- ---------
Total liabilities and
stockholders' equity... $ 166,512 $ 34,312 $365,925 $ 566,749 $250,000 $ 816,749
========= ======== ======== ========= ======== =========
</TABLE>
SEE NOTES TO THE UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION.
85
<PAGE> 92
MANUGISTICS GROUP, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AS ADJUSTED
HISTORICAL HISTORICAL PRO FORMA PRO FORMA AS PRO FORMA
MANUGISTICS TALUS(a) ADJUSTMENTS MANUGISTICS ADJUSTED MANUGISTICS
----------- ---------- ----------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
License fees................... $ 54,483 $ 1,500 $ 55,983 $ 55,983
Consulting, solution support
and other services........... 54,186 21,664 75,850 75,850
-------- ------- -------- --------
Total revenues............. 108,669 23,164 131,833 131,833
-------- ------- -------- --------
OPERATING EXPENSES:
Cost of license fees........... 9,593 -- 9,593 9,593
Cost of consulting, solution
support and other services... 25,292 14,175 39,467 39,467
Sales and marketing............ 48,134 4,409 52,543 52,543
Product development............ 16,215 3,648 19,863 19,863
General and administrative..... 10,310 4,766 $ 45,740(d) 60,816 60,816
Restructuring expense.......... -- (562) (562) (562)
Non-cash stock compensation
expense(i)................... 20,711 -- 3,972(g) 24,683 24,683
-------- ------- -------- -------- --------
Total operating expenses... 130,255 26,436 49,712 206,403 206,403
-------- ------- -------- -------- --------
Loss from operations........... (21,586) (3,272) (49,712) (74,570) (74,570)
Other income(expense) -- net... 715 476 1,191 $(6,850)(l) (5,659)
Increase in common stock put
Warrant...................... -- (513) 513(j) -- --
-------- ------- -------- -------- ------- --------
Net loss before income taxes... (20,871) (3,309) (49,199) (73,379) (6,850) (80,229)
Benefit for income taxes....... (36) -- -- (36) -- (36)
-------- ------- -------- -------- ------- --------
Net loss....................... $(20,835) $(3,309) $(49,199) $(73,343) $(6,850) $(80,193)
======== ======= ======== ======== ======= ========
Net loss per share -- basic and
Diluted...................... $ (0.73) -- -- $ (2.29) -- $ (2.50)
Shares used in share
computation basic and
diluted...................... 28,541 -- 3,486(f) 32,027 -- 32,027
</TABLE>
SEE NOTES TO THE UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION.
86
<PAGE> 93
MANUGISTICS GROUP, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 29, 2000
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AS ADJUSTED
HISTORICAL HISTORICAL PRO FORMA PRO FORMA AS PRO FORMA
MANUGISTICS TALUS(a) ADJUSTMENTS MANUGISTICS ADJUSTED MANUGISTICS
----------- ---------- ----------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
License fees................. $ 60,421 $ 224 $ 60,645 $ 60,645
Consulting, solution support
and other services......... 92,012 37,626 129,638 129,638
-------- -------- --------- ---------
Total revenues........... 152,433 37,850 190,283 190,283
-------- -------- --------- ---------
OPERATING EXPENSES:
Cost of license fees......... 13,685 150 13,835 13,835
Cost of consulting, solution
Support and other
services................... 44,346 30,369 74,715 74,715
Sales and marketing.......... 61,439 9,481 70,920 70,920
Product development.......... 29,150 7,305 36,455 36,455
General and administrative... 15,837 6,098 $ 91,480(d) 113,415 113,415
Restructuring expense........ (1,506) 3,956 2,450 2,450
Non-cash stock compensation
Expense(i)................. -- -- 7,945(g) 7,945 7,945
-------- -------- -------- --------- ---------
Total operating
Expenses.............. 162,951 57,359 99,425 319,735 319,735
-------- -------- -------- --------- ---------
Loss from operations......... (10,518) (19,509) (99,425) (129,452) (129,452)
Other income
(expense) -- net........... 1,389 284 -- 1,673 $(13,700)(l) (12,027)
-------- -------- -------- --------- -------- ---------
Net loss before income
taxes...................... (9,129) (19,225) (99,425) (127,779) (13,700) (141,479)
Benefit for income taxes..... (184) -- -- (184) -- (184)
-------- -------- -------- --------- -------- ---------
Net loss..................... $ (8,945) $(19,225) $(99,425) $(127,595) $(13,700) $(141,295)
======== ======== ======== ========= ======== =========
Net loss per share -- basic
and Diluted................ $ (0.33) -- -- $ (4.12) -- $ (4.56)
Shares used in share
computation basic and
diluted.................... 27,486 -- 3,486(f) 30,972 -- 30,972
</TABLE>
SEE NOTES TO THE UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION.
87
<PAGE> 94
MANUGISTICS GROUP, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL INFORMATION
The unaudited pro forma combined condensed financial information is based
upon the following:
(a) Talus' historical column for the six months ended June 30, 2000
includes Talus' results of operations from January 1, 2000. Manugistics'
historical column for the six months ended August 31, 2000 includes Manugistics'
results of operations from March 1, 2000. Talus' results of operations for the
three months ended September 30, 2000, which have been excluded from the
accompanying pro forma presentation, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, 2000
------------------
<S> <C>
Revenue.................................................... $ 8,726
Net Loss................................................... (4,113)
</TABLE>
(b) In the proposed merger, Manugistics will acquire all of the outstanding
shares of Talus common stock in exchange for shares of Manugistics common stock.
All series of Talus preferred stock are assumed converted to Talus common stock
using conversion ratios set forth in the Talus Certificate of Incorporation and
acquired by Manugistics through the issuance of Manugistics common stock in
connection with the merger. Talus had issued options to purchase Talus common
stock to its employees and directors. These options will be exchanged for
options to acquire Manugistics common stock with the same terms as the original
options (as adjusted for the exchange ratio set forth in the merger agreement).
In addition, Talus had issued warrants to purchase Talus common stock to certain
service providers and customers. These warrants will be exchanged for
Manugistics stock warrants with similar terms (as adjusted for the exchange
ratio set forth in the merger agreement).
Manugistics will issue approximately 3,500,000 shares of its common stock
for all outstanding classes of Talus common and preferred stock as discussed
above. Manugistics will also issue options and warrants for the purchase of
approximately 714,000 shares of Manugistics common stock in exchange for Talus
options and warrants. The number of Manugistics shares of common stock and
options to be issued could be increased to approximately 4,200,000 shares and
approximately 800,000 options based on certain provisions in the merger
agreement.
Each share of Talus capital stock will convert into a fraction of a share
of Manugistics common stock depending upon the average closing price of
Manugistics common stock during the 15 day trading period ending two days before
the closing of the merger. If the average closing price is equal to or less than
$65.00 per share, approximately .08220 of a share of Manugistics common stock
per share of Talus common stock will be received. If the average closing price
is equal to or greater than $78.00 per share, approximately .07409 of a share of
Manugistics common stock per share of Talus common stock will be received. If
the average closing price is between $65.00 and $78.00 per share, between .08820
and .07409 of a share of Manugistics common stock per share of Talus common
stock, calculated proportionately based upon the average closing price of
Manugistics common stock between $65.00 and $78.00 will be received. The
measurement date for the market price of the securities to be issued will not be
known until the merger closing date. An average market value for a few days
before and after the acquisition was agreed to, and announced, and is used for
purposes of these pro forma financial statements. The final purchase price will
be determined on the first date when the number of Manugistics shares and other
consideration become fixed without subsequent revision.
In accordance with FASB Interpretation No. 44 (FIN 44) "Accounting for
Stock Transactions involving Stock Compensation," the estimated fair value of
Manugistics' stock options and warrants that are fully vested are included as
part of the purchase price. Unearned (deferred) compensation has been recorded
for unvested stock options to the extent that service is required subsequent to
the consummation date of the acquisition in order to vest in the Manugistics
stock option. The amount allocated to unearned (deferred) compensation has been
based on the estimated intrinsic value at the consummation date related to
future vesting (service) period. The intrinsic value of the Manugistics'
replacement awards allocated to unearned (de-
88
<PAGE> 95
ferred) compensation has been deducted from the estimated fair value of stock
options awards for purposes of the allocation of the purchase price to the
assets acquired.
(c) Below is a table of the estimated acquisition cost (dollar amounts in
thousands):
<TABLE>
<S> <C>
Manugistics stock to be issued (approximately 3,500,000
shares)................................................... $337,400
Manugistics stock options and warrants to be issued (options
for approximately 714,000 shares)......................... 61,040
Estimated intrinsic value of unvested options at
consummation date related to future service............... (23,830)
Estimated acquisition fees.................................. 4,000
--------
Total estimated acquisition cost to be allocated.......... $378,610
========
Acquisition cost to be allocated.......................... $378,610
Less: Historical cost basis of the following at June 30,
2000
Net assets of Talus.................................... (7,360)
Preferred stock and ESOP put obligation................ (9,125)
Adjustments to assets and liabilities
Employment severance................................... 1,400
Facility closures and relocation....................... 2,100
Other.................................................. 300
--------
Excess of purchase price over historical cost basis of net
liabilities acquired...................................... $365,925
========
</TABLE>
Manugistics is in the process of identifying the fair values of tangible
and intangible assets that will be acquired. It is expected that the intangible
assets will include the following: developed technology, assembled workforce,
trademarks, customer base and goodwill. The intangible assets are expected to
have estimated lives ranging from 2 to 5 years. The unaudited pro forma combined
condensed financial information has assumed a composite life of 4 years for
purposes of computing amortization expense.
(d) The amortization expense is estimated using a composite average life of
4 years. See note (c).
(e) Manugistics has not recorded an additional tax benefit in the unaudited
pro forma combined condensed financial information because of the uncertainty as
to the recoverability of the amounts. Any deferred tax liabilities that may
result from the final valuation and allocation of the excess purchase price have
not been recorded.
(f) This represents the weighted average number of Manugistics shares of
common stock expected to be issued in connection with the acquisition of Talus.
Manugistics stock options expected to be issued in the acquisition have been
excluded because the impact would be anti-dilutive.
(g) This amount represents the amortization of the deferred compensation
over the estimated remaining vesting period, which is approximately 3 years. See
notes (b) and (c).
(h) This amount represents a reclassification of the restructuring accrual
of Talus to the current and long-term liabilities of Manugistics.
(i) The non-cash stock compensation expense of $20.7 million is recorded as
a result of the July 1, 2000 effective date of FASB Interpretation No. 44. This
$20.7 million is aggregated on a single line in the operating expenses and
therefore is excluded from the individual operating expense lines to which the
charge relates.
The components of this expense are (dollar amounts in thousands):
<TABLE>
<S> <C>
Cost of consulting, solution support and other services..... $ 6,237
Sales and marketing......................................... 7,349
Product development......................................... 5,343
General and administrative.................................. 1,782
-------
Non-cash stock compensation expense....................... $20,711
=======
</TABLE>
(j) An adjustment for the fair value of approximately 7,000 Manugistics
stock warrants will be recorded each quarter subsequent to the transaction. The
amount of this fair value adjustment has not been estimated for purposes of this
unaudited pro forma combined condensed financial information. See note (b).
89
<PAGE> 96
(k) An ESOP put obligation is recorded for put rights on approximately
3,000,000 shares of Talus stock, which relates to the termination of an employee
stock ownership plan in 1999. This obligation is not expected to exist after the
acquisition is complete. This obligation can be satisfied in either cash or
stock. This pro forma financial information assumes that the ESOP put obligation
will be satisfied from Talus common stock, which will then be exchanged for
Manugistics common stock.
(l) A 5% convertible subordinated note offering was completed in October
and November 2000 in the total amount of $250,000,000. The following pro forma
adjustments were made to account for the offering: inclusion of $242,000,000 of
investments, $8,000,000 of deferred financing costs, and $250,000,000 of long-
term liabilities in the balance sheet. Interest expense totaling $6,250,000 for
the six-month period ended August 31, 2000 and $12,500,000 for the year ended
February 29, 2000 were also included. Amortization of the deferred financing
cost and related interest of approximately $600,000 for the six-month period
ended August 31, 2000 and $1,200,000 for the year ended February 29, 2000 is
also included. See note (e) for tax consideration.
LEGAL MATTERS
The legality of the shares of Manugistics common stock to be issued in
connection with the merger will be passed upon for Manugistics by Dilworth
Paxson LLP, Philadelphia, Pennsylvania. Joseph H. Jacovini, Chairman and a
member of Dilworth Paxson LLP, is a member of the board of directors of
Manugistics. On October 26, 2000, Mr. Jacovini was the beneficial owner of
approximately 94,500 shares of common stock (including 1,336 shares of common
stock held by his spouse and a total of 35,164 shares of common stock issuable
upon exercise of certain options). Certain legal matters with respect to the
federal income tax consequences of the merger will be passed upon for Talus by
King & Spalding and for Manugistics by Paul, Hastings, Janofsky & Walker LLP.
EXPERTS
The consolidated financial statements of Manugistics as of February 29,
2000 and February 28, 1999 and for each of the three years in the period ended
February 29, 2000, incorporated in this prospectus by reference from the
Manugistics Annual Report on Form 10-K, have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report, which is incorporated
herein by reference; and have been so incorporated in reliance upon the report
of Deloitte & Touche LLP given upon their authority as experts in accounting and
auditing.
The consolidated balance sheets of Talus and its subsidiary as of December
31, 1999 and 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1999, all of which have been included in this
registration statement, have been audited by KPMG LLP, independent certified
public accountants, whose report thereon is included in this registration
statement. These financial statements have been so included in reliance upon the
report of KPMG LLP and upon their authority as experts in accounting and
auditing.
STOCKHOLDER PROPOSALS
Manugistics' 2001 annual meeting of stockholders will be held in July 2001.
Any stockholder satisfying the SEC requirements and wishing to submit a proposal
to be included in the proxy statement for the 2001 annual meeting of
stockholders should submit the proposal in writing to the Secretary, Manugistics
Group, Inc., 2115 East Jefferson Street, Rockville, Maryland 20852-4999.
Manugistics must receive a proposal by March 2, 2001 to consider it for
inclusion in the proxy statement for the 2001 annual meeting of stockholders.
If the merger is not consummated, Talus will inform its stockholders of the
date and time of the 2001 annual meeting of stockholders of Talus.
WHERE YOU CAN FIND MORE INFORMATION
Manugistics files annual, quarterly and special reports, proxy statements
and other information with the SEC. You may read and copy any reports,
statements or other information that Manugistics files with the
90
<PAGE> 97
SEC at the SEC's public reference rooms in Washington, D.C., New York, New York
and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. These SEC filings are also available
to the public from commercial document retrieval services and at the Internet
world wide web site maintained by the SEC at "http://www.sec.gov." Reports,
proxy statements and other information should also be available for inspection
at the offices of the Nasdaq National Market.
Manugistics filed a registration statement to register with the SEC the
Manugistics common stock to be issued to Talus stockholders in the merger. This
document is a part of that registration statement and constitutes a prospectus
of Manugistics. As allowed by SEC rules, this document does not contain all the
information you can find in Manugistics' registration statement or the exhibits
to that registration statement.
The SEC allows Manugistics to "incorporate by reference" information into
this document, which means that Manugistics can disclose important information
to you by referring you to another document filed separately with the SEC. The
information incorporated by reference is considered part of this document,
except for any information superseded by information contained directly in this
document or in later filed documents incorporated by reference in this document.
This document incorporates by reference the documents set forth below that
Manugistics has previously filed with the SEC. These documents contain important
information about Manugistics and its business (Manugistics SEC Filings (File
No. 000-22154)).
1. Annual Report on Form 10-K for the year ended February 29, 2000;
2. Quarterly Report on Form 10-Q for the three months ended May 31, 2000;
3. Quarterly Report on Form 10-Q for the three months ended August 31,
2000;
4. Current Report on Form 8-K filed on March 2, 2000;
5. Current Report on Form 8-K filed on April 27, 2000;
6. Current Report on Form 8-K filed on September 22, 2000, as amended by
the Form 8-K/A filed on October 10, 2000 and the Form 8-K/A filed on
October 11, 2000;
7. Current Report on Form 8-K filed on October 11, 2000;
8. Current Report on Form 8-K filed on October 20, 2000;
9.Current Report on Form 8-K filed on November 1, 2000;
10.Current Report on Form 8-K filed on November 2, 2000;
11.Current Report on Form 8-K filed on November 8, 2000; and
12. The description of Manugistics common stock contained in Manugistics'
Registration Statement on Form 8-A filed on August 21, 1989.
Manugistics also incorporates by reference additional documents that may be
filed with the SEC between the date of this document and the date that the
reoffering or resale of securities acquired under this registration is
completed. These include periodic reports, such as Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as proxy
statements.
Manugistics has supplied all information contained or incorporated by
reference in this document relating to Manugistics, Talus has supplied all
information contained in this document relating to Talus and the selling
stockholders have supplied all information contained in this document relating
to the selling stockholders.
You can obtain any of the documents incorporated by reference from
Manugistics, the SEC or the SEC's Internet web site as described above.
Documents incorporated by reference are available from the companies without
charge, excluding all exhibits, except that if the companies have specifically
incorporated by reference an exhibit in this document, the exhibit will also be
available without charge. You may obtain documents
91
<PAGE> 98
incorporated by reference in this document by requesting them in writing or by
telephone from the appropriate company at the following addresses:
<TABLE>
<S> <C>
Talus Solutions, Inc. Manugistics Group, Inc.
Overlook II 2115 East Jefferson Street
2839 Paces Ferry Road Rockville, Maryland 20852-4999
Suite 1000 Attention: Investor Relations
Atlanta, Georgia 30339-5770 Telephone: (301) 984-5000
Attention: Michael R. Cote
Telephone: (678) 556-5000
</TABLE>
You should rely only on the information contained or incorporated by
reference in this document. Manugistics and Talus have not authorized anyone to
provide you with information that is different from what is contained in this
document. This document is dated November 22, 2000. You should not assume that
the information contained in this document is accurate as of any date other than
that date. Neither the mailing of this document to stockholders nor the issuance
of Manugistics common stock in the merger creates any implication to the
contrary.
92
<PAGE> 99
FINANCIAL STATEMENTS OF TALUS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 100
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Talus Solutions, Inc.
We have audited the accompanying consolidated balance sheets of Talus
Solutions, Inc. and subsidiary as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Talus
Solutions, Inc. and subsidiary as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999 in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Atlanta, Georgia
March 31, 2000, except for note 17,
for which the date is September 21, 2000
F-2
<PAGE> 101
TALUS SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1999 1998 2000
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 25,277 $ 11,826 $ 12,057
Short-term investments.................................... -- -- 274
Accounts receivable, net.................................. 7,552 6,031 6,130
Unbilled receivables...................................... 3,438 6,400 4,396
Prepaids and other current assets......................... 1,542 1,611 1,307
-------- -------- --------
37,809 25,868 24,164
Property and equipment, net................................. 3,815 4,803 4,506
Long-term investments....................................... -- -- 1,646
Other long-term assets...................................... 59 75 57
-------- -------- --------
$ 41,683 $ 30,746 $ 30,373
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,710 $ 927 $ 2,013
Accrued compensation...................................... 5,143 3,459 4,337
Other accrued liabilities................................. 4,919 3,366 2,933
Deferred revenue.......................................... 3,462 2,045 764
Current portion of restructuring accrual.................. 306 -- 918
Current portion of long-term debt and capital lease
obligations............................................. 1,250 2,079 1,076
-------- -------- --------
16,790 11,876 12,041
Long-term restructuring accrual............................. 3,266 -- 2,102
Long-term debt and capital lease obligations................ 2,155 3,348 1,336
Other long-term liabilities................................. -- -- 500
Common stock put warrant.................................... 96 96 686
Redeemable convertible preferred stock, $0.0001 par value... 4,470 3,718 7,162
Authorized -- 2,000 shares; issued and outstanding -- 832
shares; liquidation preference $5,197, $4,470 and $3,718
at September 30, 2000(unaudited), December 31, 1999 and
1998, respectively
ESOP put obligation......................................... 3,094 4,812 2,166
Commitments and contingencies
Stockholders' equity :
Convertible Preferred stock, $0.0001 par
value -- Authorized -- 23,000 shares; issued and
outstanding -- 22,017 shares at September 30, 2000
(unaudited) and December 31, 1999 and 4,717 at December
31, 1998; liquidation preference $45,000 at September 30,
2000 (unaudited) and December 31, 1999 and $20,000 at
December 31, 1998......................................... 2 -- 2
Common stock:
Class A voting; $0.0001 par value. Authorized 100,000
shares at September 30, 2000 (unaudited), 50,000 shares
at December 31, 1999 and 1998; 16,604, 16,031 and 17,030
issued and 14,655, 14,342 and 16,210 outstanding at
September 30, 2000 (unaudited), December 31, 1999 and
1998, respectively...................................... 2 2 2
Class B nonvoting; $0.0001 par value. Authorized 5,000
shares; 398, 398 and 689 issued and 398, 398 and 397
outstanding at September 30, 2000 (unaudited), December
31, 1999 and 1998, respectively......................... -- -- --
Additional paid-in capital.................................. 43,988 20,246 46,008
Treasury stock, 1,949, 1,689 and 820 shares at September 30,
2000 (unaudited), December 31, 1999 and 1998, respectively
of Class A and 292 shares of Class B at December 31,
1998...................................................... (1,739) (1,171) (2,005)
Accumulated deficit....................................... (30,441) (12,181) (39,627)
-------- -------- --------
Total stockholders' equity......................... 11,812 6,896 4,380
-------- -------- --------
$ 41,683 $ 30,746 $ 30,373
======== ======== ========
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
F-3
<PAGE> 102
TALUS SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- ------------------
1999 1998 1997 2000 1999
-------- -------- ------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
License fees................................ $ 224 $ -- $ -- $ 1,927 $ --
Consulting, solution support and custom
software development services............. 37,626 43,923 41,070 29,963 29,143
-------- -------- ------- -------- -------
Total revenue..................... 37,850 43,923 41,070 31,890 29,143
-------- -------- ------- -------- -------
OPERATING EXPENSES:
Cost of revenue........................... 30,519 32,750 27,040 18,142 20,581
Sales and marketing....................... 9,481 6,341 5,542 6,357 6,451
Product development....................... 7,305 5,077 1,819 6,971 5,061
General and administrative................ 6,098 6,403 4,171 6,703 4,281
Acquisition-related expenses.............. -- -- 1,005 800 --
ESOP expense.............................. -- 3,284 778 -- --
Restructuring costs (income).............. 3,956 -- -- (211) 481
Non-cash stock compensation expense....... -- -- -- 650 --
-------- -------- ------- -------- -------
Total operating expenses.......... 57,359 53,855 40,355 39,412 36,855
-------- -------- ------- -------- -------
Income (loss) from operations............... (19,509) (9,932) 715 (7,522) (7,712)
Interest income............................. 698 223 1 886 333
Interest expense............................ (414) (1,485) (513) (196) (332)
(Increase) decrease in fair value of common
stock put warrant......................... -- 360 -- (590) --
-------- -------- ------- -------- -------
Income (loss) before income taxes........... (19,225) (10,834) 203 (7,422) (7,711)
Provision for income taxes.................. -- -- (370) -- --
-------- -------- ------- -------- -------
Net loss.................................... (19,225) (10,834) (167) (7,422) (7,711)
Dividends and accretion on redeemable
preferred stock........................... (753) (627) (558) (2,692) (564)
-------- -------- ------- -------- -------
Net loss attributable to common
stockholders.............................. $(19,978) $(11,461) $ (725) $(10,114) $(8,275)
======== ======== ======= ======== =======
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
F-4
<PAGE> 103
TALUS SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
--------------------------------- ---------------------------------
SERIES B, SERIES C, CLASS B
CONVERTIBLE CONVERTIBLE CLASS A VOTING NONVOTING ADDITIONAL
--------------- --------------- --------------- --------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
------ ------ ------ ------ ------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996................ -- $ -- -- $ -- 17,299 $ 2 269 $ -- $ --
Accrual of dividends and accretion of
redeemable preferred stock............... -- -- -- -- -- -- -- -- --
(Increase) decrease in ESOP put
obligation............................... -- -- -- -- -- -- -- -- --
Exercise of stock options.................. -- -- -- -- 135 -- 365 -- 416
Compensation expense related to release of
shares in ESOP........................... -- -- -- -- -- -- -- -- (7)
Income tax benefit from stock option
exercise................................. -- -- -- -- -- -- -- -- 25
Purchases and retirements of treasury
stock.................................... -- -- -- -- -- -- (135) -- (225)
Conversion of Class A voting common stock
into Class B nonvoting common stock...... -- -- -- -- (534) -- 534 -- --
Net loss.................................... -- -- -- -- -- -- -- -- --
----- ---- ------ ---- ------ ---- ----- ---- -------
Balance at December 31, 1997................ -- -- -- -- 16,900 2 1,033 -- 209
Accrual of dividends and accretion of
redeemable preferred stock............... -- -- -- -- -- -- -- -- --
(Increase) decrease in ESOP put
obligation............................... -- -- -- -- -- -- -- -- --
Sale of Series B convertible preferred
stock, less offering costs............... 4,717 -- -- -- -- -- -- -- 19,948
Exercise of stock options.................. -- -- -- -- 130 -- -- -- 143
Decrease in deferred compensation.......... -- -- -- -- -- -- -- -- 658
Income tax benefits from stock option
exercises................................ -- -- -- -- -- -- -- -- 64
Compensation expense associated with
purchase of shares from ESOP............. -- -- -- -- -- -- -- -- 1,027
Reclassification of deferred compensation
associated with the purchase of shares
from ESOP................................ -- -- -- -- -- -- -- -- (806)
Purchases of treasury stock................ -- -- -- -- -- -- -- -- --
Retirement of treasury stock............... -- -- -- -- -- -- (344) -- (997)
Net loss.................................... -- -- -- -- -- -- -- -- --
----- ---- ------ ---- ------ ---- ----- ---- -------
Balance at December 31, 1998................ 4,717 -- -- -- 17,030 2 689 -- 20,246
Accrual of dividends and accretion of
redeemable preferred stock............... -- -- -- -- -- -- -- -- --
(Increase) decrease in ESOP put
obligation............................... -- -- -- -- -- -- -- -- --
Sale of Series C convertible preferred
stock, less offering costs............... -- -- 17,300 2 -- -- -- -- 24,765
Issuance of common stock................... -- -- -- -- 10 -- 1 -- 12
Purchases of treasury stock................ -- -- -- -- -- -- -- -- --
Retirement of treasury stock............... -- -- -- -- (1,009) -- (292) -- (1,628)
Issuance of warrants....................... -- -- -- -- -- -- -- -- 593
Net loss.................................... -- -- -- -- -- -- -- -- --
----- ---- ------ ---- ------ ---- ----- ---- -------
Balance at December 31, 1999................ 4,717 $ -- 17,300 $ 2 16,031 $ 2 398 $ -- $43,988
===== ==== ====== ==== ====== ==== ===== ==== =======
<CAPTION>
(ACCUMULATED
DEFICIT) TOTAL
RETAINED TREASURY STOCKHOLDERS'
EARNINGS STOCK EQUITY
------------ -------- -------------
<S> <C> <C> <C>
Balance at December 31, 1996................ $ (4,606) $ -- $ (4,604)
Accrual of dividends and accretion of
redeemable preferred stock............... (558) -- (558)
(Increase) decrease in ESOP put
obligation............................... (4,248) -- (4,248)
Exercise of stock options.................. -- -- 416
Compensation expense related to release of
shares in ESOP........................... -- -- (7)
Income tax benefit from stock option
exercise................................. -- -- 25
Purchases and retirements of treasury
stock.................................... -- -- (225)
Conversion of Class A voting common stock
into Class B nonvoting common stock...... -- -- --
Net loss.................................... (167) -- (167)
-------- ------- --------
Balance at December 31, 1997................ (9,579) -- (9,368)
Accrual of dividends and accretion of
redeemable preferred stock............... (627) -- (627)
(Increase) decrease in ESOP put
obligation............................... 8,859 -- 8,859
Sale of Series B convertible preferred
stock, less offering costs............... -- -- 19,948
Exercise of stock options.................. -- -- 143
Decrease in deferred compensation.......... -- -- 658
Income tax benefits from stock option
exercises................................ -- -- 64
Compensation expense associated with
purchase of shares from ESOP............. -- -- 1,027
Reclassification of deferred compensation
associated with the purchase of shares
from ESOP................................ -- -- (806)
Purchases of treasury stock................ -- (2,168) (2,168)
Retirement of treasury stock............... -- 997 --
Net loss.................................... (10,834) -- (10,834)
-------- ------- --------
Balance at December 31, 1998................ (12,181) (1,171) 6,896
Accrual of dividends and accretion of
redeemable preferred stock............... (753) -- (753)
(Increase) decrease in ESOP put
obligation............................... 1,718 -- 1,718
Sale of Series C convertible preferred
stock, less offering costs............... -- -- 24,767
Issuance of common stock................... -- -- 12
Purchases of treasury stock................ -- (2,196) (2,196)
Retirement of treasury stock............... -- 1,628 --
Issuance of warrants....................... -- -- 593
Net loss.................................... (19,225) -- (19,225)
-------- ------- --------
Balance at December 31, 1999................ $(30,441) $(1,739) $ 11,812
======== ======= ========
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS
F-5
<PAGE> 104
TALUS SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- ------------------
1999 1998 1997 2000 1999
-------- -------- ------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................... $(19,225) $(10,834) $ (167) $ (7,422) $(7,711)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization.................. 2,081 1,525 1,230 1,769 1,496
Increase (decrease) in fair value of common
stock put warrant........................... -- (360) -- 590 --
Stock-based compensation....................... 593 2,982 400 705 456
Restructuring provision........................ 3,956 -- -- (211) 481
Allowance for doubtful accounts................ 516 214 181 (353) 245
Changes in assets and liabilities:
Accounts receivable............................ (2,037) 3,972 (2,025) 1,774 (1,316)
Unbilled receivables........................... 2,962 (3,281) (1,356) (957) 3,077
Prepaids and other current assets.............. 68 (952) (259) 235 (19)
Other non-current assets....................... 16 420 (195) 2 2
Accounts payable and other accrued
liabilities................................. 2,336 2,849 (573) (1,192) (1,212)
Accrued compensation........................... 1,684 352 (349) (806) 1,019
Deferred revenue............................... 1,417 911 (770) (2,698) (820)
Restructuring accrual.......................... (384) -- -- (341) (262)
-------- -------- ------- -------- -------
Net cash used in operating activities....... (6,017) (2,202) (3,883) (8,905) (4,564)
-------- -------- ------- -------- -------
Cash flows from investing activities:
Capital expenditures............................... (1,093) (2,674) (1,826) (2,460) (861)
Purchases of investments........................... -- -- -- (1,920) --
-------- -------- ------- -------- -------
Net cash used in investing activities....... (1,093) (2,674) (1,826) (4,380) (861)
-------- -------- ------- -------- -------
Cash flows from financing activities:
Change in revolving credit facility, net........... (868) (1,632) 1,847 -- 1,000
Proceeds from issuance of long-term debt........... -- 2,000 8,564 -- --
Principal payments on long-term debt and capital
lease obligations................................ (1,154) (5,692) (3,506) (993) (836)
Proceeds from issuance of Series B and C
convertible preferred stock, less offering
costs............................................ 24,767 19,948 -- -- 24,800
Proceeds from issuance of put warrants............. -- -- 456 -- --
Proceeds from issuance of common stock and exercise
of stock options and warrants.................... 12 143 416 1,324 --
Purchases of treasury stock........................ (2,196) (2,038) (187) (266) (475)
-------- -------- ------- -------- -------
Net cash provided by financing activities... 20,561 12,729 7,590 65 24,489
-------- -------- ------- -------- -------
Net increase (decrease) in cash and cash
equivalents............................... 13,451 7,853 1,881 (13,220) 19,064
Cash and cash equivalents at beginning of
year............................................... 11,826 3,973 2,092 25,277 11,826
-------- -------- ------- -------- -------
Cash and cash equivalents at end of year............. $ 25,277 $ 11,826 $ 3,973 $ 12,057 $30,890
======== ======== ======= ======== =======
Supplemental disclosures of cash paid during the year
for:
Interest......................................... $ 425 $ 1,348 $ 564
======== ======== =======
Income taxes, net of refunds received............ $ (278) $ 276 $ 827
======== ======== =======
Supplemental disclosure of noncash financing
activity:
Capital leases................................... $ -- $ -- $ 187
======== ======== =======
Treasury stock purchases financed with a note
payable........................................ $ -- $ 130 $ --
======== ======== =======
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
F-6
<PAGE> 105
TALUS SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(1) NATURE OF BUSINESS AND BASIS OF PRESENTATION
THE COMPANY
Talus and its wholly-owned subsidiary ("Talus" or the "Company") is a
leading provider of pricing and revenue management software solutions. These
solutions enable companies to achieve growth by winning new customers and
increasing revenue and profit from existing customers. Talus' customers
represent a number of industries, including, but not limited to, airlines,
hotels, rental car, freight and package delivery, media, manufacturing,
utilities, and e-Commerce. The Company's products and services are offered on a
worldwide basis.
COMPANY FORMATION
Talus was formed on November 18, 1997 for the purpose of effecting the
mergers of Decision Focus Incorporated ("Decision Focus") and Aeronomics
Incorporated ("Aeronomics") (collectively, the "predecessor companies") into
Talus. These mergers were effected as stock-for-stock exchanges. These
transactions were accounted for using the pooling of interests method of
accounting with Decision Focus deemed to be the issuing company.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Talus and a
wholly-owned subsidiary. Significant intercompany accounts and transactions have
been eliminated in consolidation.
INTERIM FINANCIAL INFORMATION
The unaudited consolidated financial statements of the Company as of
September 30, 2000 and for the nine months ended September 30, 2000 and 1999
have been prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, certain information and
footnotes required by generally accepted accounting principles for complete
financial statements have been condensed or omitted. In the opinion of
management, all adjustments, consisting of normal recurring adjustments
considered necessary for a fair presentation, have been included. The results of
operations for the nine months ended September 30, 2000 are not necessarily
indicative of the expected results for the year ending December 31, 2000.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The Company recognizes revenue based on the provisions of Statement of
Position, or SOP, No. 97-2, "Software Revenue Recognition," as amended by SOP
No. 98-9, and SOP No. 81-1, "Accounting for Performance of Construction-Type and
Certain Production-Type Contracts." The Company generates revenue from two
primary sources: (a) License fee revenue and (b) Consulting, solution support
and custom software development services revenue.
(a) License fee revenue: License fee revenue is generated from licensing
the rights to the perpetual use of the Company's software products. The Company
believes that implementation services typically provided to install its software
products are essential to the customer's use of Talus software products in
arrangements where the Company is responsible for implementation services. As
such, the Company recognizes revenue on the percentage-of-completion method,
measured by the percentage of contract costs incurred to date to estimated total
contract costs for each contract.
(b) Consulting, solution support and custom software development services
revenue: The Company performs consulting and custom software development
services under both time-and-materials and fixed-price contracts. These services
include the development, installation and often the maintenance, of customized
F-7
<PAGE> 106
TALUS SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
software applications. Revenue from fixed-price contracts is recognized on the
percentage-of-completion method, measured by the percentage of contract costs
incurred to date to estimated total contract costs for each contract. Contract
costs include all direct and certain indirect costs. Revenue derived from
contracts to provide services on a time-and-materials basis is recognized as the
related services are performed.
Solutions support revenue is based principally upon performance of
maintenance and support agreements. Support services are not considered
essential to the functionality of the Company's software products. The Company
recognizes support revenue ratably over the period of the contract, which is
generally twelve months.
The Company usually bills for license fees upon commencement of the
contract, however, in some situations the Company may delay billing based on the
terms of the contract. The Company bills for services on a monthly basis for
time-and-materials contracts and upon achieving contractual milestones on
fixed-price contracts.
Unbilled receivables represent amounts due to the Company for work
performed that had not been billed as of the period end. Deferred revenue is
recognized for amounts billed or collected by the Company before satisfying the
above revenue recognition criteria. Deferred revenue consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
---------------
1999 1998
------ ------
<S> <C> <C>
License fees................................................ $ 676 $ --
Other....................................................... 2,786 2,045
------ ------
$3,462 $2,045
====== ======
</TABLE>
COST OF REVENUE
Cost of revenue includes the cost of media, product packaging,
documentation, and other production costs for license fee revenue. These costs
have been insignificant to date. Cost of revenue for consulting, solutions
support and custom software development services consist primarily of salaries
and related benefits of delivery personnel, training and customer support
personnel, including cost of services provided by third-party consultants
engaged by the Company. When the current estimates of total contract revenue and
contract costs indicate a loss, a provision for the entire loss on the contract
is recorded and is included in cost of revenue.
CONCENTRATION OF CREDIT RISK
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and cash equivalents and accounts
receivable. The Company's accounts receivable result primarily from operations
and are receivable from a broad customer base principally in the United States.
The Company does not require collateral for its receivables. The Company
establishes an allowance for doubtful accounts based upon factors surrounding
the credit risk of specific customers, historical trends and other information.
The allowance for doubtful accounts aggregated $980 and $464 at December 31,
1999 and 1998, respectively, and $627 at September 30, 2000 (unaudited).
Management believes the allowance for doubtful accounts is adequate to provide
for normal credit losses.
CASH AND CASH EQUIVALENTS
Cash equivalents are highly liquid interest-bearing investments with
original maturities of three months or less when purchased. Cash equivalents are
carried at cost, which approximates fair value. Cash equivalents at December 31,
1999 and 1998 consist primarily of money market instruments, commercial paper
and certificates of deposit.
F-8
<PAGE> 107
TALUS SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation of property and equipment is provided using the straight-line
method over the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Leasehold improvements...................................... 5-9 years
Furniture and fixtures...................................... 3-7 years
Computer equipment.......................................... 3-5 years
Purchased computer software................................. 3-5 years
</TABLE>
Leasehold improvements are amortized using the straight-line method over
the estimated useful life of the improvement or the lease term, whichever is
shorter. Amortization of assets held under capital lease arrangements is
included in depreciation expense.
SOFTWARE DEVELOPMENT
The Company expenses all software development costs associated with
establishing technological feasibility of software applications, which the
Company defines as completion of beta testing. Because of the insignificant
amount of costs incurred by the Company between completion of beta testing and
release, the Company has not capitalized any software development costs in the
accompanying consolidated financial statements.
STOCK-BASED COMPENSATION
The Company applies the intrinsic value method to account for compensation
expense related to the award of stock options to employees and directors, and
furnishes pro forma disclosures in accordance with the provisions of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). The Company accounts for options and warrants
granted to non-employees using the fair-value method prescribed by SFAS No. 123
and Emerging Issues Task Force, or EITF, No. 96-18, "Accounting for Equity
Instruments that are Issued to other than Employees for Acquiring, or in
Conjunction with Selling, Goods, or Services."
UNAUDITED
During the nine months ended September 30, 2000, the Company recorded a
charge of $650 related to stock options granted to employees and directors. In
addition, Talus issued common stock to vendor at prices below fair value for
services rendered at prices below fair value.
COMPREHENSIVE INCOME/(LOSS)
The Company did not have any significant components of other comprehensive
income/(loss) for the three years ended December 31, 1999.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
periods. Actual results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board, or FASB, issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
This statement establishes accounting and reporting
F-9
<PAGE> 108
TALUS SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
standards for derivative instruments, including derivative instruments embedded
in other contracts, and for hedging activities. SFAS No. 133, as amended by SFAS
No. 137, is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000. SFAS No. 133 is not expected to have a material impact on the
Company's consolidated financial statements.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 and 1998 consolidated
financial statements to conform to the presentation adopted in 1999.
(3) MERGERS
On November 18, 1997, Talus was formed in connection with the mergers of
Decision Focus and Aeronomics into Talus, a newly formed corporation. These
mergers were effected as follows: (1) the merger between Talus and Decision
Focus was effected through the exchange of 8,821 shares of the Company's Class A
voting common stock for 84 shares of Decision Focus's Class A voting common
stock and 678 shares of the Company's Class B nonvoting common stock for 6
shares of Decision Focus's Class B nonvoting common stock (at exchange ratios of
105.1985 shares to one) and (2) the merger between Talus and Aeronomics was
effected through the exchange 8,077 shares of the Company's Class A voting
common stock for 4,391 shares of Aeronomics' Series B nonvoting common stock, 1
share of the Company's Class A voting common stock for 1 share of Aeronomics'
Series A voting common stock, and 832 shares of the Company's convertible
preferred stock for 443 shares of Aeronomics' convertible preferred stock (at
exchange ratios of 1.8772 shares of the Company's Class A voting common stock
for each Aeronomics Series A common share, and 1.8397 shares of the Company's
Class A voting common stock for each Aeronomics Series B common share, and
1.8772 shares of the Company's convertible preferred stock for each Aeronomics
convertible preferred share). Additionally, all previously outstanding options
to acquire common stock of Decision Focus and Aeronomics were converted into
options to acquire the Company's Class A voting common stock and Class B
nonvoting common stock using the exchange ratios defined above. The transactions
were accounted for using the pooling of interests method of accounting with
Decision Focus deemed to be the issuing company. As a result, the historical
financial position and results of operations of Decision Focus and Aeronomics
have been combined to become the historical financial position and results of
operations of the Company for all periods prior to the mergers to give
retroactive effect to these transactions. In connection with these mergers, the
Company incurred $1,005 in acquisition-related expenses, which have been
separately classified in the 1997 consolidated statement of operations.
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1999 and
1998:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Furniture, fixtures, and leasehold improvements............. $ 2,485 $ 2,452
Computer equipment.......................................... 8,346 7,956
Purchased computer software................................. 2,647 2,045
------- -------
13,478 12,453
Less accumulated depreciation............................... 9,663 7,650
------- -------
Property and equipment, net............................... $ 3,815 $ 4,803
======= =======
</TABLE>
F-10
<PAGE> 109
TALUS SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(5) LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
REVOLVING CREDIT FACILITY
The Company maintains a revolving credit facility (the "Revolver") with a
commercial bank. The credit facility provides for up to $3.5 million in
borrowings. Available borrowings under the facility are limited to 80% of
eligible accounts receivable, as defined. The credit facility bears interest at
a rate of prime plus 1/4% payable monthly and expired on May 1, 2000.
Borrowings outstanding under the Revolver were $0 and $868 on December 31, 1999
and 1998, respectively.
NOTE PAYABLE -- COMMERCIAL BANK
The Company maintains a long-term note payable with a commercial bank (the
"Bank Note"). The original principal amount of the Bank Note was $5.0 million,
with monthly installments of principal of $83 plus interest at a rate of 9.02%
through its expiration in December 2002. The outstanding principal of this note
was $3.0 million and $4.0 million at December 31, 1999 and 1998, respectively,
and $2.3 million at September 30, 2000 (unaudited). The current portion of this
obligation was $1.0 million at September 30, 2000 (unaudited), December 31, 1999
and 1998, respectively.
The Revolver and the Bank Note contain various operating and financial
covenants, and are secured by substantially all assets of the Company. At
December 31, 1999, the Company did not meet the financial covenants pertaining
to cash flows to fixed charges and minimum net worth. Subsequent to December 31,
1999, the Company obtained a waiver of its financial covenant violations.
OTHER NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
The Company is obligated under various notes payable arrangements to
certain employees and former employees and various capital lease obligations,
principally for furniture and fixtures and computer equipment. The remaining
obligation under these notes payable and capital lease obligations aggregated
$405 and $559 at December 31, 1999 and 1998, respectively.
Scheduled annual maturities of long-term debt are as follows as of December
31, 1999:
<TABLE>
<CAPTION>
FOR THE YEAR ENDING DECEMBER 31, AMOUNT
-------------------------------- ------
<S> <C>
2000........................................................ $1,250
2001........................................................ 1,071
2002........................................................ 1,042
2003........................................................ 42
------
$3,405
======
</TABLE>
F-11
<PAGE> 110
TALUS SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(6) ACCRUED COMPENSATION
Accrued compensation consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1999 1998 SEPTEMBER 30, 2000
------ ------ ------------------
(UNAUDITED)
<S> <C> <C> <C>
Incentive compensation.............................. $2,507 $ -- $1,609
Benefit plan contributions.......................... 894 1,004 749
Vacation............................................ 944 919 1,204
Expatriate tax liabilities.......................... 324 1,430 581
Other............................................... 474 106 194
------ ------ ------
$5,143 $3,459 $4,337
====== ====== ======
</TABLE>
(7) OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1999 1998 SEPTEMBER 30, 2000
------ ------ ------------------
(UNAUDITED)
<S> <C> <C> <C>
Loss contracts reserve.............................. $3,234 $2,609 $ 64
Other............................................... 1,685 757 2,869
------ ------ ------
$4,919 $3,366 $2,933
====== ====== ======
</TABLE>
(8) RESTRUCTURING CHARGE
During December 1999, the Company undertook a plan to relocate its
corporate offices to a more strategic location within the Atlanta, Georgia
metropolitan area. The Company has executed a lease agreement for new space and
moved into its new space during September 2000. In connection with this plan,
the Company recorded a charge of $3,572 associated with lease space that was
abandoned in fiscal 2000. The Company did not anticipate any future benefit from
the costs incurred. The Company is obligated under a non-cancelable lease
arrangement through August 2003 for the abandoned office location. Although the
Company was actively seeking a sub-leasee for the abandoned space to mitigate
its remaining cash obligation, it was not considered probable at December 31,
1999 that the Company would be able to obtain such a sublease.
The remaining lease obligation from the lease abandonment date of October
1, 2000 is as follows:
<TABLE>
<CAPTION>
PAYABLE IN:
-----------
<S> <C>
2000........................................................ $ 306
2001........................................................ 1,217
2002........................................................ 1,234
2003........................................................ 815
------
$3,572
======
</TABLE>
During January 1999, the Company terminated 25 employees as part of an
internal reorganization and cost savings plan. The Company recorded a charge of
$481 for related severance costs, which had been paid as of December 31, 1999.
F-12
<PAGE> 111
TALUS SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
UNAUDITED
During the nine months ended September 30, 2000, the Company (i) executed a
sublease for a portion of its abandoned office location and (ii) moved into its
new office space. Accordingly, the Company recorded income of $211 during the
nine months ended September 30, 2000 to reflect the reduction in its remaining
net lease obligation offset by the costs associated with its office move.
(9) STOCKHOLDERS' EQUITY
COMMON STOCK
Class A common stock is voting common stock. Holders of Class B nonvoting
common stock generally have identical rights as the holders of Class A voting
common stock with the exception of voting rights. Holders of Class B nonvoting
common stock are not entitled to vote on any matter unless otherwise required by
law.
PREFERRED STOCK
Preferred stock outstanding as of December 31, 1999 is as follows:
<TABLE>
<CAPTION>
SHARES ISSUED AND ORIGINAL
AUTHORIZED OUTSTANDING VALUE
---------- ----------- --------
<S> <C> <C> <C>
Series A.............................................. 2,000 832 $ 2,000
Series B.............................................. 5,000 4,717 20,000
Series C.............................................. 18,000 17,300 25,000
------ ------ -------
25,000 22,849 $47,000
====== ====== =======
</TABLE>
The rights, preferences and privileges of the holders of Series A, B and C
preferred stock are as follows:
Series A (Cumulative, Convertible, Redeemable and Nonvoting): Shares of the
Company's Series A preferred stock are entitled to quarterly dividends at the
annual rate of 8% ($0.1944 per share) when and if declared by the Company's
Board of Directors. Such dividends are cumulative, accrue from the original
issue date, and prohibit the Company from paying dividends on its common stock
until all accrued dividends in arrears have been paid on the Series A preferred
stock. The Company, at its option, may pay all accrued and unpaid dividends at
conversion or may issue Class B nonvoting common stock. Dividends in arrears on
the Series A preferred stock totaled $2,511 and $1,759 as of December 31, 1999
and 1998, respectively.
The Series A preferred stock also includes liquidation rights which
provide, upon liquidation of the Company, for the holder to be paid an amount
equal to the original amount invested plus a 20% compounded annual return less
any dividends paid under the dividend rights described above. The Series A
preferred stock is nonvoting, unless the Company attempts to create a senior
class or series of stock, amend the certificate of incorporation or bylaws in a
manner that would adversely affect the rights and preferences of the Series A
preferred stock, pay a dividend on the common stock, or otherwise fails to
comply with certain terms and conditions of the preferred stock purchase
agreement. The terms and conditions of the preferred stock purchase agreement
include, among others, requirements for the Company to report financial
information to the holder and visitation rights for the holder with respect to
meetings of the Company's Board of Directors.
Under the original terms of the Series A preferred stock purchase
agreement, the holder could convert each share of Series A preferred stock into
one share of Class B nonvoting common stock at any time, subject to adjustment
for dilutive issuances of equity or convertible securities as described in the
certificate of incorporation. Furthermore, the Series A preferred stock will
automatically convert into Class B nonvoting common stock at the then current
conversion rate in the event of an initial public offering meeting certain
criteria ("Qualified IPO"). In the event of a merger or sale of the Company, the
holder of the Series A
F-13
<PAGE> 112
TALUS SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
preferred stock would receive the form of consideration available for
distribution to stockholders equal to the original invested amount plus accrued
and unpaid cumulative dividends or the liquidation value, whichever is greater.
Upon issuance of the Series C preferred stock in August 1999, the conversion
ratio of the Series A preferred stock into Class B nonvoting common stock was
adjusted in accordance with the certificate of incorporation. Accordingly, each
share of Series A preferred stock is now convertible into 1.185 shares of Class
B nonvoting common stock, or 985 shares in aggregate.
The holder of Series A preferred stock was originally entitled to require
the Company to redeem the shares and all accrued and unpaid dividends thereon
for cash in July 2000. The redemption price is based on the appraised value of
the Company, as defined in the agreement, but in no event will the redemption
price be less than the original invested amount plus a 20% compounded annual
return on the invested amount less any preferred dividends declared and paid.
Upon issuance of the Series C preferred stock in August 1999, the Series A
preferred stock mandatory redemption date was changed from July 2000 to July
2002. The Company's future cash obligation for the redemption of Series A
preferred stock, assuming that the Series A preferred stock has not been
converted to common stock, at the minimum redemption amount is approximately
$7,150 which would be due in July 2002 and includes accrued dividends in
arrears. The Series A preferred stock is presented outside of stockholders'
equity since redemption is outside of the control of the Company.
The holder of the Series A preferred stock also received certain other
rights including, but not limited to, registration rights with respect to the
shares. In the event of a distribution of assets and rights upon liquidation,
shares of the Series A preferred stock rank "senior" to the Series B preferred
stock, "junior" to the Series C preferred stock and "senior" to all classes of
common stock.
UNAUDITED
The Company determined that the fair value of the Series A preferred stock
on September 30, 2000 exceeded the minimum redemption value as of such date.
Accordingly, the Series A preferred stock is presented at its estimated fair
value at September 30, 2000, which resulted in $1,965 additional accretion
recorded during the nine months ended September 30, 2000.
* * * * *
Series B (Convertible and Voting): In September 1998, the Company issued
4,717 shares of Series B preferred stock, resulting in gross proceeds to the
Company of $19.9 million. As part of the original Series B preferred stock
purchase agreement, certain warrants were issued to the Series B preferred stock
investors. The warrants provide, upon a liquidity event as defined in the
agreement, the holders with the right to purchase at a nominal price additional
shares of Series B convertible preferred stock equal in value to the greater of
(1) an 8% annual dividend, compounded annually on the purchased shares or (2) a
20% return compounded annually on the original investment amount of $20.0
million less the appreciation of the Series B convertible preferred stock since
original issue date, grossed up to offset tax effects. Upon issuance of the
Series C preferred stock in August 1999, the warrant holders agreed to cancel
their warrants. A provision in the stock purchase agreement also provides for
additional warrants at an exercise price of $0.01 if a particular customer
contract incurred a loss of greater than $2.5 million, or any other customer
contract considered "open" at the closing date incurred a loss greater than $2.0
million and the purchasers were not previously notified of such loss.
The Series B preferred stock includes dividend rights when and if declared
and paid by the Company on common stock as if the Series B preferred stock was
converted to Class A common stock immediately prior to the dividend declaration.
The Series B preferred stock also includes liquidation rights which provide,
upon liquidation of the Company, for the holders to be paid an amount no less
than the original investment amount plus declared but unpaid dividends. The
terms and conditions of the stock purchase agreement include, among
F-14
<PAGE> 113
TALUS SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
others, requirements for the Company to report financial information to the
holders and allows the holders to elect a member to the Company's Board of
Directors.
Under the original terms of the Series B preferred stock, the holders could
convert each share of Series B preferred stock into one share of Class A voting
common stock at any time, subject to adjustment for dilutive issuances of equity
or convertible securities as described in the certificate of incorporation.
Furthermore, the terms of the Series B preferred stock require conversion to
Class A voting common stock at the then current conversion rate in the event of
a Qualified IPO, merger or sale of the Company meeting certain criteria. Upon
issuance of the Series C preferred stock in August 1999, the conversion ratio of
the Series B preferred stock into Class A voting common stock was adjusted in
accordance with the certificate of incorporation. Accordingly, each share of
Series B preferred stock is now convertible into 2.934 shares of Class A voting
common stock, or 13,840 shares in aggregate. Each share of Series B preferred
stock carries voting rights equal to the number of shares of Class A voting
common stock that would be issued upon conversion and votes together with the
Class A common stock and other voting stock on all matters on which the Class A
common stock is entitled to vote.
The holders of the Series B preferred stock also received certain other
rights including, but not limited to, registration rights with respect to the
shares. In the event of a distribution of assets and rights upon liquidation,
shares of Series B preferred stock rank "junior" to all other series of
preferred stock and "senior" to all classes of common stock.
Series C (Convertible and Voting): In August 1999, the Company issued
17,300 shares of Series C preferred stock, resulting in gross proceeds to the
Company of $24.7 million.
The Series C preferred stock includes dividend rights when and if declared
and paid by the Company on common stock as if the Series C preferred stock was
converted to Class A common stock immediately prior to the dividend declaration.
The Series C preferred stock also includes liquidation rights, which provide,
upon liquidation of the company, for the holders to be paid an amount no less
than the original investment amount plus declared but unpaid dividends.
The holders of Series C preferred stock may convert each share of Series C
preferred stock into one share of Class A voting common stock at any time,
subject to adjustment as provided for in the agreement. Each share of Series C
preferred stock carries voting rights equivalent to the number of shares of
Class A voting common stock that would be issued upon conversion, subject to
certain exceptions. Furthermore, the terms of the Series C preferred stock
require conversion to Class A voting common stock in the event of a Qualified
IPO, merger or sale of the Company meeting certain criteria. The holders of
Series C preferred stock also received certain other rights including, but not
limited to, registration rights with respect to the shares.
In the event of a distribution of assets and rights upon liquidation,
shares of Series C preferred stock are "senior" to all other series of preferred
stock and "senior" to all classes of common stock.
STOCKHOLDERS AGREEMENT
In connection with the issuance of the Series B and Series C preferred
stock, the Company entered into a Stockholders Agreement with the Series A, B
and C preferred stock investors, and certain other major common shareholders.
The agreement restricts the parties from transferring their ownership subject to
exceptions, and grants rights of first refusal to the Company and the parties
under the agreement. Additionally, the agreement (i) provides the preferred
stockholders both with tag-along rights if the major common stockholders attempt
to sell any stock and with preemptive rights on Company issuances of equity or
convertible securities, and (ii) provides certain Series B and Series C
investors with representation on the Company's Board of Directors and gives
certain Series B and Series C investors certain veto rights, and (iii) obligates
a major common stockholder under noncompete provisions.
F-15
<PAGE> 114
TALUS SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STOCK WARRANTS
In connection with certain services rendered by outside consultants and the
issuance of certain notes payable, the Company issued warrants to purchase
shares of the Company's Class A voting common stock. The following warrants were
outstanding as of December 31, 1999:
<TABLE>
<CAPTION>
GRANT EXERCISE
NATURE OF TRANSACTION DATE GRANTED OUTSTANDING EXERCISABLE PRICE EXPIRATION
--------------------- -------- ------- ----------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Financing......................... Dec-1997 95 95 95 $0.01 Jan-2003
Consulting Services............... Oct-1998 21 21 21 2.38 Oct-2003
Consulting Services............... Jun-1999 260 260 260 2.38 Jun-2004
Consulting Services............... Jul-1999 42 42 42 2.38 Jul-2004
--- --- ---
418 418 418
=== === ===
</TABLE>
The Company calculated the fair value of all warrants on the date of grant
for services rendered using the Black-Scholes option-pricing model as prescribed
by SFAS No. 123. The fair value of the warrants issued in conjunction with
consulting services was approximately $593 and was recognized as expense in the
period the services were performed.
The terms of the warrants issued in conjunction with certain notes payable
grant the holder the right and option to put the warrants back to the Company
for cash for a period of 30 days immediately prior to the expiration thereof at
a price equal to the fair market value of the shares of Class A voting common
stock issuable to the holder upon exercise, as defined.
In December 1997 the Company allocated $456 to these warrants using the
relative fair values of the notes payable and the warrants. As a result, the
note was recorded with an original issue discount of $456. The value of these
warrants is presented outside of stockholders' equity since redemption of the
warrants is outside of the control of the Company. The fair value of such
warrants were $96 at December 31, 1999 and 1998 and $686 at September 30, 2000
(unaudited). The accretion to fair value recorded for these warrants was $0,
$(360) and $0 in 1999, 1998 and 1997, respectively, and $590 and $0 for the nine
months ended September 30, 2000 and 1999 (unaudited), respectively.
In March 1998, the Company borrowed an additional $2.0 million under the
terms of the financing arrangement. In September 1998, the entire $5.0 million
subordinated note payable was repaid with the proceeds of the sale of the Series
B preferred stock and as a result, the remaining unaccreted discount of $334 was
charged to interest expense.
UNAUDITED
During the nine months ended September 30, 2000, the Company issued common
stock to a customer at a price below fair value. The intrinsic value of the
common stock issued of $2.0 million will be reflected as a reduction of revenue
over the term of the customer contract, which is five years.
(10) STOCK-BASED INCENTIVE PLANS
TALUS 1998 STOCK OPTION PLAN
In 1998, the Company adopted the Talus 1998 Stock Option Plan (the "1998
Plan"). The 1998 Plan, as amended, provided for shares of the Company's Class A
voting common stock to be reserved for incentive stock option and nonqualified
stock option grants to key employees. In November 1999, the Board approved the
Amended and Restated Stock Option Plan (the "1999 Plan"), which provides for
12,715 shares of the Company's Class A voting common stock to be reserved for
incentive stock option and nonqualified stock
F-16
<PAGE> 115
TALUS SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
option grants to key employees and other individuals performing services for the
Company. Options available for grant at December 31, 1999 were 5,867.
OTHER STOCK OPTION PLANS
Each of the predecessor companies maintained stock option plans (the
"predecessor plans") prior to the formation of the Company. All awards granted
under the predecessor plans were converted into options to acquire shares of the
Company's Class A voting common stock or Class B nonvoting common stock.
STOCK OPTIONS AWARDS
The following table summarizes activity in the Company's stock option plans
for the three years ended December 31, 1999:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1999 1998 1997
----------------- ----------------- -----------------
WEIGHTED WEIGHTED WEIGHTED
AVG AVG AVG
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning of year....... 1,319 $2.25 1,069 $2.00 1,734 $1.53
Granted........................................ 6,571 1.01 488 2.38 290 2.45
Canceled/expired............................... (640) 2.12 (108) 1.76 (349) 1.57
Exercised...................................... -- -- (130) 1.10 (606) 1.11
----- ----- -----
Options outstanding at end of year............. 7,250 $1.14 1,319 $2.25 1,069 $2.00
===== ===== =====
Options exercisable at end of year............. 463 $2.26 787 $2.26 405 $2.13
===== ===== =====
</TABLE>
The following table summarizes information about stock options outstanding
and exercisable as of December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------------------------- ---------------------------
WEIGHTED-
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED-
RANGES OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE AT DECEMBER 31, CONTRACTUAL EXERCISE AT DECEMBER 31, EXERCISE
PRICES 1999 LIFE PRICE 1999 PRICE
--------------------------- --------------- ----------- --------- --------------- ---------
<S> <C> <C> <C> <C> <C>
$1.01...................... 6,513 9.60 $1.01 -- $ --
$1.19-$2.45................ 737 4.76 2.30 463 2.26
----- ---
$1.01-$2.45................ 7,250 9.11 1.14 463 2.26
===== ===
</TABLE>
The per share weighted-average fair value of stock options granted during
1999, 1998 and 1997 was $0.27, $0.48 and $0.71, respectively, on the date of
grant using the Black Scholes option-pricing model with the following
weighted-average assumptions: dividend yield of 0%, expected volatility of 0%,
risk-free interest rate of 6.2%, 4.5% and 5.9% for 1999, 1998 and 1997,
respectively, and an expected life of five years for options granted in all
periods.
Had the Company determined compensation cost based on the fair value of the
option at the grant date, the Company's pro forma net loss would have been as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- -----
<S> <C> <C> <C>
As reported............................................. $(19,225) $(10,834) $(167)
======== ======== =====
Pro forma............................................... $(19,522) $(11,032) $(423)
======== ======== =====
</TABLE>
F-17
<PAGE> 116
TALUS SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(11) INCOME TAXES
The provision for income taxes includes income taxes currently payable and
those deferred because of temporary differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and net operating loss and tax credit carryforwards.
Provision for (benefit from) income taxes for the years ended December 31,
1999, 1998 and 1997 consists of:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current provision for (benefit from) income taxes:
Federal................................................... $-- $ -- $(34)
State..................................................... -- -- (26)
Foreign................................................... -- 46 200
-- ---- ----
Total provision for (benefit from) current income
taxes.......................................... -- 46 140
-- ---- ----
Deferred provision for (benefit from) income taxes:
Federal................................................... -- (37) 183
State..................................................... -- (9) 47
-- ---- ----
Total deferred provision for (benefit from) income
taxes.......................................... -- (46) 230
-- ---- ----
Total provision for (benefit from) income taxes... $-- $ -- $370
== ==== ====
</TABLE>
A reconciliation of the Company's provision for income taxes to that
computed by applying the statutory federal income tax rate of 34% is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- ----
<S> <C> <C> <C>
Provision for (benefit from) income taxes at federal
statutory income tax rate................................ $(6,537) $(3,684) $ 69
Increase in income tax expense resulting from:
Merger expenses.......................................... -- -- 247
Other nondeductible expenses............................. 51 49 53
Increase in valuation allowance.......................... 6,922 3,040 --
Compensation expense related to the ESOP................. -- 665 --
State income tax expense, net of Federal income tax
benefit............................................... -- 6 14
Other, net................................................. (436) (76) (13)
------- ------- ----
Actual provision for income taxes................ $ -- $ -- $370
======= ======= ====
</TABLE>
The primary components of net deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Deferred tax liabilities:
Contract accounting....................................... $ 443 $ 777
Depreciation.............................................. 360 237
Other..................................................... -- 237
------- -------
Total deferred tax liabilities.................... 803 1,251
======= =======
</TABLE>
F-18
<PAGE> 117
TALUS SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Operating loss carryforwards.............................. 6,070 2,486
Loss contracts reserve.................................... 1,229 991
Allowance for doubtful accounts........................... 372 252
Restructuring costs....................................... 1,357 --
Accruals.................................................. 1,142 389
Other..................................................... 595 280
------- -------
Total deferred tax assets......................... 10,765 4,398
Valuation allowance............................... (9,962) (3,040)
------- -------
Deferred tax assets after valuation allowance..... 803 1,358
------- -------
Net deferred tax asset............................ $ -- $ 107
======= =======
</TABLE>
The Company provides a valuation allowance for deferred tax assets when it
is more likely than not, based on available evidence, that some portion or all
of the deferred tax assets will not be realized.
Due to uncertainty surrounding the realization of the favorable tax
attributes in future tax returns, the Company has recorded a valuation allowance
against its net deferred tax asset. The valuation allowance increased by $6,922
and $3,040 in 1999 and 1998, respectively.
As of December 31, 1999, the Company had net operating losses and foreign
tax credits available for carryforward of approximately $16,000 and $250 which
expire at various times beginning in the year 2011 and 2002, respectively. The
Tax Reform Act of 1986 (the "Act") contains provisions that may limit the amount
of net operating loss carryforwards that the Company may utilize in any one year
in the event of cumulative changes in ownership over a three-year period in
excess of 50%, as defined. The amount of net operating loss carryforwards
available to offset taxable income may be limited in future periods as a result
of an ownership change (as defined by the Act) that occurred in 1999 upon
issuance of the Series C preferred stock. Of the total net operating loss
carryforward at December 31, 1999, approximately $13,600 are subject to an
annual limitation of approximately $1,600.
(12) EMPLOYEE BENEFIT PLANS
(i) 401(k) Plan
The Company sponsors a defined contribution 401(k) benefit plan (the "Talus
401(k) Plan") for the benefit of its employees. Substantially all employees are
eligible for participation in the plan. Employees can elect to contribute from
1% to 15% of their annual compensation subject to certain limitations on highly
compensated individuals. The Company intends to make a discretionary matching
contribution of up to 5% of the participant's annual salary. The participant's
contributions vest 100% immediately, while any Company contributions vest 20%
annually. During 1998, the Company terminated its predecessor 401(k) plan and
established the Talus 401(k) Plan. The Company's total charge for contributions
to the 401(k) plans for the years ended December 31, 1999, 1998 and 1997 were
approximately $850, $1,061 and $162, respectively.
(ii) Money Purchase Pension Plan
The Company maintained a defined contribution Money Purchase Pension Plan
(the "MPP Plan") for the benefit of all eligible employees. Prior to 1998, the
MPP Plan provided for the Company to make contributions in an amount equal to
10% of eligible employee compensation. In connection with the formation of the
Talus 401(k) Plan in 1998, the Company amended the MPP Plan whereby
contributions were to cease subsequent to December 31, 1997. Employees vested
20% annually in the Company's contributions to the
F-19
<PAGE> 118
TALUS SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
MPP Plan. The Company charged approximately $779 to expense for contributions to
the MPP Plan for the year ended December 31, 1997.
(13) EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) AND TERMINATION
During December 1999, the Company terminated its ESOP Plan. Each
participant became 100% vested in their ESOP shares as a result of the ESOP Plan
termination and became entitled to (i) receive a distribution of their ESOP
shares or (ii) require the Company to purchase their ESOP shares at the December
31, 1998 appraised value of the Company's common stock.
A summary of the ESOP Plan termination is as follows:
<TABLE>
<S> <C>
ESOP shares prior to termination............................ 4,704
Shares distributed to participants.......................... (2,495)
Shares purchased by the Company............................. (1,671)
------
ESOP shares remaining -- December 31, 1999.................. 538
======
</TABLE>
The shares distributed to participants in December 1999 plus the remaining
shares held by the ESOP (3,033) are subject to two put rights at $1.02 and
$0.82, per share, which expire or are expected to expire in January 2001.
The Company maintained the ESOP Plan for the benefit of all eligible
employees through December 1999. The ESOP Plan was formed as a leveraged
employee stock ownership plan. The ESOP Plan had borrowed under notes payable to
the Company and from certain of the Company's shareholders to purchase the
Company's Class A voting common stock. Contributions to the ESOP Plan made by
the Company were used to fund principal and interest payments on the ESOP Plan
debt. As principal payments were made by the ESOP Plan, shares of the Company's
Class A voting common stock were released for allocation to the ESOP Plan
participants with the remaining unallocated shares serving as collateral for the
notes payable. Notwithstanding debt service requirements, contributions to the
ESOP Plan were determined at the discretion of the Company's Board of Directors
and shares were allocated to participants in the proportion that each
participant's eligible compensation bears to total eligible compensation for all
participants for the ESOP Plan year. Participants vested 20% annually in shares
allocated to participants.
During 1998, the Company has reflected the cost of the shares purchased
with the borrowings as unearned compensation related to employee stock ownership
plan in redeemable common stock with reductions at cost for shares allocated as
a result of debt repayments. The Company recorded compensation expense for the
ESOP Plan equal to discretionary cash contributions plus the fair value of
shares committed to be released during each period. Any difference between the
cost of the shares released and the fair value recorded was charged or credited
to additional paid-in capital.
During 1998, the independent fiduciary of the ESOP Plan agreed to sell
unallocated shares to the Company at a price of $3.50 per share. In November
1998, the Company purchased 634 shares of Class A voting common stock from the
ESOP Plan for cash at a total cost of $2,220. Of this amount, the Company
charged $1,027 to ESOP expense.
The ESOP Plan used the proceeds from the sale of Class A voting common
stock to the Company to retire its debt obligation to the Company. As a result
of eliminating its debt to the Company, 1,040 shares of Class A voting common
stock previously held as collateral for the debt were made available for
allocation to the participants. Accordingly, the Company charged $1,955 to ESOP
expense for the year ended December 31, 1998 reflecting the allocation of the
remaining shares. Additionally, the Company charged $302 to ESOP expense for the
year ended December 31, 1998 for ESOP Plan administrative expenses paid by the
F-20
<PAGE> 119
TALUS SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Company. The Company charged $3,284, in aggregate, to expense for the ESOP Plan
for the year ended December 31, 1998.
During 1997, 324 shares of the Company's Class A voting common stock were
allocated to participants. At December 31, 1997, the Company had 1,674
unallocated shares of its Class A voting common stock. The Company charged $778
to expense for the ESOP Plan for the year ended December 31, 1997.
The value of shares held by the ESOP or held by individuals that contain
put rights are presented outside of stockholders' equity since redemption of the
shares is outside of the control of the Company. The maximum potential cash
obligation of the Company was $3,094, $4,812 and $2,166 at December 31, 1999 and
1998 and September 30, 2000 (unaudited), respectively. The increase (decrease)
in fair value of the ESOP put obligation for the years ended December 31, 1999,
1998, and 1997 and for the nine months ended September 30, 2000 and 1999 was
$(1,718), $(8,859), $4,248, $(928), and $0, respectively.
(14) OPERATING LEASE COMMITMENTS
The Company is obligated under noncancelable operating lease agreements for
office facilities, furniture and fixtures, and computer equipment for the next
five years and thereafter.
Future minimum lease payments under all noncancelable operating lease
agreements with remaining terms in excess of one year in the aggregate and for
the next five years are shown as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
2000........................................................ $ 3,447
2001........................................................ 4,608
2002........................................................ 3,385
2003........................................................ 2,168
2004........................................................ 1,357
Thereafter.................................................. 4,629
-------
$19,594
=======
</TABLE>
Net rent expense for all cancelable and noncancelable operating leases was
$3,297, $3,129 and $2,421 for the years ended December 31, 1999, 1998 and 1997,
respectively. The Company received approximately $236, $247 and $233 in rental
income from subleases during the years ended December 31, 1999, 1998 and 1997,
respectively.
(15) COMMITMENTS AND CONTINGENCIES
The markets for the Company's pricing and revenue management software
solutions and services are characterized by risk and uncertainty as a result of
competition and rapidly evolving technology. Furthermore, the Company's business
is subject to risk factors that may affect future results such as customer and
market concentrations, market development, long sales and delivery cycle,
ability to manage growth and customer projects, dependence on key personnel and
foreign operations. Negative developments related to these risks and
uncertainties or others could have a material adverse impact on the Company's
financial position and results of operations.
The Company is subject to certain other lawsuits, claims, and assessments
arising out of the ordinary conduct of business. Such claims usually include
assertions of breach of contract or non-performance by the Company. The Company
has recorded reserves of approximately $3.1 million as of December 31, 1999 for
litigation, claims and assessments ("LCA") that have been or may be asserted
against the Company and for which an unfavorable outcome is probable and
reasonably estimable. Approximately $2.7 million of LCA reserves are included in
the loss contracts reserve. While the ultimate results and outcomes from these
and
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TALUS SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
other LCA matters cannot be determined precisely, management, based in part upon
the advice of legal counsel, believes that the resolution of all uninsured LCA
matters and insured LCA matters will not have a material adverse effect on the
Company's financial position or results of operations; however, there can be no
assurance in this regard.
UNAUDITED
During October 2000, the Company reached an agreement to settle a pending
customer claim for $500, net of insurance proceeds. The settlement agreement
requires payments of $700 and $500 on or before December 31, 2000 and 2001,
respectively. The Company has received $700 from its insurance carrier related
to this claim. The Company had previously accrued $2.7 million related to this
claim, which was included in the loss contract reserve. The $2.2 million
reduction of the reserve was reflected as a reduction of cost of revenue during
the nine months ended September 30, 2000. The settlement payment due on or
before December 31, 2001 is reflected in other long-term liabilities as of
September 30, 2000.
(16) SIGNIFICANT CUSTOMER INFORMATION AND SEGMENT REPORTING
MAJOR CUSTOMERS
For the year ended December 31, 1999, two customers accounted for 12% and
11% of revenues, respectively. For the years ended December 31, 1998 and 1997,
one customer accounted for 10% and 13% of revenues, respectively.
INTERNATIONAL REVENUES
Revenues and percentages to total revenues derived from customers domiciled
in selected geographic regions throughout the world for the years ended December
31, 1999, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- -------------------- --------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
------- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
United States...................... $32,921 87.0% $33,140 75.5% $28,812 70.1%
Europe............................. 3,803 10.0 6,727 15.2 8,534 20.8
Other.............................. 1,126 3.0 4,056 9.3 3,724 9.1
------- ----- ------- ----- ------- -----
Total.................... $37,850 100.0% $43,923 100.0% $41,070 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
(17) SUBSEQUENT EVENT
On September 21, 2000 the Company signed an agreement to be acquired by
Manugistics Group, Inc. ("Manugistics") in a tax-free stock for stock merger.
Under the agreement, Manugistics will acquire all outstanding stock and
will assume all of the stock options and warrants of the Company. For the
transaction, Talus stockholders will receive between 4.2 and 5.0 million shares
of Manugistics common stock. The total value of the transaction is approximately
$365.0 million, based upon the closing price of Manugistics common stock on
September 21, 2000. The final value of the transaction and number of shares to
be issued will be based upon Manugistics' common stock average price for the
fifteen-day period 2 days prior to closing. The transaction is expected to close
no later than February 28, 2001.
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APPENDIX "A"
MERGER AGREEMENT
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AGREEMENT AND PLAN OF MERGER
BY AND AMONG
MANUGISTICS GROUP, INC.,
TALUS SOLUTIONS, INC.
AND
MANU ACQUISITION CORP.
DATED AS OF
SEPTEMBER 21, 2000
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AGREEMENT AND PLAN OF MERGER
BY AND AMONG
MANUGISTICS GROUP, INC.,
TALUS SOLUTIONS, INC.
AND
MANU ACQUISITION CORP.
DATED AS OF
SEPTEMBER 21, 2000
THIS AGREEMENT AND PLAN OF MERGER (the "AGREEMENT") is entered into as of
this 21st day of September 2000, by and among MANUGISTICS GROUP, INC., a
Delaware corporation ("PARENT"), MANU ACQUISITION CORP., a Delaware corporation
wholly owned by Parent ("ACQUISITION") and TALUS SOLUTIONS, INC., a Delaware
corporation (the "COMPANY").
RECITALS
A. The Boards of Directors of each of Parent, the Company and Acquisition
believe that it is in the best interests of each company and its respective
stockholders to consummate the reorganization provided for herein, pursuant to
which Parent will directly acquire all of the capital stock of the Company
through a merger of Acquisition with and into the Company, with the Company
being the surviving corporation (as hereinafter defined in Section 1.1, the
"Merger").
B. Pursuant to the written consent of the holders of a majority of the
voting capital stock of the Company made in accordance with Section 228 of the
Delaware General Corporation Law ("DGCL"), the stockholders of the Company have
approved the Merger.
C. For federal income tax purposes, it is intended that the Merger qualify
as a reorganization under the provisions of Sections 368(a)(1)(A) and 368
(a)(2)(E) of the Internal Revenue Code of 1986, as amended (the "CODE").
D. Concurrently with the execution hereof, in order to induce Parent to
enter into this Agreement, certain stockholders of the Company are entering into
(i) support agreements (the "SUPPORT AGREEMENTS") providing to Parent certain
voting and purchase rights with respect to shares of Company capital stock held
by them, and (ii) share transfer restriction agreements (the "SHARE TRANSFER
RESTRICTION AGREEMENTS") providing for certain restrictions on the transfer of
the shares of Parent Common Stock (as hereinafter defined) received in
connection with the Merger, all upon the terms and conditions specified therein.
E. The Board of Directors of Parent, Acquisition and the Company deem it
advisable and in the best interests of each corporation and its respective
stockholders that the Company and Parent combine in order to advance the
long-term business strategies, goals and interests of the Company and Parent.
F. The Company, on the one hand, and Parent and Acquisition, on the other
hand, desire to make certain representations, warranties, covenants and other
agreements in connection with the transactions contemplated hereby.
NOW, THEREFORE, in consideration of the covenants, promises,
representations and warranties set forth herein, and for other good and valuable
consideration the receipt of which is hereby acknowledged, the parties agree as
follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions
hereof, at the Effective Time (as defined in Section 1.3 hereof), (a)
Acquisition shall be merged with and into the Company, (b) the separate
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corporate existence of Acquisition shall cease, and (c) the Company shall
continue as the surviving corporation (the "SURVIVING CORPORATION") in the
Merger under the laws of the State of Delaware under the name Talus Solutions,
Inc. (the "MERGER").
Section 1.2 Closing and Closing Date. Subject to the terms and conditions
of this Agreement, the closing of the Merger (the "CLOSING") will take place at
the offices of Paul, Hastings, Janofsky & Walker LLP, 600 Peachtree Street,
N.E., Suite 2400, Atlanta, Georgia 30308 at 10:00 a.m. local time, on (a) the
next business day after the last to be fulfilled or waived of the conditions set
forth in Article VII shall be fulfilled or waived in accordance herewith, or (b)
at such other time, date or place as the Company and Parent may agree in
writing. The date on which the Closing occurs is referred to herein as the
"Closing Date".
Section 1.3 Effective Time of the Merger. On the Closing Date, the parties
hereto shall cause a certificate of merger, or other appropriate documentation,
satisfying the requirements of the DGCL (the "CERTIFICATE OF MERGER") to be
filed with the office of the Secretary of State of the State of Delaware in
accordance with the provisions of the DGCL. When used herein, the term
"EFFECTIVE TIME" shall mean the date and time when the Certificate of Merger has
been accepted for filing by the Secretary of State of the State of Delaware or
such date and time as otherwise specified in the Certificate of Merger.
Section 1.4 Effect of the Merger. The Merger shall, from and after the
Effective Time, have the effects provided in Section 259 of the DGCL. If at any
time after the Effective Time, any further action is deemed necessary or
desirable to carry out the purposes of this Agreement, the parties hereto agree
that the Surviving Corporation and its proper officers and directors shall be
authorized to take, and shall take, any and all such action.
ARTICLE II
THE SURVIVING CORPORATION
Section 2.1 Certificate of Incorporation. The Certificate of Incorporation
of the Company shall be the Certificate of Incorporation of the Surviving
Corporation after the Effective Time, until thereafter changed or amended as
provided therein or by applicable law.
Section 2.2 Bylaws. The bylaws of the Company as in effect immediately
prior to the Effective Time shall be the bylaws of the Surviving Corporation,
until thereafter changed or amended as provided therein or by applicable law.
Section 2.3 Board of Directors and Officers. The board of directors and
officers of Acquisition immediately prior to the Effective Time shall be
appointed as the board of directors and officers, respectively, of the Surviving
Corporation, effective as of the Effective Time, and until the earlier of their
respective resignations or the time that their respective successors are duly
elected or appointed and qualified.
ARTICLE III
CONVERSION OF SHARES
Section 3.1 Merger Consideration. As of the Effective Time, by virtue of
the Merger and without any action on the part of Acquisition, the Company, or
Parent:
(a) Each share of the Company's Class A Voting Common Stock, par value
$.0001 per share (the "CLASS A COMMON STOCK"), and Class B Non-Voting Common
Stock, par value $.0001 per share (the "CLASS B COMMON STOCK", and together with
the Class A Common Stock the "COMPANY COMMON STOCK"), issued and outstanding
immediately prior to the Effective Time (other than any Dissenting Shares (as
hereinafter defined)) will be converted, without any action on the part of the
holders thereof, into a number of shares of the common stock, par value $0.002
per share, of Parent ("PARENT COMMON STOCK") equal to the Exchange Ratio (as
hereinafter defined) determined in accordance with Section 3.1(c) below;
provided that, cash shall be paid in lieu of fractional shares of Parent Common
Stock (if any). Each share of the Company's Class A Cumulative Convertible
Redeemable Non-Voting Preferred Stock, par value $.0001 per share (the "SERIES A
PREFERRED STOCK"), Class B Convertible Voting Preferred Stock, par value $.0001
per share (the "SERIES B PREFERRED STOCK"), and Class C Convertible Voting
Preferred Stock, par value $.0001 per share
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(the "SERIES C PREFERRED STOCK", and together with the Series A Preferred Stock
and the Series B Preferred Stock, the "COMPANY PREFERRED STOCK", and together
with the Company Common Stock, the "COMPANY CAPITAL STOCK"), issued and
outstanding immediately prior to the Effective Time (other than any Dissenting
Shares) will be converted, without any action on the part of the holders
thereof, into a number of shares of Parent Common Stock equal to the Exchange
Ratio determined in accordance with Section 3.1(c) below multiplied by the
number of shares of Company Common Stock into which each share of Company
Preferred Stock is convertible immediately prior to the Effective Time pursuant
to the Company's Certificate of Incorporation; provided that, cash shall be paid
in lieu of fractional shares of Parent Common Stock (if any). Such conversions
shall be made pursuant to and in accordance with the procedures set forth in
Section 3.5 below.
(b) Except as otherwise provided herein, the capitalized terms set forth
below shall have the following meanings:
"AVERAGE STOCK PRICE" shall mean the average closing price for Parent
Common Stock, as determined by averaging the Parent Common Stock Price on
the Nasdaq National Market System (the "NASDAQ") for the fifteen (15)
trading days immediately preceding the date which is two (2) days prior to
the Closing Date (or, if applicable, depending upon the date of the
Closing, such lesser number of trading days between the date hereof and the
date which is two days prior to the Closing Date).
"EXCHANGE RATIO" shall mean the Company Exchange Ratio, the Series A
Exchange Ratio or the Alternative Exchange Ratio, as applicable.
"PARENT STOCK AMOUNT" shall mean a number of shares of Parent Common
Stock equal to (A) 5,000,000, if the Average Stock Price is equal to or
less than $65.00 per share, or (B) 4,200,000, plus the product of 800,000
multiplied by a factor, the numerator of which is the difference between
$78.00 and the Average Stock Price and the denominator of which is $13.00,
if the Average Stock Price is greater than $65.00 per share but less than
$78.00 per share, or (C) 4,200,000, if the Average Stock Price is equal to
or greater than $78.00 per share.
"REMAINING STOCK AMOUNT" means a number of shares of Parent Common
Stock equal to the Parent Stock Amount minus the Series A Minimum Amount.
"SERIES A ELECTION NOTICE" shall mean an election, made in writing and
received by Parent not later than two days before the Closing Date from the
holder of the Series A Preferred Stock, which specifies whether such holder
will (i) elect to convert its shares of Series A Preferred Stock in
accordance with Section IV.C.5.(a) of the Company's Certificate of
Incorporation or (ii) treat the Merger as a liquidation in accordance with
Section IV.C.3 of the Company's Certificate of Incorporation.
"SERIES A MINIMUM AMOUNT" shall mean that number of shares (rounded to
the nearest whole number of shares) of Parent Common Stock equal to the
quotient of (i) the amount determined in accordance with the proviso to
Section IV.C.3 of the Company's Certificate of Incorporation, divided by
(ii) the Average Stock Price.
(c) The Exchange Ratio shall be determined as follows:
(i) If the Series A Election Notice specifies that the holder will
convert its shares of Series A Preferred Stock in accordance with Section
IV.C.5.(a) of the Company's Certificate of Incorporation, or if the holder
of the Series A Preferred Stock fails to timely file such election, then
the Exchange Ratio for each class of Company Capital Stock (the "COMPANY
EXCHANGE RATIO") shall be equal to the quotient of: (A) the Parent Stock
Amount; divided by (B) the aggregate number of shares of Company Common
Stock issued and outstanding as of the Closing Date, computed on a
fully-diluted basis (including for these purposes the number of: (i) shares
of Company Common Stock issued upon conversion of the Company Preferred
Stock; and (ii) shares of Company Common Stock issuable pursuant to the
Company Stock Rights (whether or not vested)) (such denominator being, as
of the date hereof, a total of 56,688,946).
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(ii) If the Series A Election Notice is timely received and specifies
that the holder will treat the Merger as a liquidation in accordance with
Section IV.C.3 of the Company's Certificate of Incorporation, then
(A) the exchange ratio for the Series A Preferred Stock (the
"SERIES A EXCHANGE RATIO") shall be equal to the quotient of: (x) the
Series A Minimum Amount; divided by (y) the number of shares of Series A
Preferred Stock outstanding immediately prior to the Effective Time; and
(B) the exchange ratio for the Company Common Stock, the Series B
Preferred Stock and the Series C Preferred Stock (the "ALTERNATIVE
EXCHANGE RATIO") shall be equal to the quotient of: (A) the Remaining
Stock Amount, divided by (B) the aggregate number of shares of Company
Common Stock issued and outstanding as of the Closing Date, computed on
a fully-diluted basis (including for these purposes the number of (i)
shares of Company Common Stock issued upon conversion of the Series B
Preferred Stock and the Series C Preferred Stock; and (ii) shares of
Company Common Stock issuable pursuant to Company Stock Rights (whether
or not vested), but expressly excluding any shares of Series A Preferred
Stock or Company Common Stock issued or issuable upon conversion of the
Series A Preferred Stock).
(d) Each Share of Company Capital Stock held in the Company's treasury or
held by any subsidiary of the Company, immediately prior to the Effective Time
will be cancelled without the payment of any consideration therefor (it being
understood that the shares of Company Common Stock held by the Company's
Employee Stock Ownership Plan shall not be deemed treasury shares and shall be
exchanged for shares of Parent Common Stock in the Merger in accordance with the
provisions of Section 3.1(a) above).
(e) Each share of common stock, par value $.0001 per share, of Acquisition
("ACQUISITION COMMON STOCK") issued and outstanding immediately prior to the
Effective Time will be converted into and become one share of common stock, par
value $.0001 per share, of the Surviving Corporation.
(f) Each share of the Acquisition Common Stock held in Acquisition's
treasury or by any subsidiary of Acquisition immediately prior to the Effective
Time will be cancelled without the payment of any consideration therefor.
(g) In no event shall Parent be obligated to issue more than 5,000,000
shares of Parent Common Stock (as adjusted for stock splits, stock dividends and
similar transactions.).
Section 3.2 Dissenting Shares. Notwithstanding any provision hereof to the
contrary, any shares of Company Capital Stock held by a Dissenting Stockholder
(as hereinafter defined) shall not be converted as described in Section 3.1
hereof, but instead shall be converted into the right to receive the
consideration due a Dissenting Stockholder pursuant to Section 262 of the DGCL;
provided, however, that if a Dissenting Stockholder shall fail to perfect his
demand, withdraw his demand or otherwise lose his right for appraisal under the
terms of the DGCL, then the Company Capital Stock held by such Dissenting
Stockholder (the "DISSENTING SHARES") shall be deemed to be converted as of the
Effective Time in accordance with the provisions of Section 3.1 hereof. Except
as required by applicable Law, the Company shall not voluntarily make any
payment with respect to, settle, or offer to settle or otherwise negotiate, any
such demands. All amounts paid to Dissenting Stockholders shall be paid without
interest thereon (to the extent permitted by applicable law). For purposes
hereof, the term "DISSENTING STOCKHOLDER" shall mean a stockholder of the
Company who (a) objects to the Merger; and (b) complies with the applicable
provisions of the DGCL concerning dissenter's rights.
Section 3.3 No Further Rights. From and after the Effective Time, holders
of certificates theretofore evidencing Company Capital Stock shall cease to have
any rights as stockholders of the Company, except as provided herein or by
applicable law.
Section 3.4 Stock Transfer Books. All shares of Parent Common Stock issued
upon surrender of Certificates in accordance with this Article III shall be
deemed to be in full satisfaction of all rights pertaining to shares of Company
Capital Stock represented thereby. At the Effective Time, the stock transfer
books of the Company shall be closed and no transfer of Company Capital Stock
shall be made thereafter. If after the Effective Time, certificates for Company
Capital Stock (a "CERTIFICATE") are presented to the Surviving
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Corporation or Parent they shall be cancelled and exchanged for such
consideration as set forth in Section 3.1 hereof, subject to applicable law in
the case of Dissenting Stockholders.
Section 3.5 Exchange Procedure.
(a) At the Effective Time, Parent shall issue an aggregate number of shares
of Parent Common Stock equal to fifteen percent (15%) of the total number of
shares of Parent Common Stock issuable pursuant to Section 3.1 hereto (such
shares, subject to adjustment for fractional shares as set forth in Exhibit F,
the "ESCROW SHARES") to be held in escrow pursuant to Article XI and Exhibit F
hereof. The portion of the Escrow Shares issued and contributed on behalf of
each holder of Company Capital Stock shall be in proportion to the aggregate
number of shares of Parent Common Stock which such holder would otherwise be
entitled to receive under Article 3 by virtue of ownership of Company Capital
Stock; provided that, no fractional shares shall be escrowed and the number of
Escrow Shares issued and contributed on behalf of each holder of Company Stock
shall be rounded down to the nearest whole number of shares in the manner set
forth in Exhibit F.
(b) As of the Effective Time, Parent shall deposit, or shall cause to be
deposited, with an exchange agent selected and appointed by Parent, which
exchange agent shall be a reputable institution reasonably satisfactory to the
Company (the "EXCHANGE AGENT"), for the benefit of the holders of Company
Capital Stock, (i) certificates representing the shares of Parent Common Stock
(other than fractional shares and other than the Escrow Shares) issuable in
accordance with Section 3.1 hereof, and (ii) cash in lieu of fractional shares
to be paid pursuant to Section 3.1, in each case in exchange for the outstanding
shares of Company Capital Stock.
(c) Promptly after the Effective Time, Parent shall cause the Exchange
Agent to mail to each holder of record of a Certificate or Certificates (i) a
letter of transmittal which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon delivery to the
Exchange Agent of (A) the Certificates and (B) such other certifications,
affidavits or documents as Parent may request, in form acceptable to Parent and
its counsel and duly executed by such holder, said letter of transmittal to be
in such form and have such other provisions as Parent may reasonably specify,
and (ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing Parent Common Stock (other than
fractional shares), and cash in lieu of fractional shares. Upon surrender of a
Certificate for cancellation to the Exchange Agent together with the other
required documentation and such letter of transmittal, duly executed and
completed in accordance with the instructions thereto, the holder of such
Certificate shall be entitled to receive in exchange therefor, subject to the
provisions of Article XI hereof, (x) certificates representing the number of
whole shares of the Parent Common Stock and (y) a check representing the amount
of cash in lieu of fractional shares, which such holder has the right to receive
in respect of the Certificate surrendered pursuant to the provisions of this
Article III, after giving effect to any required withholding tax; and, the
Certificate so surrendered shall forthwith be cancelled. No interest will be
paid or accrued on the cash in lieu of fractional shares payable to holders of
Certificates. In the event of a transfer of ownership of Company Capital Stock
which is not registered in the transfer records of the Company, certificates
representing the proper number of shares of Parent Common Stock, together with a
check for the cash to be paid in lieu of fractional shares, may be issued or
paid to such a transferee if the Certificate representing such Company Capital
Stock is presented to the Exchange Agent, accompanied by all documents
reasonably required by the Exchange Agent to evidence and effect such transfer
and to evidence that any applicable stock transfer taxes have been paid.
(d) Notwithstanding any other provisions of this Agreement, no dividends or
other distributions on the Parent Common Stock with a record date after the
Effective Time shall be paid with respect to any shares of Company Capital Stock
represented by a Certificate, nor shall any cash payment in lieu of fractional
shares be paid with respect to such shares, until such Certificate is
surrendered for exchange as provided herein. Subject to the effect of applicable
laws, following surrender of any such Certificate, there shall be paid to the
holder of the certificates representing whole shares of Parent Common Stock
issued in exchange therefor, without interest, (i) at the time of such
surrender, the amount of dividends or other distributions with a record date
after the Effective Time theretofore payable with respect to such whole shares
of Parent Common Stock, less the amount of any withholding taxes which may be
required thereon, and (ii) at the appropriate payment date,
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the amount of dividends or other distributions with a record date after the
Effective Time but prior to surrender and a payment date subsequent to surrender
payable with respect to such whole shares of the Parent Common Stock, less the
amount of any withholding taxes which may be required thereon.
(e) No fractional shares of Parent Common Stock shall be issued pursuant
hereto. In lieu of the issuance of any fractional shares of Parent Common Stock
pursuant to the Merger, cash adjustments will be paid to holders in respect of
any fractional shares of Parent Common Stock that would otherwise be issuable,
and the amount of such cash adjustment shall be equal to the product of such
fractional amount and the Average Stock Price.
(f) Any portion of the Parent Common Stock held by the Exchange Agent
(together with any cash in lieu of fractional shares and the proceeds of any
investments thereof) that remains unclaimed by the former stockholders of the
Company one year after the Effective Time shall be delivered to Parent. Any
former stockholders of the Company who have not theretofore complied with this
Section 3.5 shall thereafter look only to Parent for payment of their Parent
Common Stock, cash in lieu of fractional shares, and any dividends and other
distributions on the Parent Common Stock, if any, in each case, without any
interest thereon.
(g) None of Parent, Acquisition, the Company, the Exchange Agent or any
other person shall be liable to any former holder of Company Capital Stock for
any amount properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws. Any such amounts remaining
unclaimed by any holder of Company Capital Stock immediately prior to such time
when such amounts would otherwise escheat to or become the property of any
Governmental Entity (as hereinafter defined), shall, to the extent permitted by
applicable laws, become the property of Parent, free and clear of all claims, or
interest of any person previously entitled thereto.
(h) In the event any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if required by Parent, the
execution of an indemnity agreement reasonably acceptable to Parent by such
person against any claim that may be made against it with respect to such
Certificate, the Exchange Agent or Parent will issue in exchange for such lost,
stolen or destroyed Certificate the shares of Parent Common Stock, and cash in
lieu of fractional shares, and any unpaid dividends and distributions thereon,
deliverable in respect thereof pursuant to this Agreement.
(i) Each of the Surviving Corporation and Parent shall be entitled to
deduct and withhold from the Parent Common Stock, and cash in lieu of fractional
shares thereof (and any dividends or distributions thereon), otherwise payable
hereunder to any person, such amounts as it is required to deduct and withhold
with respect to the making of such payment under any provision of federal,
state, local or foreign income tax law. To the extent that the Surviving
Corporation or Parent so withholds those amounts, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the holder of
Company Capital Stock in respect of which such deduction and withholding was
made by the Surviving Corporation or Parent, as the case may be.
(j) Subject to applicable law, Certificates surrendered for exchange by any
person constituting an "affiliate" of the Company for purposes of Rule 145(c)
under the Securities Act of 1933, as amended, and the rules promulgated
thereunder (the "SECURITIES ACT"), shall not be exchanged until Parent has
received from such person a signed Rule 145 Letter, in the form attached hereto
as Exhibit A, pursuant to which such person will agree to comply with the
provisions of Rule 145 under the Securities Act.
Section 3.6 Tax Consequences. It is intended by the parties hereto that
the Merger shall constitute a reorganization within the meaning of Sections
368(a)(1)(A) and 368(a)(2)(E) of the Code. The parties hereto adopt this
Agreement as a "plan of reorganization" within the meaning of Section 1.368-2(g)
and 1.368-3(a) of the Income Tax Regulations.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
With such exceptions as are set forth in a letter (the "Company Disclosure
Letter") delivered by the Company to Parent prior to the execution hereof,
making in the case of each such exception specific reference to the
representation and warranty in this Article IV so excepted, the Company
represents and warrants to Parent and Acquisition as follows:
Section 4.1 Organization and Qualification.
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. The Company has the
requisite corporate power and authority to carry on its business as it is now
being conducted and is duly qualified or licensed to do business, and is in good
standing, in each jurisdiction where the character of its properties owned or
held under lease or the nature of its activities makes such qualification
necessary, except where the failure to be so qualified would not have a Material
Adverse Effect (as hereinafter defined) on the Company. The Company has made
available to Parent complete and correct copies of the Certificate of
Incorporation and bylaws of the Company as in effect on the date hereof. The
minute book of the Company, a true and complete copy of which has been made
available to Parent, (i) accurately reflects all action taken by the directors
and stockholders of the Company at meetings of the Company's board of directors
or stockholders, as the case may be and (ii) contains true and complete copies,
or originals, of the respective minutes of all meetings or consent actions of
the directors or stockholders.
(b) For purposes of this Agreement, the term "Material Adverse Effect"
shall mean an act, omission or a circumstance of any kind whatsoever,
individually or in the aggregate, that has a material and adverse effect on the
assets, business, financial condition or results of operations of any party
hereto and its subsidiaries taken as a whole, as applicable; provided, however,
that (i) any adverse change resulting from conditions affecting the United
States economy that is material to the business of a party hereto, shall not be
taken into account in determining whether there has been or would be a "Material
Adverse Effect" on or with respect to such party, (ii) any adverse change that
is primarily caused by conditions affecting a party's industry sector shall not
be taken into account in determining whether there has been or would be a
"Material Adverse Effect" on or with respect to such party, (iii) any adverse
change in the stock price or trading volume of a party's capital stock shall not
be taken into account in determining whether there has been or would be a
"Material Adverse Effect" on or with respect to such party, (iv) any failure by
any party to meet the revenue or earnings predictions of equity analysts or any
other revenue or earnings predictions or expectations (whether internal or
external), for any period ending for which earnings are released on or after the
date of this Agreement and prior to the Closing Date, in and of itself, shall
not be taken into account in determining whether there has been or would be a
"Material Adverse Effect" on or with respect to such party, and (v) any adverse
change arising primarily out of, or resulting primarily from, actions taken by
any party in connection with (but not in breach of) this Agreement and the
transactions contemplated hereunder, or which is primarily attributable to the
announcement of this Agreement and the transactions contemplated hereby
(including, without limitation, any litigation, employee attrition or any loss
or postponement of business resulting from termination or modification of any
vendor, customer or other business relationships, delay of customer order or
otherwise and any corresponding change in the margins, profitability or
financial condition of a party) shall not be taken into account in determining
whether there has been or would be a "Material Adverse Effect" on or with
respect to such party.
Section 4.2 Authority. The Company has full power and authority (including
full corporate power and authority) to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery
hereof and the consummation of the transactions contemplated hereby by the
Company have been duly and validly authorized and approved by the Company's
board of directors and by the stockholders of the Company. This Agreement has
been duly executed and delivered by the Company, and assuming the due
authorization, execution and delivery by Parent and Acquisition, constitutes the
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium and similar laws of general application relating to or
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affecting creditors' rights and to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing.
Section 4.3 Capitalization.
(a) The authorized capital stock of the Company consists of (i) 100,000,000
shares of Class A Voting Common Stock, par value $.0001 per share, of which
16,603,843 shares are issued and outstanding, and 1,948,630 shares are held in
the treasury of the Company; (ii) 5,000,000 shares of Class B Non-Voting Common
Stock, par value $.0001 per share, of which 398,627 shares are issued and
outstanding, and no shares are held in the treasury of the Company; (iii)
2,000,000 shares of Class A Cumulative Convertible Redeemable Non-Voting
Preferred Stock, par value $.0001 per share, of which 831,635 shares are issued
and outstanding, and no shares are held in the treasury of the Company, which
will, subject to the consent of the holders, convert in the Merger into 985,219
shares of Company Class B Non-Voting Common Stock; (iv) 5,000,000 shares of
Class B Convertible Voting Preferred Stock, par value $.0001 per share, of which
4,716,981 shares are issued and outstanding, and no shares are held in the
treasury of the Company, which will automatically convert in the Merger into
13,839,872 shares of Company Class A Voting Common Stock; and (v) 18,000,000
shares of Class C Convertible Voting Preferred Stock, par value $.0001 per
share, of which 17,299,851 shares are issued and outstanding, and no shares are
held in the treasury of the Company, which will, subject to the consent of the
holders, convert in the Merger into 17,299,851 shares of Company Class A Voting
Common Stock. Such issued and outstanding shares, together with 9,510,163 shares
of Company Common Stock reserved for issuance in respect of certain outstanding
options, warrants and rights, constitute all of the Company Capital Stock
subject to conversion in accordance with Article III and Section 6.12 hereof.
All outstanding capital stock of the Company was issued and will be issued in
material compliance with applicable federal and state securities laws.
(b) The Company has outstanding (i) warrants to purchase and acquire, in
the aggregate, 436,525 shares of Company Common Stock, and (ii) options (vested
and non-vested) to purchase and acquire, in the aggregate, 9,073,638 shares of
Company Common Stock (collectively, the "Company Stock Rights").
(c) Except for the Company Stock Rights, there are no options, warrants,
calls, convertible notes, agreements, commitments or other rights presently
outstanding that would obligate the Company to issue, deliver or sell shares of
its capital stock, or to grant, extend or enter into any such option, warrant,
call, convertible note, agreement, commitment or other right. In addition to the
foregoing, as of the date hereof, the Company has no bonds, debentures, notes or
other indebtedness issued or outstanding that have voting rights in the Company.
The Company Disclosure Letter sets forth a list of (i) all holders of Company
Stock Rights; (ii) the number of shares, and class of shares, of capital stock
of the Company represented by the Company Stock Rights; and (iii) the exercise
price, date of grant, duration and vesting schedule, including accelerated
vesting upon a change in control, for each Company Stock Right. There are no
outstanding or authorized stock appreciation, phantom stock profit participation
or similar rights with respect to the Company.
(d) All of the issued and outstanding shares of capital stock of the
Company are validly issued, fully paid and nonassessable. Each share of the
capital stock of the Company is free and clear of any lien, charge, security
interest, pledge, option, right of first refusal, voting proxy or other voting
agreement, or encumbrance of any kind or nature imposed by the Company, other
than (i) encumbrances that would not adversely affect the Merger or the
conversion of such shares pursuant to the Merger, and (ii) restrictions on
transfer imposed by federal and state securities laws. Except for the dividends
accrued on the Company's Class A Cumulative Convertible Redeemable Non-Voting
Preferred Stock in the aggregate amount set forth in the Company Disclosure
Letter, there are no dividends declared or accrued, but not paid, in respect of
any of the shares of the Company Capital Stock.
Section 4.4 Subsidiaries. The Company owns all of the outstanding capital
stock of the wholly owned subsidiary identified on the Company Disclosure Letter
(the "Subsidiary"). The Subsidiary is a private company limited by shares, duly
organized, validly existing and in good standing under the laws of England and
Wales. The Subsidiary has the requisite corporate power and authority to carry
on its business as it is now being conducted and is duly qualified or licensed
to do business, and is in good standing, in each jurisdiction where the
character of its properties owned or held under lease or the nature of its
activities makes such
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qualification necessary, except where the failure to be so qualified would not
have a Material Adverse Effect on the Company. The Company has made available to
Parent complete and correct copies of the Memorandum and Articles of Association
of the Subsidiary as in effect on the date hereof. Except for the Subsidiary,
the Company has no subsidiaries and does not otherwise own or control, directly
or indirectly, any controlling equity interest, or any security convertible into
a controlling equity interest, in any corporation, partnership, limited
liability company, joint venture, association or other business entity (any of
the foregoing, an "ENTITY").
Section 4.5 No Conflicts, Required Filings and Consents. Subject to any
required filing pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "H-S-R ACT"), and the filing of the Certificate of Merger
with the Secretary of State of the State of Delaware, none of (i) the execution
and delivery of this Agreement by the Company, (ii) the consummation by the
Company of the transactions contemplated hereby or (iii) compliance by the
Company with any of the provisions hereof will:
(a) conflict with or violate the Certificate of Incorporation or bylaws of
the Company;
(b) result in a violation of any constitution, statute, ordinance, rule,
regulation, order, injunction, ruling, charge, judgment or decree applicable to
the Company or by which the Company or any of its properties or assets is bound
or affected, except for violations as would not have a Material Adverse Effect
on the Company;
(c) result in a violation or breach of, or constitute a default (or an
event that, with notice or lapse of time or both, would become a default) under,
or give to any other any right of termination, amendment, acceleration or
cancellation of, any (i) Material Contract (as defined in Section 4.9 hereof),
or (ii) any license, permit, or franchise, to which the Company is a party or by
which the Company or any of its properties or assets are bound or affected,
except for such violations, breaches and defaults as would not have a Material
Adverse Effect on the Company;
(d) result in the creation of any material lien on any material property or
assets of the Company; or
(e) require the consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, or notification to (x) any government
or subdivision thereof (whether domestic or foreign), or any administrative,
governmental or regulatory authority, agency, commission, court, tribunal or
body (whether domestic, foreign or multinational) (any of the foregoing, a
"GOVERNMENTAL ENTITY"), or (y) any individual, partnership, joint venture, firm,
corporation, limited liability company, association, trust or other enterprise
(whether or not incorporated) (all of the foregoing, together with any
Governmental Entity, "PERSON(S)") except for such consents which, if not
obtained or made, would not have a Material Adverse Effect on the Company or
prevent or materially delay the consummation of the transactions contemplated
hereby.
Section 4.6 Financial Statements. The Company has made available to Parent
the following financial statements (collectively the "COMPANY FINANCIAL
STATEMENTS"): (i) the unaudited consolidated balance sheets and consolidated
statements of income and cash flow as of and for the six months ended June 30,
2000 (the "COMPANY INTERIM FINANCIAL STATEMENTS") for the Company and the
Subsidiary; and (ii) the audited consolidated balance sheets and consolidated
statements of income, changes in stockholders' equity, and cash flow as of and
for the twelve months ended December 31, 1999 and December 31, 1998 for the
Company and the Subsidiary. The Company Financial Statements (including the
notes thereto) have been prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout the
periods covered thereby, present fairly the financial condition of the Company
and the Subsidiary as of such dates and the results of operations and cash flows
of the Company and the Subsidiary for such periods (subject, in the case of
unaudited financial statements, to normal and recurring year-end adjustments),
and are consistent with the books and records of the Company.
Section 4.7 Absence of Changes. Except as reported in the Company Interim
Financial Statements, since December 31, 1999, the Company has not:
(a) made any change in accounting methods or practices or valuation, or a
material decrease in the book value, of any asset of the Company;
(b) incurred any material liabilities or obligations of any nature, whether
absolute, accrued, contingent or otherwise and whether due or to become due,
(including, but not limited to, any "loss contingency" which
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is either "probable" or "reasonably possible" as all such terms are defined in
Statement of Financial Accounting Standards No. 5 of the Financial Accounting
Standards Board (a "FASB Loss Contingency"), except for such liabilities or
obligations that do not exceed in the aggregate $500,000;
(c) increased (other than increases resulting from the calculation of
reserves in the ordinary course of business consistent with past practice that
do not exceed in the aggregate $500,000) or experienced any change in any
assumptions underlying or methods of calculating, any reserves for bad debt, any
contingency or other reserves;
(d) paid, discharged or satisfied any claims, encumbrances, liabilities or
obligations (whether absolute, accrued, contingent or otherwise and whether due
or to become due), other than the payment, discharge or satisfaction in the
ordinary course of business consistent with past practice of (i) liabilities and
obligations reflected or reserved against in the Company Financial Statements or
(ii) liabilities and obligations arising in the ordinary course of business
consistent with past practice since the date of the Company Financial
Statements;
(e) determined as collectible any notes or accounts receivable or any
portion thereof which were previously considered uncollectible, or written off
as uncollectible any notes or accounts receivable or any portion thereof, except
for write-downs in the ordinary course of business consistent with past practice
in accordance with GAAP consistently applied;
(f) declared, paid, or committed for the payment, by the Company, of any
bonus (including, year-end bonuses) or other additional salary, compensation or
benefit to any employee of the Company that was not in the ordinary course of
business consistent with past practice;
(g) loaned or advanced any amount to any employee, officer, director or
stockholder of the Company except for amounts advanced to employees, directors
or officers of the Company that do not individually exceed $100,000 or in the
aggregate exceed $500,000, except for out-of-pocket expenses in connection with
travel;
(h) sold, transferred or leased to any officer, director or stockholder of
the Company any of the assets of the Company, or entered into any agreement or
arrangement with, any officer, director or stockholder of the Company;
(i) made any capital expenditures in excess of $100,000 for any single
item, or $500,000 in the aggregate;
(j) declared or paid a dividend, or any other declaration, payment or
distribution of any type or nature to any stockholder of the Company in respect
of its stock, whether in cash or property;
(k) transferred or granted any right under any license, patent, copyright,
trademark, trade name, trade secret, invention or similar rights, other than
pursuant to licenses made in the ordinary course of business consistent with
past practice; or entered into any settlement regarding the breach or
infringement of, any license, patent, copyright, trademark, trade name, trade
secret, invention or similar rights, or modified any existing rights with
respect;
(l) made or effected any material amendment, termination or waiver of, or
notice of any material amendment, termination or waiver of, any material right,
duty or obligation of the Company related to any Material Contract, including
any agreement relating to Company Intellectual Property; or
(m) had any resignation of any employee or employees, the loss of which
would be, or has had, a Material Adverse Effect on the Company Intellectual
Property or the conduct of the business of the Company;
(n) issued or sold capital stock of the Company or its subsidiaries or
granted options, warrants or rights to purchase or subscribe for any of the
capital stock of the Company or any of its subsidiaries or altered the terms of
any presently outstanding options or made any changes (by split-up, combination,
reorganization or otherwise) in the capital structure of the Company or the
Subsidiary, except for such issuances of capital stock pursuant to the exercise
of employee stock options, warrants and other convertible securities outstanding
as of December 31, 1999 or the granting of options to purchase capital stock
pursuant to employee stock option plans existing on as of December 31, 1999; or
(o) agreed or committed to do any of the foregoing.
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Section 4.8 Intellectual Property.
(a) All patents, trademarks, trade names, service marks, trade dress,
Internet domain names, copyrights and any renewal rights therefor, technology,
supplier lists, trade secrets, know-how, computer software programs or
applications in both source and object code form, technical documentation of
such software programs, registrations and applications for any of the foregoing
and all other tangible or intangible proprietary information or materials that
are or have been used (including without limitation in the development of) the
Company's business and/or in any product, technology or process (i) currently
being or formerly manufactured, published or marketed by the Company, (ii)
previously or currently under development for possible future manufacturing,
publication, marketing, or other use by the Company, or (iii) relating to
services performed by the Company in the conduct of its business, are
hereinafter referred to as the "COMPANY INTELLECTUAL PROPERTY".
(b) The Company Disclosure Letter contains a true and complete list of the
Company's issued patents and patent applications, registered trademarks and
trademark applications or trade names, registered service marks and service mark
applications, Internet domain names, Internet domain name applications,
copyright registrations and applications and other filings and formal actions
made or taken pursuant to Federal, state, local and foreign laws by the Company
to protect its interests in the Company Intellectual Property ("IP Properties").
The Company is the sole and exclusive owner of, and has all right, title and
interest in and to, all of the IP Properties.
(c) The Company Intellectual Property consists solely of items and rights
which are: (i) owned by the Company; (ii) in the public domain; or (iii)
rightfully used by the Company pursuant to a valid license (the "LICENSED
COMPANY INTELLECTUAL PROPERTY") (sufficient for the conduct of the Company's
business as currently conducted and as proposed to be conducted), the parties,
date, term and subject matter of each such license agreement (each, a "LICENSE
AGREEMENT") being set forth on the Company Disclosure Letter, except for
desk-top office software generally available at retail. The Company has all
rights in the Company Intellectual Property necessary to carry out the Company's
current activities (and had all rights necessary to carry out its former
activities at the time such activities were being conducted), including without
limitation, to the extent required to carry out such activities, rights to make,
use, reproduce, modify, adopt, create derivative works based on, translate,
distribute (directly or indirectly), transmit, display and perform publicly,
license, rent and lease and, other than with respect to the Licensed Company
Intellectual Property, assign and sell, the Company Intellectual Property.
(d) To the knowledge of the Company, the reproduction, manufacturing,
distribution, licensing, sublicensing, sale or any other exercise of rights in
the Company Intellectual Property, as now used or proposed for use, licensing or
sale by the Company does not infringe on any copyright, trade secret, trademark,
service mark, trade name, trade dress, firm name, Internet domain name, logo,
trade dress, mask work or of any Person or the patent of any Person, except
where such infringement would not have a Material Adverse Effect on the Company.
No claims (i) challenging the validity, effectiveness or, other than with
respect to the Licensed Company Intellectual Property, ownership by the Company
of any of the Company Intellectual Property, or (ii) to the effect that the use,
distribution, licensing, sublicensing, sale or any other exercise of rights in
any of the Company Intellectual Property as now used or proposed for use,
licensing, sublicensing or sale by the Company infringes or will infringe on any
intellectual property or other proprietary right of any person have been
asserted or, to the knowledge of the Company, are threatened by any Person, nor
are there, to the Company's knowledge, any valid grounds for any bona fide claim
of any such kind. The Company has the right to use all source code now or
previously constituting a portion of the Company's Intellectual Property which
is necessary for use in products being offered, or products under development,
for sale or license to, or use by, the Company or third parties. To the
knowledge of the Company, all registered, granted or issued patents, trademarks,
Internet domain names and copyrights held by the Company are enforceable and
subsisting. To the knowledge of the Company, there is no unauthorized use,
infringement or misappropriation of any of the Company Intellectual Property by
any third party, employee or former employee.
(e) All personnel, including employees, agents, consultants and
contractors, who have contributed to or participated in the conception and
development of the Company Intellectual Property on behalf of the Company, have
executed nondisclosure agreements in the form made available to Parent and
either (i) have
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been a party to a "work-for-hire" arrangement or agreements with the Company in
accordance with applicable national and state law that has accorded the Company
full, effective, exclusive and original ownership of all tangible and intangible
property thereby arising, or (ii) have executed appropriate instruments of
assignment in favor of the Company as assignee that have conveyed to the Company
effective and exclusive ownership of all tangible and intangible property
thereby arising.
(f) The Company is not, nor as a result of the execution or delivery of
this Agreement, or performance of the Company's obligations hereunder, will the
Company be, in violation of any material license, sublicense, agreement or
instrument to which the Company is a party or otherwise bound and which relates
to the Company Intellectual Property; nor will execution or delivery of this
Agreement, or performance of the Company's obligations hereunder, cause the
termination or forfeiture, of any of the Company Intellectual Property.
(g) The Company Disclosure Letter contains a true and complete list of all
of the Company's software programs marketed by the Company to its customers and
prospects or currently under development (the "COMPANY SOFTWARE PROGRAMS"). The
Company has the rights to license or owns full and unencumbered right and good,
valid and marketable title to the Company Software Programs free and clear of
all mortgages, pledges, liens, security interests, conditional sales agreements,
encumbrances or charges of any kind, except encumbrances or charges arising from
any blanket security interests granted by the Company. All unexpired
representations and warranties made or given by the Company to any of its
customers respecting any of the Company's Software Programs or its Company
Intellectual Property are true and correct in all material respects.
(h) The source code and system documentation relating to the Company
Software Programs (i) have at all times been maintained in strict confidence,
(ii) have been disclosed by the Company only to employees who have a "need to
know" the contents thereof in connection with the performance of their duties to
the Company and who have executed the nondisclosure agreements referred to in
Section 4.8(e) above, and (iii) except as set forth in the Company Disclosure
Letter, have not been disclosed to any third party not under an obligation to
maintain the confidential nature of such information.
(i) The Company Disclosure Letter contains a true and complete list of all
agreements pursuant to which any of the source code relating to the Company
Software Programs has been placed in escrow and the identity of the escrow
agent.
Section 4.9 Material Contracts.
(a) The Company Disclosure Letter sets forth a true and complete list of
all Material Contracts (as hereinafter defined) which shall include agreements
and commitments (whether written or oral) (other than Employee Plans (as
hereinafter defined) and Benefit Arrangements (as hereinafter defined)) to which
the Company is a party (in its own name or as a successor in interest), or by
which it or any of its properties or assets is otherwise bound, including but
not limited to any leases of real or personal property (whether the Company is
party as lessee or lessor), service agreements, customer agreements, supplier
agreements, agreements to lend or borrow money, stockholder agreements,
employment agreements, and agreements relating to Company Intellectual Property
Rights and the like. For purposes of this Agreement, "Material Contract" shall
mean and include any agreement (i) relating to the Company Intellectual Property
or Licensed Company Intellectual Property, except for desk-top office software
generally available at retail, (ii) requiring in the aggregate, payments in
excess of $100,000, or (iii) requiring the performance of services for more than
one year, which agreement cannot be terminated, without liability to the
Company, on ninety days or less written notice.
(b) True and complete copies of all Material Contracts (or a true and
complete narrative description of any oral Material Contract) have previously
been made available to Parent. Neither the Company nor, to the knowledge of the
Company, any other party to any of the Material Contracts (x) is in default
under (nor does there exist any condition that, with notice or lapse of time or
both, would cause such a default under) any of the Material Contracts, or (y)
has waived any right it may have under any of the Material Contracts, except for
such defaults or waivers which would not have a Material Adverse Effect on the
Company. All of the Material Contracts constitute the valid and binding
obligations of the Company, are enforceable in accordance
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with their respective terms, and, to the knowledge of the Company, of the other
parties thereto, are enforceable in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and similar laws of general
application relating to or affecting creditors' rights and to general principles
of equity, including principles of commercial reasonableness, good faith and
fair dealing.
(c) The Company is not a party to or bound by any agreement that contains
any provision for severance or termination pay liabilities or obligations
(including, without limitation, change of control or "golden parachute"
provisions).
(d) To the knowledge of the Company, the Company possesses the requisite
Company Intellectual Property, personnel and other resources necessary to
perform fully each Material Contract within the time permitted thereby and all
other material terms thereof, without incurring costs in excess of the
compensation to be received by the Company for such performance; and, to the
knowledge of the Company, the performance by the Company of any and all of its
Material Contracts will not result in or create any FASB Loss contingency.
Section 4.10 Litigation and Proceedings/Assessments. There is no suit,
action, claim, investigation or proceeding pending or, to the knowledge of the
Company, threatened, against or affecting the Company, nor is there any
judgment, decree, injunction or order of any applicable Governmental Entity or
arbitrator outstanding against the Company. Except for the actions, suits,
proceedings, hearings and investigations set forth in the Company Disclosure
Letter, there is no action, suit, proceeding, hearing or investigation which, if
adversely determined, would result in a judgment or damages payable by the
Company in excess of $100,000.
Section 4.11 Employee Benefit Plans/Labor Relations.
(a) "EMPLOYEE PLANS" shall mean each "employee benefit plan", as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974 ("ERISA"),
which (i) is subject to any provision of ERISA and (ii) is maintained,
administered or contributed to by the Company and covers any employee or former
employee of the Company or under which the Company or any affiliate has any
liability. The Company Disclosure Letter lists all Employee Plans. True and
complete copies of such Employee Plans (and, if applicable, related trust
agreements) and all amendments thereto, all plan summaries and annual reports
filed since December 31, 1996 (including all applicable attachments) have been
made available to Parent. For purposes of this Section, "affiliate" of any
Person means any other Person which, together with such Person, would be treated
as a single employer under Section 414 of the Code.
(b) No Employee Plan individually or collectively constitutes a "defined
benefit plan" as defined in Section 3(35) of ERISA.
(c) No Employee Plan constitutes a "multi-employer plan", as defined in
Section 3(37) of ERISA, and no Employee Plan is maintained in connection with
any trust described in Section 501(c)(9) of the Code. No Employee Plan is
subject to Title IV of ERISA. Neither the Company nor any affiliate has
incurred, nor has reason to expect to incur, any liability under Title VI of
ERISA, including any liability arising in connection with the termination of, or
complete or partial withdrawal from, any plan previously covered by Title IV of
ERISA.
(d) Nothing done or omitted to be done and no transaction or holding of any
asset under or in connection with any Employee Plan has or will make the Company
or any affiliate subject to any material liability under Part 4 of Title I of
ERISA or liable for any material tax pursuant to Subtitle D, Chapter 43 of the
Code, including but not limited to Section 4975 of the Code.
(e) Each Employee Plan which is intended to be qualified under Section
401(a) of the Code is so qualified and has been so qualified during the period
from its adoption to date, and each trust forming a part thereof is exempt from
tax pursuant to Section 501(a) of the Code, and each Employee Plan has been
maintained in material compliance with its terms and with the requirements
prescribed by ERISA and any and all statutes, orders, final rules and applicable
to such Employee Plan. No Employee Plan is currently, or at any time since
December 31, 1996, has been, under audit or, to the knowledge of the Company,
under any investigation by any Governmental Entity.
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(f) There is no contract, agreement, plan or arrangement covering any
employee or former employee of the Company that, individually or collectively,
could give rise to the payment of any amount that would not be deductible
pursuant to the terms of Section 162(m) or Section 280G of the Code. Neither the
Company nor any affiliate has any liability or potential liability to the
stockholders of the Company arising from the award or grant or any stock option,
warrant, stock appreciation, phantom stock, profit participation or similar
rights with respect to the Company.
(g) "BENEFIT ARRANGEMENT" shall mean each employment, severance or other
similar contract, arrangement or policy and each plan or arrangement (written or
oral) providing for compensation, bonus, profit-sharing, or other forms of
incentive or deferred compensation, vacation benefits, disability benefits,
workers' compensation, supplemental unemployment benefits, severance benefits
and post-employment or retirement benefits (including compensation, health or
medical insurance or other benefits) which (i) is not an Employee Plan, (ii) is
entered into, maintained or contributed to, as the case may be, by the Company,
and (iii) under which the Company has any material liability. Copies or
descriptions of the Benefit Arrangements have been made available to Parent.
Each Benefit Arrangement has been maintained in material compliance with its
terms and with the requirements prescribed by any and all laws that are
applicable to such Benefit Arrangement.
(h) The transactions contemplated hereby will not result in any liability
for severance pay to any employee or, with respect to any current or former
employee, accelerate the exercisability, vesting or payment of any options,
warrants, stock appreciation rights, phantom stock awards or any similar
instruments, as the case may be, nor will any current or former employee be
entitled to any payment solely by reason of such transactions.
(i) All contributions required to be made to trusts in connection with any
Employee Plan that would constitute a "defined contribution plan" (within the
meaning of Section 3(34) of ERISA) have been made in a timely manner in
compliance with applicable law and regulations.
(j) Other than claims in the ordinary course for benefits with respect to
the Employee Plans or Benefit Arrangements, there are no actions, suits or
claims (including claims for income taxes, interest, penalties, fines or excise
taxes with respect thereto) pending with respect to any Employee Plan or Benefit
Arrangement, or any circumstances which, to the Company's knowledge, reasonably
might give rise to any such action, suit or claim (including claims for income
taxes, interest, penalties, fines or excise taxes with respect thereto).
(k) All reports, returns and similar documents with respect to the Employee
Plans or Benefit Arrangements required to be filed with any governmental agency
have been so filed by the due date for such filings.
(l) Neither the Company nor any affiliate has any obligation to provide
health or other welfare benefits to former, retired or terminated employees,
except as specifically required under Section 4980B of the Code or Section 601
of ERISA. The Company and all of its affiliates have complied in all material
respects with the notice and continuation requirements of Section 4980B of the
Code and Section 601 of ERISA and the regulations thereunder.
(m) There has been no amendment to, written interpretation or announcement
(whether or not written) by the Company or its affiliates relating to, any
Employee Plan or Benefit Arrangement which in the aggregate would increase in
any material respect the per employee expense of maintaining such Employee Plan
or Benefit Arrangement above the level of the expense incurred on a per employee
basis in respect thereof for the year ended December 31, 1999.
(n) Neither the Company nor any affiliate is a party to any collective
bargaining agreement; no collective bargaining agent has been certified as a
representative of any of the employees of the Company or any affiliate; no
representation campaign or election is now in progress with respect to any
employee of the Company or any affiliate; and there are no labor disputes,
grievances, controversies, strikes or requests for union representation pending,
or, to the knowledge of the Company, threatened, relating to or affecting the
Company, any affiliate or their respective businesses.
(o) Each Employee Plan that has terminated on or after July 1, 1994 and
prior to the date hereof and was intended to qualify under Section 401(a) or
401(k) of the Code upon its termination (each, a
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"TERMINATED PLAN" and collectively, the "TERMINATED PLANS") was so qualified
upon its termination, and each trust established in connection with any such
Terminated Plan that was intended to be exempt from federal income taxation
under Section 501(a) of the Code was so exempt, each Terminated Plan has been
maintained and terminated in material compliance with its terms and with the
requirements prescribed by ERISA and any and all statutes, orders and final
rules applicable to such Terminated Plan and no fact or event has occurred since
the date of such Terminated Plan's adoption that adversely affects or could
reasonably be expected to adversely affect the foregoing or the exempt status of
any such trust upon their termination. There has been no prohibited transaction
(within the meaning of Section 406 of ERISA or Section 4975 of the Code and the
regulations thereunder) or violation of Sections 403 and 404 of ERISA and
applicable regulations with respect to any Terminated Plan, and neither the
Company nor any affiliate nor any fiduciary of any Terminated Plan, has any
liability or potential liability on account of such Employee Plan termination,
including with respect to the purchase of Company Common Stock from the
participants or beneficiaries under such Terminated Plans, and the Company has
performed all obligations required to be performed by it under, is not in any
respect in default under or in violation of, and has no knowledge of, any
default or violation by any party to, applicable law and the terms of the
Terminated Plan (including, without limitation, any and all obligations relating
to determining the eligibility, benefits, and rights of participants in the
Terminated Plan).
Section 4.12 Taxes.
(a) The Company has duly and timely filed all U.S. federal, state and local
income and franchise tax returns, excise filings, real and personal property tax
returns, sales and use tax returns, VAT returns, escheat filings, payroll
reportings and employee benefit returns, and all other tax returns and reports,
whether domestic or foreign, including extensions, required to have been filed
by the Company on or prior to the date hereof (collectively, all of the
foregoing, the "COMPANY TAX RETURNS"). The Company has duly and timely paid
and/or remitted all taxes, including, but not limited to, all income taxes,
franchise taxes, excise taxes, property taxes, sales and use taxes, payroll
taxes, VAT, withholding taxes, ad valorem taxes or assessments, (whether or not
shown on any tax return) and other governmental charges, and all interest and
penalties with respect thereto, required to be paid by the Company (whether by
way of withholding or otherwise) to any U.S. federal, state, local or other
taxing authority or any taxing authority in a foreign jurisdiction (except to
the extent the same are being contested in good faith and adequate reserves
therefor have been provided in the Company Financial Statements). As of the date
hereof, all deficiencies proposed as a result of any audit have been paid or
settled. The Company has no material liability for any taxes to any authority in
any jurisdiction where the Company does not file a tax return, whether domestic
or foreign; and the Company has not received any written claim from any
authority in a jurisdiction where the Company does not file a tax return that it
is or may be subject to taxation by that jurisdiction. There are no liens on any
of the assets of the Company that arose in connection with any failure (or
alleged failure) to pay any tax.
(b) The Company is not a party to, or bound by, or otherwise in any way
obligated under, any tax sharing or similar agreement.
(c) The Company has not consented to have the provisions of Section
341(f)(2) of the Code (or comparable state law provisions) apply to it, and the
Company has not agreed or been requested to make any adjustment under Section
481(c) of the Code by reason of a change in accounting method or otherwise.
(d) There is no dispute or claim concerning any tax liability of the
Company either (i) claimed or raised by any authority in writing or (ii) as to
which the Company has knowledge based upon personal contact with any agent of
such authority. The Company Disclosure Letter lists all Company Tax Returns
filed with respect to the Company for taxable periods ended on or after December
31, 1996 that have been audited or that currently are the subject of audit. The
Company has made available to Parent correct and complete copies of all U.S.
federal income tax returns, examination reports, and statements of deficiencies
assessed against or agreed to by the Company since December 31, 1996.
(e) The Company has not waived any statute of limitations in respect of
taxes or agreed to any extension of time with respect to a tax assessment or
deficiency. The unpaid taxes of the Company (including, but not limited to, all
taxes due and assessments and tax liabilities that have not yet been reported to
or assessed by a taxing authority) (i) did not, as of June 30, 2000, exceed the
reserve for tax liability (other than any reserve
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for deferred taxes established to reflect timing differences between book and
tax income) set forth on the Company Interim Financial Statements and (ii) do
not exceed that reserve as adjusted for the passage of time through the date
hereof.
Section 4.13 Compliance with Applicable Laws.
(a) The Company is in compliance in all respects with all federal, state,
foreign and local laws (whether statutory or otherwise), ordinances, rules,
regulations, orders, judgments, decrees, writs and injunctions of any
governmental authority (collectively, "Laws") applicable to the Company and its
business, except for such noncompliance which would not have a Material Adverse
Effect on the Company.
(b) The Company has not received written notification from any governmental
or regulatory authority within the past three (3) years of any asserted present
or past failure to so comply with Laws, which failure would have a Material
Adverse Effect on the Company and which has not been appropriately and
completely resolved.
Section 4.14 Section 368 of the Code.
(a) The Initial Tax Certificate (as hereinafter defined in Section
6.14(b)(iii)) delivered by the Company is, and the Closing Tax Certificate to be
delivered by the Company at Closing shall be, true and correct.
(b) The Company has no knowledge of any reason, fact or circumstance which
would cause the Merger to fail to qualify as a tax-free reorganization under
Section 368 of the Code; provided, however, that the Company has not considered
for this purpose any information regarding Parent and Acquisition and their
respective subsidiaries, and their respective properties, furnished by or on
behalf of Parent and Acquisition to the Company or its advisors.
Section 4.15 Brokers. Except for fees payable in connection with the
opinion described in Section 4.22, no broker, finder or investment banker is
entitled to any broker's, finder's or investment banking fee or other commission
in connection with the transactions contemplated hereby as a result of
arrangements made by or on behalf of the Company.
Section 4.16 Environmental Matters. The Company and each predecessor for
whose acts and omissions the Company is legally responsible, has complied with
all laws and regulations relating to pollution and environmental control which
are applicable to the Company or its properties or business, except for such
noncompliance as would not have a Material Adverse Effect on the Company. The
Company Disclosure Letter sets forth all litigation and other proceedings, and
all rulings, orders or citations, pending against the Company, its properties or
business, in each case relating to emissions or other proper disposal of
materials.
Section 4.17 Insurance. Company currently maintains, in full force and
effect, all insurance policies that are reasonably required to be maintained for
the conduct of its business or the ownership of its properties (both real and
personal) (collectively, the "INSURANCE POLICIES"). True and complete copies of
all the Company Insurance Policies have been made available to Parent. The
Company (a) is not in default regarding the provisions of any Insurance Policy;
(b) has paid all premiums due thereunder; and (c) has not failed to present any
notice or material claim thereunder in a due and timely fashion. The Insurance
Policies are in effect and enforceable policies, subject to bankruptcy,
insolvency, reorganization, moratorium and similar laws of general application
relating to or affecting creditors' rights and to general principles of equity,
including principles of commercial reasonableness, good faith and fair dealing.
The coverage provided by the Insurance Policies, with respect to any insured act
or event occurring on or prior the Closing Date, will not in any way be affected
by or terminate or lapse by reason of the transactions contemplated hereby. The
Company Disclosure Letter sets forth a listing, by policy, of all outstanding
claims and the amount thereof made by the Company under each such policy.
Section 4.18 Company not a Foreign Person. Company is not a "foreign
person" for purposes of Section 1445 of the Code.
Section 4.19 Bank Accounts. The Company Disclosure Letter sets forth the
names and locations of all banks, trust companies, savings and loan
associations, stock brokerages and other financial institutions at
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which the Company maintains accounts of any nature, or safe deposit boxes, and
the name of all persons authorized to draw thereon or make withdrawals
therefrom.
Section 4.20 Title to Properties. The assets owned or leased by the
Company are all of the assets necessary to conduct the business of the Company
as currently being conducted and as proposed to be conducted. The Company has
good and marketable title to all the assets it owns, real and personal, movable
and immovable, tangible and intangible, free and clear of all claims, liens,
charges, mortgages, attachments and other encumbrances of any kind or character,
except for: (a) liens for taxes not yet due and payable, or (b) minor
imperfections of title and encumbrances, if any, which (i) are not substantial
in amount, (ii) do not detract from the value of the property subject thereto,
impair the operations of the business of the Company, or the use or license of
certain of the assets of the Company, and (iii) have arisen in the ordinary
course of business consistent with past practice.
Section 4.21 Related Party Transactions. No contract of the Company is
with or for the benefit of (i) any party owning, or formerly owning,
beneficially or of record, directly or indirectly, in excess of 5.0% of the
outstanding capital stock of the Company, (ii) to the knowledge of the Company,
any natural person related by blood, adoption or marriage to any such party
(iii) any director, officer or similar representative of any the Company, or
(iv) to the knowledge of the Company, any party or entity in which any of the
foregoing parties has, directly or indirectly, at least a five percent
beneficial interest (a "RELATED PARTY"). Without limiting the generality of the
foregoing, no Related Party, directly or indirectly, owns or controls any
material assets or material properties which are used in the Company's business
and to the knowledge of the Company, no Related Party, directly or indirectly,
engages in or has any significant interest in or connection with any business
which is, or has been within the last two years, a competitor, customer or
supplier of the Company or has done business with the Company or which currently
sells or provides products or services which are similar or related to the
products or services sold or provided in connection with the Business.
Section 4.22 Opinion of Financial Advisor. The Company has received the
oral opinion of Goldman, Sachs & Co. (to be confirmed in writing after the date
hereof) to the effect that as of the date hereof, the Exchange Ratio with
respect to the Company Common Stock is fair from a financial point of view to
the stockholders of the Company, in connection with the acquisition of the
Company pursuant to the Merger.
Section 4.23 Disclosure. No representation or warranty of the Company
herein (including the Company Disclosure Letter), and no certificate or
affidavit furnished or to be furnished by or on behalf of the Company to Parent,
Acquisition or their agents pursuant hereto, contains or will contain, at the
time it is made, 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 light of the circumstances under which they were made,
not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION
With such exceptions as are set forth in a letter (the "Parent Disclosure
Letter") delivered by Parent to the Company prior to the execution hereof,
making in the case of each such exception specific reference to the
representation and warranty in this Article V so excepted, each of Parent and
Acquisition jointly and severally represents and warrants to the Company as
follows:
Section 5.1 Organization and Qualification. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Acquisition is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Each of Parent and
Acquisition has the requisite corporate power and authority to carry on its
business as it is now being conducted and is duly qualified or licensed to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned or held under lease or the nature of its activities makes
such qualification necessary, except where the failure to be so qualified would
not have a Material Adverse Effect on Parent. Parent has made available to the
Company complete and correct copies of the Certificate of Incorporation and
bylaws of Parent and Acquisition as in effect on the date hereof. The minute
book of Parent, a true and complete copy of which has been made available to the
Company, (a) accurately reflects all action taken by the directors and
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stockholders of Parent at meetings of Parent's board of directors or
stockholders, as the case may be and (b) contains true and complete copies, or
originals, of the respective minutes of all meetings or consent actions of the
directors or stockholders.
Section 5.2 Authority. Each of Parent and Acquisition has full power and
authority (including full corporate power and authority) to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery hereof and the consummation of the transactions
contemplated hereby by each of Parent and Acquisition have been duly and validly
authorized and approved by their respective boards of directors. No approval is
required by the stockholders of Parent for the execution and delivery of this
Agreement or to consummate the transactions contemplated hereby. Parent, in its
capacity as the sole stockholders of Acquisition, has approved and adopted this
Agreement and the transactions contemplated hereby. This Agreement has been duly
executed and delivered by each of Parent and Acquisition, and assuming the due
authorization, execution and delivery by the Company, constitutes the valid and
binding obligation of each of Parent and Acquisition, enforceable against each
of Parent and Acquisition in accordance with its terms, subject, in each case,
to bankruptcy, insolvency, reorganization, moratorium and similar laws of
general application relating to or affecting creditors' rights and to general
principles of equity, including principles of commercial reasonableness, good
faith and fair dealing.
Section 5.3 Capitalization.
(a) The authorized capital stock of Parent consists of (i) 100,000,000
shares of Common Stock, par value $.002 per share, of which 28,803,560 shares
are issued and outstanding, and 752,510 shares are held in the treasury of
Parent; and (ii) 4,620,253 shares of Preferred Stock, par value $.01 per share,
of which no shares are issued and outstanding, and no shares are held in the
treasury of Parent. All outstanding capital stock of Parent was issued and will
be issued in material compliance with applicable federal and state securities
laws. Except as disclosed in the SEC Documents (as hereinafter defined),
including the Parent Financial Statements (as hereinafter defined) included
therein: (i) there are no options, warrants, calls, convertible notes,
agreements, commitments or other rights presently outstanding that would
obligate Parent to issue, deliver or sell shares of its capital stock, or to
grant, extend or enter into any such option, warrant, call, convertible note,
agreement, commitment or other right; and (ii) Parent has no bonds, debentures,
notes or other indebtedness issued or outstanding that have voting rights in
Parent.
(b) All of the issued and outstanding shares of capital stock of Parent are
validly issued, fully paid and nonassessable. Parent is not a party to any
registration rights agreement.
(c) There are no outstanding or authorized stock appreciation, phantom
stock profit participation or similar rights with respect to Parent.
Section 5.4 Subsidiaries. Except as disclosed in the SEC Documents filed
on or before the date hereof, Parent owns, directly or indirectly, all of the
outstanding capital stock of the subsidiaries set forth on the Parent Disclosure
Letter. Each such subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation.
Each of Parent's subsidiaries has the requisite corporate power and authority to
carry on its business as it is now being conducted and is duly qualified or
licensed to do business, and is in good standing, in each jurisdiction where the
character of its properties owned or held under lease or the nature of its
activities makes such qualification necessary, except where the failure to be so
qualified would not have a Material Adverse Effect on Parent. Parent has made
available to the Company complete and correct copies of the Certificate or
Articles of Incorporation and bylaws (or comparable charter documents with
respect to any foreign jurisdiction) of each of Parent's subsidiaries as in
effect on the date hereof. Except for the subsidiaries identified on the Parent
Disclosure Letter, Parent has no subsidiaries and does not otherwise own or
control, directly or indirectly, any controlling equity interest, or any
security convertible into any controlling equity interest, in any Entity.
Section 5.5 No Conflicts, Required Filings and Consents. Subject to any
required filing pursuant to the H-S-R Act and the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware, (i) none of the
execution and delivery of this Agreement by Parent or Acquisition, (ii) the
consummation by
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Parent and Acquisition of the transactions contemplated hereby, or (iii)
compliance by Parent and Acquisition with any of the provisions hereof, will:
(a) conflict with or violate the Certificate of Incorporation or bylaws of
Parent or Acquisition;
(b) result in a violation of any constitution, statute, ordinance, rule,
regulation, order, injunction, ruling, charge, judgment or decree applicable to
Parent or Acquisition, or by which any of the properties or assets of Parent or
Acquisition are bound of affected, except for such violations as would not have
a Material Adverse Effect on Parent;
(c) result in a violation or breach of, or constitute a default (or an
event that, with notice or lapse of time or both, would become a default) under,
or give to any other any right of termination, amendment, acceleration or
cancellation of, any material contract or any license, permit or franchise to
which Parent or Acquisition is a party or by which any of the properties or
assets of Parent or Acquisition are bound or affected, except for such
violations, breaches and defaults as would not have a Material Adverse Effect on
Parent;
(d) result in the creation of any material lien on any material property or
assets of Parent or Acquisition; or
(e) require the consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, or notification to, any Governmental
Entity or any other Person, except for (i) the filing with the Commission of the
Registration Statement as set forth in Article VI hereof, (ii) such consents,
waivers, approvals, orders or authorizations, registrations, declarations and
filings, as may be required under applicable federal and state securities laws
or by NASDAQ, and (iii) such other consents, approvals, orders, authorizations,
registrations, declarations, which, if not obtained or made, would not have a
Material Adverse Effect on Parent or prevent or materially delay the
consummation of the transactions contemplated hereby.
Section 5.6 Litigation. Except as otherwise disclosed in the SEC documents
filed on or before the date hereof, there is no suit, action, claim,
investigation or proceeding pending or, to the knowledge of Parent, threatened
against or affecting Parent or Acquisition, nor is there any judgment, decree,
injunction or order of any applicable Governmental Entity or arbitrator
outstanding against Parent or Acquisition that, if adversely determined, would
have a Material Adverse Effect on Parent.
Section 5.7 Brokers. Except for fees payable in connection with the
opinion described in Section 5.15, no broker, finder or investment banker is
entitled to any broker's, finder's or investment banking fee in connection with
the transactions contemplated hereby based upon arrangements made by or on
behalf of Parent or Acquisition.
Section 5.8 SEC Filings. Parent has timely filed with the Securities and
Exchange Commission (the "COMMISSION") all reports, schedules, forms, proxy
statements, registration statements and other documents required to be filed by
Parent under the federal securities laws (collectively, all such reports,
schedules, forms, proxy statements, registration statements and documents, the
"SEC DOCUMENTS"). As of their respective filing dates, the SEC Documents
complied in all material respects with the requirements of the Securities Act or
the Securities Exchange Act of 1934, as amended and the rules promulgated
thereunder (the "EXCHANGE ACT"), as the case may be, and the rules and
regulations of the Commission promulgated thereunder applicable to the SEC
Documents. As of their respective filing dates, none of the SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except to the extent such statements have been modified or
superseded by a later SEC Document filed and publicly available prior to the
Effective Time, the circumstances or bases for which modifications or
supersessions have not and will not individually or in the aggregate result in
any material liability or obligation of Parent under the Securities Act or the
Exchange.
Section 5.9 Financial Statements. The following consolidated financial
statements (collectively the "PARENT FINANCIAL STATEMENTS") consisting of: (i)
the unaudited consolidated balance sheets and unaudited consolidated statements
of income, changes in stockholders' equity, and cash flow as of and for the
three months ended May 31, 2000 (the "PARENT INTERIM FINANCIAL STATEMENTS") of
Parent and its subsidiaries, and (ii) the audited consolidated balance sheets as
of February 28, 1999 and February 29, 2000 and the audited
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consolidated statements of income, changes in stockholders' equity and cash flow
for the twelve months ended February 28, 1998, February 28, 1999 and February
29, 2000, which have been included in the SEC Documents (as amended or
supplemented by any SEC Document filed on or before the date hereof) have been
prepared in accordance with GAAP (except as otherwise disclosed in the SEC
Documents and except, in the case of unaudited statements, as permitted by the
rules of the Commission) applied on a consistent basis throughout the periods
covered thereby, present fairly the financial condition of Parent and its
subsidiaries as of such dates and the results of operations and cash flows of
Parent and its subsidiaries for such periods (subject, in the case of unaudited
financial statements, to normal and recurring year-end adjustments), and are
consistent with the books and records of Parent.
Section 5.10 Absence of Changes. Except as reported in the Parent Interim
Financial Statements since February 29, 2000, Parent has not:
(a) made any change in accounting methods or practices or valuation, or a
material decrease in the book value, of any asset of Parent;
(b) incurred any material liabilities or obligations of any nature, whether
absolute, accrued, contingent or otherwise and whether due or to become due
(including, but not limited to, any FASB Loss Contingency), except for such
liabilities or obligations that do not exceed in the aggregate $500,000;
(c) increased (other than increases resulting from the calculation of
reserves in the ordinary course of business consistent with past practice that
do not exceed in the aggregate $500,000) or experienced any change in any
assumptions underlying or methods of calculating, any reserves for bad debt, any
contingency or other reserves;
(d) paid, discharged or satisfied any claims, encumbrances, liabilities or
obligations (whether absolute, accrued, contingent or otherwise and whether due
or to become due), other than the payment, discharge or satisfaction in the
ordinary course of business consistent with past practice of (i) liabilities and
obligations reflected or reserved against in the Parent Financial Statements or
(ii) liabilities and obligations arising in the ordinary course of business
consistent with past practice since the date of the Parent Financial Statements;
(e) determined as collectible any notes or accounts receivable or any
portion thereof which were previously considered uncollectible, or written off
as uncollectible any notes or accounts receivable or any portion thereof, except
for write-downs in the ordinary course of business consistent with past practice
in accordance with GAAP consistently applied;
(f) declared or paid a dividend, or any other declaration, payment or
distribution of any type or nature to any stockholder of Parent in respect of
its stock, whether in cash or property;
(g) except as disclosed in the SEC Documents, issued or sold capital stock
of Parent or its subsidiaries or granted options, warrants or rights to purchase
or subscribe for any of the capital stock of Parent or any of its subsidiaries
or altered the terms of any presently outstanding options or made any changes
(by split-up, combination, reorganization or otherwise) in the respective
capital structure of Parent or any of its subsidiaries, except for such
issuances of capital stock pursuant to the exercise of employee stock options,
warrants and other convertible securities outstanding as of February 29, 2000 or
the granting of options to purchase capital stock pursuant to employee stock
option plans existing on as of February 29, 2000; or
(h) agreed or committed to do any of the foregoing.
Section 5.11 Intellectual Property.
(a) All patents, trademarks, trade names, service marks, trade dress,
Internet domain names, copyrights and any renewal rights therefor, technology,
supplier lists, trade secrets, know-how, computer software programs or
applications in both source and object code form, technical documentation of
such software programs, registrations and applications for any of the foregoing
and all other tangible or intangible proprietary information or materials that
are or have been used (including without limitation in the development of)
Parent's business and/or in any product, technology or process (i) currently
being or formerly manufactured, published or marketed by Parent, (ii) previously
or currently under development for possible future manufacturing, publication,
marketing, or other use by Parent, or (iii) relating to services performed by
Parent in the conduct of its business, are hereinafter referred to as the
"PARENT INTELLECTUAL PROPERTY".
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(b) The Parent Intellectual Property consists solely of items and rights
which are: (i) owned by Parent; (ii) in the public domain; or (iii) rightfully
used by Parent pursuant to a valid license (the "LICENSED PARENT INTELLECTUAL
PROPERTY") (sufficient for the conduct of Parent's business as currently
conducted and as proposed to be conducted). Parent has all rights in the Parent
Intellectual Property necessary to carry out Parent's current activities (and
had all rights necessary to carry out its former activities at the time such
activities were being conducted), including without limitation, to the extent
required to carry out such activities, rights to make, use, reproduce, modify,
adopt, create derivative works based on, translate, distribute (directly or
indirectly), transmit, display and perform publicly, license, rent and lease
and, other than with respect to the Licensed Parent Intellectual Property,
assign and sell, the Parent Intellectual Property.
(c) To the knowledge of Parent, the reproduction, manufacturing,
distribution, licensing, sublicensing, sale or any other exercise of rights in
the Parent Intellectual Property, as now used or proposed for use, licensing or
sale by Parent does not infringe on any copyright, trade secret, trademark,
service mark, trade name, trade dress, firm name, Internet domain name, logo,
trade dress, mask work or of any Person or the patent of any Person, except
where such infringement would not have a Material Adverse Effect on Parent. No
claims (i) challenging the validity, effectiveness or, other than with respect
to the Licensed Parent Intellectual Property, ownership by Parent of any of the
Parent Intellectual Property, or (ii) to the effect that the use, distribution,
licensing, sublicensing, sale or any other exercise of rights in any of the
Parent Intellectual Property as now used or proposed for use, licensing,
sublicensing or sale by Parent infringes or will infringe on any intellectual
property or other proprietary right of any person have been asserted or, to the
knowledge of Parent, are threatened by any Person, nor are there, to Parent's
knowledge, any valid grounds for any bona fide claim of any such kind. Parent
has the right to use all source code now or previously constituting a portion of
the Parent Intellectual Property which is necessary for use in products being
offered, products under development, for sale or license to, or use by, Parent
or third parties. To the knowledge of Parent, all registered, granted or issued
patents, trademarks, Internet domain names and copyrights held by Parent are
enforceable and subsisting. To the knowledge of Parent, there is no unauthorized
use, infringement or misappropriation of any of the Parent Intellectual Property
by any third party, employee or former employee.
(d) All personnel, including employees, agents, consultants and
contractors, who have contributed to or participated in the conception and
development of the Parent Intellectual Property on behalf of Parent, have
executed nondisclosure agreements in the form made available to Parent and
either (i) have been a party to a "work-for-hire" arrangement or agreements with
Parent in accordance with applicable national and state law that has accorded
Parent full, effective, exclusive and original ownership of all tangible and
intangible property thereby arising, or (ii) have executed appropriate
instruments of assignment in favor of Parent as assignee that have conveyed to
Parent effective and exclusive ownership of all tangible and intangible property
thereby arising.
(e) Parent is not, nor as a result of the execution or delivery of this
Agreement, or performance of Parent's obligations hereunder, will Parent be, in
violation of any license, sublicense, agreement or instrument to which Parent is
a party or otherwise bound and which relates to the Parent Intellectual
Property, except as would not have a Material Adverse Effect on Parent; nor will
execution or delivery of this Agreement, or performance of Parent's obligations
hereunder, cause the termination or forfeiture, of any of the Parent
Intellectual Property.
(f) Parent has the rights to license or owns full and unencumbered right
and good, valid and marketable title to all of Parent's software programs
marketed by Parent to its customers and prospects (the "PARENT SOFTWARE
PROGRAMS"), free and clear of all mortgages, pledges, liens, security interests,
conditional sales agreements, encumbrances or charges of any kind, except for
liens, encumbrances and charges arising from any blanket security interests
granted by the Company. All unexpired representations and warranties made or
given by Parent to any of its customers respecting any of the Parent Software
Programs or its Parent Intellectual Property are true and correct in all
material respects.
(g) The source code and system documentation relating to the Parent
Software Programs (i) have at all times been maintained in strict confidence,
(ii) have been disclosed by Parent only to employees who have a "need to know"
the contents thereof in connection with the performance of their duties to
Parent and who
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have executed the nondisclosure agreements, and (iii) have not been disclosed to
any third party not under an obligation to maintain the confidential nature of
such information.
Section 5.12 Taxes.
(a) Parent has duly and timely filed all U.S. federal, state and local
income, and franchise tax returns, excise filings, real and personal property
tax returns, sales and use tax returns, escheat filings, payroll reporting and
employee benefit returns, and all other tax returns and reports, including
extensions, whether domestic or foreign, required to have been filed by Parent
on or prior to the date hereof (collectively, all of the foregoing, the "PARENT
TAX RETURNS"). With the exception of tax returns and potential liabilities to
taxing authorities which, when netted against tax refunds receivable, would not
in the aggregate exceed $500,000: Parent has duly and timely paid all taxes,
including, but not limited to, all income taxes, franchise taxes, excise taxes,
property taxes, sales and use taxes, payroll taxes, ad valorem taxes or
assessments (whether or not shown on any tax return) and other governmental
charges, and all interest and penalties with respect thereto, required to be
paid by Parent (whether by way of withholding or otherwise) to any U.S. federal,
state, local or other taxing authority or any taxing authority in a foreign
jurisdiction (except to the extent the same are being contested in good faith,
and adequate reserves therefor have been provided in Parent Financial
Statements); as of the date hereof, all deficiencies proposed as a result of any
audit have been paid or settled; and, Parent has no material liability for any
taxes to any authority in any jurisdiction where Parent does not file a tax
return, whether domestic or foreign; and Parent has not received any written
claim from, any authority in a jurisdiction where Parent does not file a tax
return that it is or may be subject to taxation by that jurisdiction. There are
no liens on any of the assets of Parent that arose in connection with any
failure (or alleged failure) to pay any tax.
(b) Parent is not a party to, or bound by, or otherwise in any way
obligated under, any tax sharing or similar agreement with parties not included
in Parent's consolidated taxable group.
(c) Parent has not consented to have the provisions of Section 341(f)(2) of
the Code (or comparable state law provisions) apply to it, and Parent has not
agreed or been requested to make any adjustment under Section 481(c) of the Code
by reason of a change in accounting method or otherwise.
(d) There is no dispute or claim concerning any tax liability of Parent
either (i) claimed or raised by any authority in writing or (ii) as to which
Parent has knowledge based upon personal contact with any agent of such
authority. The Parent Disclosure Letter lists all Parent Tax Returns filed with
respect to Parent for taxable periods ended on or after December 31, 1996 that
have been audited or that currently are the subject of audit. Parent has made
available to the Company correct and complete copies of all U.S. federal income
tax returns, examination reports, and statements of deficiencies assessed
against or agreed to by Parent since December 31, 1996.
(e) Parent has not waived any statute of limitations in respect of taxes or
agreed to any extension of time with respect to a tax assessment or deficiency.
(f) The unpaid taxes of Parent (including, but not limited to, all taxes
due and assessments and tax liabilities that have not yet been reported to or
assessed by a taxing authority) (i) did not, as of May 31, 2000, exceed the
reserve for tax liability (other than any reserve for deferred taxes established
to reflect timing differences between book and tax income) set forth on Parent
Interim Financial Statements and (ii) do not exceed that reserve as adjusted for
the passage of time through the date hereof in accordance with the past custom
and practice of Company in filing its tax returns.
Section 5.13 Trading on NASDAQ. The Parent Common Stock is authorized for
quotation on the NASDAQ, and the trading in the Parent Common Stock on NASDAQ
has not been suspended.
Section 5.14 Section 368 of the Code.
(a) The Initial Tax Certificate delivered by Parent is, and the Closing Tax
Certificate to be delivered by Parent at Closing shall be, true and correct.
(b) Parent has no knowledge of any reason, fact or circumstance which would
cause the Merger to fail to qualify as a tax-free reorganization under Section
368 of the Code; provided, however, that Parent has not
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considered for this purpose any information regarding the Company and its
subsidiaries, and their respective properties, furnished by or on behalf of the
Company to Parent or its advisors.
Section 5.15 Opinion of Financial Advisor. Parent and Acquisition have
received the written opinion of Deutsche Bank Securities Inc. to the effect that
as of the date hereof, the consideration payable by Parent to the stockholders
of the Company for all of the issued and outstanding capital stock of the
Company is fair from a financial point of view to Parent, in connection with the
acquisition of the Company pursuant to the Merger.
Section 5.16 Disclosure. No representation or warranty of parent or
Acquisition herein (including the Parent Disclosure Letter), and no certificate
or affidavit furnished or to be furnished by or on behalf of Parent or by
Acquisition to the Company or its agents pursuant hereto, contains or will
contain, at the time it is made, any untrue statement of a material fact
required to be stated thereon or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 S-3 Registration Statement. The parties contemplate that, not
later than ten (10) days after the date hereof, Dilworth Paxson LLP shall
prepare and deliver to Parent and its professional advisors, an opinion (the
"DILWORTH SECURITIES OPINION") to the effect that no registration under the
Securities Act is necessary with respect to the issuance at Closing of the
shares of Parent Common Stock. Provided that the Dilworth Securities Opinion is
so delivered by such date and is in all respects satisfactory to the Company,
Parent and their respective professional advisors, then in such event:
(a) By not later than ninety (90) days after Parent has completed an
offering of Parent Common Stock or debt or securities convertible into Parent
Common Stock (but in no event later than March 31, 2001), Parent shall:
(i) Prepare and file a registration statement with the Commission on
Form S-3 under the Securities Act (or in the event that the Company is
ineligible to use such form, such other form as the Company is eligible to
use under the Securities Act) ("REGISTRATION STATEMENT") covering the
resale of the Parent Common Stock including all Escrow Shares (the
"REGISTRABLE SECURITIES"), issued to holders of Company Capital Stock as of
the Effective Time who receive shares of Parent Common Stock in connection
with the Merger, or their successors or assigns in accordance with Section
6.1(n) (the "HOLDERS"), which Registration Statement (including any
amendments or supplements thereto and prospectuses contained therein) shall
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein, or necessary to make the
statements therein not misleading. Such Registration Statement shall, in
addition and without limitation, register (pursuant to Rule 416 under the
Securities Act, or otherwise) such additional indeterminate number of
Registrable Securities as shall be necessary to prevent dilution resulting
from stock splits, stock dividends or similar transactions. Thereafter, the
Company shall use its reasonable best efforts to cause such Registration
Statement and other filings to be declared effective as soon as
practicable. Parent shall not be obligated to include in such Registration
Statement any shares of Parent Common Stock of the Holders other than
shares issued pursuant to this Agreement.
(ii) Prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in
connection with such Registration Statement as may be necessary to keep the
Registration Statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by
such Registration Statement as set forth in the Registration Statement and
then on a continuous basis in accordance with Rule 415 under the Securities
Act; and, notify the Holders of the effectiveness of such Registration
Statement and any amendments or supplements thereto.
(iii) Furnish to each Holder such numbers of copies of a current
prospectus conforming with the requirements of the Securities Act, copies
of the Registration Statement, any amendment or supplement thereto and any
documents incorporated by reference therein and such other documents as
such Holder
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may reasonably require in order to facilitate the disposition of
Registrable Securities owned by such Holder.
(iv) (A) Register and qualify, or obtain an appropriate exemption from
registration or qualification for, the securities covered by such
Registration Statement under such other securities or "Blue Sky" laws of
each jurisdiction of the United States as the Holders may reasonably
request, (B) prepare and file in those jurisdictions such supplements
(including post-effective amendments) and supplements to such registrations
and qualifications as may be necessary to maintain the effectiveness
thereof, (C) take such other actions as may be necessary to maintain such
registrations and qualifications in effect at all times, and (D) take all
other actions reasonably necessary or advisable to qualify the Registrable
Securities for sale in such jurisdictions; provided that the Company shall
not be required in connection therewith or as a condition thereto to
qualify to do business as a foreign corporation in any jurisdiction in
which it is not now qualified, or to file a general consent to service of
process in any jurisdiction with respect to matters unrelated to the
issuance of Parent Company Stock pursuant hereto.
(v) Promptly notify each Holder in writing of the happening of any
such event as a result of which the prospectus (including any supplements
thereto or thereof) included in such Registration Statement, as then in
effect, includes an untrue statement of material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing, and use its reasonable best efforts to promptly update and/or
correct such prospectus to correct such untrue statement or omission, and
deliver such number of copies of such supplement or amendment to each
Holder as such Holder may reasonably request.
(vi) Promptly notify each Holder of the issuance by the Commission or
any state securities commission or agency of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose. Parent shall take all reasonable actions
necessary to prevent the issuance of any stop order and, if any stop order
is issued, to obtain the lifting thereof at the earliest possible time.
(vii) Permit a single firm of counsel, designated as Holders' counsel
by a majority-in-interest of the Registrable Securities included in the
Registration Statement, and reasonably satisfactory to Parent, to review
(A) the Registration Statement and (B) all amendments and supplements
thereto relating to information concerning the Holders within a reasonable
period of time prior to filing thereof, to the extent practicable.
(viii) List the Registrable Securities covered by such Registration
Statement with all securities exchange(s) and/or markets on which the
Parent Common Stock is then listed and prepare and file any required
filings with the National Association of Securities Dealers, Inc. or any
exchange or market where the shares of Parent Common Stock are traded.
(ix) If applicable, take all steps necessary to enable Holders to
avail themselves of the prospectus delivery mechanism set forth in Rule 153
(or successor thereto) under the Securities Act.
(x) Provide a CUSIP number and a transfer agent and registrar, which
may be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.
(xi) At the reasonable request of the Holders of a
majority-in-interest of the Registrable Securities, prepare and file with
the SEC such amendments (including post-effective amendments) and
supplements to the Registration Statement and the prospectus used in
connection with the Registration Statement as may be necessary in order to
change the plan of distribution set forth in such Registration Statement.
(xii) Furnish to the Holders a "10b-5 negative assurances letter" and
independent auditor's comfort letter, both similar to such as would be
provided in an underwritten offering.
(xiii) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering.
(b) Upon written notice to the Holders, Parent may suspend the use of any
prospectus used in connection with the Registration Statement if the Board of
Directors of Parent determines in good faith based
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upon advice of counsel that the use of the prospectus would be misleading
because of material non-public information known to Parent and disclosure of
which is determined by the Board of Directors to be materially detrimental to
Parent and is not otherwise required by law; provided, however, that Parent may
utilize this provision only once in any twelve (12) month period and any such
suspension shall not exceed forty-five (45) calendar days. Parent will use its
reasonable best efforts to cause any such suspension to terminate at the
earliest possible date.
(c) Parent shall pay the expenses incurred by it in complying with its
obligations under this Section 6.1, including all registration and filing fees,
exchange listing fees, the fees and expenses of counsel for Parent, the
reasonable fees and expenses of one counsel retained by the Holders, which
counsel shall be reasonably satisfactory to Parent, and the fees and expenses of
accountants for Parent, but excluding any brokerage fees, selling commissions or
underwriting discounts incurred by the Holders in connection with sales under
the Registration Statement.
(d) Parent shall seek to continue to qualify for registration on Form S-3
or any comparable or successor form or forms, or in the event that the Company
is ineligible to use form, such form as the Company is eligible to use under the
Securities Act.
(e) In the case of the registration effected by Parent pursuant to this
Section 6.1, Parent will use its reasonable best efforts to keep such
registration effective until all the Holders have completed the sales or
distribution described in the Registration Statement relating thereto or, if
earlier, until such Registrable Securities may be sold under Rule 144(k)
(provided that Parent's transfer agent has accepted an instruction from Parent
to such effect).
(f) Parent will indemnify each Holder, each of its directors, officers and
partners, and each person controlling each Holder within the meaning of Section
15 of the Securities Act and the rules and regulations thereunder, against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any registration statement, prospectus, offering
circular or other document incident to any registration, qualification or
compliance effected by Parent pursuant to this Section 6.1, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
any violation by Parent of the Securities Act or any state securities law or in
either case, any rule or regulation thereunder applicable to Parent and relating
to action or inaction required of Parent in connection with any such
registration, qualification or compliance, and will reimburse each Holder, each
of its officers, directors and partners, and each person controlling such
Holder, for any legal and any other expenses reasonably incurred in connection
with investigating and defending any such claim, loss, damage, liability or
action, provided that Parent will not be liable in any such case to a Holder to
the extent that any such claim, loss, damage, liability or expense arises out of
or is based on any untrue statement or omission based upon written information
furnished to Parent by or on behalf of such Holder therefor and stated to be
specifically for use therein. The indemnity agreement contained in this Section
6.1(f) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of Parent (which consent will not be unreasonably withheld).
(g) Each Holder will indemnify Parent, each of its directors, officers and
partners, each person who controls Parent within the meaning of Section 15 of
the Securities Act and the rules and regulations thereunder, and each other
Holder, and each of their directors, officers and partners, and each person
controlling such other Holder(s), against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statement therein not
misleading, and will reimburse Parent and such other Holder(s) and their
directors, officers and partners, or control persons for any legal or any other
expenses reasonably incurred in connection with investigating and defending any
such claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to Parent by such Holder and
stated to be
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specifically for use therein; provided, however, that the obligations of each of
the Holders hereunder shall be limited to an amount equal to the net proceeds to
such Holder of securities sold pursuant to the Registration Statement. The
indemnity agreement contained in this Section 6.1(g) shall not apply to amounts
paid in settlement of any such claims, losses, damages or liabilities if such
settlement is effected without the consent of such Holder (which consent shall
not be unreasonably withheld).
(h) Each party entitled to indemnification under this Section 6.1 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld) and the Indemnified Party may participate in such
defense at the Indemnified Party's expense (unless the Indemnified Party shall
have reasonably concluded that there may be a conflict of interest between the
Indemnifying Party and the Indemnified Party in such action, in which case the
fees and expenses of counsel shall be at the expense of the Indemnifying Party),
and provided further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 6.1 unless, and only to the extent that, the Indemnifying
Party is materially prejudiced thereby. No Indemnifying Party, in the defense of
any such claim or litigation shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation. Each Indemnified Party shall furnish such
information regarding itself or the claim in question as an Indemnifying Party
may reasonably request in writing and as shall be reasonably required in
connection with the defense of such claim and litigation resulting therefrom.
(i) If the indemnification provided for in this Section 6.1 is held by a
court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage or expense referred to herein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party
hereunder, shall contribute to the amount paid or payable by such Indemnified
Party as a result of such loss, liability, claim, damage or expense in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and of the Indemnified Party on the other in connection
with the statements or omissions which resulted in such loss, liability, claim,
damage or expense, as well as any other relevant equitable considerations. The
relative fault of the Indemnifying Party and of the Indemnified Party shall be
determined by reference to, among other things, whether the untrue (or alleged
untrue) statement of a material fact or the omission (or alleged omission) to
state a material fact relates to information supplied by the Indemnifying Party
or by the Indemnified Party and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
(j) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting agreement entered
into in connection with any underwritten public offering contemplated by this
Agreement are in conflict with the foregoing provisions, the provisions in such
underwriting agreement shall be controlling.
(k) With a view to making available the benefits of certain rules and
regulations of the SEC which may permit the sale of restricted securities to the
public without registration, Parent agrees to use its reasonable best efforts to
(i) make and keep public information available as those terms are understood and
defined in Rule 144 under the Securities Act, or any successor rule, at all
times after the date hereof, (ii) use its reasonable best efforts to file with
the SEC in a timely manner all reports and other documents required of Parent
under the Securities Act and the Exchange Act at any time, and (iii) so long as
the Holder owns any Registrable Securities, furnish to the Holder upon request,
a written statement by Parent as to its compliance with the reporting
requirements of Rule 144, and of the Securities Act and the Exchange Act, a copy
of the most recent annual or quarterly report of Parent, and such other reports
and documents so filed as the Holder may reasonably request in availing itself
of any rule or regulation of the SEC allowing the Holder to sell any such
securities without registration.
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(l) Each Holder shall notify Parent in writing promptly after, and in no
event later than five (5) business days after, the sale or other disposition by
the Holder of any of the Registrable Securities.
(m) Parent shall not include any securities in the Registration Statement
other than securities owned by the Holders.
(n) Any Holder may assign its registration rights under this Section 6.1 in
connection with a transfer of the Registrable Securities, prior to the date of
the initial filing of the Registration Statement with the Commission, to an
affiliate of such Holder or a child, spouse or other member of such Holder's
immediate family or a trust for the benefit of any such person, provided each
such transferee agrees in a written instrument delivered to Parent to be bound
by this Section 6.1; provided, however, that any Holder who owns in excess of
50,000 shares of the Registrable Securities may assign its registration rights
under this Section 6.1 at any time in connection with a private resale of the
Registrable Securities or in connection with a transfer of the Registrable
Securities to an affiliate of such Holder or a child, spouse or other member of
such Holder's immediate family or a trust for the benefit of any such person,
provided each such transferee agrees in a written instrument delivered to Parent
to be bound by this Section 6.1.
(o) Parent agrees not to file any registration statement (other than a
registration statement related to a public offering by Parent of its securities
or a registration statement in connection with an offering by Parent pursuant to
Rule 144(A) under the Securities Act) prior to the effective date of the
Registration Statement.
(p) If the Registration Statement is not declared effective on or before
June 1, 2001, Parent agrees to assume and be bound by the terms and provisions
of that certain Registration Rights Agreement dated September 30, 1998 by and
among the Company and the other parties identified therein, as amended by
Amendment No. 1 dated August 27, 1999.
Section 6.2 Registration Statement on Form S-4. If the Dilworth Securities
Opinion for any reason is not delivered to Parent within ten (10) days after the
date hereof, or if the Dilworth Securities Opinion is not in all respects
satisfactory to the Company, Parent and their respective professional advisors,
then in such event:
(a) Parent and the Company shall cooperate to prepare and cause to be filed
on or before October 31, 2000 with the Commission a Registration Statement on
Form S-4 with respect to the issuance of parent Common Stock in the Merger (the
"Form S-4"). Each of Parent and the Company shall use reasonable best efforts to
cause the Form S-4 to comply with applicable law and the rules and regulations
promulgated by the Commission, to respond promptly to any comments of the
Commission or its staff and to have the Form S-4 declared effective under the
Securities Act as promptly as practicable after it is filed with the Commission.
Each of the parties hereto shall promptly furnish to the other party all
information concerning itself, its stockholders and its affiliates that may be
required or reasonably requested in connection with any action contemplated by
this Section 6.2. If any event relating to Parent or the Company occurs, or if
Parent or the Company becomes aware of any information, that should be disclosed
in an amendment or supplement to the Form S-4, Parent or the Company, as
applicable, shall inform the other thereof and shall cooperate with each other
in filing such amendment or supplement with the Commission, and if appropriate,
in mailing such amendment or supplement to the stockholders of Parent and the
Company. Each party will notify the other promptly upon the receipt of any
comments from the Commission or its staff or any other government officials and
of any request by the Commission or its staff or any other government officials
for amendments or supplements to the Form S-4 or for additional information and
will supply the other party with copies of all correspondence between Parent,
the Company or any of their representatives, on the one hand, and the
Commission, or its staff or any other government officials, on the other hand,
with respect to the Form S-4 or the Merger. Each party shall cooperate as
requested by the other party in connection with responding to any such comments
or requests.
In addition, Parent shall file a Form S-3 if required in order to permit
the resale of the Registrable Securities by a Holder which is an affiliate of
Parent.
(b) Prior to the Effective Time, Parent shall use reasonable efforts to
obtain all regulatory or other approvals needed to ensure that the Parent Common
Stock to be issued in the Merger: (i) will be registered or qualified under the
securities law of every jurisdiction of the United States in which any
registered holder of
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the Company Capital Stock who is receiving shares of registered Parent Common
Stock has an address of record or be exempt from such registration and (ii) will
be approved for quotation at the Effective Time on the Nasdaq subject to
official notice of issuance; provided, however, that Parent shall not, pursuant
to the foregoing, be required (A) to qualify to do business as a foreign
corporation in any jurisdiction in which it is not now qualified or (B) to file
a general consent to service of process in any jurisdiction with respect to
matters unrelated to the issuance of Parent Common Stock pursuant hereto.
(c) Each of Parent and the Company (in respect of the information
respectively supplied by it) agrees that (i) none of the information to be
supplied by it or its affiliates for inclusion in the Form S-4 will, at the time
the Form S-4 becomes effective under the Securities Act and at 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 light of the circumstances under which they are made, not
misleading: and (ii) as to matters respecting it, the Form S-4 will comply as to
form in all material respect with the provisions of the Securities Act and the
Exchange Act, as applicable, and the rules and regulations promulgated by the
Commission thereunder, except that no covenant, 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 therein and no covenant, 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 therein.
Section 6.3 Notice to Company Stockholders of the Merger. As soon as may
be reasonably practicable, but not later than five (5) days after the date
hereof, the Company shall notify each of the stockholders of the Company who are
entitled to appraisal rights of the approval of the Merger and that appraisal
rights are available for any or all shares of capital stock of the Company held
by such stockholders, in accordance with the provisions of (a) Section 262(d)(2)
of the DGCL, and (b) Section 228(d) of the DGCL. The Company shall permit
counsel for Parent to review such notice within a reasonable period of time
prior to the date of the making of such notification. In connection with such
notification, Parent shall provide to the Company and its counsel such SEC
Documents and information concerning Parent, for inclusion in the notification,
as the Company and its counsel may reasonably request.
Section 6.4 Cooperation; Access to Information; Consents..
(a) Upon reasonable prior notice, the Company shall afford Parent and its
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time to all of its
properties, books, contracts, commitments and records, all other information
concerning its business, properties and personnel (subject to restrictions
imposed by applicable law) as Parent may reasonably request and all its key
employees. Upon reasonable prior notice, Parent shall afford the Company and its
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time to all of its
properties, books, contracts, commitments and records, all other information
concerning its business, properties and personnel (subject to restrictions
imposed by applicable law) as the Company may reasonably request and all its key
employees. No information or knowledge obtained in any investigation pursuant to
this Section 6.3 shall 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.
(b) The Company and Parent shall use their reasonable best efforts to
obtain the consents, waivers, assignments and approvals under any of their
respective material contracts as may be required in connection with the Merger
so as to preserve all rights of, and benefits to, the Company and Parent
thereunder.
Section 6.5 Expenses. Whether or not the Merger is consummated, all fees
and expenses incurred in connection with the Merger, including, without
limitation, all legal, accounting, financial advisory, consulting and all other
fees and expenses of third parties ("THIRD PARTY EXPENSES") incurred by a party
in connection with the negotiation and effectuation of the terms and conditions
of this Agreement and the transactions contemplated hereby, shall be the
obligation of the respective party incurring such fees and expenses, it being
understood that the fees and expenses associated with printing and distributing
the materials under Section 6.2 are the obligations of the Parent.
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Section 6.6 Public Disclosures. Parent and the Company shall consult with
each other before issuing any press release or otherwise making any public
statements with respect to this Agreement or the Merger or the transactions
contemplated hereby or thereby and shall not issue any such press release or
make any such public statement prior to such consultation, except as may be
required by law, the NASDAQ or any listing agreement with a national securities
exchange. The parties have agreed to the text of the joint press release
announcing the signing of this Agreement.
Section 6.7 Reasonable Best Efforts. Subject to the terms and conditions
provided in this Agreement, each of the parties hereto shall use its reasonable
best efforts to take promptly, or cause to be taken, all actions, and to do
promptly, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated hereby, to obtain all necessary waivers, consents, tax
opinions and approvals and to effect all necessary registrations and filings and
to remove any injunctions or other impediments or delays, legal or otherwise, in
order to cause the Merger to be effective on or before October 31, 2000 or as
soon as practicable thereafter and otherwise to consummate and make effective
the transactions contemplated by this Agreement for the purpose of securing to
the parties hereto the benefits contemplated by this Agreement. Notwithstanding
the foregoing, (A) none of Parent, the Company or any of their respective
subsidiaries shall be required to agree to any divestiture or hold separate or
similar transactions by it or any of its subsidiaries or affiliates of shares of
capital stock or of any business, assets or property of any of them or any of
their subsidiaries or affiliates, 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 and (B) the Company shall not,
without Parent's prior written consent, commit to any divestiture or hold
separate or similar transaction by it or any of its subsidiaries or affiliates
of shares of capital stock or of any business, assets or property of any of them
or any of their subsidiaries or affiliates, or the imposition of any material
limitation on the ability of any of them to conduct their businesses or to on or
exercise control of such assets, properties and stock.
Section 6.8 Notification of Certain Matters. Each of the Company and
Parent shall give prompt notice to the other party of (i) the occurrence or
non-occurrence of any event, the occurrence or non-occurrence of which is likely
to cause any representation or warranty of any party contained in this Agreement
to be untrue and inaccurate at or prior to the Effective Time such that the
conditions set forth in Section 7.2(b) or 7.3(b) would not be satisfied and (ii)
any failure of Parent or the Company, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder which is likely to cause any condition set in Article VII hereof
not to be satisfied; provided, however, that the delivery of any notice pursuant
to this Section 6.8 shall not limit or otherwise affect any remedies available
to the party receiving such notice and no disclosure by Parent or the Company,
pursuant to this Section 6.8 shall be deemed to amend or supplement the Parent
Disclosure Letter or the Company Disclosure Letter, respectively, or prevent or
cure any misrepresentations, breach of warranty or breach of covenant, unless
the recipient party shall agree in writing to accept the disclosures set forth
in any such notice.
Section 6.9 Support Agreements; Share Transfer Restriction
Agreements. Those stockholders of the Company listed on Schedule 6.9 attached
hereto have delivered to Parent, concurrently with the execution of this
Agreement, (i) executed Support Agreements, substantially in the form attached
hereto as Exhibit B, and (ii) executed Share Transfer Restriction Agreements,
substantially in the form of Exhibit C attached hereto.
Section 6.10 Regulatory Filings; Reasonable Best Efforts. As soon as may
be reasonably practicable, Parent and the Company each shall file with the
United States Federal Trade Commission (the "FTC") and the Antitrust Division of
the United States Department of Justice (the "DOJ") Notification and Report
Forms relating to the transactions contemplated herein as required by the H-S-R
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. Parent and the Company 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.
Section 6.11 Additional Documents and Further Assurances. Each party
hereto, at the request of another party hereto, shall execute and deliver such
other instruments and do and perform such other acts and
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things as may be necessary or desirable for effecting completely the
consummation of this Agreement, the Merger and the transactions contemplated
hereby.
Section 6.12 Company Stock Rights.
(a) Each Company Stock Right which is vested prior to or as of the Closing
may be exercised by the holder thereof as and if so vested at any time prior to
or at Closing, and shares of Company Common Stock shall be issued to such holder
upon such exercise in accordance with the terms of such Company Stock Right,
provided that such holder pays to the Company the applicable exercise price or
warrant purchase price and otherwise complies with all conditions to and
procedures for the exercise of such options, warrants or rights.
(b) Each Company Stock Right which (i) is not vested prior to or as of the
Closing or (ii) otherwise is not exercised by the holder thereof prior to or at
the Closing, shall without further action on the part of the holder thereof be
converted into an option to acquire a number of shares of Parent Common Stock
equal to the Exchange Ratio (applicable to the conversion of Company Common
Stock, as determined in accordance with Section 3.1(c)(i) or 3.1(c)(ii)(B), as
applicable, hereof), rounded up to the nearest whole share (except where such
rounding would adversely affect the status of an option to acquire Company
Common Stock as an incentive stock option under Section 422 of the Code), and at
a per share option price equal to the per share option price, if any, under the
related Company Stock Right divided by the Exchange Ratio (applicable to the
conversion of Company Common Stock, as determined in accordance with Section
3.1(c)(i) or 3.1(c)(ii)(B), as applicable, hereof), on terms and conditions
substantially identical to the terms and conditions existing under the related
Company Stock Right so converted.
(c) Parent shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Parent Common Stock for delivery upon
exercise of the options assumed in accordance with this Section 6.12. Not later
than ten (10) days after the Effective Time, Parent shall file a Registration
Statement on Form S-8 (or any successor form) under the Securities Act with
respect to all shares of Parent Common Stock subject to options that may be
registered on a Form S-8, and shall use its reasonable best efforts to maintain
the effectiveness of such Registration Statement for so long as such options
remain outstanding.
Section 6.13 Employee Benefits. From the Effective Time and until December
31, 2000, Parent shall cause the Company to continue (a) to maintain employee
benefits plans and benefit arrangements for the benefit of the Company's
employees which are no less favorable in the aggregate than the Employee Plans
and Benefit Arrangements and (b) to continue to provide base compensation and
incentive compensation opportunities for the Company's employees which in the
aggregate are comparable to the base compensation and incentive compensation
opportunities available to the Company's employees at the Closing; provided
that, nothing herein shall be construed as requiring Parent or the Company to
maintain the employment of any of the Company's employees through that date.
Section 6.14 Certain Tax Matters.
(a) Return Filing; Information Sharing. Until the Closing Date:
(i) The Company shall prepare and file, or cause to be prepared and
filed, with the appropriate governmental authority all federal tax returns
and all material state, local and foreign tax returns required to be filed
(with extensions) by or with respect to the Company on or prior to the
Closing Date;
(ii) The Company agrees that it will, and will cause its affiliates
to, make available all such information, employees and records of or
relating to the Company as Parent may reasonably require with respect to
matters relating to taxes (including, without limitation, the right to make
copies of such information and records) and will cooperate with respect to
all matters relating to all taxes (including, without limitation, the
filing of tax returns, tax planning matters, the filing of an amended tax
return (if the Company determines that such an amendment is necessary),
audits, and proceedings); and
(iii) If the Company or any affiliate thereof receives any written
notice from any tax authority proposing any audit or adjustment to any tax
relating to the Company, the Company or such affiliate shall give prompt
written notice thereof to Parent which notice shall describe in detail each
proposed adjustment.
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(b) Certain Tax Opinions.
(i) Parent represents, warrants and covenants that it has received an
opinion of Paul, Hastings, Janofsky & Walker LLP ("PHJW"), counsel to
Parent, issued for the sole reliance of Parent, in form and substance
satisfactory to Parent, that the Merger, if consummated in accordance with
this Agreement, and based upon the Initial Tax Certificates (defined
below), will qualify as a reorganization within the meaning of Section
368(a) of the Code as in effect as of the date hereof (the "PHJW INITIAL
TAX OPINION");
(ii) The Company represents, warrants and covenants that it has
received an opinion of King & Spalding ("K&S"), counsel to the Company,
issued for the sole reliance of the Company, in form and substance
satisfactory to the Company, that the Merger, if consummated in accordance
with this Agreement, and based upon the Initial Tax Certificates (defined
below), will qualify as a reorganization within the meaning of Section
368(a) of the Code as in effect as of the date hereof (the "K&S INITIAL TAX
OPINION");
(iii) In connection with the rendering of the Initial Tax Opinions,
Parent, Acquisition and the Company have furnished PHJW and K&S with
certificates signed by officers having authority to sign such certificates
(the "INITIAL TAX CERTIFICATES"). Parent, Acquisition and the Company agree
that they will furnish certificates dated as of the Closing Date in
substantially the same form (updated as necessary) as the Initial Tax
Certificates (the "CLOSING TAX CERTIFICATES") in connection with the
issuance by PHJW and K&S of certain legal opinions dated as of the Closing
Date;
(iv) Parent, Acquisition and the Company shall cooperate in causing
the Merger to qualify as a tax-free reorganization under Section 368(a) of
the Code and shall treat the Merger as such a reorganization in which no
other property or money (within the meaning of Section 356 of the Code, but
excluding cash received in lieu of fractional shares) is received by
Company stockholders (other than Dissenting Stockholders) for all tax
purposes, including the reporting of the Merger as qualifying as such a
reorganization on all relevant federal, state, local and foreign tax
returns. Parent, Acquisition and the Company covenant and agree that they
each shall not take any position or action inconsistent with the Initial
Tax Certificates or the Closing Tax Certificates. Parent and the Company
covenant and agree to (and to cause any affiliate or successor to)
vigorously and in good faith defend all challenges to the tax-free status
of the Merger; and
(v) It is understood and agreed that both PHJW and K&S shall issue to
their respective clients substantially identical opinions to the effect
that the Merger will qualify as a reorganization under Section 368(a) of
the Code and related matters (A) for description in the notification to the
Stockholders of the Company, described in Section 6.3, and (B) at Closing.
(c) Tax Covenants. Parent and the Company covenant to each other that none
of Parent, the Company or any of their respective subsidiaries has taken (or
will take) any action that would prevent the Merger from qualifying as a
reorganization described in Section 368(a) of the Code, including, without
limitation, any action inconsistent with any representation, warranty, or
covenant made or to be made in connection with opinions to be delivered pursuant
to Sections 7.2(a) or 7.3(a) hereof. In addition, Parent and the Company each
agree that in the event such party becomes aware of any such fact or
circumstance that is reasonably likely to prevent the Merger from qualifying as
a reorganization described in Section 368(a) of the Code, it will promptly
notify the other party in writing.
Section 6.15 No Solicitation. The Company agrees that it shall not,
directly or indirectly, through any officer, director, employee, representative
or agent (i) solicit, initiate, or encourage any inquiries or proposals that
constitute, or could reasonably be expected to lead to, a Competitive Proposal,
or (ii) engage in negotiations or discussions concerning, or provide any
non-public information to any person or entity relating to any Competitive
Proposal, or (iii) enter into any definitive agreement relating to a Competitive
Proposal. For purposes of this Agreement, "COMPETITIVE PROPOSAL" means (i) any
proposal or offer from any Person relating to any direct or indirect acquisition
or purchase of all or a substantial part of the assets of the Company, (ii) any
tender offer or exchange offer that if consummated would result in any Person
beneficially owning twenty percent (20%) or more of any class of existing
securities of the Company, (iii) any merger,
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consolidation, business combination, sale of substantially all of the assets,
recapitalization, liquidation, dissolution, or similar transaction involving the
Company, other than the transaction contemplated by the Agreement and other than
transactions in the ordinary course of business consistent with past practice,
or (iv) any other transaction the consummation of which would reasonably be
expected to impede or delay the Merger.
Section 6.16 Parent Board of Directors. Parent shall cause the Parent's
Board of Directors to select and elect (i) one individual selected by Parent's
Board of Directors from General Atlantic Partners 49, L.P., General Atlantic
Partners 57, L.P., GAP Coinvestment Partners, L.P. and GAP Coinvestment Partners
II, L.P., collectively as a group, and (ii) one individual selected by Parent's
Board of Directors from the Company's Board of Directors to serve as members of
Parent's Board of Directors in the respective classes of directors which shall
have the longest unexpired terms at the time of each individual's election, such
elections to be effective as of the Effective Time; and, in connection
therewith, if necessary to add such persons to its Board of Directors, Parent
shall take all actions necessary to expand the Parent's Board of Directors.
Section 6.17 Parent Employee Retention Plan. As soon as practicable
following the date of this Agreement and conditioned upon the consummation of
the Merger, Parent's Board of Directors will adopt such resolutions or take
other actions as may be required to create an employee retention plan,
acceptable to Parent's Board of Directors, pursuant to which options to purchase
shares of Parent Common Stock will be granted to employees of the Company, which
shares will be subject to forfeiture in the event such employee voluntarily
resigns or is terminated with cause by the Surviving Corporation, on such plan
terms, provisions and conditions as are acceptable to the Board. The allocation
of options to be awarded under the employee retention plan and all of the other
terms and provisions of the awards thereunder shall be made by the compensation
committee of Parent's Board of Directors, in consultation with the two (2)
outside directors of the Company's Board of Directors.
Section 6.18 NASDAQ Additional Shares Notification. Parent will file an
additional shares notification with NASDAQ (the "Additional Shares
Notification") to approve for listing, subject to official notice of its
issuance, the shares of Parent Common Stock to be issued in connection with the
Merger. Parent shall exercise reasonable good faith efforts to cause the shares
of Parent Common Stock to be issued in the Merger to be approved for listing on
NASDAQ, subject to official notice of issuance, prior to the Effective Time.
Parent will provide to the Company a copy of the Additional Shares Notification
(including the opinion of counsel furnished therewith).
Section 6.19 No Solicitation of Employees. The parties hereto agree that
each such party shall not, directly or indirectly, through any entity, officer,
director, employee, financial advisor, representative or agent of such party for
a period commencing on the date hereof and terminating on the earlier of the
Closing Date or the twelve (12) month anniversary of the termination of this
Agreement, recruit or solicit any employee of the other party hereto or induce
any employee of the other party hereto to terminate their agreement or
relationship with such other party.
Section 6.20 Indemnification of Directors and Officers.
(a) Parent and the Surviving Corporation agree that the indemnification
obligations set forth in the Company's Certificate of Incorporation and bylaws,
in each case as of the Effective Time, shall survive the Merger and shall not be
amended, repealed or otherwise modified for a period of seven (7) years after
the Effective Time in any manner that would adversely affect the rights
thereunder of the individuals who on or prior to the Effective Time, were
directors or officers of the Company or any of its subsidiaries.
(b) After the Effective Time, Parent and the Surviving Corporation shall,
to the fullest extent permitted under applicable law, indemnify and hold
harmless, each present and former director or officer of the Company and each of
its subsidiaries and each such person who served at the request of the Company
or any of its subsidiaries as a director, officer, trustee, partner or fiduciary
of another corporation, partnership, joint venture, trust, pension or other
employee benefit plan or enterprise (collectively, the "Indemnified Parties")
against all costs and expenses (including reasonable attorneys' fees),
judgments, fines, losses, claims, damages, liabilities and settlement amounts
paid in connection with any claim, action, suit, proceeding or investigation
(whether arising before or after the Effective Time), whether civil,
administrative or investiga-
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tive, arising out of or pertaining to any action or omission in their capacity
as an officer, director or other person to whom this provision applies, in each
case occurring before the Effective Time (including the transactions
contemplated by this Agreement).
(c) For a period of seven (7) years after the Effective Time, Parent shall
cause to be maintained in effect the current policies of directors' and
officers' liability insurance maintained by the Company with respect to matters
arising before the Effective Time.
(d) In the event Parent or the Surviving Corporation or any of their
respective successors or assigns (i) consolidates with or merges into any other
person and shall not be the continuing or surviving corporation or entity in
such consolidation or merger, or (ii) transfers all or substantially all of its
properties to any person, then, and in each case, proper provision shall be made
so that the successors and assigns of Parent or the Surviving Corporation, as
the case may be, honor the indemnification obligations set forth in this Section
6.20.
(e) The obligations of Parent and the Surviving Corporation under this
Section 6.20 shall not be terminated or modified in such a manner as to
adversely affect any director, officer or other person without the consent of
such affected director, officer or other person (it being expressly agreed that
each such director, officer or other person to whom this Section 6.20 applies
shall be a third-party beneficiary of this Section 6.20).
Section 6.21 Maintain S-3 Eligibility. Following the Effective Time,
Parent shall use its reasonable best efforts and take all actions necessary to
maintain eligibility to register its securities under the Securities Act on Form
S-3.
Section 6.22 Dividend on Class A Preferred Stock. As of the date hereof,
there are dividends accrued, but unpaid, in respect of the shares of the
Company's Series A Preferred Stock in the amount set forth in the Company
Disclosure Letter(the "SERIES A PREFERRED STOCK DIVIDENDS"). Immediately prior
to the Effective Time, if the holders determine to convert their shares of
Series A Preferred Stock into shares of Class B Common Stock in accordance with
Section IV.C.5.(a) of the Company's Certificate of Incorporation, the Series A
Preferred Stock Dividends will be paid in full in cash.
Section 6.23 Conduct of Business Pending Closing. Between the date hereof
and the Effective Time, the business of Parent and the Company each shall be
conducted only in the ordinary and usual course and consistent with prior
practice.
Section 6.24 Employment Agreements. The Company shall use its reasonable
best efforts to cause each of the employees of the Company set forth on Schedule
6.24 hereto (the "Key Employees"), to execute and deliver to Parent and the
Company an Employment Agreement by and between the Company and each Key Employee
in form and substance satisfactory to Parent.
Section 6.25 Secondary Offering. If Parent determines to commence a public
offering of its securities, Parent agrees in good faith to proceed with such
offering as promptly as is reasonably practicable.
Section 6.26 No Adverse Actions. Each of the parties hereto agrees not to,
directly or indirectly, knowingly take any action which could materially delay
the consummation of the Merger in accordance with the terms of this Agreement.
Section 6.27 Securities Laws Compliance. If the Dilworth Securities
Opinion is issued, the offer, sale and issuance of the Parent Common Stock
pursuant to the terms of this Agreement will constitute transactions exempt from
the registration requirements of Section 5 of the Securities Act, and the
registration or qualification requirements of applicable states securities laws.
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ARTICLE VII
CONDITIONS TO THE MERGER
Section 7.1 Conditions to Obligations of Each Party. The respective
obligations of each party to this Agreement to consummate and effect this
Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect, nor shall any proceeding brought
by an administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, seeking any of the foregoing be pending;
nor shall there by any action taken, or any statue, rule, regulation, injunction
order or decree enacted, entered, enforced, promulgated, issued or deemed
applicable to the Merger which makes the consummation of the Merger illegal.
(b) H-S-R Act. All waiting periods under the H-S-R Act relating to the
transactions hereby will have expired or terminated early.
(c) Dissenting Stockholders. The period of time permitted under Section
262 of the DGCL, during which the stockholders of the Company may demand the
appraisal of their shares of Company Capital Stock, shall have expired.
(d) Effectiveness of Form S-4 Registration Statement. If the Form S-4
shall have been filed in accordance with Section 6.2 hereof, such Form S-4 shall
have become effective in accordance with the provisions of the Securities Act,
and no stop order shall have been issued by the Commission with respect thereto.
Section 7.2 Conditions to Obligations of Parent. The obligations of Parent
to consummate and effect this Agreement and the transactions contemplated hereby
shall be 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 Parent:
(a) Legal Opinion. Parent shall have received (i) the opinion of PHJW,
counsel to Parent, in the form attached hereto as Exhibit D , to the effect that
the Merger will be treated as a reorganization described in Section 368(a) of
the Code, and that neither Parent nor any of its subsidiaries will recognize
gain or loss by reasons of the issuance of the Parent Common Stock, in each case
under the laws in effect as of the Closing Date, and (ii) the opinion of K&S,
counsel to the Company, in form reasonably satisfactory to Parent and its
counsel, to the effect that the provisions contained in Article XI and Exhibit F
hereto relating to the indemnification of Parent and the related escrow of
shares are enforceable in accordance with their terms. The parties to this
Agreement agree to make such reasonable representations as requested by such
counsel for the purpose of rendering any such opinion.
(b) Representations and Warranties. The representations and warranties of
the Company in this Agreement shall be true and correct in all respects on and
as of the Effective Time as though such representations and warranties were made
on and as of such time, except for those representations and warranties which
address matters only as of a particular date (which shall be true and correct
only as of such date) and such inaccuracies as individually or in the aggregate
would not have a Material Adverse Effect on the Company.
(c) Covenants. The Company shall have performed and complied in all
material respects with all covenants and obligations of this Agreement required
to be performed and complied with by the Company as of the Effective Time.
(d) Certificate of the Company. Parent shall have been provided with a
certificate executed on behalf of the Company by its President and Chief
Executive Officer, its Chief Operating Officer or its Chief Financial Officer to
the effect that, as of the Effective Time, the conditions set forth in Sections
7.2(b) and 7.2(c) have been met.
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(e) Dissenting Stockholders. Appraisal rights shall not have been properly
demanded by Dissenting Stockholders of the Company pursuant to Section 262 of
the DGCL for shares of the Company Common Stock in a number greater than seven
percent (7%) of the Company Common Stock issued and outstanding immediately
prior to the Effective Time (for these purposes, converting any shares of
Company Preferred Stock held by such Dissenting Stockholders to the equivalent
number of shares of Company Common Stock).
(f) Share Transfer Restriction Agreements. All of the Share Transfer
Restriction Agreements delivered by stockholders of the Company to Parent shall
be in full force and effect in accordance with their terms.
Section 7.3 Conditions to the Obligations of the Company. The obligations
of the Company to consummate and effect this Agreement and the transactions
contemplated hereby shall be 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 the Company:
(a) Legal Opinion. The Company shall have received (i) the opinion of K&S,
counsel to the Company, in the form attached hereto as Exhibit E, to the effect
that the Merger will be treated as a reorganization described in Section 368(a)
of the Code under the law in effect as of the Closing Date. The parties to this
Agreement agree to make such reasonable representations as requested by such
counsel for the purpose of rendering any such opinion.
(b) Representations and Warranties. The representations and warranties of
Parent and Acquisition in this Agreement shall be true and correct in all
respects and as of the Effective Time as though such representations and
warranties were made on and as of the Effective Time, except for those
representations and warranties which address matters only as of a particular
date (which shall be true and correct only as of such date) and such
inaccuracies as individually or in the aggregate would not have a Material
Adverse Effect on Parent.
(c) Covenants. Parent and Acquisition shall have performed and complied in
all material respects with all covenants and obligations of this Agreement
required to be performed and complied with by them as of the Effective Time.
(d) Certificate of Parent. The Company shall have been provided with a
certificate executed on behalf of Parent by officers with titles of Senior Vice
President or above to the effect that, as of the Effective Time, the conditions
set forth in Sections 7.2(b) and 7.2(c) have been met.
ARTICLE VIII
SURVIVAL
Section 8.1 Survival. Except as otherwise provided in the Terms and
Provisions of the Escrow and Indemnification Rights set forth in Exhibit F
attached hereto, and subject to the provisions of Section 5.3 of Exhibit F, the
representations and warranties of the Company and Parent set forth in this
Agreement shall terminate immediately upon the Effective Time. The covenants and
agreements of the Company and Parent set forth in this Agreement shall survive
the Effective Time and shall remain in full force and effect until performed or
satisfied by the applicable party responsible for the same in this Agreement.
Section 8.2 Disclaimer of Other Representations and Warranties. No party
hereto makes any representation or warranty other than those representations and
warranties set forth in this Agreement (including Exhibits and Schedules
hereto).
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 Termination. This Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time:
(a) by mutual consent of Parent and the Company;
(b) by the Company or Parent if: (i) the Effective Time has not occurred by
(x) December 31, 2000 or (y) in the event the Form S-4 is filed in accordance
with Section 6.2 hereof, then March 31, 2001; provided,
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however, that the right to terminate this Agreement under this Section 9.1(b)(i)
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; provided, further, that any party terminating this Agreement
pursuant to this Section 9.1(b)(i) shall provide the other party with written
notice of such termination, which notice shall set forth those conditions to
such party's obligations hereunder that have not been satisfied as of such date;
or (ii) there shall be a final nonappealable order of a federal or state court
in effect preventing consummation of the Merger; or (iii) there shall be any
statute, rule, regulation, injunction, order or decree enacted, entered,
enforced, promulgated, issued or deemed applicable to the Merger which makes
consummation of the Merger illegal;
(c) by Parent or the Company if there shall be any governmental action
taken, or any statute, rule, regulation or order enacted, promulgated or issued
or deemed applicable to the Merger by any Governmental Entity, which would (i)
prohibit Parent's ownership or operation of any material portion of the business
of the Company or (ii) compel Parent or the Company to dispose of or hold
separate all or a material portion of the business assets of the Company as a
result of the Merger;
(d) by the Company if it is not in material breach of its obligations under
this Agreement and there has been a breach of any representation, warranty or
covenant contained in this Agreement on the part of either Parent or
Acquisition, or if any representation or warranty on the part of Parent shall
have become untrue (except for those representations and warranties which
address matters only as of a particular date, which shall be true and correct
only as of such date), and such inaccuracy in such representation or warranty or
breach shall have a Material Adverse Effect on Parent; or
(e) by Parent if it is not in material breach of its obligations under this
Agreement and there has been a breach of any representation, warranty or
covenant contained in this Agreement on the part of the Company, or if any
representation or warranty of the Company shall have become untrue (except for
those representations and warranties which address matters only as of a
particular date, which shall be true and correct only as of such date) and such
inaccuracy in such representations and warranties or such breach shall have a
Material Adverse Effect on the Company.
Section 9.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 9.1 and subject to the payment of any amounts
due under Section 9.3, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Parent, Acquisition or the
Company, or their respective officers, directors or stockholders, provided that
each party shall remain liable for any willful breaches of such party's
covenants hereunder or intentional or willful breaches of such party's
representations and warranties hereunder prior to its termination; provided,
further, that the provisions of Sections 6.5, 6.19 and 9.3 of this Agreement
shall remain in full force and effect and survive any termination of this
Agreement.
Section 9.3 Termination Fees and Other Events.
(a) If Parent shall terminate this Agreement pursuant to Section 9.1(e),
then the Company shall pay to Parent (by wire transfer or immediately available
funds not later than five (5) days after the date of termination of this
Agreement) an amount equal to $9,148,125, to reimburse and compensate Parent for
its time, expenses and lost opportunity costs of pursuing the Merger.
(b) If the Company shall terminate this Agreement pursuant to Section
9.1(d), then parent shall pay to the Company (by wire transfer of immediately
available funds not later than five (5) days after the date of termination of
this Agreement) an amount equal to $9,148,125, to reimburse and compensate the
Company for its time, expenses and lost opportunity costs of pursuing the
Merger.
(c) The parties acknowledge and agree that the agreements contained in this
Section 9.3 are an integral part of the transactions contemplated by this
Agreement. No termination of this Agreement under this Article IX shall be
effective unless and until all fees required to be then paid by the applicable
party pursuant to Section 9.3 hereof shall have been received in immediately
available funds by the party entitled thereto. Notwithstanding anything to the
contrary contained in this Section 9.3, if any party fails to pay any fees OR
expenses due under this Section 9.3 within the time required under this
Agreement or, if no time period is specified, within five business days of the
event giving rise to the payment of such fees and expenses, in addition to any
other amounts paid or payable pursuant to this Section, such defaulting party
shall pay the out-
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of-pocket costs and expenses (including reasonable legal fees and expenses)
incurred by the non-defaulting party in connection with any action, including
the filing of any lawsuit or other legal action, taken to collect payment
together with interest on the amount of any unpaid fees and expenses at the
publicly announced prime rate of Citibank N.A. from the date such fees and
expenses were required to be paid.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or by commercial
messenger or courier service, or mailed by registered or certified (return
receipt requested) or overnight mail or sent via facsimile (with acknowledgment
of complete transmission) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice); provided,
however, that notices sent by mail will not be deemed given until received:
(a) if to the Company:
Talus Solutions, Inc.
Overlook II
2839 Paces Ferry Road
Suite 1000
Atlanta, Georgia 30339-5770
Attn: Thomas R. Madison
President and Chief Executive Officer
Fax: (678) 556-4998
with a copy to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attn: William R. Spalding
Fax: 404-572-5100
(b) if to Parent or Acquisition:
Manugistics Group, Inc.
2115 East Jefferson Street
Rockville, Maryland 20852-4999
Attn: Gregory J. Owens
President and Chief Executive Officer
Fax: (301) 984-2333
with copies to:
Paul, Hastings, Janofsky & Walker LLP
600 Peachtree Street, N.E.
Suite 2400
Atlanta, Georgia 30308
Attn: Paul J. Connell
Fax: 404-815-2350
and
Dilworth Paxson LLP
3200 The Mellon Bank Center
1735 Market Street
Philadelphia, Pennsylvania 19103
Attn: Joseph H. Jacovini
Fax: 215-575-7200
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Section 10.2 Interpretation. 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.
Section 10.3 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.
Section 10.4 Entire Agreement. The exhibits and schedules hereto are
incorporated herein by reference. This Agreement and the documents, schedules
and instruments referred to herein and to be delivered pursuant hereto
constitute the entire agreement between the parties pertaining to the subject
matter hereof, and supersede all other prior agreements and understandings, both
written and oral, among the parties, or any of them, with respect to the subject
matter hereof, except for the Mutual Nondisclosure Agreement between Parent and
the Company dated as of January 11, 2000. There are no other representations or
warranties, whether written or oral, between the parties in connection with the
subject matter hereof, except as expressly set forth herein.
Section 10.5 Assignments; Parties in Interest. Neither this Agreement nor
any of the rights, interests or obligations hereunder may be assigned by any of
the parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties, except that the rights, interests, and
obligations of the Acquisition hereunder may be assigned to any direct wholly
owned Delaware subsidiary of Parent without such prior consent. Subject to the
preceding sentence, this Agreement shall be binding upon and inure solely to the
benefit of each party hereto, and nothing herein, express or implied, is
intended to or shall confer upon any Person not a party hereto any right,
benefit or remedy of any nature whatsoever under or by reason hereof, except as
otherwise provided herein; provided, however, that, nothing herein shall be
construed as permitting any Holder to transfer to any other Person any of the
registration rights effected pursuant to the Registration Statement described in
Section 6.1 hereof except as otherwise provided therein.
Section 10.6 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.
Section 10.7 Other Remedies. 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.
Section 10.8 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
laws thereof.
Section 10.9 Rights of Construction. The parties hereto agree that they
have been represented by counsel during the negotiation and execution of this
Agreement, and therefor, 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.
Section 10.10 Specific Performance. The parties hereto agree that
irreparable damage could occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties will be
entitled to the remedy of specific performance of the terms hereof, in addition
to any other right or remedy any person hereto may have at law or in equity.
Section 10.11 Knowledge. "To the knowledge of the Company" or any similar
phrase contained in this Agreement shall mean the actual knowledge, after due
and appropriate inquiry, of the Company Executives.
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For purposes hereof, the "Company Executives" shall consist of Robert Cross,
Thomas R. Madison, Jr., Michael Cote, Jeffrey Hudkins, Robert Phillips and Adam
Meyerowitz. "To the knowledge of Parent" or any similar phrase contained in this
Agreement shall mean the actual knowledge, after due and appropriate inquiry, of
the Parent Executives. For purposes hereof, the "Parent Executives" shall
consist of Gregory Owens, Raghavan Rajaji and Timothy Smith.
ARTICLE XI
Section 11.1 Indemnification; Escrow Fund. At the Effective Time, the
Escrow Shares will be deposited with an escrow agent that is mutually agreeable
to the Company and Parent, without any act required on the part of the Company's
stockholders. The Escrow Shares will be held in deposit in accordance with the
terms and conditions set forth in Exhibit F attached hereto and will secure the
indemnification obligations of the Company and its stockholders to Parent for
any losses incurred by Parent as a result of any breach of the representations,
warranties, covenants or agreements of the Company which are contained in this
Agreement.
[SIGNATURES ON THE FOLLOWING PAGE]
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IN WITNESS WHEREOF, Parent, Acquisition and the Company have caused this
Agreement to be signed and delivered by their respective duly authorized
officers has signed and delivered this Agreement, all as of the date first
written above.
PARENT:
MANUGISTICS GROUP, INC.
By: /s/ GREGORY J. OWENS
------------------------------------
Gregory J. Owens
President and CEO
ACQUISITION:
MANU ACQUISITION CORP.
By: /s/ RAGHAVAN RAJAJI
------------------------------------
Raghavan Rajaji
President
THE COMPANY:
TALUS SOLUTIONS, INC.
By: /s/ THOMAS R. MADISON, JR.
------------------------------------
Thomas R. Madison, Jr.
President and CEO
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<PAGE> 163
APPENDIX "B"
FAIRNESS OPINION OF GOLDMAN, SACHS & CO.
PERSONAL AND CONFIDENTIAL
September 21, 2000
Board of Directors
Talus Solutions, Inc.
Overlook II
2839 Paces Ferry Road SE
Atlanta, GA 30339
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders, in the aggregate, of the outstanding shares of capital
stock (the "Company Capital Stock") of Talus Solutions, Inc. (the "Company") of
the Exchange (as defined below) pursuant to the Agreement and Plan of Merger,
dated as of September 21, 2000, among Manugistics Group, Inc. ("Manugistics"),
the Company, and Manu Acquisition Corp. ("Acquisition Sub"), a wholly owned
subsidiary of Manugistics (the "Agreement"). Pursuant to the Agreement, the
Company will be merged with Acquisition Sub (the "Merger"), and all of the
outstanding shares of Company Capital Stock will be converted in the aggregate
into a number of shares of common stock, par value $0.002 per share
("Manugistics Common Stock"), of Manugistics ranging from 4.2 million to 5.0
million, based on the Average Stock Price (as defined in the Agreement) of
Manugistics Common Stock, and as set forth in the Agreement (the "Exchange").
Goldman, Sachs & Co. ("Goldman Sachs"), as part of its investment banking
business, is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes. While we were retained to undertake a study to enable us to
render a fairness opinion with respect to the Merger, we did not act as the
Company's financial advisor with respect to the Merger and did not participate
in any negotiations leading to the Agreement. Randall A. Blumenthal, a Managing
Director of Goldman Sachs, is a board observer of the Company. As of the date
hereof, entities affiliated with Goldman Sachs own 95,292 shares of the
Company's Class A Common Stock, 857,633 shares of the Company's Series B
Preferred Stock and 3,113,973 shares of the Company's Series C Preferred Stock.
Goldman Sachs provides a full range of financial advisory and securities
services and, in the course of its normal trading activities, may from time to
time effect transactions and hold securities, including derivative securities,
of Manugistics for its own account and for the accounts of customers. In
addition, Goldman Sachs may provide investment banking services to Manugistics
in the future.
In connection with this opinion, we have reviewed, among other things, the
Agreement; certain audited, consolidated financial statements of the Company for
the two years ended December 31, 1999; the Annual Reports to Stockholders and
the Annual Reports on Form 10-K of Manugistics for the five fiscal years ended
February 29, 2000; certain interim reports to stockholders and Quarterly Reports
on Form 10-Q of Manugistics; certain other communications from the Company to
its Board of Directors; certain other communications from Manugistics to its
stockholders; certain internal financial analyses and forecasts for Manugistics
prepared by the management of Manugistics; and certain internal financial
analyses and forecasts for the Company prepared by the management of the Company
(the "Company Forecasts"). We also have held discussions with members of the
senior management of the Company and Manugistics regarding their assessment of
the strategic rationale for, and the potential benefits of, the transaction
contemplated by the Agreement and the past and current business operations,
financial condition and future prospects of their respective companies. In
addition, we have reviewed the reported price and trading activity for
Manugistics Common Stock, which like many Internet related stocks has been and
is likely to continue to be subject to significant short term price and trading
volatility, compared certain financial information for the Company and
Manugistics and certain stock market information for Manugistics with similar
information for certain other
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companies the securities of which are publicly traded, reviewed the financial
terms of certain recent business combinations in the software industry
specifically and in other industries generally and performed such other studies
and analyses as we considered appropriate.
We have relied upon the accuracy and completeness of all of the financial
and other information discussed with or reviewed by us and have assumed such
accuracy and completeness for purposes of rendering this opinion. For purposes
of our analysis, and with your consent, we have taken into account management's
assessment of the risks and uncertainties associated with the Company achieving
the Company Forecasts in the amounts and at the times indicated therein. We
understand that, pursuant to the Agreement, certain stockholders of the Company
have agreed to indemnify Manugistics against breaches of certain
representations, warranties, agreements and covenants of the Company in the
Agreement. In rendering this opinion, we have with your consent, not taken into
account any potential payments such stockholders may be required to make
pursuant to such indemnity obligations. With your consent, in rendering this
opinion, we have not taken into account any restrictions on the resale of the
shares of Manugistics Common Stock to be received by stockholders of the Company
pursuant to the Agreement. We are not expressing any opinion herein as to the
prices at which Manugistics Common Stock may trade in the future. In addition,
we have not made an independent evaluation or appraisal of the assets and
liabilities of the Company or Manugistics or any of their subsidiaries and we
have not been furnished with any such evaluation or appraisal. We were not
requested to solicit, and did not solicit, interest from other parties with
respect to an acquisition of or other business combination with the Company. We
are expressing no opinion with respect to the allocation of shares of
Manugistics Common Stock among the holders of the various types of Company
Capital Stock in the Merger. The opinion expressed herein is provided for the
information and assistance of the Board of Directors of the Company in
connection with its consideration of the transaction contemplated by the
Agreement and such opinion does not constitute a recommendation as to how any
holder of shares of Company Capital Stock should vote with respect to such
transaction.
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that the Exchange pursuant to the
Agreement is fair from a financial point of view to the holders, in the
aggregate, of shares of Company Capital Stock.
Very truly yours,
/s/ Goldman, Sachs & Co.
(Goldman, Sachs & Co.)
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APPENDIX "C"
FAIRNESS OPINION OF DEUTSCHE BANK SECURITIES, INC.
September 21, 2000
Board of Directors
Manugistics Group, Inc.
2115 East Jefferson Street
Rockville, Maryland 20852
Gentlemen:
Deutsche Bank Securities Inc. ("Deutsche Bank") has acted as financial
advisor to Manugistics Group, Inc. ("Manugistics") in connection with the
proposed acquisition by Manugistics of Talus Solutions, Inc. (the "Company")
pursuant to the Agreement and Plan of Merger, dated September 21, 2000, among
the Company, Manugistics and Manugistics Acquisition, Inc., a wholly owned
subsidiary of Manugistics ("Manugistics Sub") (the "Merger Agreement"), which
provides, among other things, for the merger of Manugistics Sub with and into
the Company (the "Transaction"), as a result of which the Company will become a
wholly owned subsidiary of Manugistics. As set forth more fully in the Merger
Agreement, as a result of the Transaction, each share of the Company's Class A
Voting Common Stock, par value $.0001 per share, and Class B Non-Voting Common
Stock, par value $.0001 per share and each share of the Company's Class A
Cumulative Convertible Redeemable Non-Voting Preferred Stock, par value $.0001
per share, Class B Convertible Voting Preferred Stock, par value $.0001 per
share and Class C Convertible Voting Preferred Stock, par value $.0001 per
share, issued and outstanding immediately prior to the effective time of the
Transaction (other than any Dissenting Shares (as defined in the Merger
Agreement) will be converted, into shares of common stock, par value $0.002 per
share, of Manugistics ("Manugistics Common Stock") at the Exchange Ratio (as
defined in section 3.1(b) and (c) of the Merger Agreement); provided that cash
will be paid in lieu of any fractional shares of Manugistics Common Stock. The
terms and conditions of the Transaction are more fully set forth in the Merger
Agreement.
You have requested Deutsche Bank's opinion, as investment bankers, as to
the fairness, from a financial point of view, to Manugistics of the Exchange
Ratio.
In connection with Deutsche Bank's role as financial advisor to
Manugistics, and in arriving at its opinion, Deutsche Bank has reviewed certain
publicly available financial and other information concerning Manugistics,
certain financial and other information concerning the Company furnished to
Deutsche Bank by the Company, and certain internal analyses and other
information furnished to Deutsche Bank by the Company and Manugistics. Deutsche
Bank has also held discussions with members of the senior managements of the
Company and Manugistics regarding the businesses and prospects of their
respective companies and the joint prospects of a combined company. In addition,
Deutsche Bank has (i) reviewed the reported prices and trading activity for
Manugistics Common Stock, (ii) compared certain financial and stock market
information for Manugistics and, to the extent applicable, the Company with
similar information for certain other companies whose securities are publicly
traded, (iii) reviewed the financial terms of certain recent business
combinations, which it deemed comparable in whole or in part, (iv) reviewed the
terms of the Merger Agreement and certain related documents, and (v) performed
such other studies and analyses and considered such other factors as it deemed
appropriate.
Deutsche Bank has not assumed responsibility for independent verification
of, and has not independently verified, any information, whether publicly
available or furnished to it, concerning the Company or Manugistics, including,
without limitation, any financial information, forecasts or projections
considered in connection with the rendering of its opinion. Accordingly, for
purposes of its opinion, Deutsche Bank has assumed and relied upon the accuracy
and completeness of all such information and Deutsche Bank has not conducted a
physical inspection of any of the properties or assets, and has not prepared or
obtained any independent evaluation or appraisal of any of the assets or
liabilities, of the Company or Manugistics. With respect to the financial
forecasts and projections made available to Deutsche Bank and used in its
analyses, Deutsche Bank has assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
management of the Company or Manugistics, as the case may be, as
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to the matters covered thereby. In rendering its opinion, Deutsche Bank
expresses no view as to the reasonableness of such forecasts and projections or
the assumptions on which they are based. Deutsche Bank's opinion is necessarily
based upon economic, market and other conditions as in effect on, and the
information made available to it as of, the date hereof.
For purposes of rendering its opinion, Deutsche Bank has assumed that, in
all respects material to its analysis, the representations and warranties of
Manugistics, Manugistics Sub and the Company contained in the Merger Agreement
are true and correct; Manugistics, Manugistics Sub and the Company will each
perform all of the covenants and agreements to be performed by it under the
Merger Agreement; and all conditions to the obligations of each of Manugistics,
Manugistics Sub and the Company to consummate the Transaction will be satisfied
consistent with relevant State and Federal regulations without any waiver
thereof. Deutsche Bank has also assumed that all material governmental,
regulatory or other approvals and consents required in connection with the
consummation of the Transaction will be obtained and that in connection with
obtaining any necessary governmental, regulatory or other approvals and
consents, or any amendments, modifications or waivers to any agreements,
instruments or orders to which either Manugistics or the Company is a party or
is subject or by which it is bound, no limitations, restrictions or conditions
will be imposed or amendments, modifications or waivers made that would have a
material adverse effect on Manugistics or the Company or materially reduce the
contemplated benefits of the Transaction to Manugistics. In addition, you have
informed Deutsche Bank, and accordingly for purposes of rendering its opinion
Deutsche Bank has assumed, that the Transaction will be tax-free to each of
Manugistics and the Company.
This opinion is addressed to, and for the use and benefit of, the Board of
Directors of Manugistics and is not a recommendation to the stockholders of
Manugistics to approve the Transaction or the issuance of shares of Manugistics
Common Stock in the Transaction. This opinion is limited to the fairness, from a
financial point of view, to Manugistics of the Exchange Ratio, and Deutsche Bank
expresses no opinion as to the merits of the underlying decision by Manugistics
to engage in the Transaction.
Deutsche Bank will be paid a fee for its services as financial advisor to
Manugistics in connection with the Transaction, which shall be payable upon the
delivery of this opinion. We are an affiliate of Deutsche Bank AG (together with
its affiliates, the "DB Group"). One or more members of the DB Group have, from
time to time, provided investment banking and other financial services to
Manugistics for which it has received compensation, including underwriting the
initial public offering and a subsequent public equity offering. In the ordinary
course of business, members of the DB Group may actively trade in the securities
and other instruments and obligations of Manugistics for their own accounts and
for the accounts of their customers. Accordingly, the DB Group may at any time
hold a long or short position in such securities, instruments and obligations.
Based upon and subject to the foregoing, it is Deutsche Bank's opinion as
investment bankers that the Exchange Ratio is fair, from a financial point of
view, to Manugistics.
Very truly yours,
/s/ Deutsche Bank Securities Inc.
DEUTSCHE BANK SECURITIES INC.
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APPENDIX "D"
TAX OPINION OF PAUL, HASTINGS, JANOFSKY & WALKER LLP
September 21, 2000
Manugistics Group, Inc.
2115 East Jefferson Street
Rockville, Maryland 20852-4999
Re: Agreement and Plan of Merger, dated as of September 21, 2000, by and
among Manugistics Group, Inc., Manu Acquisition Corp. and Talus
Solutions, Inc.
Ladies and Gentlemen:
We have acted as counsel to Manugistics Group, Inc., a Delaware corporation
("Parent"), in connection with the proposed merger of Manu Acquisition Corp., a
Delaware corporation ("Acquisition"), wholly owned by Parent, with and into
Talus Solutions, Inc., a Delaware corporation (the "Company") (the "Merger")
pursuant to the Agreement and Plan of Merger dated as of September 21, 2000 (the
"Agreement"). At your request, in connection with the Agreement, we are
rendering our opinion regarding certain federal income tax consequences of the
Merger.
Except as otherwise provided, capitalized terms not defined herein have the
meanings set forth in the Agreement or in the certificates that have been
delivered to us by Parent (on behalf of Parent and Acquisition) and the Company
for purposes of this opinion and that contain the representations of Parent and
the Company (the "Officers' Certificates").
This opinion is based upon and subject to:
(i) the Merger being effected in the manner described in the
registration statement to be filed on Form S-4 with the Securities and
Exchange Commission in connection with the Merger (the "Registration
Statement") and Proxy Statement (the "Proxy Statement") and in accordance
with the provisions of the Agreement, which is the only document containing
the substantive terms of the Merger;
(ii) the accuracy and completeness, at all times through the Effective
Time of the Merger, of the representations made to us by Parent and the
Company in their respective Officers' Certificates (including, in the case
of representations made to the best knowledge of Parent or the Company
management, or similarly qualified, the accuracy and completeness, at all
times through the Effective Time of the Merger, of such representations as
though not so qualified);
(iii) the accuracy and completeness, at all times through the
Effective Time of the Merger, of the statements concerning the Merger set
forth in the Registration Statement, Proxy Statement and Agreement,
including the purposes of Parent and the Company for consummating the
Merger; and
(iv) the accuracy and completeness, at all times through the Effective
Time of the Merger, of any statements concerning the Merger that have come
to our attention during our engagement.
Based on our examination of the foregoing items and subject to the
limitations set forth herein, we are of the opinion that, for United States
federal income tax purposes, the Merger will constitute a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code").
Our opinion is based on current provisions of the Code, Treasury
Regulations promulgated thereunder, published pronouncements of the Internal
Revenue Service and case law, any of which may be changed at any time with
retroactive effect. Any change in applicable laws or facts and circumstances
surrounding the Merger, or any inaccuracy in the statements, facts, assumptions
and representations on which we have relied, may affect the continuing validity
of the opinion set forth herein. We assume no responsibility to inform you of
any change or inaccuracy that may occur or come to our attention.
We express no opinion as to the United States federal income tax
consequences of the Merger to stockholders subject to special treatment under
United States federal income tax law (including, for example, financial
institutions, tax-exempt organizations, insurance companies, dealers in
securities or foreign currencies, traders in securities who elect to apply a
mark-to-market method of accounting, foreign holders, persons
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who hold shares as a hedge against currency risk or as part of a straddle,
constructive sale or conversion transaction, holders who acquired their shares
of Parent upon the exercise of employee stock options or otherwise as
compensation, and holders who do not hold their shares of Parent as capital
assets within the meaning of Section 1221 of the Code). In addition, no opinion
is expressed with respect to the tax consequences of the Merger under applicable
foreign, state or local laws or under any federal tax laws other than those
pertaining to the income tax, and our opinion may not be relied upon, in each
case except to the extent specifically stated herein.
We understand that our opinion will be referred to in the Registration
Statement. We hereby consent to such use of our opinion.
Very truly yours,
/s/ PAUL, HASTINGS, JANOFSKY & WALKER
LLP
--------------------------------------
Paul, Hastings, Janofsky & Walker LLP
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APPENDIX "E"
TAX OPINION OF KING & SPALDING
September 21, 2000
Talus Solutions, Inc.
Overlook II
2839 Paces Ferry Road
Suite 1000
Atlanta, GA 30339
Re: Federal Income Tax Consequences of the Merger of Manu Acquisition
Corp. with and into Talus Solutions, Inc.
Ladies and Gentlemen:
We have acted as counsel to Talus Solutions, Inc. (the "Company") in
connection with the proposed merger (the "Merger") of Manu Acquisition Corp.
("Acquisition"), a wholly owned subsidiary of Manugistics Group, Inc.
("Parent"), with and into the Company pursuant to the Agreement and Plan of
Merger, dated as of September 21, 2000, by and among Parent, Acquisition, and
the Company (the "Agreement"). You have requested our opinion regarding certain
of the federal income tax consequences of the Merger.
We understand that our opinion will be referred to in the Registration
Statement on Form S-4 to be filed with the Securities and Exchange Commission in
connection with the Merger (the "Registration Statement"). We hereby consent to
such use of our opinion.
All capitalized terms used herein and not defined herein shall have the
respective meanings specified in the Agreement.
INFORMATION AND ASSUMPTIONS RELIED UPON
In rendering the opinion expressed herein, we have examined such documents
as we have deemed necessary or appropriate, including, among other documents,
the Agreement and the Registration Statement. In our examination of the
documents and in our reliance upon them in issuing this opinion, we have
assumed, with your consent, that all documents submitted to us as photocopies or
telecopies faithfully reproduce the originals thereof; that such originals are
authentic; that all such documents submitted to us have been or will be duly
executed and validly signed (or filed, where applicable) to the extent required
in substantially the same form as they have been provided to us; that each
executed document will constitute the legal, valid, binding, and enforceable
agreement of the signatory parties; that all representations and statements set
forth in such documents are and will remain true, accurate, and complete in all
material respects; that the Merger will be carried out in accordance with the
terms of such documents; and that all obligations imposed on, or covenants
agreed to by, the parties pursuant to any of such documents have been or will be
performed or satisfied in accordance with their terms in all material respects.
We also have assumed that the Merger will be consummated pursuant to the terms
and conditions set forth in the Agreement without the waiver or modification of
any such terms and conditions and that the Merger qualifies as a statutory
merger under applicable state law. Furthermore, we have not attempted to verify
independently any representations and have assumed that all representations
contained in the documents are, and at the Effective Time will be, true,
accurate, and complete in all material respects. We further have assumed that
you have disclosed to us all of the documents that are relevant to the
transactions that are the subject of this opinion.
We also have obtained such additional information and representations, upon
which we also have relied in rendering this opinion, as we have deemed relevant
and necessary through consultations with various representatives of Parent,
Acquisition, and the Company. We have obtained written certificates from
officers and executives of Parent, Acquisition, and the Company to verify
certain relevant facts that have been represented to us or that we have been
authorized to assume and upon which we have relied in rendering this opinion.
This opinion assumes that the statements contained in such certificates are
true, accurate, and complete on the date hereof and will be true, accurate, and
complete at the time of the Merger.
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OPINION
Subject to the assumptions set forth above, it is our opinion that the
Merger will qualify as a "reorganization" under Section 368(a) of the Code.
The opinion expressed herein is based upon existing statutory, regulatory,
administrative, and judicial authority in effect as of the date of this letter,
any of which may be changed at any time with retroactive effect. In addition,
our opinion is based solely on the documents that we have examined, the
additional information that we have obtained, and the statements, assumptions,
and representations referred to herein that we have assumed with your consent to
be true, accurate, and complete on the date hereof and at the Effective Time.
Our opinion cannot be relied upon if any of the material facts contained in such
documents or such additional information, statements, assumptions, or
representations referred to herein is, or later becomes, inaccurate. We are
under no obligation to supplement or revise our opinion to reflect any changes
(including changes that could have retroactive effect) in applicable law or any
document, information, corporate record, covenant, statement, assumption, or
representation stated herein that becomes untrue or incorrect. Our opinion
represents our legal judgment and has no official status of any kind.
Accordingly, we cannot assure you that the Internal Revenue Service or a court
having jurisdiction over the issue will agree with our opinion.
Finally, our opinion is limited to the tax matters specifically addressed
herein. We have not been asked to address, nor have we addressed, any other tax
consequences of the Merger, including, but not limited to, any other federal,
state, local, foreign, transfer, sales, or use tax consequences.
This letter is furnished by us as counsel to the Company. The opinion
expressed herein is solely for the benefit of the Company and may not be relied
upon in any manner for any purpose by any other person or otherwise referred to
in any document without our prior express written consent.
Very truly yours,
/s/ KING & SPALDING
--------------------------------------
King & Spalding
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APPENDIX "F"
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
262 APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec.228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec.251 (other than a merger effected pursuant to
sec.251(g) of this title), sec.252, sec.254, sec.257, sec.258, sec.263 or
sec.264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec.251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec.253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its Certificate of Incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its Certificate of
Incorporation, any merger or consolidation in which the corporation is a
constituent corporation
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or the sale of all or substantially all of the assets of the corporation. If the
Certificate of Incorporation contains such a provision, the procedures of this
section, including those set forth in subsections (d) and (e) of this section,
shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to sec.228 or
sec.253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within 10 days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the effective
date of the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date of
the merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before the effective
date of the merger or consolidation notifying each of the holders of any
class or series of stock of such constituent corporation that are entitled
to appraisal rights of the effective date of the merger or consolidation or
(ii) the surviving or resulting corporation shall send such a second notice
to all such holders on or within 10 days after such effective date;
provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only be
sent to each stockholder who is entitled to appraisal rights and who has
demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice
that such notice has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall be not more than
10 days prior to the date the notice is given, provided, that if the notice
is given on or after the effective date of the merger or consolidation, the
record date shall be such effective date. If no record date is fixed and
the notice is given prior to the effective date, the record date shall be
the close of business on the day next preceding the day on which the notice
is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the
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value of the stock of all such stockholders. Notwithstanding the foregoing, at
any time within 60 days after the effective date of the merger or consolidation,
any stockholder shall have the right to withdraw such stockholder's demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after such stockholder's written
request for such a statement is received by the surviving or resulting
corporation or within 10 days after expiration of the period for delivery of
demands for appraisal under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
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(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
339, L. '98, eff. 7-1-98.)
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