<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 15, 1998
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
NETMANAGE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7372 77-025226
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
NETMANAGE, INC.
10725 NORTH DE ANZA BOULEVARD
CUPERTINO, CA 95014
TELEPHONE: (408) 973-7171
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ZVI ALON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
10725 NORTH DE ANZA BOULEVARD
CUPERTINO, CA 95014
TELEPHONE: (408) 973-7171
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
DAVID J. SEGRE DAVID B. WALEK
DANIEL R. MITZ ROPES & GRAY
WILSON SONSINI GOODRICH & ROSATI ONE INTERNATIONAL PLACE
PROFESSIONAL CORPORATION BOSTON, MASSACHUSETTS 02110-2624
650 PAGE MILL ROAD (617) 951-7000
PALO ALTO, CALIFORNIA 94304-1050
(650) 493-9300
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable following the effectiveness of this Registration
Statement and the effective time of the proposed merger (the "Merger") of Amanda
Acquisition Corp. with and into FTP Software, Inc. ("FTP"), as described in the
Agreement and Plan of Reorganization among the Registrant, FTP and Amanda
Acquisition Corp., dated as of June 15, 1998, as amended, attached as Annex A to
the Joint Proxy Statement/Prospectus forming a part of this Registration
Statement.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(b)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED(1) REGISTERED PER SHARE PRICE FEE
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Common Stock, $0.01 par value......... N/A(2) N/A(2) $58,498,452(3) $17,257(4)
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</TABLE>
(1) The Registration Statement relates to securities of the Registrant issuable
to holders of common stock of FTP in the Merger.
(2) Pursuant to Rule 457(o) under the Securities Act of 1933, as amended (the
"Securities Act"), only the title of the class of securities to be
registered, the proposed maximum aggregate offering price for such class of
securities and the amount of the registration fee need appear in the
"Calculation of Registration Fee" table.
(3) Estimated solely for purposes of calculating the registration fee required
by Section 6(b) of the Securities Act and calculated pursuant to Rule 457(f)
under the Securities Act. Pursuant to Rule 457(f)(1) under the Securities
Act, the proposed maximum aggregate offering price of the FTP Common Stock
was calculated in accordance with Rule 457(c) under the Securities Act as:
(a) $1.71875, the average of the high and low prices per share of FTP Common
Stock on June 30, 1998 as reported on the Nasdaq National Market, multiplied
by (b) 34,035,463, the aggregate number of shares of FTP Common Stock
outstanding as of the FTP Record Date (as defined in the Joint Proxy
Statement/Prospectus included in this Registration Statement.)
(4) Pursuant to Rule 457(b) under the Securities Act, $10,527 of the
registration fee was paid on June 30, 1998 by the Registrant in connection
with the filing of preliminary proxy materials of the Registrant and FTP
included herein.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
LOGO
July 17, 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting (the "NetManage
Special Meeting") of the Stockholders of NetManage, Inc. ("NetManage"), which
will be held at 9:00 a.m. on August 26, 1998, at the corporate offices of
NetManage at 10725 North De Anza Boulevard, Cupertino, California 95014.
At the NetManage Special Meeting, you will be asked to consider and vote
upon the issuance of shares of NetManage common stock pursuant to an Agreement
and Plan of Reorganization dated as of June 15, 1998, as amended (the
"Reorganization Agreement"), among NetManage, Amanda Acquisition Corp., a
wholly-owned subsidiary of NetManage ("Merger Sub"), and FTP Software, Inc.
("FTP"). Pursuant to the Reorganization Agreement, Merger Sub will be merged
with and into FTP, and FTP will become a wholly-owned subsidiary of NetManage
(the "Merger"). In the Merger, each outstanding share of FTP common stock
together with each associated right under the FTP Rights Agreement (as defined)
will be converted into the right to receive 0.72767 of a share of NetManage
common stock, subject to adjustment under certain circumstances (as adjusted,
the "Exchange Ratio"), and options to purchase FTP common stock outstanding
under FTP's employee stock option plans will be converted into options to
purchase NetManage common stock on a similar basis. You will also be asked to
consider and vote upon an amendment to the Certificate of Incorporation of
NetManage to increase the number of authorized shares of NetManage's common
stock from 75,000,000 to 125,000,000 shares. The accompanying Joint Proxy
Statement/Prospectus presents the details of the proposed Merger.
Your Board of Directors has reviewed and considered the terms and
conditions of the Merger and has received the written opinion of CIBC
Oppenheimer Corp., its financial advisor, that, as of June 12, 1998 and based
upon and subject to certain matters stated in such opinion, the Exchange Ratio
was fair, from a financial point of view, to the existing holders of NetManage
common stock. A copy of this opinion is attached as Annex B-1 to the
accompanying Joint Proxy Statement/Prospectus.
THE BOARD OF DIRECTORS OF NETMANAGE HAS DETERMINED THAT THE MERGER IS FAIR
TO NETMANAGE AND IN THE BEST INTERESTS OF NETMANAGE STOCKHOLDERS. ACCORDINGLY,
THE BOARD OF DIRECTORS OF NETMANAGE HAS UNANIMOUSLY APPROVED THE REORGANIZATION
AGREEMENT AND THE MERGER AND THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION
AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE ISSUANCE OF THE SHARES
OF NETMANAGE COMMON STOCK IN CONNECTION WITH THE MERGER AND THE AMENDMENT TO THE
CERTIFICATE OF INCORPORATION.
Your vote is important regardless of how many shares you own. Please take a
few minutes now to review the proxy statement and to sign and date your proxy
and return it in the envelope provided. You may attend the meeting and vote in
person even if you have previously returned your proxy.
Sincerely,
/s/ ZVI ALON
-------------------------------------
Zvi Alon
Chairman of the Board of Directors,
President and Chief Executive Officer
<PAGE> 3
NETMANAGE, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the
"NetManage Special Meeting") of NetManage, Inc., a Delaware corporation
("NetManage"), will be held at 9:00 a.m. on August 26, 1998, at the corporate
offices of NetManage at 10725 North De Anza Boulevard, Cupertino, California
95014.
The meeting is called for the purpose of considering and voting upon:
1. A proposal (the "Share Proposal") to approve the issuance of shares
of NetManage common stock, $0.01 par value per share ("NetManage Common
Stock"), pursuant to an Agreement and Plan of Reorganization, dated as of
June 15, 1998, as amended (the "Reorganization Agreement"), by and among
NetManage, Amanda Acquisition Corp., a Massachusetts corporation and a
wholly-owned subsidiary of NetManage ("Merger Sub"), and FTP Software,
Inc., a Massachusetts corporation ("FTP"). Pursuant to the Reorganization
Agreement, Merger Sub will be merged with and into FTP and FTP will become
a wholly-owned subsidiary of NetManage (the "Merger"). In the Merger, each
outstanding share of FTP common stock together with each associated right
under the FTP Rights Agreement (as defined) will be converted into the
right to receive 0.72767 of a share of NetManage Common Stock, subject to
adjustment under certain circumstances (as adjusted, the "Exchange Ratio"),
and options to purchase FTP common stock outstanding under FTP's employee
stock option plans will be converted into options to purchase NetManage
common stock on a similar basis. A copy of the Reorganization Agreement is
attached as Annex A to the Joint Proxy Statement/Prospectus accompanying
this Notice.
2. A proposal (the "Certificate Amendment Proposal") to approve an
amendment to the NetManage Certificate of Incorporation to increase the
number of authorized shares of NetManage Common Stock from 75,000,000 to
125,000,000.
3. Such other business as may properly come before the NetManage
Special Meeting or any adjournments or postponements thereof.
The proposed Merger and other related matters are more fully described in
the attached Joint Proxy Statement/Prospectus and the Annexes thereto.
The Board of Directors has fixed the close of business on July 13, 1998 as
the record date for the determination of the stockholders entitled to notice of
and to vote at the NetManage Special Meeting and any adjournments or
postponements thereof. Only holders of record of NetManage Common Stock on the
record date are entitled to vote at the NetManage Special Meeting.
You can ensure that your shares are voted at the meeting by signing and
dating the enclosed proxy and returning it in the envelope provided. Sending in
a signed proxy will not affect your right to attend the meeting and vote in
person. You may revoke your proxy at any time before it is voted by giving
written notice to the Secretary of NetManage at NetManage's headquarters, 10725
North De Anza Boulevard, Cupertino, California 95014, by signing and returning a
later dated proxy or by voting in person at the NetManage Special Meeting.
<PAGE> 4
WHETHER OR NOT YOU EXPECT TO ATTEND, WE URGE YOU TO SIGN AND DATE THE
ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED.
By Order of the Board of Directors,
/s/ GARY ANDERSON
-----------------------------------
Gary Anderson, Secretary
Cupertino, California
July 17, 1998
<PAGE> 5
LOGO FTP SOFTWARE, INC.
2 HIGH STREET
NORTH ANDOVER, MASSACHUSETTS 01845
July 17, 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting of the Stockholders
of FTP Software, Inc. ("FTP") which will be held at 10:00 a.m., local time, on
August 26, 1998 at the Rolling Green Inn/Ramada, 311 Lowell Street, Andover,
Massachusetts 01810.
As most of you know, FTP has entered into an agreement with NetManage, Inc.
("NetManage") pursuant to which FTP will merge with and become a wholly-owned
subsidiary of NetManage (the "Merger"). In the Merger, each outstanding share of
FTP common stock together with each associated right granted under the FTP
Rights Agreement (as defined) will be converted into the right to receive
0.72767 of a share of NetManage common stock, subject to downward adjustment
under certain circumstances as described below (as adjusted, the "Exchange
Ratio"), and outstanding employee options to purchase FTP common stock will be
converted into options to purchase NetManage common stock on a similar basis. At
the Special Meeting, you will be asked to consider and approve the agreement
with NetManage and the Merger. The accompanying Joint Proxy Statement/Prospectus
presents the details about this proposed Merger.
The Exchange Ratio may be adjusted as follows: if (i) the net revenues of
FTP (A) for the quarter ended June 30, 1998 ("FTP Second Quarter Revenues") are
less than $9,000,000 and/or (B) for the two months ending August 31, 1998 ("FTP
Third Quarter Revenues") are less than $4,900,000, if the closing of the Merger
occurs on or after August 31, 1998 (or, if the Merger closes before August 31,
1998, net revenues of FTP for the month ending July 31, 1998 are less than
$2,450,000), and/or (ii) the cash, cash equivalents and short- and long-term
cash investments of FTP on June 30, 1998 are less than $60,000,000 the Exchange
Ratio will be reduced to the amount obtained by dividing the number of Adjusted
Merger Shares by 34,024,336. "Adjusted Merger Shares" means a number of shares
of NetManage Common Stock equal to 24,758,452 minus the number of shares of
NetManage Common Stock obtained by dividing (A) (1) the amount by which FTP
Second Quarter Revenues plus the excess, if any, of FTP Third Quarter Revenues
over $4,900,000, if the closing occurs on or after August 31, 1998 (or, if the
Merger closes before August 31, 1998, the excess, if any, of FTP's net revenues
for the month ending July 31, 1998 over $2,450,000) are less than $9,000,000,
plus (2) the amount by which FTP Third Quarter Revenues are less than
$4,900,000, if the closing occurs on or after August 31, 1998 (or, if the Merger
closes before August 31, 1998, the amount by which net revenues for the month
ending July 31, 1998 are less than $2,450,000), plus (3) the amount by which the
cash, cash equivalents and short- and long-term cash investments of FTP on June
30, 1998 are less than $60,000,000, by (B) the average of the closing prices
(the "Average Price") of the NetManage Common Stock as reported on the Nasdaq
National Market for the 20 trading days ending on the third trading day prior to
the closing date of the Merger.
As a result, the total consideration payable by NetManage in the Merger
will effectively be decreased by the amount of any shortfall with respect to
these financial tests. While FTP's cash, cash equivalents and short-and
long-term cash investments on June 30, 1998 were in excess of $60 million, FTP
expects that FTP Second Quarter Revenues will be between $7,700,000 and
$8,400,000. As a result, unless FTP's net revenues for the month ending July 31,
1998 are at least $2,450,000 plus the amount of any such shortfall from
$9,000,000, the Exchange Ratio would be between 0.71345 and 0.72111 assuming an
Average Price of $2.6875 (the closing sales price of the NetManage Common Stock
on July 14, 1998). For example, and for illustrative purposes only, (a) if the
closing of the Merger were to occur in August 1998, as currently anticipated,
(b) FTP Second Quarter Revenues were $8,000,000, (c) FTP's net revenues for the
month ending July 31, 1998 were
<PAGE> 6
$3,000,000 and (d) the Average Price was $2.6875 (the closing sales price of the
NetManage Common Stock on July 14, 1998), the "Adjusted Merger Shares" would
equal 24,591,010 ($9,000,000 minus ($8,000,000 plus $550,000) divided by
$2.6875) and the Exchange Ratio would be reduced to 0.72275 (24,591,010 divided
by 34,024,336). If, however, in the preceding example FTP's net revenues for
July 1998 were $3,450,000, there would be no adjustment to the Exchange Ratio.
FTP'S BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS FAIR
TO AND IN THE BEST INTERESTS OF FTP'S STOCKHOLDERS. ACCORDINGLY, THE BOARD HAS
UNANIMOUSLY APPROVED THE AGREEMENT WITH NETMANAGE AND THE MERGER AND UNANIMOUSLY
RECOMMENDS THAT YOU VOTE IN FAVOR OF THE AGREEMENT AND THE MERGER.
Your Board of Directors believes that the Merger represents a strong
strategic fit between two companies with similar businesses that should result
in significant synergies for the combined company and a number of other
important advantages for FTP stockholders. For further information regarding the
Merger, I urge you to carefully read the accompanying Joint Proxy
Statement/Prospectus, particularly the section entitled "THE
MERGER -- Recommendation of the FTP Board; Reasons for the Merger."
Your vote is important regardless of how many shares you own. Please take
some time now to review the Joint Proxy Statement/Prospectus and, even if you
plan to attend the Special Meeting in person, to sign and date your proxy and
return it in the enclosed envelope. You may attend the Special Meeting and vote
in person even if you have previously returned your proxy.
Sincerely,
/s/ GLENN C. HAZARD
------------------------------------
Glenn C. Hazard,
Chairman of the Board, President and
Chief Executive Officer
<PAGE> 7
FTP SOFTWARE, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 26, 1998
To Our Stockholders:
A Special Meeting of Stockholders (the "FTP Special Meeting") of FTP
Software, Inc., a Massachusetts corporation ("FTP"), will be held at 10:00 a.m.,
local time, on August 26, 1998 at the Rolling Green Inn/Ramada, 311 Lowell
Street, Andover, Massachusetts 01810.
At the FTP Special Meeting, you will be asked to consider and vote upon the
following matters:
1. approval of the Agreement and Plan of Reorganization, dated as of
June 15, 1998, as amended (the "Reorganization Agreement"), among
NetManage, Inc. ("NetManage"), Amanda Acquisition Corp., a wholly-owned
subsidiary of NetManage ("Merger Sub"), and FTP, pursuant to which (a)
Merger Sub will be merged with and into FTP and FTP will become a
wholly-owned subsidiary of NetManage, (b) each share of the common stock,
par value $0.01 per share, of FTP issued and outstanding at the effective
time of the Merger, together with each associated right granted under the
FTP Rights Agreement (as defined), will be converted into 0.72767 of a
share of NetManage common stock, par value $0.01 per share, subject to
downward adjustment under certain circumstances (the "Merger"), and (c)
outstanding options to purchase FTP's common stock under FTP's employee
stock option plans will be converted into options to purchase NetManage
common stock on a similar basis, all upon the terms and subject to the
conditions of the Reorganization Agreement; and
2. such other business as may properly come before the FTP Special
Meeting or any postponements or adjournments thereof.
Section 85 of the Massachusetts Business Corporation Law (the
"Massachusetts BCL") provides that a stockholder of any Massachusetts
corporation that has voted to merge with another corporation is entitled,
pursuant to Sections 86 to 98 of the Massachusetts BCL, to certain rights to
demand payment for, and an appraisal of, the "fair value" of such stockholder's
shares. Accordingly, please be advised that:
If the Reorganization Agreement is approved by the
stockholders of FTP at the FTP Special Meeting and the Merger
is effected by FTP, then in such event any stockholder (1) who
files with FTP, before the taking of the vote on the approval
of such action, written objection to the proposed action
stating that he or she intends to demand payment for his or
her shares if the action is taken, and (2) whose shares are
not voted in favor of such action, has or may have the right
to demand in writing from FTP, within 20 days after the date
of mailing to him or her of notice in writing that the Merger
has become effective, payment for his or her shares and an
appraisal of the value thereof. FTP and any such stockholder
shall in such case have the rights and duties and shall follow
the procedures set forth in Sections 88 to 98, inclusive, of
the Massachusetts BCL.
THE FTP BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
APPROVAL OF THE REORGANIZATION AGREEMENT AND THE MERGER.
Detailed information concerning the Reorganization Agreement and the Merger
is contained in the attached Joint Proxy Statement/Prospectus and the Annexes
thereto. Please read these materials carefully.
ONLY STOCKHOLDERS OF RECORD AT THE CLOSE OF BUSINESS ON JULY 13, 1998 ARE
ENTITLED TO RECEIVE NOTICE OF AND TO VOTE AT THE FTP SPECIAL MEETING.
<PAGE> 8
All stockholders are cordially invited to attend the FTP Special Meeting in
person. HOWEVER, TO ENSURE THAT YOU ARE REPRESENTED AT THE MEETING, WE URGE YOU
TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY in the
enclosed postage-prepaid envelope, whether or not you plan to be personally
present at the meeting. You may revoke your proxy at any time before it is voted
by giving written notice of revocation to the Clerk of FTP at 2 High Street,
North Andover, MA 01845, by subsequently signing and delivering another proxy to
FTP or by attending the FTP Special Meeting and voting in person.
By Order of the Board of Directors,
/s/ DOUGLAS F. FLOOD
-----------------------------------
Douglas F. Flood,
Clerk
North Andover, Massachusetts
July 17, 1998
YOUR VOTE IS IMPORTANT.
PLEASE COMPLETE, SIGN AND PROMPTLY RETURN YOUR PROXY CARD.
PLEASE DO NOT SEND STOCK
CERTIFICATES WITH YOUR PROXY CARDS.
<PAGE> 9
LOGO LOGO
NETMANAGE, INC.
AND
FTP SOFTWARE, INC.
JOINT PROXY STATEMENT
------------------------
NETMANAGE, INC.
PROSPECTUS
------------------------
This Joint Proxy Statement and Prospectus (this "Joint Proxy
Statement/Prospectus") is being furnished to the stockholders of NetManage,
Inc., a Delaware corporation ("NetManage"), in connection with the solicitation
of proxies by the Board of Directors of NetManage (the "NetManage Board") for
approval of the issuance of shares of the common stock, par value $0.01 per
share, of NetManage ("NetManage Common Stock") in the Merger (as defined below)
and an increase in the number of authorized shares of NetManage Common Stock at
a Special Meeting of Stockholders of NetManage to be held at the corporate
offices of NetManage on August 26, 1998 at 9:00 a.m., local time, and at any and
all adjournments and postponements thereof (the "NetManage Special Meeting").
This Joint Proxy Statement/Prospectus also constitutes the Prospectus of
NetManage with respect to the offer and issuance of the shares of NetManage
Common Stock, to be issued to stockholders of FTP Software, Inc., a
Massachusetts corporation ("FTP"), in connection with the proposed merger (the
"Merger") of Amanda Acquisition Corp., a Massachusetts corporation and a
wholly-owned subsidiary of NetManage ("Merger Sub"), with and into FTP pursuant
to the Agreement and Plan of Reorganization, dated as of June 15, 1998, as
amended on June 30, 1998 and July 14, 1998 (the "Reorganization Agreement"), by
and among NetManage, Merger Sub and FTP.
This Joint Proxy Statement/Prospectus is also being furnished to the
holders of the common stock, par value $0.01 per share, of FTP ("FTP Common
Stock"), in connection with the solicitation of proxies by the Board of
Directors of FTP (the "FTP Board") for approval of the Reorganization Agreement
and the Merger at a Special Meeting of Stockholders of FTP to be held at the
Rolling Green Inn/Ramada, 311 Lowell Street, Andover, Massachusetts 01810 on
August 26, 1998 at 10:00 a.m., local time, and at any and all adjournments and
postponements thereof (the "FTP Special Meeting").
Upon consummation of the Merger, (i) each issued and outstanding share of
FTP Common Stock, and each associated right granted under the Rights Agreement
dated as of December 1, 1995 between FTP and State Street Bank and Trust
Company, as Rights Agent, as amended as of November 7, 1996, February 27, 1998
and June 15, 1998 (as amended, the "FTP Rights Agreement"), will be converted
into the right to receive 0.72767 of a share of NetManage Common Stock, subject
to downward adjustment under certain circumstances (as adjusted, the "Exchange
Ratio"), (ii) each outstanding option to purchase FTP Common Stock under FTP's
employee stock option plans will become an equivalent option to purchase
NetManage Stock, as more particularly provided in the Reorganization Agreement,
and (iii) FTP will become a wholly-owned subsidiary of NetManage.
The NetManage Common Stock is traded on the Nasdaq National Market under
the symbol "NETM." On July 14, 1998, the last reported sale price per share of
NetManage Common Stock on the Nasdaq National Market was $2.9375. The FTP Common
Stock is also traded as the Nasdaq National Market, under the symbol "FTPS." On
July 14, 1998, the last reported sale price per share of FTP Common Stock on the
Nasdaq National Market was $1.5625.
Consummation of the Merger is subject to various conditions, including the
approval of the Reorganization Agreement and the Merger by the holders of a
majority of the outstanding shares of FTP Common Stock
<PAGE> 10
entitled to vote at the FTP Special Meeting, the approval of the issuance of
shares of NetManage Common Stock in connection with the Merger at the NetManage
Special Meeting by a majority of the votes cast on this matter, the approval of
the Certificate Amendment Proposal by the holders of a majority of the
outstanding shares of NetManage Common Stock entitled to vote at the NetManage
Special Meeting, and the lack of a material adverse effect occurring with
respect to either party.
A stockholder who has given a proxy may revoke it at any time prior to its
exercise. See "NETMANAGE SPECIAL MEETING -- Voting Rights; Proxies" and "FTP
SPECIAL MEETING -- Voting Rights; Proxies."
------------------------
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS JOINT PROXY
STATEMENT/PROSPECTUS. THE PROPOSED MERGER IS A COMPLEX TRANSACTION. SEE "RISK
FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD
BE CONSIDERED BY STOCKHOLDERS OF NETMANAGE AND FTP IN CONNECTION WITH THEIR
CONSIDERATION OF THE MERGER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/ PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
All information contained in this Joint Proxy Statement/Prospectus about
NetManage and Merger Sub has been provided by NetManage. All information
contained in this Joint Proxy Statement/Prospectus about FTP has been provided
by FTP.
------------------------
This Joint Proxy Statement/Prospectus and the accompanying forms of proxies
are first being mailed to stockholders of NetManage and FTP on or about July 17,
1998.
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS JULY 15, 1998.
<PAGE> 11
TABLE OF CONTENTS
<TABLE>
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PAGE NO.
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<S> <C>
FORWARD-LOOKING STATEMENTS.................................. 1
AVAILABLE INFORMATION....................................... 1
SUMMARY..................................................... 3
The Companies............................................. 3
NetManage, Inc......................................... 3
FTP Software, Inc...................................... 3
Amanda Acquisition Corp................................ 3
The Meetings.............................................. 3
Time, Place and Date................................... 3
Purposes of the Meetings; Reasons for the Merger;
Recommendation of the NetManage and FTP Boards........ 4
Reasons for the Merger................................. 4
Votes Required; Record Dates........................... 4
Change of Vote......................................... 5
Quorum................................................. 5
The Merger................................................ 6
The Merger............................................. 6
Conversion of Shares; Adjustment to Exchange Ratio..... 6
Conversion of Stock Options............................ 7
Exchange of Stock Certificates......................... 7
No Solicitation by FTP................................. 7
Representations; Conduct of Business Prior to the
Merger................................................ 7
Conditions to the Merger; Termination; Fees............ 8
Listing................................................ 8
Appraisal and Dissenters' Rights....................... 8
Anticipated Accounting Treatment....................... 8
Stock Ownership Following the Merger................... 9
Risk Factors.............................................. 9
Opinions of Financial Advisors............................ 9
Interests of Certain Persons in the Merger................ 10
Governmental Approvals.................................... 10
Certain United States Federal Income Tax Consequences..... 10
Comparative Rights of Stockholders........................ 10
Market Price Information.................................. 11
NetManage Common Stock................................. 11
FTP Common Stock....................................... 11
Selected Financial Data................................... 13
NetManage Selected Historical Consolidated Financial
Information........................................... 13
FTP Selected Historical Consolidated Financial
Information........................................... 14
NetManage and FTP Unaudited Selected Pro Forma Combined
Financial Information................................. 15
Comparative Per Share Data................................ 16
RISK FACTORS................................................ 17
Risks Relating to the Merger.............................. 17
Risks Relating to NetManage, FTP and the Combined
Company................................................ 20
NETMANAGE SPECIAL MEETING................................... 26
Purpose of the NetManage Special Meeting.................. 26
</TABLE>
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<TABLE>
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<S> <C>
Record Date............................................... 26
Quorum.................................................... 26
Required Votes............................................ 26
Voting Rights; Proxies.................................... 26
Solicitation of Proxies................................... 27
FTP SPECIAL MEETING......................................... 28
Purpose of the FTP Special Meeting........................ 28
Record Date............................................... 28
Quorum.................................................... 28
Required Vote............................................. 28
Voting Rights; Proxies.................................... 28
Solicitation of Proxies................................... 29
THE MERGER.................................................. 30
General................................................... 30
Effective Time............................................ 30
Conversion of Shares; Procedures for Exchange of
Certificates........................................... 30
Background of the Merger.................................. 31
Recommendation of the NetManage Board; Reasons for the
Merger................................................. 33
Recommendation of the FTP Board; Reasons for the Merger... 35
Opinion of NetManage's Financial Advisor.................. 37
Opinion of FTP's Financial Advisor........................ 41
Interests of Certain Persons in the Merger................ 46
Certain United States Federal Income Tax Consequences..... 48
Anticipated Accounting Treatment.......................... 50
Effect on Employee Equity Plans........................... 51
Regulatory Matters........................................ 51
Federal Securities Law Consequences....................... 51
Stock Listing............................................. 52
Appraisal Rights.......................................... 52
Merger Expenses and Fees and Other Costs.................. 53
THE REORGANIZATION AGREEMENT................................ 53
Terms of the Merger....................................... 54
Exchange of Certificates and Merger Consideration......... 55
Representations and Warranties............................ 56
Conduct of Business Pending the Merger.................... 56
Additional Covenants...................................... 57
No Solicitation........................................... 58
Conditions to the Merger.................................. 59
Termination............................................... 60
Termination Fees.......................................... 61
Amendment; Waiver......................................... 62
Affiliate Agreements...................................... 62
THE CERTIFICATE AMENDMENT PROPOSAL.......................... 63
General................................................... 63
Shares Reserved........................................... 63
Purpose and Effect of the Certificate Amendment........... 63
Potential Anti-Takeover Effect............................ 63
Required Vote............................................. 64
</TABLE>
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<TABLE>
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<S> <C>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS................................................ 65
Unaudited Pro Forma Condensed Combined Statements of
Operations............................................. 66
Unaudited Pro Forma Condensed Combined Balance Sheet...... 71
Notes to Unaudited Pro Forma Condensed Combined Financial
Statements............................................. 72
NETMANAGE BUSINESS.......................................... 73
Industry Background....................................... 73
Products and Technology................................... 74
Sales and Marketing....................................... 77
Customer Support.......................................... 78
Employees................................................. 78
Legal Proceedings......................................... 78
Properties................................................ 79
NETMANAGE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 80
Overview.................................................. 80
Acquisitions.............................................. 80
Restructuring............................................. 80
Quarterly Results of Operations........................... 80
Annual Results of Operations.............................. 83
Liquidity and Capital Resources........................... 89
New Accounting Standards.................................. 90
Disclosures about Market Risk............................. 90
NETMANAGE MANAGEMENT........................................ 92
Executive Officers and Directors.......................... 92
Compensation of Directors of NetManage.................... 93
Compensation of Executive Officers of NetManage........... 94
Stock Option Grants and Exercises......................... 95
Ten-Year Option Repricings................................ 96
Report of the NetManage Board on Repricing of Options..... 96
Section 16(a) Beneficial Ownership Reporting Compliance... 97
BENEFICIAL SECURITY OWNERSHIP OF CERTAIN OWNERS AND
MANAGEMENT OF NETMANAGE................................... 98
FTP BUSINESS................................................ 99
Products.................................................. 99
Sales and Marketing....................................... 100
Customers................................................. 101
Customer Service and Support.............................. 101
Employees................................................. 102
Subsidiaries.............................................. 102
Properties................................................ 102
Discontinued Operations................................... 102
Legal Proceedings......................................... 102
FTP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 105
Overview.................................................. 105
Results of Continuing Operations.......................... 106
Liquidity and Capital Resources........................... 112
New Accounting Standards.................................. 113
</TABLE>
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Disclosures about Market Risks............................ 114
BENEFICIAL SECURITY OWNERSHIP OF CERTAIN OWNERS AND
MANAGEMENT OF FTP......................................... 115
DESCRIPTION OF CAPITAL STOCK................................ 117
Description of NetManage Capital Stock.................... 117
Description of FTP Capital Stock.......................... 118
COMPARISON OF RIGHTS OF HOLDERS OF NETMANAGE COMMON STOCK
AND HOLDERS OF FTP COMMON STOCK........................... 124
Action by Written Consent of Stockholders................. 124
Class Votes of Stockholders............................... 124
Stockholder Voting........................................ 124
Stockholder Approval of Certain Business Combinations..... 125
Control Share Acquisitions................................ 126
Appraisal Rights.......................................... 126
Amendment of Bylaws....................................... 126
Limitation on Directors' Liability; Indemnification of
Officers and Directors................................. 127
Classified Board of Directors............................. 128
Cumulative Voting for Directors........................... 128
Removal of Directors...................................... 128
Newly Created Directorships and Vacancies................. 129
Special Meetings.......................................... 129
Inspection Rights......................................... 129
Election of Directors..................................... 130
EXPERTS..................................................... 130
LEGAL MATTERS............................................... 130
REPRESENTATIVES OF INDEPENDENT PUBLIC ACCOUNTANTS........... 130
STOCKHOLDER PROPOSALS....................................... 130
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.................. F-1
</TABLE>
<TABLE>
<S> <C>
Annex A -- Composite Agreement and Plan of Reorganization
Annex B-1 -- Opinion of CIBC Oppenheimer Corp.
Annex B-2 -- Opinion of Cowen & Company
Annex C -- Sections 85-98 of the Massachusetts Business Corporation
Law
</TABLE>
iv
<PAGE> 15
FORWARD-LOOKING STATEMENTS
Certain statements in this Joint Proxy Statement/Prospectus constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21B of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), including
without limitation statements with respect to the expected financial and
operating impact of the Merger. For this purpose, the reasons for the Merger
discussed under the caption "THE MERGER" and statements about the expected
impact of the Merger on NetManage's, FTP's or the combined company's business,
operations and financial performance and condition, accounting and tax treatment
and the extent of the expenses related to the Merger are forward-looking
statements. Further, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Forward-looking
statements made herein are not guarantees of future performance and are subject
to risks and uncertainties that could cause actual results to differ materially.
Without limiting the foregoing, the words "projects," "believes," "anticipates,"
"plans," "expects," "intends" and similar expressions are intended to identify
forward-looking statements. There are a number of important factors that could
cause the results of NetManage, FTP or the combined company to differ materially
from those indicated by such forward-looking statements, including among others
those factors set forth in this Joint Proxy Statement/Prospectus under the
caption "RISK FACTORS." Neither NetManage nor FTP undertakes any obligation to
update any forward-looking statements.
AVAILABLE INFORMATION
NetManage and FTP are each subject to the informational requirements of the
Exchange Act, and file reports, proxy and information statements and other
information with the Securities and Exchange Commission (the "Commission"). This
information can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and may be available at the following Regional
Offices of the Commission: Chicago Regional Office, Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and New York Regional
Office, 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of
such materials can be obtained at prescribed rates from the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Each of NetManage and FTP makes filings pursuant to the
Exchange Act with the Commission electronically, and such materials may be
inspected and copied at the Commission's Web site (http://www.sec.gov). The
NetManage Common Stock and the FTP Common Stock are traded as "national market
securities" on the Nasdaq National Market. Certain materials filed by NetManage
and FTP can also be inspected at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
This Joint Proxy Statement/Prospectus does not contain all the information
set forth in the Registration Statement on Form S-4 and exhibits relating
thereto, including any amendments (the "Registration Statement"), of which this
Joint Proxy Statement/Prospectus is a part, and which NetManage has filed with
the Commission under the Securities Act with respect to the offer and issuance
of the shares of NetManage Common Stock pursuant to the Merger. Reference is
made to such Registration Statement for further information with respect to
NetManage, FTP and the NetManage Common Stock offered hereby. Statements
contained herein concerning the provisions of documents are necessarily
summaries of such documents, and each statement is qualified in its entirety by
reference to the copy of the applicable document filed with the Commission or
attached as an Annex hereto. Copies of the Registration Statement, including the
exhibits thereto, and other material that is not included herein may be
inspected without charge at the offices of the Commission referred to above, or
obtained at prescribed rates from the Public Reference Section of the Commission
at the address set forth above.
NO PERSON HAS BEEN AUTHORIZED BY NETMANAGE OR FTP TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
NETMANAGE OR FTP. THIS JOINT PROXY STATEMENT/PROSPECTUS
1
<PAGE> 16
DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO
PURCHASE, ANY OF THE SECURITIES OFFERED BY THIS JOINT PROXY STATEMENT/
PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY
PERSON TO OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN
OFFER, OR PROXY SOLICITATION, IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR THE
ISSUANCE OR SALE OF ANY SECURITIES HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET
FORTH HEREIN SINCE THE DATE HEREOF.
2
<PAGE> 17
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Joint Proxy Statement/Prospectus and the Annexes hereto. This summary
does not contain a complete statement of all material information relating to
the Reorganization Agreement and the Merger and is subject to, and is qualified
in its entirety by, the more detailed information and financial statements
contained in this Joint Proxy Statement/Prospectus. Stockholders of NetManage
and FTP should read this Joint Proxy Statement/ Prospectus carefully in its
entirety. Certain capitalized terms used in this summary are defined elsewhere
in this Joint Proxy Statement/Prospectus.
THE COMPANIES
NETMANAGE, INC.
NetManage develops, markets and supports software tools for connecting
personal computers to corporate UNIX, AS/400 midrange and IBM mainframe
computers, and software that increases the productivity of corporate call
centers. NetManage is a recognized leader in "PC connectivity" and was one of
the first to develop and market a Windows-based transmission protocol that has
since become the industry standard for the Internet. Its products are fully
compatible with Microsoft Corporation's ("Microsoft") Windows 3.1, Windows 95
and Windows NT platforms, IBM operating systems, including OS/2, and Novell
operating systems.
NetManage was incorporated in 1990 as a California corporation and changed
its incorporation to Delaware in 1993 in conjunction with its initial public
offering. The principal executive offices of NetManage are located at 10725
North De Anza Boulevard, Cupertino, California 95014, and its telephone number
at that address is (408) 973-7171.
FTP SOFTWARE, INC.
FTP is engaged in the design, development, marketing and support of
connectivity software applications that enable users to connect to information
across TCP/IP networks, including data residing on mainframes, minicomputers and
servers. These applications include terminal emulation, NFS file sharing and
printing, file transfer and legacy host access. FTP's OnWeb(TM) Host product, a
Web-based host access product, and the latest versions of its OnNet(R) Host and
InterDrive(R) Client products, provide capabilities for ease of use and secure
access to corporate information across TCP/IP networks for end users, and
user-based management features to enable centralized desktop administration.
FTP was incorporated in Massachusetts in January 1986. The principal
executive offices of FTP are located at 2 High Street, North Andover,
Massachusetts 01845, and its telephone number at that address is (978) 685-4000.
AMANDA ACQUISITION CORP.
Merger Sub is a Massachusetts corporation recently organized for the
purpose of effecting the Merger. Merger Sub has no material assets and has not
engaged in any activities except in connection with the Merger.
The principal executive offices of Merger Sub are located at 10725 North De
Anza Boulevard, Cupertino, California 95014, and its telephone number at that
address is (408) 973-7171.
THE MEETINGS
TIME, PLACE AND DATE
The NetManage Special Meeting will be held at the corporate offices of
NetManage located at 10725 North De Anza Boulevard, Cupertino, California 95014
on August 26, 1998 at 9:00 a.m., local time.
3
<PAGE> 18
The FTP Special Meeting will be held at the Rolling Green Inn/Ramada, 311
Lowell Street, Andover, Massachusetts 01810 on August 26, 1998 at 10:00 a.m.,
local time.
PURPOSES OF THE MEETINGS; REASONS FOR THE MERGER; RECOMMENDATION OF THE
NETMANAGE AND FTP BOARDS
NETMANAGE SPECIAL MEETING. At the NetManage Special Meeting, holders of
NetManage Common Stock will consider and vote upon (i) the issuance of NetManage
Common Stock pursuant to the Reorganization Agreement (the "Share Proposal") and
(ii) an amendment to NetManage's Certificate of Incorporation (the "Certificate
Amendment Proposal") to increase the number of authorized shares of NetManage
Common Stock from 75,000,000 to 125,000,000. Holders of NetManage Common Stock
may also consider and vote upon such other matters as may be properly brought
before the NetManage Special Meeting.
THE NETMANAGE BOARD HAS UNANIMOUSLY APPROVED THE MERGER, THE REORGANIZATION
AGREEMENT AND THE CERTIFICATE AMENDMENT AND UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS OF NETMANAGE VOTE FOR THE APPROVAL OF THE SHARE PROPOSAL AND THE
CERTIFICATE AMENDMENT PROPOSAL. SEE "THE MERGER -- RECOMMENDATION OF THE
NETMANAGE BOARD; REASONS FOR THE MERGER" AND "THE CERTIFICATE AMENDMENT
PROPOSAL."
FTP SPECIAL MEETING. At the FTP Special Meeting, stockholders of record of
FTP as of the close of business on the FTP Record Date (as defined below) will
consider and vote upon (i) a proposal to approve the Reorganization Agreement
and the Merger (the "Merger Proposal") and (ii) such other matters as may be
properly brought before the FTP Special Meeting.
THE BOARD OF DIRECTORS OF FTP HAS UNANIMOUSLY APPROVED THE REORGANIZATION
AGREEMENT AND THE MERGER, HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS FAIR TO
AND IN THE BEST INTERESTS OF FTP AND ITS STOCKHOLDERS, AND UNANIMOUSLY
RECOMMENDS THAT THE FTP STOCKHOLDERS VOTE FOR THE MERGER PROPOSAL. SEE "THE
MERGER -- RECOMMENDATION OF THE FTP BOARD; REASONS FOR THE MERGER" AND
"-- INTERESTS OF CERTAIN PERSONS IN THE MERGER."
REASONS FOR THE MERGER
For the reasons of the NetManage Board in approving the Share Proposal and
the Merger, see "THE MERGER -- Recommendation of the NetManage Board; Reasons
for the Merger."
For the reasons of the FTP Board in approving the Merger, see "THE
MERGER -- Recommendation of the FTP Board; Reasons for the Merger."
VOTES REQUIRED; RECORD DATES
NETMANAGE. Because the Merger involves the issuance of shares of NetManage
Common Stock in excess of 20% of the total number of shares of NetManage Common
Stock currently outstanding, the National Association of Securities Dealers,
Inc. (the "NASD") requires that the Share Proposal be approved by the
affirmative vote of the holders of a majority of the votes cast on the matter at
the NetManage Special Meeting. Because a subsidiary of NetManage, and not
NetManage itself, is a party to the Merger, the approval of the stockholders of
NetManage is not required to approve the Reorganization Agreement or the Merger.
Abstentions will be equivalent to negative votes for purposes of approving the
Share Proposal. Broker non-votes will not be counted in determining whether the
Share Proposal has been approved.
The Certificate Amendment Proposal will require the affirmative vote of a
majority of the outstanding shares of NetManage Common Stock. Accordingly,
abstentions and broker non-votes will be equivalent to negative votes for
purposes of approving the Certificate Amendment Proposal.
Holders of NetManage Common Stock are entitled to one vote per share on
each matter to be acted upon at the NetManage Special Meeting. Only holders of
NetManage Common Stock outstanding at the close of
4
<PAGE> 19
business on July 13, 1998 (the "NetManage Record Date") will be entitled to
notice of and to vote at the NetManage Special Meeting. See "NETMANAGE SPECIAL
MEETING." On the NetManage Record Date, there were 44,209,692 outstanding shares
of NetManage Common Stock and 634 record holders of the NetManage Common Stock.
As of the NetManage Record Date, the directors and executive officers of
NetManage, as a group, beneficially owned approximately 10,706,000 shares (or
approximately 24%) of the outstanding NetManage Common Stock. Such directors and
executive officers have indicated that they presently intend to vote all such
shares in favor of the Share Proposal and the Certificate Amendment Proposal.
FTP. The affirmative vote of the holders of a majority of the outstanding
shares of FTP Common Stock is required for approval of the Merger Proposal.
Accordingly, abstentions and broker non-votes will be equivalent to negative
votes for purposes of approving the Merger Proposal.
Holders of FTP Common Stock are entitled to one vote per share on each
matter to be acted upon at the FTP Special Meeting. Only holders of FTP Common
Stock outstanding at the close of business on July 13, 1998 (the "FTP Record
Date") will be entitled to notice of and to vote at the FTP Special Meeting. See
"FTP SPECIAL MEETING." On the FTP Record Date, there were 34,035,463 outstanding
shares of FTP Common Stock and 420 record holders of the FTP Common Stock. As of
the FTP Record Date, the directors and executive officers of FTP, as a group,
beneficially owned approximately 914,000 shares (or approximately 2.7%) of the
outstanding FTP Common Stock. Such directors and executive officers have
indicated that they presently intend to vote all such shares that they have the
right to vote in favor of the Merger Proposal.
CHANGE OF VOTE
NETMANAGE. NetManage Stockholders who have executed a proxy may revoke the
proxy at any time prior to its exercise at the NetManage Special Meeting by (i)
giving written notice to the Secretary of NetManage at NetManage's corporate
offices, 10725 North De Anza Boulevard, Cupertino, California 95014, (ii)
signing and returning a later dated proxy or (iii) attending and voting in
person at the NetManage Special Meeting (although attendance at the NetManage
Special Meeting will not, by itself, revoke a proxy). ACCORDINGLY, NETMANAGE
STOCKHOLDERS WHO HAVE EXECUTED AND RETURNED PROXY CARDS IN ADVANCE OF THE
NETMANAGE SPECIAL MEETING MAY CHANGE THEIR VOTE AT ANY TIME PRIOR TO THE TAKING
OF THE VOTE AT THE NETMANAGE SPECIAL MEETING. See "NETMANAGE SPECIAL
MEETING -- Voting Rights; Proxies."
FTP. FTP Stockholders who have executed a proxy may revoke the proxy at any
time prior to its exercise at the FTP Special Meeting by (i) delivering to the
Clerk of FTP at FTP's corporate offices, 2 High Street, North Andover,
Massachusetts 01845, before the FTP Special Meeting, a written notice bearing a
date later than the date of the proxy and stating that the proxy is revoked,
(ii) by signing and returning a later dated proxy or (iii) by attending and
voting in person at the FTP Special Meeting (although attendance at the FTP
Special Meeting will not, by itself, revoke a proxy). ACCORDINGLY, FTP
STOCKHOLDERS WHO HAVE EXECUTED AND RETURNED PROXY CARDS IN ADVANCE OF THE FTP
SPECIAL MEETING MAY CHANGE THEIR VOTE AT ANY TIME PRIOR TO THE TAKING OF THE
VOTE AT THE FTP SPECIAL MEETING. See "FTP SPECIAL MEETING -- Voting Rights;
Proxies."
QUORUM
NETMANAGE. The required quorum for the transaction of business at the
NetManage Special Meeting will be a majority of the shares of NetManage Common
Stock issued and outstanding at the close of business on the NetManage Record
Date. Abstentions and broker non-votes will be included in determining the
presence of a quorum. See "NETMANAGE SPECIAL MEETING -- Quorum."
FTP. The required quorum for the transaction of business at the FTP Special
Meeting will be a majority of the shares of FTP Common Stock issued and
outstanding at the close of business on the FTP Record Date. Abstentions and
broker non-votes will be included in determining the presence of a quorum. See
"FTP SPECIAL MEETING -- Quorum."
5
<PAGE> 20
THE MERGER
THE MERGER
Pursuant to the Reorganization Agreement, Merger Sub will be merged with
and into FTP and FTP will become a wholly-owned subsidiary of NetManage. See
"THE MERGER." The date and time at which the Merger is consummated are referred
to herein as the "Effective Time."
CONVERSION OF SHARES; ADJUSTMENT TO EXCHANGE RATIO
Pursuant to the Merger, each outstanding share of FTP Common Stock (other
than shares owned by NetManage, FTP or Merger Sub and any Dissenting Shares (as
defined below)) and each associated right granted under the FTP Rights Agreement
(other than rights associated with any Dissenting Shares) will be converted into
the right to receive 0.72767 of a share of NetManage Common Stock, subject to
downward adjustment if FTP does not meet the financial tests described below (as
adjusted, the "Exchange Ratio"). FTP Stockholders will receive cash (without
interest) in lieu of any fractional shares of NetManage Common Stock to which
such holders would otherwise have been entitled. See "THE REORGANIZATION
AGREEMENT -- Terms of the Merger."
If (i) the net revenues of FTP (A) for the quarter ended June 30, 1998
("FTP Second Quarter Revenues") are less than $9,000,000 and/or (B) for the two
months ending August 31, 1998 ("FTP Third Quarter Revenues") are less than
$4,900,000, if the closing of the Merger occurs on or after August 31, 1998 (or,
if the Merger closes before August 31, 1998, net revenues of FTP for the month
ending July 31, 1998 are less than $2,450,000), and/or (ii) the cash, cash
equivalents and short- and long-term cash investments of FTP on June 30, 1998
are less than $60,000,000 the Exchange Ratio will be reduced to the amount
obtained by dividing the number of Adjusted Merger Shares by 34,024,336.
"Adjusted Merger Shares" means a number of shares of NetManage Common Stock
equal to 24,758,452 minus the number of shares of NetManage Common Stock
obtained by dividing (A) (1) the amount by which FTP Second Quarter Revenues
plus the excess, if any, of FTP Third Quarter Revenues over $4,900,000, if the
closing occurs on or after August 31, 1998 (or, if the Merger closes before
August 31, 1998, the excess, if any, of FTP's net revenues for the month ending
July 31, 1998 over $2,450,000) are less than $9,000,000, plus (2) the amount by
which FTP Third Quarter Revenues are less than $4,900,000, if the closing occurs
on or after August 31, 1998 (or, if the Merger closes before August 31, 1998,
the amount by which net revenues for the month ending July 31, 1998 are less
than $2,450,000), plus (3) the amount by which the cash, cash equivalents and
short- and long-term cash investments of FTP on June 30, 1998 are less than
$60,000,000, by (B) the average of the closing prices (the "Average Price") of
the NetManage Common Stock as reported on the Nasdaq National Market for the 20
trading days ending on the third trading day prior to the closing date of the
Merger (the "Closing Date"). See "THE REORGANIZATION AGREEMENT -- Terms of the
Merger -- Adjustment to Exchange Ratio."
As a result, the total consideration payable by NetManage in the Merger
will effectively be decreased by the amount of any shortfall with respect to
these financial tests. While FTP's cash, cash equivalents and short-and
long-term cash investments on June 30, 1998 were in excess of $60 million, FTP
expects that FTP Second Quarter Revenues will be between $7,700,000 and
$8,400,000. As a result, unless FTP's net revenues for the month ending July 31,
1998 are at least $2,450,000 plus the amount of any such shortfall from
$9,000,000, the Exchange Ratio would be between 0.71345 and 0.72111 assuming an
Average Price of $2.6875 (the closing sales price of the NetManage Common Stock
on July 14, 1998). For example, and for illustrative purposes only, (a) if the
closing of the Merger were to occur in August 1998, as currently anticipated,
(b) FTP Second Quarter Revenues were $8,000,000, (c) FTP's net revenues for the
month ending July 31, 1998 were $3,000,000 and (d) the Average Price was $2.6875
(the closing sales price of the NetManage Common Stock on July 14, 1998), the
"Adjusted Merger Shares" would equal 24,591,010 ($9,000,000 minus ($8,000,000
plus $550,000) divided by $2.6875) and the Exchange Ratio would be reduced to
0.72275 (24,591,010 divided by 34,024,336). If, however, in the preceding
example FTP's net revenues for July 1998 were $3,450,000, there would be no
adjustment to the Exchange Ratio.
6
<PAGE> 21
FTP Stockholders may call FTP's solicitation agent, Morrow & Company, at
800-662-5200 at any time before the date of the FTP Special Meeting for current
information about the Exchange Ratio. The final Exchange Ratio will not be
calculable or calculated until immediately prior to the Closing Date.
CONVERSION OF STOCK OPTIONS
At the Effective Time, each outstanding option (a "FTP Stock Option"), to
purchase FTP Common Stock granted under FTP's employee stock option plans (the
"FTP Stock Option Plans"), whether vested or unvested, will be assumed by
NetManage and each such FTP Stock Option will be deemed to constitute an option
to acquire, on the same terms and conditions as were applicable to such FTP
Stock Option prior to the Effective Time, the number (rounded down to the
nearest whole number) of shares of NetManage Common Stock that the holder of
such FTP Stock Option would have been entitled to receive pursuant to the Merger
had the holder exercised the FTP Stock Option in full immediately prior to the
Effective Time (not taking into account whether or not such option was in fact
exercisable), at a price per share equal to the exercise price under such FTP
Stock Option divided by the Exchange Ratio (rounded up to the nearest whole
cent). As of July 13, 1998, there were outstanding options to acquire 5,644,894
shares of FTP Common Stock under FTP's employee stock option plans. See "THE
MERGER -- Effect on Employee Equity Plans -- Stock Option Plans" and "THE
REORGANIZATION AGREEMENT -- Terms of the Merger -- Stock Options." See also "THE
MERGER -- Interest of Certain Persons in the Merger."
EXCHANGE OF STOCK CERTIFICATES
Promptly after the filing of Articles of Merger with the Secretary of The
Commonwealth of Massachusetts, Boston EquiServe, or another person designated by
NetManage as exchange agent for the Merger (the "Exchange Agent"), will send a
transmittal letter to each FTP Stockholder. The transmittal letter will contain
instructions with respect to the surrender of certificates representing FTP
Common Stock to be exchanged for certificates representing NetManage Common
Stock and a cash payment in lieu of fractional shares, if any. See "THE
REORGANIZATION AGREEMENT -- Exchange of Certificates and Merger Consideration."
FTP STOCKHOLDERS SHOULD NOT FORWARD CERTIFICATES FOR FTP COMMON STOCK TO
THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL LETTERS. FTP
STOCKHOLDERS SHOULD NOT RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
NO SOLICITATION BY FTP
Pursuant to the Reorganization Agreement, FTP has agreed that it will not,
except under certain limited circumstances, (i) solicit, initiate, encourage or
induce the making, submission or announcement of any other acquisition proposal,
(ii) participate in any discussions or negotiations regarding, or furnish to any
person any non-public information with respect to, or take any other action to
facilitate any inquires or the making of any proposal that constitutes or could
reasonably be expected to lead to, another acquisition proposal, (iii) engage in
discussions with any person with respect to any other acquisition proposal, (iv)
approve, endorse or recommend another acquisition proposal or (v) enter into any
letter of intent or similar document or any contract, agreement or commitment
contemplating or otherwise relating to another acquisition. See "THE
REORGANIZATION AGREEMENT -- No Solicitation."
REPRESENTATIONS; CONDUCT OF BUSINESS PRIOR TO THE MERGER
Under the Reorganization Agreement, each of NetManage and FTP has made a
number of representations regarding its respective capital structure,
operations, intellectual property, material agreements, financial condition and
other matters, including its authority to enter into the Reorganization
Agreement and to consummate the Merger.
Pursuant to the Reorganization Agreement, FTP has agreed that, until the
Effective Time, it will conduct its business and operations in the ordinary
course and, subject to certain exceptions, that, without the prior written
consent of NetManage, which may not be unreasonably withheld, it will not
perform or engage in
7
<PAGE> 22
certain activities in the conduct of its business. See "THE REORGANIZATION
AGREEMENT -- Conduct of Business Pending the Merger -- Operation of FTP's
Business Prior to the Merger."
Pursuant to the Reorganization Agreement, subject to certain exceptions,
NetManage has agreed that, until the Effective Time, without the prior written
consent of FTP, which may not be unreasonably withheld, it will not perform or
engage in certain activities in the conduct of its business. See "THE
REORGANIZATION AGREEMENT -- Conduct of Business Pending the Merger -- Operation
of NetManage's Business Prior to the Merger."
CONDITIONS TO THE MERGER; TERMINATION; FEES
The consummation of the Merger is subject to various conditions, including,
among others: (i) the approvals of the stockholders of NetManage and the
stockholders of FTP described above under "-- Votes Required; Record Dates";
(ii) the absence of any legal restraints or prohibitions preventing the
consummation of the Merger; (iii) receipt of opinions of legal counsel to the
effect that the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code");
(iv) in the case of NetManage, receipt of letters from the independent public
accountants for both NetManage and FTP concurring with the conclusion of the
management of each of NetManage and FTP that the Merger will qualify for
"pooling of interests" accounting treatment; (v) the absence of a material
adverse effect, as defined, with respect to either party; and (vi) the holders
of not more than 2% of the outstanding FTP Common Stock having demanded
appraisal rights for their shares. See "THE REORGANIZATION
AGREEMENT -- Conditions to the Merger."
The Reorganization Agreement may be terminated under certain circumstances.
NetManage has agreed that, if the Reorganization Agreement is terminated as a
result of failure of the NetManage Stockholders to have approved the Share
Proposal or Certificate Amendment Proposal, it will pay FTP the sum of $3.1
million. FTP has agreed that, if the Reorganization Agreement is terminated as a
result of failure of the FTP Stockholders to have approved the Merger Proposal
or as a result of certain "Triggering Events" (as defined), it will pay
NetManage the sum of $3.1 million. Such provision could discourage a third party
from pursuing an acquisition of FTP because the cost of such acquisition, if
successful, would be increased by the amount of such fee. See "THE
REORGANIZATION AGREEMENT -- Termination" and "-- Termination Fees."
LISTING
It is a condition to the Merger that the shares of the NetManage Common
Stock to be issued in the Merger be authorized for listing on the Nasdaq
National Market, subject to official notice of issuance. See "THE
MERGER -- Stock Listing."
APPRAISAL AND DISSENTERS' RIGHTS
Under the Massachusetts Business Corporation Law (the "Massachusetts BCL"),
holders of FTP Common Stock who comply with the requirements of Sections 85 to
98 of that law are entitled to appraisal rights with respect to their shares
("Dissenting Shares") in connection with the Merger. A copy of the text of
Sections 85 to 98 of the Massachusetts BCL is attached to this Joint Proxy
Statement/Prospectus as Annex C. The holders of NetManage Common Stock are not
entitled to appraisal rights with respect to the Share Proposal or the
Certificate Amendment Proposal under the Delaware General Corporation Law (the
"Delaware GCL"). See "THE MERGER -- Appraisal Rights."
ANTICIPATED ACCOUNTING TREATMENT
The Merger is expected to be accounted for as a pooling of interests. It is
a condition to the Merger that NetManage receive letters from the independent
public accountants for both NetManage and FTP concurring with the conclusion of
the management of each of NetManage and FTP that the Merger will qualify for
pooling of interests accounting treatment. See "THE MERGER -- Anticipated
Accounting Treatment."
8
<PAGE> 23
STOCK OWNERSHIP FOLLOWING THE MERGER
Based upon the capitalization of FTP as of the close of business on the FTP
Record Date, and assuming an Exchange Ratio of 0.72767, an aggregate of
approximately 24,767,000 shares of NetManage Common Stock will be issued to the
FTP Stockholders in the Merger and outstanding FTP Stock Options will be
converted into options to purchase 4,107,620 shares of NetManage Common Stock.
Based upon the number of shares of NetManage Common Stock issued and outstanding
as of the NetManage Record Date and after giving effect to the issuance of
NetManage Common Stock as described in the preceding sentence, and assuming the
exercise of all FTP Stock Options assumed by NetManage, the former holders of
FTP Common Stock and the former holders of FTP Stock Options would hold, and
would have voting power with respect to, approximately 34% and 6%, respectively,
of NetManage's total issued and outstanding shares on a fully diluted basis. The
foregoing numbers of shares and percentages are subject to change to reflect any
changes in the capitalization of either NetManage or FTP subsequent to the dates
indicated and prior to the Effective Time and changes to the Exchange Ratio
discussed above in the "-- Conversion of Shares; Adjustment to Exchange Ratio,"
and there can be no assurance as to the actual capitalization of NetManage or
FTP at the Effective Time or of NetManage at any time following the Effective
Time.
RISK FACTORS
See "RISK FACTORS" for a discussion of certain factors pertaining to the
Merger and the businesses of NetManage and FTP which should be considered
carefully in evaluating the proposals to be voted on at the NetManage and FTP
Special Meetings.
OPINIONS OF FINANCIAL ADVISORS
NETMANAGE. CIBC Oppenheimer Corp., financial advisor to NetManage ("CIBC
Oppenheimer"), delivered its written opinion dated June 12, 1998 to the
NetManage Board that, as of such date and based upon and subject to certain
matters stated therein, the Exchange Ratio was fair, from a financial point of
view, to the existing holders of NetManage Common Stock. The full text of the
written opinion of CIBC Oppenheimer dated June 12, 1998, which sets forth the
assumptions made, matters considered and limitations on the review undertaken,
is attached as Annex B-1 to this Joint Proxy Statement/Prospectus and should be
read carefully in its entirety. The opinion of CIBC Oppenheimer is directed to
the NetManage Board and relates only to the fairness of the Exchange Ratio from
a financial point of view to the existing holders of NetManage Common Stock,
does not address any other aspect of the Merger or related transactions and does
not constitute a recommendation to any stockholder as to how such stockholder
should vote at the NetManage Special Meeting. HOLDERS OF NETMANAGE COMMON STOCK
ARE URGED TO READ SUCH OPINION CAREFULLY IN ITS ENTIRETY. See "THE
MERGER -- Opinion of NetManage's Financial Advisor."
In the ordinary course of business, CIBC Oppenheimer and its affiliates may
actively trade or hold the securities of NetManage and FTP for their own
accounts or for the accounts of their customers, and, accordingly, may at any
time hold a long or short position in such securities. CIBC Oppenheimer has in
the past provided certain investment banking services to NetManage, for which it
has received customary compensation.
FTP. Cowen & Company, financial advisor to FTP ("Cowen"), delivered its
written opinion dated June 12, 1998 to the FTP Board that, as of such date and
based upon and subject to certain matters stated in such opinion, the financial
terms of the Merger were fair to the FTP Stockholders from a financial point of
view. (SG Cowen Securities Corporation is the legal successor to Cowen.) The
full text of Cowen's written opinion dated June 12, 1998 is attached hereto as
Annex B-2 and sets forth the assumptions made, the procedures followed, other
matters considered and the limits of the review by Cowen. Cowen's analyses and
opinion were prepared for and addressed to the FTP Board of Directors and are
directed only to the fairness, from a financial point of view, of the financial
terms of the Merger to the holders of the FTP Common Stock and do not constitute
an opinion as to the merits of the Merger or a recommendation to any holders of
the FTP
9
<PAGE> 24
Common Stock as to how to vote on the Merger. HOLDERS OF FTP COMMON STOCK ARE
URGED TO READ SUCH OPINION CAREFULLY IN ITS ENTIRETY. See "THE MERGER -- Opinion
of FTP's Financial Advisor."
In the ordinary course of its business, Cowen and its affiliates may
actively trade or hold the equity securities of FTP or NetManage for their own
accounts and for the accounts of their customers, and accordingly, may at any
time hold a long or short position in such securities. Cowen has in the past
provided certain investment banking services to FTP, for which it has received
customary compensation.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the FTP Board with respect to the
Merger Proposal, the FTP Stockholders should be aware that members of the FTP
Board and the executive officers of FTP have certain interests in the Merger
that are in addition to the interests of the FTP Stockholders generally. See
"THE MERGER -- Interests of Certain Persons in the Merger."
GOVERNMENTAL APPROVALS
The consummation of the Merger is subject to the expiration or termination
of the relevant waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"). NetManage and FTP have
filed notification and report forms under the HSR Act. The filings made under
the HSR Act are not expected to adversely impact the timing of consummation of
the Merger.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
It is intended that the Merger will constitute a reorganization for United
States federal income tax purposes, and that no gain or loss will generally be
recognized for federal income tax purposes by the FTP Stockholders upon the
receipt of NetManage Common Stock in exchange for FTP Common Stock and
associated rights granted under the FTP Rights Agreement pursuant to the Merger
(except with respect to any cash received in lieu of a fractional share interest
in NetManage Common Stock). The obligations of NetManage and FTP to consummate
the Merger are conditioned on the receipt by each company of an opinion of its
legal counsel that the Merger constitutes a reorganization within the meaning of
Section 368(a) of the Code. See "THE MERGER -- Certain United States Federal
Income Tax Consequences." FTP STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING
ANY FOREIGN, STATE OR LOCAL TAX CONSEQUENCES.
COMPARATIVE RIGHTS OF STOCKHOLDERS
For a discussion of various differences between the rights of the FTP
Stockholders and the rights of the NetManage Stockholders, see "COMPARISON OF
RIGHTS OF HOLDERS OF NETMANAGE COMMON STOCK AND HOLDERS OF FTP COMMON STOCK."
10
<PAGE> 25
MARKET PRICE INFORMATION
The NetManage Common Stock is listed on the Nasdaq National Market under
the symbol "NETM." The FTP Common Stock is listed on the Nasdaq National Market
under the symbol "FTPS."
The tables below set forth, for the fiscal quarters indicated, the reported
high and low closing sales prices of the NetManage Common Stock and the FTP
Common Stock on the Nasdaq National Market for each quarter since January 1,
1996.
NETMANAGE COMMON STOCK
<TABLE>
<CAPTION>
HIGH LOW
--------- --------
<S> <C> <C>
1996:
First Quarter....................................... $23.375 $ 9.375
Second Quarter...................................... 18.875 9.625
Third Quarter....................................... 13.250 7.625
Fourth Quarter...................................... 8.96875 5.375
1997:
First Quarter....................................... $ 6.75 $ 2.6875
Second Quarter...................................... 4.00 2.50
Third Quarter....................................... 4.50 2.71875
Fourth Quarter...................................... 5.25 2.09375
1998:
First Quarter....................................... $ 5.0625 $ 2.53125
Second Quarter...................................... 4.6875 2.65625
Third Quarter (through July 14, 1998)............... 3.34375 2.625
</TABLE>
As of July 13, 1998, there were 634 stockholders of record of the NetManage
Common Stock and approximately 26,000 beneficial owners of the NetManage Common
Stock.
NetManage has never paid any cash dividends on its Common Stock and does
not intend to pay any cash dividends on its Common Stock in the foreseeable
future. NetManage currently intends to retain future earnings, if any, to fund
the development and growth of its business.
FTP COMMON STOCK
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
1996:
First Quarter........................................ $29.375 $ 10.375
Second Quarter....................................... 14.375 7.625
Third Quarter........................................ 9.50 5.875
Fourth Quarter....................................... 8.625 4.875
1997:
First Quarter........................................ $ 8.375 $ 5.4375
Second Quarter....................................... 6.375 4.25
Third Quarter........................................ 5.00 3.50
Fourth Quarter....................................... 4.1875 1.50
1998:
First Quarter........................................ $ 3.125 $ 1.625
Second Quarter....................................... 3.50 1.375
Third Quarter (through July 14, 1998)................ 1.9375 1.50
</TABLE>
As of July 13, 1998, there were 420 stockholders of record of the FTP
Common Stock and approximately 13,600 beneficial owners of the FTP Common Stock.
11
<PAGE> 26
FTP has not paid any cash dividends on its Common Stock since 1992 and does
not intend to pay any cash dividends on its Common Stock in the foreseeable
future.
On June 12, 1998, the last full trading day prior to the execution and
delivery of the Reorganization Agreement and the public announcement thereof,
the last reported sale prices of the NetManage Common Stock and the FTP Common
Stock on the Nasdaq National Market were $3.125 per share and $2.00 per share,
respectively. Based on an Exchange Ratio of 0.72767 of a share of NetManage
Common Stock for each share of FTP Common Stock, the pro forma equivalent per
share value of the FTP Common Stock on June 12, 1998 was $2.27 per share.
On July 14, 1998, the most recent practicable date prior to the printing of
this Joint Proxy Statement/ Prospectus, the last reported sale prices of the
NetManage Common Stock and the FTP Common Stock on the Nasdaq National Market
were $2.6875 per share and $1.5625 per share, respectively. Based on an Exchange
Ratio of 0.72767 of a share of NetManage Common Stock for each share of FTP
Common Stock, the pro forma equivalent per share value of the FTP Common Stock
on July 14, 1998 was $1.9556 per share.
Because the market price of the NetManage Common Stock is subject to
fluctuation, the market value of the shares of NetManage Common Stock that
holders of FTP Common Stock will receive in the Merger may increase or decrease
prior to the Merger.
NETMANAGE AND FTP STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET
QUOTATIONS FOR THE NETMANAGE COMMON STOCK AND THE FTP COMMON STOCK.
12
<PAGE> 27
SELECTED FINANCIAL DATA
NETMANAGE SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The selected historical consolidated financial data as of December 31,
1993, 1994 and 1995 and for the years ended December 31, 1993 and 1994 are
derived from audited consolidated financial statements of NetManage not included
or incorporated by reference herein. The selected historical consolidated
statement of operations data for each of the three years in the period ended
December 31, 1997 and the selected historical consolidated balance sheet data as
of December 31, 1996 and 1997 are derived from the audited consolidated
financial statements of NetManage included elsewhere in this Joint Proxy
Statement/Prospectus. These statements have been audited by Arthur Andersen LLP,
independent public accountants, whose report thereon is also included elsewhere
in this Joint Proxy Statement/Prospectus. The selected historical consolidated
financial data as of March 31, 1998 and for the three-month periods ended March
31, 1997 and 1998 are derived from unaudited consolidated financial statements
of NetManage and, in the opinion of NetManage, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
representation of the financial information. Operating results for the interim
period are not necessarily indicative of the results of NetManage that may be
expected for the entire year. The following selected historical consolidated
financial data should be read in conjunction with "NETMANAGE MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," and
NetManage's consolidated financial statements and related notes and other
financial information contained elsewhere herein.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
------- ------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................... $29,106 $71,466 $125,446 $104,596 $ 61,524 $16,379 $17,313
Unusual items(1)............. -- 2,000 1,701 13,583 25,815 -- --
Income (loss) from
operations................. 9,183 26,619 29,596 (13,653) (42,074) (3,785) (541)
Net income (loss)............ 5,676 17,815 22,297 (5,705) (33,755) (2,739) 531
Net income (loss) per common
share:
Basic...................... $ 0.20 $ 0.46 $ 0.55 $ (0.13) $ (0.78) $ (0.06) 0.01
Diluted.................... 0.19 0.43 0.52 (0.13) (0.78) (0.06) 0.01
Common and common equivalent
shares used in computing
per share amounts:
Basic...................... 27,773 39,137 40,749 42,341 43,385 43,182 43,728
Diluted.................... 29,262 41,103 42,955 42,341 43,385 43,182 43,903
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------- AS OF MARCH 31,
1993 1994 1995 1996 1997 1998
------- -------- -------- -------- -------- ---------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital....... $39,686 $ 64,091 $ 83,738 $ 71,668 $ 55,542 $ 62,125
Total assets.......... 47,762 116,358 154,471 152,529 119,593 117,949
Long-term
obligations......... -- 401 1,336 1,708 363 454
Stockholders'
equity.............. 41,475 99,306 129,397 129,291 96,087 97,114
</TABLE>
- ---------------
(1) In 1994, 1996 and 1997, NetManage recorded write-offs of in-process research
and development costs of approximately $2.0 million, $13.4 million and $20.6
million, respectively. In 1995 and 1996, NetManage recorded acquisition
costs of approximately $1.7 million and $0.2 million, respectively. In 1997,
NetManage recorded a restructuring charge of approximately $5.2 million.
13
<PAGE> 28
FTP SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
Set forth below is certain selected historical consolidated financial data
of FTP for each of the five years in the period ended December 31, 1997 and for
the three months ended March 31, 1997 and 1998 and as of December 31, 1993,
1994, 1995, 1996 and 1997 and March 31, 1998. The selected historical
consolidated financial data for the years ended December 31, 1993 and 1994 and
as of December 31, 1993, 1994 and 1995 are derived from audited consolidated
financial statements of FTP for and as of such dates not included or
incorporated by reference herein. The selected historical consolidated statement
of operations data for each of the three years in the period ended December 31,
1997 and the selected historical balance sheet data as of December 31, 1996 and
1997 are derived from the audited consolidated financial statements of FTP
included elsewhere in this Joint Proxy Statement/Prospectus. These statements
have been audited by PricewaterhouseCoopers LLP, independent public accountants,
whose report thereon is also included elsewhere herein. The historical
consolidated financial data as of March 31, 1998 and for the three months ended
March 31, 1997 and 1998 are derived from the unaudited consolidated financial
statements of FTP included elsewhere herein and, in the opinion of FTP, include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the financial information. Operating results for the
interim period are not necessarily indicative of the results of FTP that may be
expected for the entire year. The following selected financial data should be
read in conjunction with "FTP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" and FTP's consolidated financial statements
and related notes included elsewhere herein.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
------- ------- -------- -------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................. $57,616 $92,180 $128,815 $101,091 $ 67,734 $ 21,355 $10,928
Unusual items(1)...................... -- -- -- 37,900 18,330 -- --
Income (loss) from operations......... 25,140 36,684 41,373 (47,035) (60,254) (10,999) (4,727)
Income (loss) from continuing
operations(2)....................... 15,653 24,898 29,942 (43,778) (57,816) (11,014) (3,817)
Net income (loss)..................... 16,324 22,975 24,634 (77,577) (56,599) (11,014) (3,817)
Net income (loss) per
common share:
Basic --
Income (loss) from continuing
operations...................... $ 0.85 $ 1.11 $ 1.19 $ (1.46) $ (1.71) $ (0.33) $ (0.11)
Net income (loss)................. 0.89 1.03 0.98 (2.59) (1.67) (0.33) (0.11)
Diluted --
Income (loss) from continuing
operations...................... $ 0.59 $ 0.87 $ 1.06 $ (1.46) $ (1.71) $ (0.33) $ (0.11)
Net income (loss)................. 0.62 0.80 0.87 (2.59) (1.67) (0.33) (0.11)
Common and common equivalent shares
used in computing per share amounts:
Basic............................... 18,432 22,417 25,158 29,896 33,842 33,688 33,973
Diluted............................. 26,314 28,665 28,245 29,896 33,842 33,688 33,973
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
-------------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
------- -------- -------- -------- ------- -----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................. $69,242 $ 53,053 $ 88,785 $ 54,780 $43,874 $44,311
Total assets(2)............................. 83,711 127,368 189,629 158,908 97,475 90,064
Long-term obligations....................... 545 1,229 821 63 -- --
Stockholders' equity........................ 76,078 112,684 164,808 131,277 75,519 71,274
</TABLE>
- ---------------
(1) Product development expenses for 1996 included a charge of approximately
$37.9 million for certain acquired in-process technology related to the
acquisition of Firefox Communications Inc. See Note D of the notes to FTP's
audited historical consolidated financial statements included elsewhere
herein. During 1997, FTP recorded a restructuring charge of approximately
$18.3 million. See Note C of the notes to FTP's audited historical
consolidated financial statements included elsewhere herein.
(2) During September 1996, FTP announced a formal plan to spin off, through the
sale to third parties, certain lines of business and to discontinue selected
product lines. Accordingly, FTP's consolidated financial statements, and all
prior periods presented, have been restated to report separately the net
assets and operating results of the discontinued operations. See Note D of
the notes to FTP's audited historical consolidated financial statements
included elsewhere herein.
14
<PAGE> 29
NETMANAGE AND FTP UNAUDITED SELECTED PRO FORMA COMBINED FINANCIAL INFORMATION
The following table sets forth the unaudited selected pro forma combined
financial data of NetManage and FTP. The unaudited pro forma combined balance
sheet has been prepared as if the Merger, which will be accounted for as a
pooling of interests by NetManage, was consummated as of March 31, 1998. The
unaudited pro forma combined statement of operations data for the years ended
December 31, 1995, 1996 and 1997 and the three-month periods ended March 31,
1997 and 1998 gives effect to the Merger as if the Merger was completed at the
beginning of the periods presented. The unaudited selected pro forma combined
financial data is derived from the unaudited Pro Forma Condensed Combined
Financial Statements and notes thereto included elsewhere in this Joint Proxy
Statement/Prospectus and should be read in conjunction with such unaudited pro
forma condensed combined financial statements and related notes thereto.
The unaudited selected pro forma combined financial data is provided for
illustrative purposes only and is not necessarily indicative of the combined
financial position or combined results of operations that would have been
reported had the Merger occurred on the date indicated, nor does it represent a
forecast of the combined financial position or results of operations for any
future period. No pro forma adjustments have been included herein which reflect
potential effects of (i) the efficiencies which may be obtained by combining the
operations of NetManage and FTP or (ii) the costs of restructuring, integrating
or consolidating such operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- ------------------
1995 1996 1997 1997 1998
-------- -------- --------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
DATA:
Net sales................................. $253,911 $205,511 $ 127,939 $ 37,471 $28,073
Unusual items(1).......................... 1,701 51,483 44,145 -- --
Income (loss) from operations............. 72,724 (59,383) (102,725) (14,681) (4,922)
Income (loss) from continuing
operations.............................. 53,994 (48,178) (91,968) (13,650) (2,940)
Income (loss) from continuing operations
per common share:
Basic................................... $ 0.91 $ (0.75) $ (1.35) $ (0.20) $ (0.04)
Diluted................................. 0.85 (0.75) (1.35) (0.20) (0.04)
Common and common equivalent shares used
in computing per share amounts:
Basic................................... 59,056 64,095 68,011 67,696 68,449
Diluted................................. 63,508 64,095 68,011 67,696 68,449
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1998
--------------
(IN THOUSANDS)
<S> <C>
PRO FORMA COMBINED BALANCE SHEET DATA:
Working capital............................................. $ 99,436
Total assets................................................ 206,068
Long-term obligations....................................... 454
Stockholders' equity........................................ 159,568
</TABLE>
- ---------------
(1) Reflects acquisition costs in 1995 and 1996 of approximately $1.7 million
and $0.2 million, respectively, write-offs of in-process research and
development costs in 1996 and 1997 of approximately $51.3 million and $20.6
million, respectively, and restructuring costs of approximately $23.5
million in 1997.
15
<PAGE> 30
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of
NetManage and FTP and combined per share data on an unaudited pro forma combined
basis after giving effect to the Merger under the pooling of interests method of
accounting. The unaudited pro forma income (loss) per share data assumes the
Merger was completed at the beginning of the respective periods presented. The
unaudited pro forma book value per common share amounts assumes that the Merger
was consummated on March 31, 1998 at an Exchange Ratio of 0.72767. The following
data should be read in conjunction with the Unaudited Pro Forma Condensed
Combined Financial Statements and the separate historical consolidated financial
statements of NetManage and FTP included elsewhere herein. The unaudited pro
forma combined per common share data is provided for illustrative purposes only
and is not necessarily indicative of the combined financial position or combined
results of operations that would have been reported had the Merger occurred on
the dates indicated, nor does it represent a forecast of the combined financial
position or results of operations for any future period. No pro forma
adjustments have been included herein which reflect potential effects of (i) the
efficiencies which may be obtained by combining the operations of NetManage and
FTP or (ii) the costs of restructuring, integrating or consolidating such
operations.
<TABLE>
<CAPTION>
AS OF OR FOR
YEAR ENDED THE THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
----------------------- ---------------------
1995 1996 1997 1997 1998
----- ------ ------ ------------- -----
<S> <C> <C> <C> <C> <C>
Historical -- NetManage:
Basic net income (loss) per share..................... $0.55 $(0.13) $(0.78) $(0.06) $0.01
Diluted net income (loss) per share................... 0.52 (0.13) (0.78) (0.06) 0.01
Book value per common share(1)........................ 3.11 3.00 2.20 2.20
Historical -- FTP:
Basic --
Income (loss) from continuing operations............ 1.19 (1.46) (1.71) (0.33) (0.11)
Net income (loss)................................... 0.98 (2.59) (1.67) (0.33) (0.11)
Diluted --
Income (loss) from continuing operations............ 1.06 (1.46) (1.71) (0.33) (0.11)
Net income (loss)................................... 0.87 (2.59) (1.67) (0.33) (0.11)
Book value per common share(1)........................ 6.22 3.90 2.22 2.10
Pro Forma Combined Per NetManage Share:
Basic --
Income (loss) from continuing operations............ 0.91 (0.75) (1.35) (0.20) (0.04)
Net income (loss) per share......................... 0.82 (1.28) (1.33) (0.20) (0.04)
Diluted --
Income (loss) from continuing operations............ 0.85 (0.75) (1.35) (0.20) (0.04)
Net income (loss) per share......................... 0.77 (1.28) (1.33) (0.20) (0.04)
Book value per common share(1)........................ 2.33
Equivalent Pro Forma Combined Per FTP Share(2):
Basic --
Income (loss) from continuing operations............ 0.66 (0.55) (0.98) (0.15) (0.03)
Net income (loss) per share......................... 0.60 (0.93) (0.97) (0.15) (0.03)
Diluted --
Income (loss) from continuing operations............ 0.62 (0.55) (0.98) (0.15) (0.03)
Net income (loss) per share......................... 0.56 (0.93) (0.97) (0.15) (0.03)
Book value per common share(1)........................ 1.70
</TABLE>
- ---------------
(1) The historical book value per common share is computed by dividing total
stockholders' equity by the number of shares of common stock outstanding at
the end of the period. The pro forma book value per share is computed by
dividing pro forma stockholders' equity by the pro forma number of shares of
NetManage Common Stock outstanding at March 31, 1998.
(2) The equivalent FTP pro forma per share amounts are calculated by multiplying
the NetManage combined pro forma per share amounts by an assumed Exchange
Ratio of 0.72767.
16
<PAGE> 31
RISK FACTORS
NETMANAGE STOCKHOLDERS, IN CONSIDERING WHETHER TO APPROVE THE SHARE
PROPOSAL, AND FTP STOCKHOLDERS, IN CONSIDERING WHETHER TO APPROVE THE MERGER
PROPOSAL, SHOULD CONSIDER THE FOLLOWING MATTERS. THESE MATTERS SHOULD BE
CONSIDERED IN CONJUNCTION WITH THE OTHER INFORMATION INCLUDED IN THIS JOINT
PROXY STATEMENT/PROSPECTUS. FOR PERIODS FOLLOWING THE MERGER, REFERENCES TO THE
PRODUCTS, BUSINESS, FINANCIAL RESULTS OR FINANCIAL CONDITION OF NETMANAGE OR THE
COMBINED COMPANY SHOULD BE CONSIDERED TO REFER TO NETMANAGE AND ITS
SUBSIDIARIES, INCLUDING FTP, UNLESS THE CONTEXT OTHERWISE REQUIRES.
FORWARD-LOOKING STATEMENTS MADE IN THIS SECTION AND ELSEWHERE IN THIS JOINT
PROXY STATEMENT/PROSPECTUS ARE MADE PURSUANT TO THE SAFE HARBOR PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. ALL FORWARD-LOOKING
STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, AND ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE SET FORTH IN THE FORWARD-LOOKING STATEMENTS CONTAINED
HEREIN FOR A VARIETY OF REASONS. THESE REASONS INCLUDE, BUT ARE NOT LIMITED TO,
COMPETITION, TECHNOLOGICAL CHANGE, INCREASED DEMANDS ON MANAGEMENT AS A RESULT
OF PLANNED EXPANSION, RISKS OF INTEGRATION OF THE TWO COMPANIES AND OTHER RISKS
OUTLINED IN THIS SECTION.
RISKS RELATING TO THE MERGER
FIXED EXCHANGE RATIO DESPITE POTENTIAL CHANGES IN STOCK PRICES. Other than
reductions in the Exchange Ratio based upon certain FTP results of operations,
the Exchange Ratio is fixed and will not be adjusted in the event of any
increases or decreases in the price of either the NetManage Common Stock or the
FTP Common Stock. The price of the NetManage Common Stock at the Effective Time
may vary from its price on the date of this Joint Proxy Statement/Prospectus and
on the date of the NetManage Special Meeting and the FTP Special Meeting. Such
variations may be the result of changes in the business, operations or prospects
of NetManage or FTP, market assessments of the likelihood that the Merger will
be consummated, the timing thereof and the prospects of the Merger and
post-Merger operations, regulatory considerations, general market and economic
conditions and other factors. If the market price of the NetManage Common Stock
decreases or increases prior to the Effective Time, the market value at the
Effective Time of the FTP Common Stock would correspondingly increase or
decrease. Because the Effective Time may occur at a date later than the Special
Meetings, there can be no assurance that the price of the NetManage Common Stock
on the date of the Special Meetings will be indicative of its price at the
Effective Time. Stockholders of NetManage and FTP are urged to obtain current
market quotations for the NetManage Common Stock and the FTP Common Stock. See
"SUMMARY -- Market Price Information" and "THE REORGANIZATION AGREEMENT -- Terms
of the Merger."
NONREALIZATION OF SYNERGIES. NetManage and FTP believe that an important
benefit to be realized from the Merger will be the integration of their
respective managements, strategies, operations and product lines. Certain of the
anticipated benefits of the Merger may not be achieved unless such integration
is successful and achieved in a timely manner. The successful combination of
companies in the rapidly changing high technology industry requires coordination
of sales and marketing and research and development efforts and may be more
difficult to accomplish than in some other industries. In the case of the
Merger, the difficulties of such integration may initially be increased by the
necessity of coordinating geographically separated organizations (in suburban
Boston, Massachusetts, Cupertino and San Jose, California, Birmingham and
Wokingham, England and Haifa, Israel) and integrating personnel with diverse
business backgrounds and corporate cultures. There can be no assurance that
NetManage will successfully integrate the respective operations of NetManage and
FTP without encountering difficulties or experiencing the loss of key FTP
personnel or that the benefits expected from such integration will be realized.
In addition, certain members of senior management of FTP are not expected to
continue to serve following the Merger. The diversion of the attention of
management and any difficulties encountered in the transition process (including
the interruption
17
<PAGE> 32
of, or a loss of momentum in, FTP's activities, problems associated with
integration of management information and reporting systems, and delays in
implementation of consolidation plans) could also have an adverse impact on the
combined company's ability to realize anticipated synergies from the Merger. See
"THE MERGER -- Recommendation of the NetManage Board; Reasons for the Merger"
and "-- Recommendation of the FTP Board; Reasons for the Merger."
INCURRENCE OF SIGNIFICANT TRANSACTION EXPENSES; POTENTIAL DILUTIVE EFFECT
TO STOCKHOLDERS. NetManage expects to incur Merger-related expenses currently
estimated to be approximately $3.4 million (including approximately $2.5 million
attributable to FTP's expenses in connection with the Merger) in the quarter
ending September 30, 1998, the quarter in which the Merger is expected to be
consummated, to reflect direct transaction costs, primarily for investment
banking, legal and accounting fees and costs and financial printing and other
related costs. This estimate does not include any costs associated with
restructuring, integrating or consolidating the operations of the two companies.
This amount is a preliminary estimate and is therefore subject to change.
Additionally, NetManage expects that the combined company will pay up to
approximately $3.6 million in severance costs to officers of FTP in connection
with the termination of their employment upon consummation of the Merger.
Additional unanticipated expenses may be incurred relating to the integration of
the businesses of NetManage and FTP. Although NetManage expects that the
elimination of duplicative expenses as well as other efficiencies related to the
integration of the business of FTP may offset additional expenses over time,
there can be no assurance that such net benefit will be achieved in the near
term, or at all. There can be no assurance that combining the business of
NetManage with the business of FTP, even if achieved in an efficient and
effective manner, will result in combined results of operations and financial
condition superior to what would have been achieved by NetManage or FTP
independently. The issuance of NetManage Common Stock in connection with the
Merger may have the effect of reducing NetManage net income per share from
levels otherwise expected and could reduce the market price of the NetManage
Common Stock unless revenue growth or cost savings and other business synergies
sufficient to offset the effect of such issuance can be achieved.
EFFECT OF MERGER ON CUSTOMERS AND PARTNERS. NetManage's and FTP's
relationships with their existing customers and strategic partners may be
adversely affected during the pendency of the Merger and after its completion in
the event such parties perceive the Merger to negatively affect their level of
service or support or product offerings from NetManage or FTP. Any significant
delay or reduction in orders for NetManage's or FTP's products as a result of
the Merger could have a material adverse effect on the combined company's
business, financial condition and results of operations. In particular, FTP and
NetManage believe that certain customers may defer purchasing decisions while
evaluating the combined company's future products strategy and competitive
position in the industry. Any such deferrals could have a material adverse
effect on the combined company's business, financial condition and results of
operations, at least in the near term. These effects may occur during the period
prior to the consummation of the Merger or following the Merger.
RISK OF NONCOMPLETION OF MERGER DUE TO "MATERIAL ADVERSE EFFECT." The
Reorganization Agreement can be terminated prior to the Closing by NetManage in
the event of a material adverse effect on the business of FTP or by FTP in the
event of a material adverse effect on the business of NetManage. The definition
of material adverse effect includes, in the case of FTP, failure of its 1998
second quarter revenues, subject to certain adjustments, to be at least
$7,500,000 or its revenues for the two months ending August 31, 1998 to be at
least $3,500,000 (or, if the Closing occurs prior to August 31, 1998, revenues
for the month ending July 31, 1998 to be at least $1,750,000). The definition of
material adverse effect includes, in the case of NetManage, failure of its 1998
second quarter revenues, subject to certain adjustments, to be at least
$11,250,000 or its revenues for the two months ending August 31, 1998 to be at
least $5,500,000 (or, if the Closing occurs prior to August 31, 1998, revenues
for the month ending July 31, 1998 to be at least $2,750,000). See "THE
REORGANIZATION AGREEMENT -- Termination."
VOLATILITY OF STOCK PRICES. The market price of each of the NetManage
Common Stock and the FTP Common Stock has historically been volatile and may
continue to be volatile in the future. This volatility may result from a number
of factors, including fluctuations in the combined company's quarterly revenues
and net income, announcements of new products or partnerships by the combined
company or its competitors, and conditions in the market for PC connectivity
software products generally. Any shortfall in actual operating
18
<PAGE> 33
results versus analysts' expectation could have an immediate and significant
effect on the trading price of the combined company's common stock. In addition,
if the Merger is not consummated, NetManage and FTP stock prices may be
adversely affected. Also, the stock market has experienced and continues to
experience extreme price and volume fluctuations which have affected the market
prices of securities and which often have been unrelated to the operating
performance of the companies. These broad market fluctuations may adversely
affect the market price of both the NetManage and the FTP Common Stock and the
combined company's common stock in future periods.
POTENTIAL UNAVAILABILITY OF "POOLING OF INTERESTS" ACCOUNTING TREATMENT OF
MERGER. The Merger is intended to qualify as a "pooling of interests" for
accounting and financial reporting purposes. Under this method of accounting,
the assets and liabilities of NetManage and FTP will be carried forward to the
combined company at their recorded amounts, income from the combined company
will include income (loss) from NetManage and FTP for the entire fiscal period
in which the combination occurs and the reported income (loss) of the separate
companies for prior periods will be combined and restated as the results of
operations of the combined company. It is a condition to the consummation of the
Merger that NetManage receive letters from the independent public accountants
for both NetManage and FTP concurring with the conclusion of the management of
each of NetManage and FTP that the Merger will qualify for pooling of interests
accounting treatment. See "THE REORGANIZATION AGREEMENT -- Conditions to the
Merger" and "UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS."
Under the pooling of interests rules, none of the executive officers,
directors or affiliates of either of the combining companies may sell any shares
of either NetManage or FTP (except for certain de minimis sales) until the
combined company releases financial results covering at least 30 days of
combined operations of NetManage and FTP. Accordingly, pooling of interests
accounting treatment for the Merger as of such time may not be available because
of sales by such stockholders (except for certain de minimis sales) after the
consummation of the Merger and prior to the time the combined company releases
such financial results. There can be no assurance that an executive officer,
director or affiliate of either company will not sell shares of NetManage or FTP
stock or that all requirements necessary to qualify for pooling of interests
will be met. If the requirements necessary to qualify for pooling of interests
are not met prior to consummation of the Merger, then NetManage is not required
to consummate the Merger. However, if NetManage nevertheless elects to
consummate the Merger, the Merger would necessarily be accounted for under the
purchase method of accounting, which would have the effect of FTP's assets being
recognized at their fair value and any excess of the purchase price over such
fair value (other than amounts charged to in-process research and development
costs) being recognized as goodwill on NetManage's balance sheet. The goodwill
would thereafter be amortized as an expense over its anticipated useful life.
The impact of such treatment could have a material adverse effect on the
combined company's results of operations throughout the amortization period. The
Merger would also be required to be accounted for under the purchase method of
accounting if, among other things, any affiliate of either company sells shares
in NetManage subsequent to consummation of the Merger and prior to the release
of financial results covering at least 30 days of combined operations, which
would have the effect on the combined company's results of operations described
above. Each of the current executive officers and directors of NetManage and
each of the current executive officers and directors of FTP has entered into an
affiliate agreement agreeing to comply with the above described restrictions on
selling shares of NetManage and FTP. See "THE REORGANIZATION
AGREEMENT -- Affiliate Agreements."
LOSS OF CONTROL BY FTP STOCKHOLDERS. As a result of the Merger, FTP
Stockholders will hold approximately 36% of the outstanding shares of NetManage.
In addition, certain members of senior management of FTP are not expected to
continue to serve following the Merger, and no current Board member of FTP will
serve on the Board of NetManage following the Merger. Due to the unavailability
of cumulative voting in the election of directors of NetManage, former FTP
Stockholders will not have the ability to elect their own representatives to the
NetManage Board. As a result of the foregoing, former FTP Stockholders will not
have the ability to control the management or operations of NetManage.
19
<PAGE> 34
RISKS RELATING TO NETMANAGE, FTP AND THE COMBINED COMPANY
SIGNIFICANT FLUCTUATIONS IN OPERATING RESULTS. Each of NetManage and FTP
has experienced, and expects that it and the combined company will continue to
experience in future periods, significant fluctuations in operating results that
may be caused by many factors including, among others, demand for products,
introduction or enhancements of products by the combined company or its
competitors, technological changes in computer networking, competitive pricing
pressures, market acceptance of new products, impact of, or failure to enter
into, strategic partnerships to promote the combined company's products,
customer order deferrals in anticipation of new products, the size and timing of
individual product orders, mix of international and domestic revenues, mix of
distribution channels through which products are sold, changes in operating
expenses, personnel changes, foreign currency exchange rates and general
economic conditions.
During 1997, NetManage initiated a plan to restructure its operations and
to focus on its core competencies in UNIX, AS/400 midrange and IBM mainframe
connectivity. NetManage undertook the restructuring in response to business
conditions in order to improve NetManage's future financial performance. In
addition, FTP undertook a significant restructuring in July 1997 which required
the dedication of management and other resources that temporarily detracted from
attention to the daily business of FTP, caused a disruption of the business
activities and a loss of momentum in the business of FTP and, as a result, had
an adverse effect on FTP's results of operations for 1997. No assurance can be
given that these restructurings, or any other restructuring necessitated by the
Merger, will be successful, that future operating results will improve, or that
the actions undertaken in the restructurings will not disrupt the combined
company's remaining operations or have an adverse effect on its financial
condition or results of operation.
Because both companies generally ship software products within a short
period after receipt of an order, neither company typically has a material
backlog of unfilled orders, and revenues in any quarter are substantially
dependent on orders booked in that quarter and particularly in the last month of
that quarter. The expense levels of both companies are based in part on its
expectations as to future revenues and to a large extent are fixed. Therefore,
the combined company may be unable to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall. Accordingly, any significant
shortfall of demand in relation to the combined company's expectations or any
material delay of customer orders would have an almost immediate adverse impact
on the combined company's operating results and on the combined company's
ability to achieve profitability. Fluctuations in operating results are likely
to result in volatility in the price of the NetManage Common Stock and the FTP
Common Stock.
Based on the foregoing, NetManage and FTP believe that period to period
comparisons of results of operations is not necessarily meaningful and should
not be relied upon as an indicator of future performance. See "NETMANAGE
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" and "FTP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS."
PRODUCT DEVELOPMENT AND COMPETITION. The market for NetManage's and FTP's
products is intensely competitive and characterized by rapidly changing
technology, evolving industry standards, changes in customers' needs and
frequent new product introductions. Particularly, over the past three years,
many customers have from time to time delayed purchase decisions due to the
confusion in the marketplace at various times during this period relating to
rapidly changing technology and product introductions. To maintain or improve
its position in this industry, NetManage, FTP and the combined company must
continue to successfully develop, introduce and market new products and product
enhancements on a timely and cost-effective basis. Any failure NetManage, FTP or
the combined company to anticipate or respond adequately to changes in
technology and customer preferences, or any significant delays in product
development or introduction, could have a material adverse effect on their
respective businesses, financial conditions and results of operations. The
failure by NetManage, FTP or the combined company to develop on a timely basis
new products or enhancements incorporating new functionality could cause
customers to delay purchase of its products or cause customers to purchase
products from its competitors; either situation would adversely affect its
business, financial condition and results of operations.
20
<PAGE> 35
Because certain of both companies' products incorporate software and other
technologies developed and maintained by third parties, both companies are, and
the combined company will be, to a certain extent, dependent upon such third
parties' ability to enhance their current products, to develop new products that
will meet changing customer needs on a timely and cost-effective basis, and to
respond to emerging industry standards and other technological changes. There
can be no assurance that NetManage, FTP or the combined company would be able to
replace the functionality provided by the third party technologies currently
offered in conjunction with their respective products if those technologies
become unavailable to them or obsolete or incompatible with future versions of
their respective market standards. In addition, the ability of NetManage, FTP
and the combined company to develop and market new products and product
enhancements is dependent upon its ability to attract and retain qualified
employees. Any failure by NetManage, FTP or the combined company to anticipate
or respond adequately to changes in technology and customer preferences, to
develop and introduce new products or product enhancements in a timely fashion,
or to retain qualified employees, could have a material adverse affect on their
respective business, financial conditions and result of operations. In addition
to internal development of new products and technologies, the future success of
the combined company may depend on the ability of the combined company to enter
into and implement strategic alliances and OEM relationships to develop
necessary products or technologies, to expand the combined company's
distribution channels or to jointly market or gain market awareness for the
combined company's products. There can be no assurance that the combined company
will be successful in identifying or developing such alliances and relationships
or that such alliances and relationships will achieve their intended purposes.
Software products as complex as those offered by NetManage and FTP may
contain undetected errors or failures when first introduced or as new versions
are released. There can be no assurance that, despite testing by NetManage and
FTP and by current and potential customers, errors will not be found in new
products and product enhancements after commencement of commercial shipments,
which could result in loss of or delay in market acceptance. Such loss or delay
could have a material adverse effect on the combined company's business,
financial condition and results of operations.
NetManage's and FTP's networking software products compete with major
computer and communications systems vendors, including Microsoft, IBM, Novell,
Inc. ("Novell") and Sun Microsystems, Inc. ("Sun") as well as smaller networking
software companies, such as Hummingbird Communications Ltd. Many of such
competitors have substantially greater financial, technical, sales, marketing
and other resources, as well as greater name or product recognition and a larger
customer base, than either NetManage or FTP. NetManage and FTP also face
competition from makers of terminal emulation software such as Attachmate
Corporation and Wall Data Incorporated. The market for both companies' products
is characterized by significant price competition, and the combined company will
face increasing pricing pressures from its current and new competitors in the
future. Moreover, given that there are low barriers to entry into the software
market and that the market is rapidly evolving and subject to rapid
technological change, NetManage and FTP believe that competition will persist
and intensify in the future. There can be no assurance that the combined company
will be able to provide products that compare favorably with the products of the
combined company's competitors or that competitive pressures will not require
the combined company to reduce its prices. NetManage has recently experienced
price declines for its products, contributing to lower revenues. Any further
material reduction in the price of the combined company's products would require
the combined company to increase unit sales in order to maintain revenues at
existing levels. There can be no assurance that the combined company will be
successful in doing so.
The combined company's competitors could seek to expand their product
offerings by designing and selling products using TCP/IP or other technology
that could render obsolete or adversely affect sales of the combined company's
products. These developments may adversely affect the combined company's sales
of its own products either by directly affecting customer purchasing decisions
or by causing potential customers to delay their purchases of the combined
company's products. Several competitors of NetManage and FTP have developed
proprietary networking applications and certain of such vendors, including
Novell, provide a TCP/ IP protocol suite in their products at little or no
additional cost. In particular, Microsoft has embedded a TCP/ IP protocol suite
in its Windows 95 and Windows NT operating systems.
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<PAGE> 36
The competitive pressures described above have resulted in a decrease in
sales volumes of, and sales prices for, certain of NetManage's and FTP's
products since 1996, have materially adversely affected NetManage's and FTP's
results of operations in 1996 and 1997 and FTP's results of operations for the
first quarter of 1998, and may have a material adverse effect on NetManage's,
FTP's or the combined company's results of operations in the future. See
"NETMANAGE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" and "FTP MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
Substantially all of NetManage's and a substantial portion of FTP's net
revenues have been derived from the sales of products that provide
internetworking applications for the Microsoft Windows environment and are
marketed primarily to Windows users. As a result, sales of the combined
company's products would be materially adversely affected by market developments
adverse to Windows. In addition, the combined company's expected strategy of
developing products based on the Windows operating environment is substantially
dependent on its ability to gain pre-release access to, and to develop expertise
in, current and future Windows developments by Microsoft. No assurance can be
given as to the ability of the combined company to successfully provide products
compatible with future Windows releases on a timely basis.
EMPLOYEE RETENTION; DEPENDENCE UPON KEY PERSONNEL. The majority of the
combined company's employee workforce will be located in the extremely
competitive employment markets of the Silicon Valley and Irvine in California,
Haifa, Israel and North Andover, Massachusetts. Competition for qualified
personnel in the software industry is intense and there can be no assurance that
the combined company will be able to attract and retain a sufficient number of
qualified employees. During the latter half of 1996 and through 1997 and 1998,
NetManage experienced high attrition at all levels and across all functions of
NetManage. The attrition experienced by NetManage was attributable to various
factors including, among others, industry-wide demand exceeding supply for
experienced engineering and sales professionals. The number of FTP's employees
decreased significantly during 1997, both prior to and following its 1997
restructurings, and during the first six months of 1998, as a result both of the
restructurings and significant competition for qualified personnel in the
industry. FTP believes that this decrease, which resulted in significant
turnover in its U.S. sales force, contributed to the decline in FTP's revenues
for 1997 and the first quarter of 1998. See "NETMANAGE MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and "FTP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
The combined company's future success will depend to a significant degree
upon the continued service of NetManage executive officers and other key
employees and key employees of FTP, both pending the consummation of the Merger
and after the Merger has been completed. It is expected that certain members of
senior management of FTP will not continue to serve with the combined company
following the Merger. The loss of the services of any of such executive officers
or key employees could have a material adverse effect on the combined company's
business, financial condition and results of operations. As the business of the
combined company grows, it may become increasingly difficult for the combined
company to hire, train and assimilate the new employees needed. In addition, it
is possible that business changes or uncertainty brought about by the Merger may
cause key employees of NetManage or FTP to leave the combined company. The
combined company's inability to retain and attract key employees could have a
material adverse effect on the combined company's business, financial condition
and results of operations.
MARKETING AND DISTRIBUTION. Historically, both NetManage and FTP have
relied significantly on their independent distributors, systems integrators and
value-added resellers for certain elements of the marketing and distribution of
their products. The agreements in place with these organizations are generally
non-exclusive. These organizations are not within the control of the companies,
may represent other product lines in addition to those of the companies and are
not obligated to purchase products from the companies. There can be no assurance
that such organizations will give a high priority to the marketing of the
combined company's products, and such organizations may give a higher priority
to other products, which may include the products of the combined company's
competitors. Actions of this nature by such organizations could result in a
lower sales effort applied to the combined company's products and a consequent
reduction in the
22
<PAGE> 37
combined company's operating results. The combined company's results of
operations can also be materially adversely affected by changes in the inventory
strategies of its resellers, which can occur rapidly and in many cases may not
be related to end user demand. As part of its strategy to develop distribution
channels, NetManage expects to increase its use of indirect distribution
channels such as resellers, particularly value added resellers and system
integrators, in addition to distributors and original equipment manufacturers.
NetManage expects that indirect sales will grow as a percentage of both domestic
and total revenues and that any material increase in the combined company's
indirect sales as a percentage of revenues will adversely affect the combined
company's average selling prices and gross margins due to the lower unit costs
that are typically charged when selling through indirect channels. There can be
no assurance that the combined company will be able to attract resellers and
distributors who will be able to market the combined company's products
effectively and will be qualified to provide timely and cost-effective customer
support and service.
PROPRIETARY RIGHTS. NetManage and FTP rely primarily on a combination of
copyright and trademark laws, trade secrets, confidentiality procedures and
contractual provisions to protect their proprietary rights. However, the basic
TCP/IP protocols are non-proprietary and other parties have developed their own
versions. Both companies seek to protect their software, documentation and other
written materials under trade secret and copyright laws, which afford only
limited protection. Despite efforts to protect proprietary rights, unauthorized
parties may attempt to copy aspects of the combined company's products or to
obtain and use information that the combined company regards as proprietary.
Policing unauthorized use of the combined company's products is difficult, and
while NetManage and FTP are unable to determine the extent to which piracy of
its software products exists, software piracy can be expected to be a persistent
problem. In selling their products, NetManage and FTP rely primarily on
"shrink-wrap" and "click-wrap" licenses that are not signed by licensees and,
therefore, may be unenforceable under the laws of certain jurisdictions. In
addition, the laws of some foreign countries do not protect proprietary rights
to as great an extent as do the laws of the United States. There can be no
assurance that NetManage, FTP and the combined company's means of protecting
their proprietary rights will be adequate or that their competitors will not
independently develop similar technology. In addition, the number of patents
applied and granted for software inventions is increasing. Consequently, there
is a growing risk of third parties asserting patent claims against NetManage,
FTP and the combined company. NetManage has received and NetManage, FTP and the
combined company may receive in the future, communications from third parties
asserting that its products infringe, or may infringe, the proprietary rights of
third parties, seeking indemnification against such infringement or indicating
that it may be interested in obtaining a license from such third parties. There
can be no assurance that any of such claims would not result in protracted and
costly litigation.
If any claims or actions were to be asserted against NetManage, FTP or the
combined company, and it were required to seek a license of a third party's
intellectual property, there can be no assurance that it would be able to
acquire such a license on reasonable terms or at all, and no prediction can be
made about the effect that such license might have on its business, financial
condition or results of operations. Should litigation with respect to any such
claim commence, such litigation could be extremely expensive and time consuming
and could materially adversely affect NetManage's, FTP's or the combined
company's business, financial condition and results of operations regardless of
the outcome of the litigation.
GLOBAL MARKET RISKS. NetManage and FTP derived approximately 22% and 41%,
respectively, of net revenues from international sales during the year ended
December 31, 1997. While NetManage and FTP expect that international sales will
continue to account for a significant portion of the combined company's net
revenues, there can be no assurance that the combined company will be able to
maintain or increase international market demand for the combined company's
products or that the combined company's distributors will be able to effectively
meet that demand. Risks inherent in both companies' international business
activities generally include unexpected changes in regulatory requirements,
changes in markets caused by a variety of political, social and economic
factors, tariffs and other trade barriers, costs and risks of localizing
products for foreign countries, longer accounts receivable payment cycles,
difficulties in managing international operations, currency exchange rate
fluctuations, potentially adverse tax consequences, repatriation of earnings and
the burdens of complying with a wide variety of foreign laws. In addition, there
can be no assurance the recent economic instability in Asia will not result in
reduced sales of the combined company's
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products in that market. There can be no assurance that such factors will not
have a material adverse effect on the combined company's future international
sales and, consequently, on the combined company's business, financial condition
or results of operations.
An increase in the value of the U.S. dollar relative to foreign currencies
would make the combined company's products more expensive and therefore
potentially less competitive in those markets. The combined company is expected,
to a certain extent, to use price lists denominated in local currencies, and
fluctuations in currency exchange rates could have an adverse impact on the
combined company's financial results. Because substantially all of the combined
company's international sales will be indirect, any material increase in the
combined company's international sales as a percentage of total revenue may have
an adverse effect on its gross margins due to the lower per unit revenue
realized by the combined company on sales through indirect channels. Further, if
the size of its international customers and contracts increase, NetManage
expects the combined company to transact a greater number of sales in local
currencies, with the result that currency exchange rate fluctuations in the
future may have an increased effect on the combined company's business,
financial condition and results of operations. See "NETMANAGE BUSINESS -- Sales
and Marketing" and "FTP BUSINESS -- Sales and Marketing."
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES. NetManage and FTP are not
currently subject to direct regulation by any government agency, other than
regulations applicable to businesses generally, and there are currently few laws
or regulations directly applicable to access to or commence on the Internet.
However, due to the increasing popularity and use of the Internet, it is
possible that various laws and regulations may be adopted with respect to the
Internet, covering issues such as user privacy, pricing and characteristics and
quality of products and services. The adoption of any such laws or regulations
may decrease the growth of the Internet, which could in turn decrease the demand
for NetManage's, FTP's or the combined company's products and increase its cost
of doing business or otherwise have an adverse effect on their respective
businesses, financial conditions or results of operations. Moreover, the
applicability to the Internet of existing laws governing issues such as property
ownership, libel and personal privacy is uncertain. Further, due to the
encryption technology contained in certain of FTP's products, such products are
subject to U.S. export controls. There can be no assurance that such export
controls, either in their current form or as may be subsequently enacted, will
not limit the combined company's ability to distribute products outside of the
United States or electronically. While FTP takes precautions against unlawful
exportation, the global nature of the Internet makes it virtually impossible to
effectively control the distribution of the combined company's products. In
addition, future federal or state legislation or regulation may further limit
levels of encryption or authentication technology. Any such export restrictions,
new legislation or regulation or unlawful exportation could have a material
adverse effect on NetManage's, FTP's or the combined company's business,
financial condition and results of operations.
RISKS OF FUTURE ACQUISITIONS. In addition to the Merger, NetManage
regularly evaluates product and technology acquisition opportunities and
anticipates that it may make additional acquisitions in the future if it
determines that an acquisition would further its corporate strategy. No
assurance can be given that any additional acquisition by the combined company
will or will not occur, that if an acquisition does occur that it will not
materially and adversely affect the combined company or that any such
acquisition will be successful in enhancing the combined company's business. If
the operations of an acquired company or business do not meet the combined
company's expectations, the combined company may be required to restructure the
acquired business or write off the value of some or all of the assets of the
acquired business.
YEAR 2000. NetManage and FTP are aware of the issues associated with the
programming code in existing computer systems as the millennium ("year 2000")
approaches. The issue is whether computer systems will properly recognize
date-sensitive information when the year changes to 2000. NetManage and FTP
believe that any costs incurred related to year 2000 compliance will not have a
material impact on its or the combined company's business, operations or
financial condition.
LITIGATION. Both NetManage and FTP are currently party to class action
lawsuits filed by holders of each company's common stock. There can be no
assurance that NetManage, FTP or the combined company will be able to prevail in
the lawsuits or that adverse outcomes will not result in a material adverse
effect on
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their respective businesses, results of operations or financial conditions. See
"NETMANAGE BUSINESS -- Legal Proceedings" and "FTP BUSINESS -- Legal
Proceedings."
ANTITAKEOVER EFFECTS OF DELAWARE LAW
NetManage is subject to the provisions of Section 203 of the Delaware GCL,
an anti-takeover law. In general, the statute prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. For purposes of Section 203, a
"business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder, and an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock.
NetManage's Certificate of Incorporation also requires that any action
required or permitted to be taken by stockholders of NetManage must be effected
at a duly called annual or special meeting of stockholders and may not be
effected by a consent in writing. In addition, special meetings of the
stockholders of NetManage may be called only by the NetManage Board of
Directors, the Chairman of the Board or the Chief Executive Officer of
NetManage. NetManage's Certificate also provides for a classified Board of
Directors consisting of three classes of directors. In addition, NetManage's
Certificate of Incorporation provides that the authorized number of directors
may be changed only by resolution of the Board of Directors. Furthermore,
directors may be removed without cause only upon a vote of two-thirds of the
stockholders. These provisions may have the effect of deterring hostile
takeovers or delaying changes in control or management of the combined company.
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NETMANAGE SPECIAL MEETING
PURPOSE OF THE NETMANAGE SPECIAL MEETING
At the NetManage Special Meeting, the holders of the NetManage Common Stock
will consider and vote upon the Share Proposal and the Certificate Amendment
Proposal. Although the Delaware GCL and NetManage's Certificate of
Incorporation, as amended, do not require NetManage to obtain stockholder
approval of the Merger, the rules of the Nasdaq National Market require
NetManage to obtain stockholder approval for the Share Proposal because the
issuance would be in excess of 20% of the outstanding NetManage Common Stock.
Holders of NetManage Common Stock may also consider such other matters as may be
properly brought before the NetManage Special Meeting.
THE NETMANAGE BOARD HAS UNANIMOUSLY APPROVED THE MERGER, THE REORGANIZATION
AGREEMENT AND THE CERTIFICATE AMENDMENT PROPOSAL AND UNANIMOUSLY RECOMMENDS THAT
NETMANAGE STOCKHOLDERS VOTE FOR THE SHARE PROPOSAL AND THE CERTIFICATE AMENDMENT
PROPOSAL. SEE "THE MERGER -- BACKGROUND OF THE MERGER" AND "-- RECOMMENDATION OF
THE NETMANAGE BOARD; REASONS FOR THE MERGER" AND "THE CERTIFICATE AMENDMENT
PROPOSAL."
RECORD DATE
The NetManage Board has fixed the close of business on July 13, 1998 as the
NetManage Record Date for determining the holders of NetManage Common Stock
entitled to notice of and to vote at the NetManage Special Meeting.
QUORUM
The presence at the NetManage Special Meeting in person or by properly
executed proxy of the holders of a majority of the issued and outstanding shares
of NetManage Common Stock is necessary to constitute a quorum at the NetManage
Special Meeting. Abstentions and broker non-votes will be counted in determining
whether a quorum is present for the transaction of business.
REQUIRED VOTES
The Share Proposal requires approval by the affirmative vote of the holders
of a majority of the votes cast on the proposal at the NetManage Special
Meeting. Abstentions are equivalent to negative votes for purposes of approving
the Share Proposal. Broker non-votes will not be counted in determining whether
the Share Proposal has been approved. The Certificate Amendment Proposal
requires the affirmative vote of a majority of the outstanding shares of
NetManage Common Stock. Accordingly, abstentions and broker non-votes are
equivalent to negative votes for purposes of approving the Certificate Amendment
Proposal.
As of the NetManage Record Date, the directors and executive officers of
NetManage beneficially owned as a group approximately 10,706,000 (approximately
24%) of the outstanding shares of NetManage Common Stock and have indicated
their intention to vote all of their shares in favor of the Share Proposal and
the Certificate Amendment Proposal.
VOTING RIGHTS; PROXIES
As of the NetManage Record Date, there were 44,209,692 shares of NetManage
Common Stock issued and outstanding, each of which entitles the holder thereof
to one vote. All shares of NetManage Common Stock represented by properly
executed proxies received at or prior to the NetManage Special Meeting will,
unless such proxies have been previously revoked, be voted in accordance with
the instructions indicated in such proxies. IF NO INSTRUCTIONS ARE INDICATED IN
THE PROXIES, SUCH SHARES OF NETMANAGE COMMON STOCK WILL BE VOTED IN FAVOR OF THE
SHARE PROPOSAL AND THE CERTIFICATE AMENDMENT PROPOSAL.
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NetManage does not know of any matters other than as described in the
accompanying Notice of the NetManage Special Meeting that are to come before the
NetManage Special Meeting. If any other matter or matters are properly presented
for action at the NetManage Special Meeting, the persons named in the enclosed
form of proxy and acting thereunder will have the discretion to vote on such
matters in accordance with their judgment, unless such authorization is
withheld.
A holder of NetManage Common Stock giving a proxy pursuant to this proxy
solicitation may revoke it at any time before it is exercised by giving a
subsequent proxy, delivering to the Secretary of NetManage a written notice of
revocation prior to the voting of the proxy at the NetManage Special Meeting, or
attending the NetManage Special Meeting and informing the Secretary of NetManage
in writing that such stockholder wishes to vote his or her shares in person.
However, mere attendance at the NetManage Special Meeting will not in and of
itself have the effect of revoking the proxy. If a NetManage Stockholder is not
the registered direct holder of his or her shares, such stockholder must obtain
appropriate documentation from the registered holder in order to vote the shares
in person.
Votes cast by proxy or in person at the NetManage Special Meeting will be
tabulated by the election inspector appointed for the meeting and will determine
whether or not a quorum is present.
SOLICITATION OF PROXIES
The expenses of the respective solicitations for the NetManage and FTP
Special Meetings will be borne by NetManage and FTP, respectively; however,
NetManage and FTP have agreed to share equally the cost of filing, printing and
mailing this Joint Proxy Statement/Prospectus and the forms of proxy to the
NetManage Stockholders and the FTP Stockholders. In addition to solicitation by
mail, proxies may be solicited by directors, officers and employees of NetManage
in person or by telephone, telegram or other means of communication. These
persons will receive no additional compensation for solicitation of proxies, but
may be reimbursed for reasonable out-of-pocket expenses in connection with such
solicitation. Arrangements will also be made by NetManage with custodians,
nominees and fiduciaries for forwarding of proxy solicitation materials to
beneficial owners of shares of NetManage Common Stock held of record by such
custodians, nominees and fiduciaries, and NetManage will reimburse such
custodians, nominees and fiduciaries for their reasonable expenses incurred in
connection therewith. NetManage has retained a proxy solicitation firm,
Corporate Investor Communications, Inc., to aid it in the solicitation process.
NetManage will pay a fee of $6,000 to such firm, plus hourly fees and expenses.
THE MATTERS TO BE CONSIDERED AT THE NETMANAGE SPECIAL MEETING ARE OF GREAT
IMPORTANCE TO THE NETMANAGE STOCKHOLDERS. ACCORDINGLY, THE NETMANAGE
STOCKHOLDERS ARE URGED TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED
IN THIS JOINT PROXY STATEMENT/PROSPECTUS, AND TO COMPLETE, DATE, SIGN AND
PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE PRE-PAID ENVELOPE.
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FTP SPECIAL MEETING
PURPOSE OF THE FTP SPECIAL MEETING
At the FTP Special Meeting, the holders of the FTP Common Stock will
consider and vote upon the Merger Proposal and such other matters as may be
properly brought before the FTP Special Meeting.
THE FTP BOARD HAS UNANIMOUSLY APPROVED THE REORGANIZATION AGREEMENT AND THE
MERGER AND UNANIMOUSLY RECOMMENDS THAT THE FTP STOCKHOLDERS VOTE FOR THE MERGER
PROPOSAL. SEE "THE MERGER -- BACKGROUND OF THE MERGER" AND "-- RECOMMENDATION OF
THE FTP BOARD; REASONS FOR THE MERGER."
RECORD DATE
The FTP Board has fixed the close of business on July 13, 1998 as the FTP
Record Date for determining the holders of FTP Common Stock entitled to notice
of and to vote at the FTP Special Meeting.
QUORUM
The presence at the FTP Special Meeting in person or by properly executed
proxy of the holders of a majority of the issued and outstanding shares of FTP
Common Stock is necessary to constitute a quorum at the FTP Special Meeting.
Abstentions and broker non-votes will be counted in determining whether a quorum
is present for the transaction of business at the FTP Special Meeting.
REQUIRED VOTE
The affirmative vote of a majority of the outstanding shares of FTP Common
Stock entitled to vote and present at the FTP Special Meeting, in person or by
proxy, is required for approval of the Merger Proposal. Abstentions and broker
non-votes will have the effect of votes against the Merger Proposal.
As of the FTP Record Date, the directors and executive officers of FTP
beneficially owned as a group 914,114 (approximately 2.7%) of the outstanding
shares of FTP Common Stock and have indicated their intention to vote all of
such shares that they have the right to vote in favor of the Merger Proposal.
See "THE MERGER -- Interests of Certain Persons in the Merger."
VOTING RIGHTS; PROXIES
As of the FTP Record Date, there were 34,035,463 shares of FTP Common Stock
issued and outstanding, each of which entitles the holder thereof to one vote.
All shares of FTP Common Stock represented by properly executed proxies received
at or prior to the FTP Special Meeting that have not been properly revoked will
be voted at the FTP Special Meeting in accordance with the instructions
contained therein. IF NO INSTRUCTIONS ARE INDICATED IN THE PROXIES, SUCH SHARES
OF FTP COMMON STOCK WILL BE VOTED IN FAVOR OF THE MERGER PROPOSAL.
FTP does not know of any matters other than as described in the
accompanying Notice of the FTP Special Meeting that are to come before the FTP
Special Meeting. If any other matter or matters are properly presented for
action at the FTP Special Meeting, including, among other things, consideration
of a motion to adjourn the FTP Special Meeting to another time and/or place
(including without limitation for the purpose of soliciting additional proxies),
the persons named in the enclosed form of proxy and acting thereunder will have
the discretion to vote on such matters in accordance with their judgment, unless
such authorization is withheld.
A holder of FTP Common Stock giving a proxy pursuant to this proxy
solicitation may revoke it (i) by submitting, at any time prior to the vote on
the Merger Proposal at the FTP Special Meeting, a later dated proxy with respect
to the same shares, (ii) by delivering written notice of revocation to the Clerk
of FTP at any time prior to the FTP Special Meeting or (iii) by attending the
FTP Special Meeting and voting in
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person. Mere attendance at the FTP Special Meeting will not in and of itself
revoke a proxy. If a FTP Stockholder is not the registered direct holder of his
or her shares, such stockholder must obtain appropriate documentation from the
registered holder in order to be able to vote the shares in person.
Votes cast by proxy or in person at the FTP Special Meeting will be
tabulated by the election inspector appointed for the meeting and will determine
whether or not a quorum is present.
SOLICITATION OF PROXIES
The expenses of the respective solicitations for the NetManage and FTP
Special Meetings will be borne by NetManage and FTP, respectively; however,
NetManage and FTP have agreed to share equally the cost of filing, printing and
mailing this Joint Proxy Statement/Prospectus and the forms of proxy to the
NetManage Stockholders and the FTP Stockholders. In addition to solicitation by
mail, directors, officers and employees of FTP may solicit proxies by telephone,
telegram or otherwise. Such directors, officers and employees of FTP will not be
additionally compensated for such solicitation but may be reimbursed for
out-of-pocket expenses incurred in connection therewith. FTP will request
brokerage firms, fiduciaries and other custodians to forward copies of the
proxies and this Joint Proxy Statement/Prospectus to the beneficial owners of
shares of FTP Common Stock held of record by them and will reimburse them for
their reasonable expenses incurred in forwarding such material. FTP has retained
a proxy solicitation firm, Morrow & Company, to aid it in the solicitation
process. FTP will pay a fee of $7,000 to such firm, plus hourly fees and
expenses, with total costs anticipated to be approximately $20,000.
THE MATTERS TO BE CONSIDERED AT THE FTP SPECIAL MEETING ARE OF GREAT
IMPORTANCE TO THE FTP STOCKHOLDERS. ACCORDINGLY, THE FTP STOCKHOLDERS ARE URGED
TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS, AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE
ENCLOSED PROXY IN THE ENCLOSED POSTAGE PRE-PAID ENVELOPE. THE FTP STOCKHOLDERS
SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXIES.
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THE MERGER
This section of this Joint Proxy Statement/Prospectus, as well as the next
section of this Joint Proxy Statement/Prospectus entitled "THE REORGANIZATION
AGREEMENT," describes certain aspects of the proposed Merger. To the extent that
the following description relates to the Reorganization Agreement, or to the
other agreements described under "-- Other Agreements" below, it does not
purport to be complete and is qualified in its entirety by reference to the
Reorganization Agreement, which is attached as Annex A to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference. All stockholders
are urged to read the Reorganization Agreement.
GENERAL
The Reorganization Agreement provides for the merger of Merger Sub with and
into FTP. As a result of the Merger, Merger Sub will cease to exist, FTP will
become a wholly-owned subsidiary of NetManage, and the former stockholders of
FTP will become stockholders of NetManage. FTP will continue as the surviving
corporation of the Merger (the "Surviving Corporation") and will retain all of
its separate corporate existence, with all its purposes, objects, rights,
privileges, powers and franchises unaffected by the Merger.
The Reorganization Agreement provides that the Merger will be consummated
if the required approvals of the FTP Stockholders and the NetManage Stockholders
are obtained and all other conditions to the Merger are satisfied or waived. As
a result of the Merger, each outstanding share of FTP Common Stock (other than
shares owned by NetManage, FTP or Merger Sub and other than Dissenting Shares,
if any) and each associated right granted under the FTP Rights Agreement (other
than rights associated with Dissenting Shares) will be converted into the right
to receive 0.72767 of a share of NetManage Common Stock, subject to downward
adjustment if certain FTP financial tests are not met (as adjusted, the
"Exchange Ratio").
Based upon the outstanding shares of NetManage and FTP as of the NetManage
and FTP Record Dates, the former stockholders of FTP immediately prior to the
consummation of the Merger would own approximately 36% of the outstanding
NetManage Common Stock following consummation of the Merger.
EFFECTIVE TIME
The Merger will become effective upon the filing of Articles of Merger with
the Secretary of The Commonwealth of Massachusetts (the "Effective Time"). The
filing of the Articles of Merger will occur as soon as practicable after the
latest to occur of the approval of the Merger Proposal by the FTP Stockholders
or the approval of the Share Proposal and the Certificate Amendment Proposal by
the NetManage Stockholders, subject to the satisfaction or waiver of the other
conditions to the consummation of the Merger.
The Reorganization Agreement may be terminated under certain circumstances.
See "THE REORGANIZATION AGREEMENT -- Conditions to the Merger" and
"-- Termination."
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES
The conversion of FTP Common Stock into the right to receive NetManage
Common Stock will occur automatically at the Effective Time. As a result of the
Merger, each outstanding share of FTP Common Stock (other than shares owned by
NetManage, FTP or Merger Sub and other than Dissenting Shares, if any) and each
associated right granted under the FTP Rights Agreement (other than rights
associated with Dissenting Shares) will be converted into the right to receive a
fraction of a share of NetManage Common Stock equal to the Exchange Ratio. FTP
Stockholders will receive cash in lieu of fractional shares of NetManage Common
Stock that they would otherwise receive (after aggregating all fractional shares
of NetManage Common Stock that would otherwise be received by such holders).
As soon as practicable after the Effective Time, the Exchange Agent will
mail to the holders of certificates formerly representing shares of FTP Common
Stock a letter of transmittal in customary form, together with instructions for
effecting the surrender of such certificates in exchange for certificates
representing NetManage Common Stock. Upon surrender of certificates formerly
representing shares of FTP Common Stock to the Exchange Agent and a duly
executed letter of transmittal, the holder of such
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certificates will be entitled to receive in exchange therefor a certificate
representing the number of whole shares of NetManage Common Stock that such
holder has the right to receive and cash (without interest) in lieu of any
fractional share of NetManage Common Stock.
If any issuance of certificates representing shares of NetManage Common
Stock in exchange for certificates formerly representing shares of FTP Common
Stock is to be made to a person other than the holder in whose name such shares
are registered at the Effective Time, such certificates must be properly
endorsed or otherwise in proper form for transfer and the FTP Stockholder
requesting such issuance must establish to the satisfaction of NetManage that
any applicable transfer tax has been paid or is not payable.
After the Effective Time, there will be no further transfers of FTP Common
Stock on the stock transfer books of FTP. If a certificate formerly representing
FTP Common Stock is presented for transfer after the Effective Time, it will be
canceled and exchanged for a certificate representing the appropriate number of
full shares of NetManage Common Stock and cash in lieu of fractional shares and
any dividends and distributions with respect to NetManage Common Stock with a
record date after the Effective Time.
After the Effective Time and until surrendered, certificates formerly
representing shares of FTP Common Stock will be deemed for all corporate
purposes, other than the payment of dividends and distributions, to evidence
ownership of the number of full shares of NetManage Common Stock into which such
shares of FTP Common Stock were converted at the Effective Time. No dividends or
other distributions, if any, payable to holders of NetManage Common Stock will
be paid to the holders of any certificates for shares of FTP Common Stock until
such certificates are surrendered. Upon surrender of such certificates, all such
declared dividends and distributions which shall have become payable with
respect to NetManage Common Stock in respect of a record date after the
Effective Time will be paid to the holder of record of the shares of NetManage
Common Stock represented by the certificate issued in exchange therefor, without
interest. See "THE REORGANIZATION AGREEMENT -- Exchange of Certificates and
Merger Consideration."
FTP STOCKHOLDERS SHOULD NOT FORWARD STOCK CERTIFICATES TO THE EXCHANGE
AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL LETTERS. FTP STOCKHOLDERS SHOULD NOT
RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
BACKGROUND OF THE MERGER
During 1996 and 1997, FTP significantly realigned and restructured its
operations, divesting and disposing of non-key business units and product lines,
and re-focusing its strategies on the development, marketing, sale and support
of PC connectivity applications and actively investing in new products such as
its OnWeb and OnNet Host solutions. See "FTP MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." During this period,
FTP also determined that creating economies of scale, addressing FTP's
continuing cost structure pressures and pursuing greater opportunities for its
newer products through strategic business acquisitions or combinations were
strategic alternatives that needed to be actively explored.
After extensive evaluation of FTP's operational status and prospects after
its July 1997 restructuring, management of FTP discussed with the FTP Board, at
a meeting held on December 19, 1997, the desirability of re-examining the
strategic alternatives available to FTP, including both alternative business
strategies for continuing to operate on a stand-alone basis and the possibility
of entering into a strategic business combination, and the advisability of
retaining a financial advisor to assist FTP in such examination. In January
1998, FTP formally retained Cowen to act as FTP's financial advisor in
connection with its examination of strategic alternatives. From January 9 until
January 22, 1998, Cowen contacted seven third parties regarding the possibility
of a strategic combination, such parties having been identified by FTP with the
assistance of Cowen as being those that would most likely consider such a
transaction based on the complementary nature of their businesses. Of those
seven parties, four, including NetManage, indicated preliminary interest and a
desire for a face to face meeting. From February 10 to February 13, 1998,
members of FTP's management and representatives of Cowen met with
representatives from all four companies, two of which (including NetManage)
expressed interest in pursuing further discussions.
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Zvi Alon, Chief Executive Officer of NetManage, and Glenn C. Hazard, Chief
Executive Officer of FTP, first met to discuss a potential strategic transaction
on February 13, 1998. On February 17, 1998, Messrs. Alon and Hazard, together
with other members of management of both companies and a representative of
Cowen, held a more extensive meeting to discuss the business opportunities of
each company and the potential synergies that could result from a strategic
transaction. In addition, at this meeting, the parties reviewed each company's
current and future product offerings, potential reasons for a strategic
transaction and employee matters and financial information regarding both
companies. Management of FTP had held a similar meeting with the second
interested party on February 16, 1998. At a telephonic meeting of the FTP Board
held on February 18, 1998, FTP management updated the Board with respect to the
results of their contacts with potential strategic partners and the discussions
with the two parties interested in pursuing discussions further. The FTP Board
directed management to continue to pursue discussions with both interested
parties.
Throughout the remainder of February 1998, FTP management held a number of
discussions with both NetManage and the second interested party to explore
potential synergies and operational issues associated with a business
combination. At a meeting of the FTP Board held on February 27, 1998, FTP
management reported on the status of its discussions with the two interested
parties, and representatives of Cowen reviewed certain preliminary financial
analyses with the Board and the results of the efforts of management and Cowen
to contact potential partners for a strategic combination. After discussing such
reports, the FTP Board directed management to continue discussions with both
NetManage and the second interested party.
Throughout the month of March 1998, FTP's management participated in
negotiations and due diligence with the second interested party regarding a
possible business combination. Those negotiations were terminated by the other
party on March 30, 1998. Later that day, Mr. Hazard contacted Mr. Alon to
continue discussions about a possible business combination with NetManage. At a
meeting of the FTP Board held on April 1, 1998, FTP's management apprised the
Board that the negotiations with the second interested party had been terminated
and that management was continuing discussions with NetManage. The FTP Board
directed management to continue discussions with NetManage regarding a possible
business combination with that company.
On April 2, 1998, meetings were held in Cupertino among Messrs. Alon and
Hazard, Gary Anderson, Senior Vice President and Chief Financial Officer of
NetManage, and James A. Tholen, Senior Vice President, Chief Operating Officer
and Chief Financial Officer of FTP. At this meeting, the parties discussed
valuation methods for FTP and potential valuations. The parties followed up with
meetings on April 7 and 8, 1998, in Cupertino, at which potential transaction
structures were discussed and accounting consequences were reviewed. At this
meeting, representatives of Cowen were also present.
At a meeting of the FTP Board held on April 10, 1998, FTP management
updated the Board regarding the status of discussions with NetManage, and
discussed with the Board the possible synergies associated with a potential
combination with NetManage, following which the Board authorized management to
continue such discussions further.
On April 16, 1998, members of management of both companies held a meeting
in Cupertino to further discuss potential synergies that could result from a
strategic transaction. Also at this meeting, the parties shared additional
financial data and information regarding personnel, major customers and other
legal and business matters. Discussions continued in San Francisco, California
on April 19 and 20, 1998. Following these meetings, FTP and NetManage entered
into a nonsolicitation agreement dated as of April 22, 1998 pursuant to which
FTP agreed not to solicit or engage in negotiations with other parties regarding
a potential business combination for a period of one month.
At a meeting of the FTP Board held on April 28, 1998, FTP management
reviewed with the FTP Board FTP's operational status, strategies and prospects
and made a presentation to the Board on the considerations regarding a business
combination with NetManage versus other strategic alternatives. Also present at
the meeting were representatives from Cowen, who reviewed with the FTP Board
certain preliminary financial analyses with respect to the possible business
combination, and outside legal counsel to FTP. The FTP Board directed management
to continue the negotiations with NetManage regarding the financial terms of the
potential transaction.
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The parties met again on April 29 and 30, 1998 in San Francisco, at which
meeting management of each company continued to review the benefits and
potential risks of the proposed Merger. The parties at this time discussed
issues relating to a draft reorganization agreement.
The NetManage Board held a special meeting on May 7, 1998 for the purpose
of discussing the proposed transaction. NetManage management and legal counsel
also attended the meeting and gave presentations to the NetManage Board.
On May 13, 1998, a meeting was held in San Francisco between senior
management of NetManage and FTP at which the financial terms of the potential
transaction were discussed. The parties held a meeting the next day that
included legal representatives of each party at which specific issues concerning
the terms of the reorganization agreement were discussed. Following those
meetings, from May 13, 1998 through June 12, 1998, representatives of NetManage
and FTP held various meetings by telephone conference call to discuss definitive
agreement issues.
At a meeting of the FTP Board held on June 10, 1998, members of FTP
management reviewed with the Board and outside legal counsel to FTP the actual
year-to-date and anticipated business results for FTP for 1998, the business and
strategic position of FTP and the available strategic alternatives for FTP,
including the potential merger with NetManage, the principal terms of the
Merger, the possible risks, benefits and synergies associated with the Merger
and the results of their due diligence investigations. Representatives of Cowen
made a presentation regarding certain financial and valuation analyses relating
to the proposed Merger. The FTP Board met again on June 11, 1998, at which time
FTP management and outside counsel to FTP reviewed with the FTP Board the final
principal terms of the Reorganization Agreement, and representatives of Cowen,
participating by telephone, orally delivered Cowen's opinion to the Board,
subsequently confirmed in writing, that, as of June 12, 1998 and based upon and
subject to certain matters stated in such opinion, the financial terms of the
Merger were fair, from a financial point of view, to the holders of the FTP
Common Stock. After consideration of the presentations delivered on that and the
previous day and other factors, the FTP Board unanimously approved the
Reorganization Agreement and the Merger, concluding that the Merger was fair to
and in the best interests of FTP and its stockholders.
On June 12, 1998, NetManage's Board held a special meeting at which the
terms of the Reorganization Agreement as negotiated to date were discussed at
length. Members of NetManage's senior management, legal counsel and CIBC
Oppenheimer, financial advisor to NetManage, discussed various aspects of the
proposed transaction. In particular, CIBC Oppenheimer reviewed with the
NetManage Board the financial analyses described under "-- Opinion of NetManage
Financial Advisor." After these discussions, CIBC Oppenheimer rendered its oral
opinion, subsequently confirmed in writing, to the effect that, as of June 12,
1998 and based upon and subject to certain matters stated in such opinion, the
Exchange Ratio was fair, from a financial point of view, to the existing holders
of NetManage Common Stock. The NetManage Board then voted unanimously (i) to
approve, subject to resolution of certain due diligence and transaction issues,
the issuance of shares of NetManage Common Stock to FTP Stockholders in the
Merger, the Reorganization Agreement, the Certificate Amendment and related
documents to the transaction as presented to them and (ii) to recommend that the
NetManage stockholders vote to approve the Share Proposal and the Certificate
Amendment Proposal. A subsequent NetManage Board meeting was held on June 14,
1998, at which management of NetManage and its legal counsel updated the Board
on the status of the transactions. The NetManage Board authorized management to
proceed with executing the definitive Reorganization Agreement.
The Reorganization Agreement was executed by all parties on June 15, 1998
and a joint public announcement of the proposed transaction was made on such
date. The Reorganization Agreement was subsequently amended on June 30, 1998 and
July 14, 1998.
RECOMMENDATION OF THE NETMANAGE BOARD; REASONS FOR THE MERGER
The NetManage Board has unanimously determined that the terms of the
Reorganization Agreement and the Merger are fair to, and in the best interests
of, the NetManage Stockholders. Accordingly, the NetManage Board has unanimously
approved the Reorganization Agreement, the Merger and the Certificate
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Amendment Proposal and unanimously recommends that the NetManage Stockholders
vote FOR approval of the Share Proposal and the Certificate Amendment Proposal.
In reaching its determination, the NetManage Board consulted with NetManage's
management, as well as its legal counsel, accountants and financial advisor, and
gave significant consideration to a number of factors bearing on its decision.
The following are reasons the NetManage Board believes the Merger will be
beneficial to NetManage and its stockholders:
- The Merger would help broaden NetManage's product and service offerings
for new and existing enterprise customers by adding additional UNIX
connectivity and host connectivity products to NetManage's product line.
By expanding its product line, NetManage expects to serve as a single
source supplier of advanced PC and Web-based connectivity solutions.
- The Merger could result in cost savings through the integration of the
respective companies' operations.
- The Merger could enhance NetManage's ability to implement a strategy of
growth through acquisition, as well as to develop and acquire
technologies, by making available the business and financial resources of
a larger combined business enterprise.
- As a result of FTP's current sales channels, NetManage would enhance its
domestic and international distribution capabilities including resellers,
OEMs and indirect, telesales and direct sales forces.
- The Merger would increase NetManage's customer base.
- The NetManage Board believes that there is a significant potential
enhancement of the strategic and market position of the combined entity
beyond that achievable by NetManage alone.
In addition to the reasons set forth above, in the course of its
deliberations concerning the Merger, the NetManage Board consulted with
NetManage's legal and financial advisors as well as NetManage's management, and
reviewed a number of other factors relevant to the Merger, including:
- Information concerning the business, assets, operations, properties,
management, financial condition, operating results, competitive position
and prospects of NetManage and FTP;
- The historical market prices and trading information with respect to the
NetManage Common Stock and the FTP Common Stock;
- The expected tax and accounting treatment of the Merger;
- Reports from legal and financial advisors on specific terms of the
Reorganization Agreement; and
- The opinion of CIBC Oppenheimer dated June 12, 1998 to the effect that,
as of such date and based upon and subject to certain matters set forth
therein, the Exchange Ratio was fair, from a financial point of view, to
the existing holders of NetManage Common Stock.
The NetManage Board also considered a number of potentially negative
factors in its deliberations concerning the Merger, including:
- The possibility of management disruption associated with the Merger and
the risk that key technical and management personnel of FTP might not
continue with FTP or NetManage;
- The potential short term negative impact on NetManage's financial
performance;
- The possibility that the Merger might adversely affect FTP's or
NetManage's relationships with certain of its customers both during the
pendency and following completion of the Merger and in the event the
Merger is not consummated; and
- The risk that the potential benefits of the Merger might not be realized.
The NetManage Board concluded, however, that the benefits of the
transaction to NetManage and its stockholders outweighed the risks associated
with the foregoing factors.
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The foregoing discussion of the information and factors considered by the
NetManage Board is not intended to be exhaustive but is believed to include all
material factors considered by the NetManage Board. In view of the wide variety
of information and factors, both positive and negative, considered, the
NetManage Board did not find it practical to, and did not, quantify or otherwise
assign any relative or specific weights to the foregoing factors, and individual
directors may have given differing weights to different factors.
RECOMMENDATION OF THE FTP BOARD; REASONS FOR THE MERGER
The FTP Board has unanimously determined that the terms of the
Reorganization Agreement and the Merger are fair to, and in the best interests
of, FTP and its stockholders. Accordingly, the FTP Board has unanimously
approved the Merger and the Reorganization Agreement and unanimously recommends
that the FTP Stockholders vote FOR the Merger Proposal. In reaching its
determination, the FTP Board consulted with FTP's management, as well as its
legal counsel and financial advisor, and gave significant consideration to a
number of factors bearing on its decision.
The following are reasons that the FTP Board believes the Merger will be
beneficial to FTP and its stockholders.
- By combining with NetManage, FTP believes its ability to exploit the
market opportunities for its OnWeb and OnNet for multi-user NT product
families is significantly enhanced as a result of the availability of the
financial and operational resources of a larger combined company to
invest in the development, marketing and sale of such products.
- The Merger is expected to enable the combined company to offer a broad
range of solutions in the IP, SNA and Web-to-host applications market
segments, and to expand the market presence for FTP's products. The
combined company would have the potential to address customers' desires
for a single source supplier for these key applications.
- The ability to leverage NetManage's current North American sales
channels, including its resellers, OEMs and indirect, telesales and
direct sales forces, would help achieve a more balanced and productive
sales model for FTP's products.
- The integration of both companies' OEM businesses would position the
combined company to provide a market leading OEM supplier business,
providing IP-, SNA- and Web-based technologies and products to key
technology partners worldwide.
- The Merger would provide the combined company with the ability to
implement a strategy of growth through acquisition, as well as to develop
and acquire technologies, by making available the business and financial
resources of a larger combined business enterprise.
- The Merger would result in significant economies of scale and assist in
addressing cost structure pressures facing FTP, particularly in the
general and administrative and sales and marketing expense areas.
- The Merger would increase the potential for enhanced liquidity for FTP
Stockholders through their ownership of NetManage Common Stock, due to
NetManage's greater market capitalization.
The FTP Board also reviewed and considered the strategic alternatives for
FTP in the absence of the Merger and the effect that pursuing such alternatives
separately would likely have on FTP. Those alternatives included: "stand-alone"
strategies of either incrementally reducing costs in order to address overall
cost structure pressures facing FTP or substantially reducing the size of FTP's
organization to concentrate on the OnWeb Web-to-host and multi-user NT market
opportunities; and pursuing business combinations or strategic relationships
with other industry participants. The stand-alone strategies were not pursued
because the FTP Board believed that the Merger would offer a higher likelihood
of success and greater potential appreciation than continuing on a stand-alone
basis. Strategic business combinations or other relationships with third parties
were not further pursued because FTP believed it was unlikely that it would
locate other potential business partners based on its inquiries described above
under "-- Background of the Merger."
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In the course of its deliberations, the FTP Board reviewed with FTP's
management, as well as FTP's legal and financial advisors, a number of
additional factors relevant to the Merger, including, among other things:
- information concerning NetManage's and FTP's respective businesses,
prospects, historical financial performances and conditions, operations,
technologies, product mixes, customer mixes and future product
development plans;
- the comparative historical market prices, volatility and trading
information with respect to the FTP Common Stock and the NetManage Common
Stock;
- the consideration to be received by the FTP Stockholders in the Merger
and the relationship between the market value of the shares of NetManage
Common Stock to be issued in exchange for the FTP Common Stock and the
market value of the FTP Common Stock;
- a comparison of comparable merger transactions;
- the terms of the Reorganization Agreement regarding FTP's right to
consider and negotiate other acquisition proposals in certain
circumstances as well as the possible effects of the termination fee of
$3.1 million that would be payable by FTP to NetManage in the event of
certain terminations of the Reorganization Agreement (see "THE
REORGANIZATION AGREEMENT -- Termination Fees");
- an analysis of the relative value that FTP might contribute to the future
business and prospects of the combined company;
- the expected tax and accounting treatment of the Merger;
- reports from FTP's management, accountants and legal advisors as to the
results of their due diligence investigations of NetManage; and
- the opinion of Cowen that, as of June 12, 1998 and based upon and subject
to certain matters stated in such opinion, the financial terms of the
Merger are fair to the FTP Stockholders from a financial point of view
and Cowen's presentations of its financial analyses underlying such
opinion.
The FTP Board also considered a variety of potentially negative factors in
its deliberations concerning the Merger, including, among other things:
- the potential loss of revenues to FTP and to the combined company as a
result of confusion in the marketplace and the time required to
consummate the Merger, and the possible exploitation of such confusion
and timing by competitors of FTP and the combined company;
- the possibility of management disruption associated with the Merger and
the risk that, despite the efforts of the combined company, the combined
company may not be able to retain key technical, sales and management
personnel of FTP or NetManage;
- the substantial accounting charges and related cash requirements expected
to be incurred in connection with the Merger;
- the risk that the combined company's ability to increase or maintain
revenue might be diminished by product transitions, loss of personnel or
other factors resulting from the Merger;
- the risk that the benefits sought to be achieved by the Merger would not
be achieved;
- the risk that the litigation against NetManage described under "RISK
FACTORS -- Risks Relating to NetManage, FTP and the Combined
Company -- Litigation" could be resolved adversely; and
- other risks described above under "RISK FACTORS."
In view of the wide variety of factors, both positive and negative,
considered by the FTP Board, the FTP Board did not find it practical to, and did
not, quantify or otherwise assign relative weights to the specific factors
considered. After taking into consideration all of the factors set forth above,
the FTP Board unanimously determined that the Merger is fair to and in the best
interests of FTP and its stockholders.
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OPINION OF NETMANAGE'S FINANCIAL ADVISOR
NetManage retained CIBC Oppenheimer to render a fairness opinion to the
NetManage Board in connection with the Merger. On June 12, 1998, CIBC
Oppenheimer delivered its written opinion to the NetManage Board that, as of the
date of such opinion and based upon and subject to certain matters set forth
therein, the Exchange Ratio was fair, from a financial point of view, to the
existing holders of NetManage Common Stock.
THE FULL TEXT OF THE WRITTEN OPINION OF CIBC OPPENHEIMER, WHICH SETS FORTH
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITS OF ITS
REVIEW, IS ATTACHED HERETO AS ANNEX B-1 AND IS INCORPORATED HEREIN BY REFERENCE.
CIBC OPPENHEIMER'S OPINION WAS PREPARED FOR THE NETMANAGE BOARD AND ADDRESSES
ONLY THE FAIRNESS OF THE EXCHANGE RATIO, FROM A FINANCIAL POINT OF VIEW, TO THE
EXISTING HOLDERS OF NETMANAGE COMMON STOCK AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER OF NETMANAGE AS TO HOW SUCH STOCKHOLDER SHOULD
VOTE AT THE NETMANAGE SPECIAL MEETING. CIBC OPPENHEIMER WAS NOT REQUESTED TO AND
DID NOT MAKE ANY RECOMMENDATION TO THE NETMANAGE BOARD AS TO THE FORM OR AMOUNT
OF CONSIDERATION TO BE PAID IN THE MERGER, WHICH WAS DETERMINED THROUGH ARMS'
LENGTH NEGOTIATIONS BETWEEN NETMANAGE AND FTP. CIBC OPPENHEIMER'S OPINION DOES
NOT CONSTITUTE AN OPINION AS TO THE PRICE AT WHICH NETMANAGE COMMON STOCK WILL
ACTUALLY TRADE AT ANY TIME. THE SUMMARY OF CIBC OPPENHEIMER'S OPINION SET FORTH
IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION. NETMANAGE STOCKHOLDERS ARE URGED TO,
AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY.
In connection with its opinion, CIBC Oppenheimer reviewed, among other
things, (i) a draft of the Reorganization Agreement, (ii) the Annual Report on
Form 10-K of NetManage for the fiscal year ended December 31, 1997, (iii) the
Proxy Statement, for NetManage, dated April 9, 1998, (iv) the Annual Report on
Form 10-K of FTP for the fiscal year ended December 31, 1997, (v) the Proxy
Statement, for FTP, dated April 27, 1998, (vi) certain other communications from
NetManage and FTP, (vii) certain interim reports to stockholders and Quarterly
Reports on Form 10-Q of FTP and NetManage, and (viii) certain internal financial
analyses and forecasts for NetManage and FTP prepared by their respective
managements. CIBC Oppenheimer also held discussions with members of the senior
managements of NetManage and FTP regarding the past and current business
operations, financial condition and future prospects of their respective
companies and the strategic implications and operational benefits anticipated to
result from the Merger. In addition, CIBC Oppenheimer reviewed the reported
price and trading activity for the shares of NetManage and FTP, compared certain
financial and stock market information for NetManage and FTP with similar
information for certain other companies the securities of which are publicly
traded, reviewed the financial terms of certain recent business combinations in
the PC connectivity industry and performed such other studies and analyses as it
considered appropriate including an assessment of general economic, market and
monetary conditions.
CIBC Oppenheimer relied without independent verification upon the accuracy
and completeness of all the financial and other information reviewed by CIBC
Oppenheimer for purposes of its opinion. With respect to financial forecasts and
other information as provided or otherwise discussed, CIBC Oppenheimer assumed,
at the direction of NetManage and of FTP, that such forecasts and other
information were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the managements of NetManage and of FTP as
to the expected future financial performance of NetManage and of FTP. CIBC
Oppenheimer has not made or been provided with an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of NetManage or
of FTP nor did CIBC Oppenheimer make a physical inspection of all of the
properties or assets of NetManage or FTP. CIBC Oppenheimer also assumed, with
the consent of NetManage, that the Merger will be accounted for as a "pooling of
interests" under generally accepted accounting principles. CIBC Oppenheimer's
opinion is based upon financial conditions, stock market and other conditions
and circumstances existing and disclosed as of the date of its opinion, and on
the information made available to CIBC Oppenheimer by NetManage and FTP as of
such date, and on the review and analyses conducted by CIBC Oppenheimer as of
such date, and CIBC Oppenheimer does not have any obligation to update, revise
or affirm its opinion.
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The following is a summary of the significant financial analyses used by
CIBC Oppenheimer in connection with providing its written opinion to NetManage's
Board on June 12, 1998, attached hereto as Annex B-1.
COMPARABLE COMPANY ANALYSIS. Using publicly available information, CIBC
Oppenheimer compared certain financial data and multiples of income statement
parameters of certain other publicly traded companies deemed to be generally
comparable to FTP and NetManage. Such companies (the "Comparable Companies")
were used in this analysis because they were deemed by CIBC Oppenheimer to
operate in the same general industry sector (PC connectivity) as NetManage and
FTP. Financial data compared included, among other things, market
capitalization, enterprise value (defined as market capitalization plus debt
less excess cash), sales, earnings before interest and taxes ("EBIT" or
"Operating Income"), net income, earnings per share ("EPS"), gross margin, EBIT
margin, historical sales and EPS growth and projected EPS and EPS growth rates.
Multiples compared included enterprise value to sales, enterprise value to EBIT,
and price per share to actual and projected EPS. Projected EPS for the
Comparable Companies were based upon the consensus published estimates of
securities analysts, while the projected EPS for NetManage and FTP were based
upon estimates from the managements of NetManage and FTP.
The Comparable Companies used by CIBC Oppenheimer in its analysis were
NetManage, Computer Network Technology Corporation, Hummingbird Communications
Ltd., Network Computing Devices, Inc., Simware, Inc. and Wall Data Incorporated.
Such analysis indicated that the Comparable Companies traded in (i) a range
of 0.4x to 2.5x (with an average value of 1.4x) of enterprise value to sales for
the trailing 12 months ("TTM") ended March 31, 1998 (TTM period ending January
31, 1998 in the case of Simware, Inc.), (ii) a range of 0.3x to 2.1x (with an
average value of 1.2x) of enterprise value to sales for the projected 1998
calendar year, and (iii) a range of 11.7x to 52.1x (with an average value of
23.8x) of price per share to projected calendar year 1998 EPS. Based upon
historical and projected financial results for FTP, the above analyses resulted
in a range of values of $2.18 to $3.17 per share for FTP. CIBC Oppenheimer noted
that the price per share for FTP contemplated by the Exchange Ratio of 0.72767
was within this range of values.
Although CIBC Oppenheimer used the Comparable Companies for comparison
purposes, none of such companies is identical to NetManage or FTP. Accordingly,
an analysis of the results of the foregoing necessarily involves complex
considerations and judgments concerning differences in financing and operating
characteristics of the Comparable Companies, NetManage and FTP and other factors
that could affect the public trading value of the Comparable Companies.
Mathematical analysis such as determining the average is not in itself a
meaningful method of using Comparable Company data.
COMPARABLE TRANSACTION ANALYSIS. CIBC Oppenheimer analyzed the multiples of
certain income statement parameters implied by the consideration paid in nine
completed merger and acquisition transactions since August 1993 involving
companies deemed by CIBC Oppenheimer to operate in the same general industry
sector as FTP. To the extent information was publicly available for these
transactions, multiples analyzed included equity value (defined as the total
price paid for all equity securities of a company) to either TTM or the most
recent fiscal year results for net income. In addition, multiples were also
analyzed based on enterprise value (defined as transaction value plus debt less
excess cash) to either the most recent fiscal year or TTM results for sales,
EBIT and earnings before interest, taxes, depreciation and amortization
("EBITDA"). The transactions analyzed included the following companies
(target/acquirer): Apertus Technologies Incorporated/Computer Network Technology
Corporation; Network Software Associates, Inc. ("NetSoft")/NetManage; Vertisoft
Systems, Inc./Quarterdeck Corporation; Limbex Corporation/ Quarterdeck
Corporation; TGV Software, Inc./Cisco Systems, Inc.; Datastorm Technologies,
Inc./ Quarterdeck Corporation; Beame & Whiteside Software Inc./Hummingbird
Communications Ltd.; Brixton Systems, Inc./Computer Network Technology
Corporation; and Capella Systems, Inc./Wall Data Incorporated.
Apertus, NetSoft, TGV and Beame & Whiteside were deemed the most comparable
transactions to the FTP/NetManage Merger contemplated herein and as such were
assigned to a selected company grouping which was given the most weight in the
Comparable Transaction Analysis. Such analysis, based on the
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selected company grouping TTM performance results (most recent fiscal year end
in the case of Beame & Whiteside) indicated transaction multiples in (i) a range
of 0.6x to 3.1x (with an average value of 1.7x) of enterprise value to sales,
(ii) a range of 10.1x to 18.8x (with an average value of 14.5x) of enterprise
value to TTM EBITDA, (iii) a range of 18.1x to 26.5x (with an average value of
22.3x) of enterprise value to TTM EBIT, and (iv) a range of 26.3x to 40.2x (with
an average value 33.3x) of equity value to TTM net income. The above analyses
resulted in a range of values of $2.24 to $3.92 per share for FTP. CIBC
Oppenheimer noted that the price per share for FTP contemplated by the Exchange
Ratio was below this range of values.
No company or transaction used in the analysis described above was directly
comparable to FTP or the proposed transaction. Accordingly, the analysis of the
results of the foregoing involved complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies and other factors that could affect the acquisition value of the
companies to which FTP is being compared. Mathematical analysis such as
determining the average is not in itself a meaningful method of using Comparable
Transaction data.
DISCOUNTED CASH FLOW ANALYSIS. CIBC Oppenheimer performed discounted cash
flow analyses of the projected after-tax cash flows of FTP on a stand-alone
basis for the years of 1998 through 2002. In performing these discounted cash
flow analyses, the stream of projected after-tax FTP cash flows were discounted
back to June 30, 1998 using discount rates between 20% and 30%. To estimate the
terminal value of FTP, CIBC Oppenheimer applied terminal multiples of between
0.75x and 1.25x TTM revenues at the end of calendar year 2002, and discounted
such terminal values back to June 30, 1998, at the same discount rates described
above. As part of its analysis CIBC Oppenheimer considered: FTP's current net
cash balances and shares and options outstanding and relied on internal
projections of future earnings developed by FTP's management for the fiscal
years ending December 31, 1998 and 1999; working capital assumptions and capital
requirements based upon historical ratios, business growth rates and FTP's
management's input; and extrapolations, based on input from FTP's management, of
those projections for the fiscal years ending December 31, 2000, 2001 and 2002.
The above analysis was used to determine a range of values per share of $2.13 to
$2.70 for FTP. CIBC Oppenheimer noted that the price contemplated by the
Exchange Ratio was within this range of values.
COMMON STOCK TRADING HISTORY AND RATIO ANALYSIS. CIBC Oppenheimer reviewed
the trading activity, including prices and volume of the FTP Common Stock and
the NetManage Common Stock for certain periods since each company's initial
public offering. With respect to FTP, CIBC Oppenheimer noted that, over the 12
months prior to June 10, 1998, its high stock trading price was $5.44 and its
low stock trading price was $1.56. CIBC Oppenheimer also noted that in the
one-month period prior to June 10, 1998, FTP's average daily closing stock price
was $2.64. With respect to NetManage, CIBC Oppenheimer noted that over the last
year its high stock trading price was $4.94 and its low stock trading price was
$2.19. CIBC Oppenheimer also noted that in the one-month period prior to June
10, 1998, NetManage's average daily closing stock price was $3.42. In addition,
CIBC Oppenheimer compared the relative performance of the FTP Common Stock and
NetManage Common Stock with the performance of the Nasdaq Composite Index over
the last 12 months and over the last six months prior to June 10, 1998.
CIBC Oppenheimer also computed the average ratio of the daily closing stock
price per share of FTP Common Stock to the daily closing stock price per share
of NetManage Common Stock. This analysis indicated that the average ratio of FTP
Common Stock to the daily closing stock price per share of NetManage Common
Stock was 0.7818, 0.7991 and 0.7566 over the periods of 30 days, 90 days and 180
days respectively, prior to June 10, 1998. The Exchange Ratio of 0.72767
represents a discount of 6.92%, 8.94% and 3.83%, respectively, to these ratios.
VALUATION OF NETMANAGE. CIBC Oppenheimer analyzed the relative valuation of
NetManage versus the group of Comparable Companies described above (excluding
NetManage) and FTP and completed a discounted cash flow analysis using similar
methodologies and assumptions as previously described for FTP. Based upon
historical and projected financial results developed with input and in
conjunction with NetManage's management, the above analyses resulted in a range
of values of $2.56 to $3.33 per share for NetManage on a stand-alone basis. CIBC
Oppenheimer noted that $3.03, the closing price for NetManage Common Stock on
June 10, 1998, was within this range of values.
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PRO FORMA TRANSACTION AND CONTRIBUTION ANALYSIS. CIBC Oppenheimer also
analyzed certain pro forma financial information of the combined company
resulting from the Merger. This analysis was based upon the aforementioned
internal financial analyses and forecasts for NetManage and FTP as stand-alone
entities and adjustments developed by the management of FTP and NetManage for
revenue reductions and cost savings that might be realized as a result of the
integration of FTP's operations into NetManage's organization. Based upon
NetManage's closing stock price of $3.03 on June 10, 1998, such analyses
indicated that as compared to the estimated EPS of NetManage as a stand-alone
entity the EPS for the pro forma combined company would increase by 107.9% in
calendar year 1999 (the first full year of operations as a combined entity) and
decrease by 64.4% (excluding non-recurring charges) in calendar year 1998.
CIBC Oppenheimer also reviewed certain historical and projected financial
results, selected balance sheet items and certain market valuation measures to
assess the respective contributions of NetManage and FTP to the combined
company. Such analysis indicated that assuming no cost savings or revenue
adjustments were realized, FTP would contribute approximately (i) 40.2% and
41.2% of estimated pro forma sales of the combined company in 1998 and 1999,
respectively, (ii) 35.6% of estimated pro forma net income of the combined
company in calendar year 1999, (iii) 35.1% of the equity value based on the FTP
and NetManage stock prices on June 10, 1998 and (iv) 42.3% of stockholders'
equity. The above pro forma contributions by FTP to the combined company's
projected operating results compare favorably to the approximately 36% ownership
position that the current holders of the FTP Common Stock are anticipated to
have in the combined company pursuant to the Merger.
CIBC Oppenheimer also completed a discounted cash flow analysis for the pro
forma combined company based upon the aforementioned internal financial analyses
and forecasts for NetManage and FTP as stand-alone entities and adjustments
developed by the managements of FTP and NetManage for revenue reductions and
cost savings that might be realized as a result of the integration of FTP's
operations into NetManage's organization. CIBC Oppenheimer used these adjusted
financials to determine the projected after-tax cash flows of the combined
entity for each of the years from 1998 through 2002. These projected after-tax
cash flows were used in the discounted cash flow analysis and were discounted
back to June 30, 1998 using discount rates between 20% and 30%. To estimate the
terminal values of the combined entity, CIBC Oppenheimer applied terminal
multiples of between 1.0x and 2.0x TTM revenue at the end of calendar year 2002,
and discounted such terminal values back to June 30, 1998, at the same discount
rates described above. The above analysis was used to determine a range of
values per share of $4.37 to $5.67 for the combined entity. These values
represent premiums over the NetManage stock price of $3.03 as of June 10, 1998
of 44.2% and 87.1%, respectively.
The summary set forth above describes the principal elements of CIBC
Oppenheimer's analyses but does not purport to be a complete description of the
analyses performed by CIBC Oppenheimer. The preparation of a fairness opinion is
a complex analytical process and involves various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
these methods to the particular circumstances and, therefore, an opinion is not
necessarily susceptible to partial analysis or summary description. The
preparation of a fairness opinion does not involve a mathematical evaluation or
weighting of the results of individual analyses performed, but requires CIBC
Oppenheimer to exercise its professional judgment in considering a wide variety
of analyses taken as a whole. CIBC Oppenheimer did not form a conclusion as to
whether any individual analysis, considered in isolation, supported or failed to
support its fairness determination. Rather, in arriving at its determination,
CIBC Oppenheimer considered each analysis in light of the other analyses and
ultimately reached its opinion based on the results of all analyses taken as a
whole. Each of the analyses performed by CIBC Oppenheimer was carried out in
order to provide a different perspective on the transaction and add to the total
mix of information available. Accordingly, notwithstanding the separate factors
summarized above, CIBC Oppenheimer's analyses should be considered as a whole
and selecting portions of the analyses or of the summary set forth above,
without considering the analysis as a whole, could create a misleading or
incomplete view of processes underlying CIBC Oppenheimer's opinion. No company
or transaction used in the above analysis for comparison is identical to FTP or
NetManage or the contemplated transaction and, accordingly, an analysis of the
results of the foregoing is not purely quantitative. The analyses were prepared
solely for purposes of CIBC Oppenheimer's providing its opinion as to the
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fairness, from a financial point of view, of the Exchange Ratio to the existing
holders of NetManage Common Stock and do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities actually may be
sold. In its analyses, CIBC Oppenheimer made numerous assumptions with respect
to FTP, NetManage, industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
NetManage and FTP. Analyses based upon forecasts of future results are not
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
NetManage, FTP or CIBC Oppenheimer or any other person assumes responsibility if
future results are materially different from those forecast. As described above,
CIBC Oppenheimer's opinion to the NetManage Board was one of many factors taken
into consideration by the NetManage Board in making its determination to approve
the Reorganization Agreement and should not be considered as determinative of
such decision. The foregoing summary does not purport to be a complete
description of the analysis performed by CIBC Oppenheimer and is qualified by
reference to the written opinion of CIBC Oppenheimer set forth in Annex B-1
hereto.
CIBC Oppenheimer, 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 corporate and other purposes. NetManage selected
CIBC Oppenheimer as its financial advisor because it is an internationally
recognized investment banking firm that has substantial experience in
transactions similar to the Merger and its familiarity with NetManage and FTP.
In the ordinary course of business, CIBC Oppenheimer and its affiliates may
actively trade the securities of NetManage and FTP for their own account or for
the account of customers, and accordingly, may at any time hold a long or short
position in such securities. CIBC Oppenheimer has performed investment banking
services for NetManage in the past and has received customary compensation for
such services.
Pursuant to a letter agreement dated May 8, 1998 (the "CIBC Oppenheimer
Engagement Letter"), NetManage engaged CIBC Oppenheimer to render certain
financial advisory and investment banking services in connection with a proposed
transaction with FTP. Pursuant to the terms of the CIBC Oppenheimer Engagement
Letter, NetManage agreed to pay CIBC Oppenheimer a fee of $200,000 upon delivery
of its written opinion to the NetManage Board and to reimburse CIBC Oppenheimer
for its out-of-pocket expenses (including fees and expenses of its counsel)
incurred in connection with its engagement. Such fee was not conditioned on the
outcome of CIBC Oppenheimer's opinion or whether or not such opinion was deemed
to be favorable. In addition, NetManage has agreed to indemnify CIBC Oppenheimer
against certain liabilities, including liabilities under the federal securities
laws, relating to or arising out of its services in connection with the proposed
transaction with FTP.
OPINION OF FTP'S FINANCIAL ADVISOR
Pursuant to an engagement letter dated January 12, 1998 (the "Cowen
Engagement Letter"), the Board of Directors of FTP retained Cowen to act as
FTP's financial advisor in connection with FTP's examination of strategic
alternatives. As part of this assignment, Cowen was asked to render an opinion
to the FTP Board as to the fairness, from a financial point of view, to the
holders of the FTP Common Stock of the financial terms of the Merger. The FTP
Board selected Cowen to act as FTP's financial advisor, and to render an opinion
to the Board, because Cowen is a nationally recognized investment banking firm
and because certain principals of Cowen have substantial experience in
transactions similar to the Merger and are familiar with FTP and its businesses.
As part of its investment banking business, Cowen is regularly engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions and valuations for corporate and other purposes.
On June 10, 1998, Cowen delivered certain of its written analyses and on
June 12, 1998 delivered its written opinion to the FTP Board to the effect that,
as of June 12, 1998 and based upon and subject to certain matters stated in such
opinion, the financial terms of the Merger pursuant to the Reorganization
Agreement were fair, from a financial point of view, to the holders of the FTP
Common Stock. THE FULL TEXT OF COWEN'S
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WRITTEN OPINION DATED JUNE 12, 1998 IS ATTACHED HERETO AS ANNEX B-2 AND IS
INCORPORATED HEREIN BY REFERENCE. HOLDERS OF THE FTP COMMON STOCK ARE URGED TO
READ THE OPINION IN ITS ENTIRETY FOR THE ASSUMPTIONS MADE, THE PROCEDURES
FOLLOWED, OTHER MATTERS CONSIDERED AND THE LIMITS OF THE REVIEW BY COWEN. THE
FOLLOWING SUMMARY OF THE WRITTEN OPINION OF COWEN IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. COWEN'S ANALYSES AND OPINION WERE
PREPARED FOR AND ADDRESSED TO THE FTP BOARD OF DIRECTORS AND ARE DIRECTED ONLY
TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE FINANCIAL TERMS OF THE
MERGER TO THE HOLDERS OF THE FTP COMMON STOCK AND DO NOT CONSTITUTE AN OPINION
AS TO THE MERITS OF THE MERGER OR A RECOMMENDATION TO ANY HOLDERS OF THE FTP
COMMON STOCK AS TO HOW TO VOTE ON THE MERGER.
In arriving at its opinion, Cowen (a) reviewed certain information of a
business and financial nature regarding FTP, furnished to Cowen by management of
FTP, including consolidated financial statements for the years ended December
31, 1995, 1996 and 1997 and the quarter ended March 31, 1998 and certain
projected financial data and operating data, (b) reviewed NetManage's
consolidated financial statements for the years ended December 31, 1995, 1996
and 1997 and the quarter ended March 31, 1998 and certain projected financial
data and operating data furnished to Cowen by management of NetManage, (c)
reviewed certain publicly available filings of FTP and NetManage with the
Commission, (d) discussed with FTP's management FTP's competitive position,
current and anticipated future conditions in the connectivity software industry
and the potential strategic synergies of the combination with NetManage and (e)
held meetings and discussions with representatives of management of FTP and of
NetManage to discuss the business, operations, historical financial results and
future prospects of FTP, NetManage and the combined company. In addition, Cowen
(i) reviewed the June 9, 1998 draft of the Reorganization Agreement, (ii)
compared certain financial and stock market information regarding FTP and
NetManage with similar information regarding certain other companies Cowen
deemed relevant, (iii) considered the financial terms, to the extent publicly
available, of selected recent business transactions deemed to be comparable in
whole or in part to the Merger, (iv) analyzed the potential pro forma financial
effects of the Merger for the years ending December 31, 1998 and 1999, (v)
reviewed historical market prices and trading volumes of the FTP Common Stock
and the NetManage Common Stock from June 9, 1997 to June 9, 1998, (vi) compared
the trading histories of the FTP Common Stock and the NetManage Common Stock
with the Nasdaq composite from December 9, 1997 to June 9, 1998, (vii) performed
a discounted future cash flow valuation of FTP based on projections provided by
FTP's management and (viii) compared FTP's contribution to the revenues of the
combined company relative to the pro forma ownership percentage of the holders
of the FTP Common Stock in the combined company. Cowen also reviewed other
publicly available information and conducted such other studies, analyses,
inquiries and investigations as it deemed appropriate. At the request of FTP's
Board, Cowen also solicited third party indications of interest in a transaction
with, or acquisition of, FTP. The decision of FTP to enter into the
Reorganization Agreement with NetManage was made by the FTP Board, and the
amount of consideration that will be received by the holders of the FTP Common
Stock was determined through negotiations between FTP and NetManage and not
pursuant to a recommendation of Cowen. No limitations were imposed by the Board
with respect to the investigations made or procedures followed by Cowen in
rendering its opinion.
In rendering its opinion, Cowen relied upon FTP's management and
NetManage's management with respect to the accuracy and completeness of the
financial and other information furnished to it as described above. Cowen
assumed, with the permission of the FTP Board and NetManage, that financial
forecasts, projections and estimates of operating efficiencies and potential
synergies reflected the best currently available estimates and judgments of
FTP's management and NetManage's management as to the expected future financial
performance of their respective entities and of the combined company. Cowen has
not assumed any responsibility for independent verification of such information,
including financial information, nor has Cowen made an independent evaluation or
appraisal of any of the properties, assets or liabilities (contingent or
otherwise) of either FTP or NetManage, or a physical inspection of all of the
properties or assets of FTP or NetManage. With respect to all legal matters
relating to FTP and NetManage, Cowen has relied on the advice of legal counsel
to FTP. Cowen expresses no opinion with respect to such legal matters.
Cowen's opinion is necessarily based on general economic, market, financial
and other conditions as they existed on, and can be evaluated as of, June 12,
1998. It should be understood that, although subsequent
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developments may affect Cowen's opinion, Cowen does not have any obligation to
update, revise or reaffirm its opinion. Cowen's opinion does not constitute a
recommendation to any stockholder as to how such stockholder should vote on the
Merger. Cowen's opinion does not imply any conclusion as to the likely trading
range for the NetManage Common Stock following the consummation of the Merger or
otherwise, which may vary depending on numerous factors that generally influence
the price of securities. Cowen's opinion is limited to the fairness, from a
financial point of view, of the terms of the Merger. Cowen expresses no opinion
with respect to any other reasons, legal, business or otherwise, that may
support the decision of the FTP Board to approve, or FTP's decision to
consummate, the Merger.
For purposes of rendering its opinion, Cowen assumed in all respects
material to its analysis that the representations and warranties of each party
contained in the Reorganization Agreement were true and correct, that each party
will perform all of the covenants and agreements required to be performed by it
under the Reorganization Agreement and that all conditions to the consummation
of the Merger will be satisfied without waiver thereof. Cowen has also assumed
that all governmental, regulatory or other consents and approvals contemplated
by the Reorganization Agreement will be obtained and that in the course of
obtaining those consents no restrictions will be imposed or waivers made that
would have an adverse effect on the contemplated benefits of the Merger.
Cowen also assumed, with the FTP Board's permission, that the Merger will
be treated for accounting purposes as a "pooling of interests," that all
outstanding options to purchase shares of FTP Common Stock will be exercisable
(if and when vested) on equivalent terms to purchase shares of NetManage Common
Stock based on the Exchange Ratio, and that the Merger will be treated as a tax
free reorganization under Section 368 of the Code.
The following is a brief summary of the principal financial analyses
performed by Cowen to arrive at its opinion.
ANALYSIS OF CERTAIN PUBLICLY TRADED COMPANIES. To provide contextual data
and comparative market information, Cowen compared selected historical operating
and financial data and ratios for FTP to the corresponding data and ratios of
five public software connectivity companies (the "Selected Connectivity
Companies") the securities of which are publicly traded and which Cowen believes
have operating characteristics, market valuations and trading valuations
comparable to FTP. These companies included: Banyan Systems Incorporated,
Hummingbird Communications Ltd., Interlink Computer Sciences, Inc., NetManage
and Wall Data Incorporated. Additionally, Cowen reviewed other software
companies with certain operations deemed to be comparable to FTP (the "Selected
Software Companies"). These companies included: Applix, Inc., Artisoft, Inc.,
Astea International Inc., Catalyst International, Inc., CFI Proservices, Inc.,
Corel Corporation, Forte Software, Inc., Fourth Shift Corporation, ON Technology
Corporation, PC DOCS Group International, Inc., PowerCerv Corporation, Prism
Solutions, Inc., Ross Systems, Inc., Sybase, Inc., System Software Associates,
Inc. and Verity, Inc. Such data and ratios included the market capitalization of
common stock plus total debt less cash and equivalents ("Enterprise Value") of
such Selected Connectivity Companies and Selected Software Companies
(collectively, the "Selected Companies") as a multiple of latest reported 12
month ("LTM") revenues and projected calendar 1998 revenues as were available
from independent third party estimates. Cowen also reviewed the projected
calendar 1997 to 1998 revenue growth rates and the LTM operating margins of the
Selected Connectivity Companies and Selected Software Companies. An analysis of
LTM revenues to earnings before interest expense, income taxes, depreciation and
amortization ("EBITDA") and earnings before interest expense and income taxes
("EBIT") was not performed because of FTP's historical and projected losses.
Such analysis indicated that, for the Selected Connectivity Companies and
the Selected Software Companies, (i) the median values of Enterprise Value as a
multiple of LTM revenue was 1.1 times and 0.9 times, respectively, (ii) the
median values of Enterprise Value as a multiple of projected calendar 1998
revenues was 0.7 times and 0.8 times, respectively, (iii) the median projected
calendar year revenue growth rates were 34.3% and 20.4%, respectively, and (iv)
the median LTM operating margins were (2.5%) and (7.7%), respectively. The
corresponding multiples of LTM revenues and projected calendar 1998 revenues for
FTP implied by NetManage's offer before synergies are 0.3 times and 0.4 times,
respectively. The projected
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calendar 1997 to 1998 revenue growth rate for FTP is (28.1%), and the LTM
operating margin for FTP was (62.2%).
Although the Selected Companies were used for comparison purposes, none of
such companies is directly comparable to FTP. Accordingly, an analysis of the
results of such a comparison is not purely mathematical but instead involves
complex considerations and judgments concerning differences in historical and
projected financial and operating characteristics of the Selected Companies and
other factors that could affect the public trading value of the Selected
Companies to which FTP is being compared.
ANALYSIS OF CERTAIN TRANSACTIONS. Cowen reviewed the financial terms, to
the extent publicly available, of six selected transactions involving the
acquisition of companies in the software connectivity industry, which were
announced or completed since March 31, 1995 (the "Selected Connectivity Software
Transactions"). Cowen also reviewed the financial terms, to the extent publicly
available, of a second and third group of six and nine, respectively, selected
transactions in the software/operating (the "Selected Software Transactions")
and the Internet/networking/computer (the "Selected Internet/Networking/Computer
Transactions") industries since March 7, 1995 (the three groups of selected
transactions are collectively referred to as the "Selected Transactions").
Cowen reviewed the Enterprise Value paid in the Selected Transactions as a
multiple of LTM revenues, and the target company LTM revenue growth rates and
LTM operating margins in the Selected Transactions. In addition, with respect to
each Selected Transaction, Cowen reviewed the premium of the offer price over
the trading prices one trading day and four weeks prior to the announcement
date.
Such analyses indicated that, for the Selected Connectivity Software
Transactions, the Selected Software Transactions and the Selected
Internet/Networking/Computer Transactions, (i) the median values for Enterprise
Value as a multiple of LTM revenue was 1.9 times, 1.0 times and 0.7 times,
respectively, (ii) the median LTM revenue growth rates were (2.0%), 17.7% and
7.2%, respectively, and (iii) the median LTM operating margins were 9.5%,
(15.8%) and (7.9%), respectively.
The corresponding multiples of LTM revenues implied by NetManage's offer
before synergies is 0.3 times. FTP's LTM revenue growth rate and LTM operating
margin were (33.0%) and (62.2%), respectively. In addition, based on the closing
prices of the FTP Common Stock one trading day and four weeks prior to June 9,
1998, the date of the stock prices incorporated in Cowen's written opinion
delivered to the FTP Board on June 12, 1998, NetManage's offer represented a
premium of 10.6% and a discount of 11.5%, respectively.
Although the Selected Transactions were used for comparison purposes, none
of such transactions is directly comparable to the Merger, and none of the
companies in such transactions is directly comparable to FTP or NetManage.
Accordingly, an analysis of the results of such a comparison is not purely
mathematical but instead involves complex considerations and judgments
concerning differences in historical and projected financial and operating
characteristics of the companies involved and other factors that could affect
the acquisition value of such companies and the transactions to which FTP and
the Merger are being compared.
PRO FORMA EARNINGS ANALYSIS. Cowen analyzed the potential effect of the
Merger on the projected combined statement of operations of FTP and NetManage
for NetManage's fiscal years ending December 31, 1998 and 1999. This analysis
was based on (a) projections for FTP provided by FTP's management, (b)
projections for NetManage provided by NetManage's management and (c) NetManage's
prevailing market price of $3.16 per share as of June 9, 1998. This analysis
concluded that the Merger could increase NetManage's projected earnings per
share for the quarter ending December 31, 1998 by approximately $0.04, could
decrease NetManage's projected earnings per share for the year ending December
31, 1998 by approximately $0.04 and could increase NetManage's projected
earnings per share for the year ending December 31, 1999 by approximately $0.18.
Cowen's pro forma earnings analysis included the possible effect of cost savings
and synergies in the Merger.
HISTORICAL STOCK PRICE ANALYSIS. Cowen reviewed the ratios of the closing
stock prices per share of the FTP Common Stock to those of the NetManage Common
Stock over certain periods ending June 9, 1998. Cowen noted that the average of
the ratios of the closing prices of the FTP Common Stock and the
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NetManage Common Stock for such periods was 0.758 times for the previous six
months, 0.801 times for the previous three months and 0.787 times for the
previous one month. Cowen also noted that the ratio of the closing market prices
of the FTP Common Stock and the NetManage Common Stock on June 9, 1998 of $2.19
and $3.16, respectively, was approximately 0.693 times. The exchange ratio
implied by NetManage's offer is 0.728 times.
CONTRIBUTION ANALYSIS. Cowen analyzed the respective contributions of
estimated revenues of FTP and NetManage for the years ending December 31, 1998
and December 31, 1999 to the combined company based upon the historical and
projected financial results of FTP and NetManage provided by management of FTP
and NetManage, respectively, excluding the possible effect of cost savings and
synergies in the Merger. This analysis showed that FTP would contribute 39.2%
and 37.8% of the revenues of the combined company for the years ending December
31, 1998 and December 31, 1999, respectively.
PRO FORMA OWNERSHIP ANALYSIS OF THE COMBINED COMPANY. Cowen analyzed the
pro forma ownership in the combined company by the holders of the FTP Common
Stock. Cowen's analysis concluded that the holders of the FTP Common Stock would
own approximately 35.8% of the combined company.
DISCOUNTED CASH FLOW ANALYSIS. Cowen estimated the range of values for the
FTP Common Stock based upon the discounted present value of the projected
after-tax free cash flows of FTP for the years ending December 31, 1998 through
December 31, 2002, and of the terminal value of FTP at December 31, 2002, based
upon a multiple of FTP's 2002 revenue forecast. After-tax free cash flow was
calculated by taking projected EBIT and subtracting from such amount projected
taxes, capital expenditures, changes in working capital and changes in other
assets and liabilities and adding back projected depreciation and amortization.
This analysis was based upon certain assumptions described by, projections
supplied by and discussions held with the management of FTP. In performing this
analysis, Cowen utilized discount rates ranging from 20% to 30%, which were
selected based on the estimated industry weighted average cost of capital. Cowen
utilized terminal multiples of revenue ranging from 0.3 times to 0.5 times,
based on multiples of revenue for the Selected Companies. Utilizing this
methodology, FTP's value per share ranged from $2.21 to $2.52 per share.
STOCK TRADING HISTORY. Cowen reviewed the historical market prices and
trading volumes of the FTP Common Stock and the NetManage Common Stock from June
9, 1997 to June 9, 1998. Cowen also compared FTP's and NetManage's closing stock
prices with the Nasdaq composite from December 9, 1997 to June 9, 1998. This
information was presented solely to provide the FTP Board with background
information regarding the stock prices of FTP and NetManage over the periods
indicated. Cowen noted that over the indicated periods the high and low closing
prices for the FTP Common Stock were $5.63 and $1.50, respectively, the high and
low closing prices of the NetManage Common Stock were $5.25 and $2.09,
respectively, and the average daily trading volumes of the FTP and NetManage
Common Stock were approximately 224,118 and 319,422, respectively.
The summary set forth above does not purport to be a complete description
of all the analyses performed by Cowen. The preparation of a fairness opinion
involves various determinations as to the most appropriate and relevant methods
of financial analyses and the application of these methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
partial analysis or summary description. Cowen did not attribute any particular
weight to any analysis or factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each analysis and factor.
Accordingly, notwithstanding the separate factors summarized above, Cowen
believes, and has advised the FTP Board, that its analyses must be considered as
a whole and that selecting portions of its analyses and the factors considered
by it, without considering all analyses and factors, could create an incomplete
view of the process underlying its opinion. In performing its analyses, Cowen
made numerous assumptions with respect to industry performance, business and
economic conditions and other matters, many of which are beyond the control of
FTP and NetManage. These analyses performed by Cowen are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than suggested by such analyses. In addition, analyses
relating to the value of businesses do not purport to be appraisals or to
reflect the prices at which businesses or securities may actually be sold.
Accordingly, such analyses and estimates are inherently uncertain and, though
considered reasonable by FTP and NetManage, are subject to significant business,
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economic, competitive, regulatory and other uncertainties and contingencies, all
of which are difficult or impossible to predict and are beyond the control of
FTP, NetManage and Cowen. As mentioned above, the analyses supplied by Cowen and
its opinion were among several factors taken into consideration by the FTP Board
in making its decision to approve the Reorganization Agreement and should not be
considered as determinative of such decision.
Pursuant to the Cowen Engagement Letter, FTP paid Cowen $250,000 upon
delivery of Cowen's written opinion to the Board. Such fee was not conditioned
on the outcome of Cowen's opinion or whether or not such opinion was deemed to
be favorable. In addition, as a financial advisory fee, Cowen will receive cash
compensation (net of the $250,000 opinion fee described above) of approximately
$1.06 million, based on the average closing price of the NetManage Common Stock
on the last 15 trading days prior to the announcement of the Merger on June 15,
1998. Such financial advisory fee will be payable upon the consummation of the
Merger and only if the Merger is consummated. Additionally, FTP has agreed to
reimburse Cowen for its out-of-pocket expenses (including the reasonable fees
and expenses of its counsel) incurred or accrued during the period of, and in
connection with, Cowen's engagement. FTP has also agreed to indemnify Cowen
against certain liabilities, including liabilities under the federal securities
laws, relating to or arising out of services performed by Cowen as financial
advisor to the FTP Board in connection with the Merger, unless it is finally
judicially determined that such liabilities arose out of Cowen's gross
negligence or willful misconduct. The terms of the fee arrangement with Cowen,
which are customary in transactions of this nature, were negotiated at arm's
length between FTP and Cowen, and the FTP Board was aware of such arrangement,
including the fact that most of the aggregate fee payable to Cowen is contingent
upon consummation of the Merger.
In the ordinary course of its business, Cowen and its affiliates may
actively trade and hold the equity securities of FTP and NetManage for their own
accounts and for the accounts of their customers, and accordingly, may at any
time hold a long or short position in such securities. In November 1993 and May
1994, Cowen acted as a co-manager in the initial public offering and secondary
offering, respectively, of FTP, and acted as FTP's financial advisor for the
adoption of FTP's stockholders' rights plan in December 1995. Cowen received a
customary fee for the rendering of each of those services.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
EMPLOYMENT AGREEMENTS WITH FTP EXECUTIVE OFFICERS. In connection with the
execution of the Reorganization Agreement, each of Messrs. Glenn C. Hazard,
President and Chief Executive Officer of FTP, James A. Tholen, Senior Vice
President, Chief Operating Officer and Chief Financial Officer of FTP, and
Dennis Leibl, Senior Vice President/General Manager of FTP, entered into an
amended and restated employment agreement with FTP (each, a "New Employment
Agreement"), effective as of the Effective Time, amending their existing
employment agreements with FTP (each, an "Existing Employment Agreement"). The
New Employment Agreements effect the following changes to the Existing
Employment Agreements, as described in more detail below: (i) the amount payable
to each such person in connection with a "Change of Control" as described below
has been decreased from 2.0 times to 1.5 times such person's "Change of Control
Base Amount" as described below; (ii) the Change of Control provisions of Mr.
Leibl's agreement have been amended so that they will apply if Mr. Leibl
terminates his employment with FTP for any reason, to conform such agreement to
those with Messrs. Hazard and Tholen; (iii) certain tax "gross-up" provisions
have been removed from the agreements with Messrs. Hazard and Tholen; and (iv)
the non-competition period of the Existing Employment Agreements has been
extended from six months to 18 months following termination of the employee's
employment. FTP anticipates that the employment of Messrs. Hazard, Tholen and
Leibl will be terminated in connection with the Merger, in which case they will
receive a lump-sum cash payment of approximately $742,500, $528,750 and
$375,000, respectively, within 10 days following the termination of their
employment. It is a condition to the consummation of the Merger that such New
Employment Agreements be in full force and effect as of the Closing Date.
Both the New Employment Agreements and the Existing Employment Agreements
contain substantially the same provisions except as noted above. Both the
Existing and New Employment Agreements provide for the employment by FTP of
Messrs. Hazard, Tholen and Leibl at an annual salary of $275,000, $235,000 and
$225,000, respectively. Each such agreement also provides that if a cash
incentive or bonus compensation plan
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is made available to executive officers of FTP generally, and the employee is
not then covered by any other cash incentive or bonus compensation plan, the
employee will be entitled to participate in such plan in accordance with the
plan terms.
The New and Existing Employment Agreements contain the following
termination provisions, among others:
(a) FTP has the right to terminate the employee's employment at any
time "for cause" (as defined in such agreements), in which event FTP shall
have no further obligation to the employee, other than for base salary
earned and unpaid at the date of termination;
(b) FTP has the right to terminate the employee's employment other
than for cause at any time, in which event, if such termination occurs
either before or after a Change of Control Period (as defined below), FTP
shall pay the employee, in one lump sum, an amount equal to 12 months of
the employee's base salary;
(c) the employee has the right to terminate his employment at any time
for "good reason" (as defined in such agreements, including matters such as
a change in position or material diminution in the nature or scope of the
employee's responsibilities, duties or authority, work site relocation and
the material failure of FTP to provide the employee the benefits specified
in such agreements), in which event FTP will be required to pay the
employee the amount specified in the preceding paragraph; and
(d) if on the date of, or within one year following, a "Change of
Control" (as defined in such agreements, and which would include the
Merger) (a "Change of Control Period"), FTP terminates the employee's
employment other than for cause or the employee terminates his employment
for any reason (or, in the case of Mr. Leibl's Existing Employment
Agreement, for "good reason"), then FTP will be required (subject to
certain tax adjustments) to: (i) pay the employee a lump sum payment equal
to 1.5 times (or two times, in the case of the Existing Employment
Agreements) the greater of the following (the "Change of Control Base
Amount"): (A) the sum of his base salary and the amount of any bonus, in
the case of Mr. Leibl, or Target Bonus, in the cases of Messrs. Hazard and
Tholen (80% and 50% of base salary, respectively), paid or payable to him
during the 12 months following the date of such termination or (B) the sum
of his base salary and the amount of any bonus or Target Bonus, as
applicable, paid or payable to him during the 12 months preceding the date
of such termination; and (ii) pay the full cost of the employee's continued
participation in FTP's group health and dental insurance plans for so long
as the employee remains entitled to continue such participation under COBRA
and the applicable plan terms. The Existing Employment Agreements with
Messrs. Hazard and Tholen also provide for the payment by FTP to such
persons of a "gross-up" amount sufficient to pay any tax required to be
paid with respect to any Change of Control payment pursuant to the "excess
parachute payment" provisions of the Code, which provision has been removed
in the New Employment Agreements.
In addition, the New and Existing Employment Agreements prohibit such
employees from competing with FTP and its affiliates for a period of 18 months,
in the case of the New Employment Agreements, or six months, in the case of the
Existing Employment Agreements, following termination of the employee's
employment.
Douglas F. Flood, Senior Vice President of Business Development and
Planning and General Counsel of FTP, is also a party to an Existing Employment
Agreement with FTP containing substantially the same terms as those of Mr.
Leibl's Existing Employment Agreement, as described above. In connection with
the execution of the Reorganization Agreement, Mr. Flood entered into a
Termination Agreement, effective as of June 13, 1998, pursuant to which: (i) Mr.
Flood has agreed to resign from FTP effective as of August 31, 1998, or such
earlier time as Mr. Flood and FTP may agree, and FTP has agreed to pay Mr. Flood
the lump sum of $354,000 (being 1.5 times his Change of Control Base Amount)
within 10 days following his resignation date, and to pay for his continued
participation in FTP's group health and dental insurance plans for as long as he
remains entitled to continue such participation under COBRA and the applicable
plan terms; and (ii) the non-competition period of Mr. Flood's Existing
Employment Agreement has been extended from
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six months to 18 months following termination of his employment. It is also a
condition to the consummation of the Merger that such Termination Agreement be
in full force and effect as of the Closing Date.
STOCK OPTIONS. Pursuant to both the New Employment Agreements and the
Existing Employment Agreements between FTP and Messrs. Hazard, Tholen and Leibl,
all stock options held by such persons will accelerate and become fully
exercisable upon the consummation of the Merger and will remain exercisable for
90 days following the termination of their employment, which is expected to
occur upon the consummation of the Merger. Pursuant to Mr. Flood's Existing
Employment Agreement and Termination Agreement, all options held by Mr. Flood
will also accelerate and become fully exercisable upon the consummation of the
Merger, unless Mr. Flood's resignation date occurs prior to the Effective Time,
in which case his options will lapse to the extent not then vested. Pursuant to
their New Employment Agreements, effective as of the Effective Time, Messrs.
Hazard and Tholen have waived the option to purchase 300,000 and 100,000 shares,
respectively, of FTP Common Stock granted to them on December 18, 1997 at an
exercise price of $1.7813 per share. Giving effect to such waivers, Messrs.
Hazard, Tholen, Flood and Leibl hold options to purchase 800,000, 300,000,
249,800 and 250,000 shares of FTP Common Stock, respectively, all at exercise
prices in excess of $4.00 per share.
Pursuant to FTP's Amended and Restated 1993 Non-Employee Directors' Stock
Option Plan, all options held by non-employee directors of FTP will accelerate
in full 20 days before the closing of the Merger and remain exercisable
throughout such period. Mr. Kevin J. Burns, Dr. Vinton G. Cerf, Dr. David D.
Clark, Ms. Louise M. Cromwell and Mr. F. David Fowler, being all of the
non-employee directors of FTP, hold options to purchase 31,743, 85,000, 48,768,
48,768 and 54,167 shares of FTP Common Stock, respectively, under this plan. The
exercise prices of all of such options exceed $4.00 per share, except that each
of Mr. Burns and Dr. Cerf holds an option to purchase 20,000 shares of FTP
Common Stock at an exercise price of $2.125 per share, and each of Dr. Cerf and
Ms. Cromwell holds an option to purchase 10,000 shares of FTP Common Stock at an
exercise price of $3.00 per share.
CONTINUATION OF RIGHTS TO INDEMNIFICATION; LIMITATION OF LIABILITY;
DIRECTORS' AND OFFICERS' LIABILITY INSURANCE. The Reorganization Agreement
provides that from and after the Effective Time, NetManage will cause FTP as
surviving corporation in the Merger to fulfill in all respects the obligations
of FTP pursuant to any indemnification agreements between FTP and the persons
covered by FTP's current directors' and officers' liability insurance policy
("Indemnified Parties") and pursuant to any indemnification provisions under
FTP's current charter and bylaws. The Reorganization Agreement further provides
that the charter and bylaws of FTP as surviving corporation in the Merger will
contain provisions with respect to exculpation and indemnification that are at
least as favorable to the Indemnified Parties as those contained in the current
FTP charter and bylaws and that such provisions will not be amended, repealed or
otherwise modified for a period of four years after the Effective Time in any
manner that would adversely affect the rights thereunder of individuals who,
immediately prior to the Effective Time, were directors or officers of FTP and
its subsidiaries, unless such modification is required by law.
NetManage has also agreed to cause FTP as the surviving corporation in the
Merger to maintain for a period of four years after the Effective Time
directors' and officers' liability insurance covering the Indemnified Parties on
terms comparable to those applicable to FTP's current directors and officers. In
no event, however, shall NetManage or FTP be required to expend in excess of
125% of the annual premium currently paid by FTP for such coverage, provided
that if the annual premium for such coverage exceeds such amount, NetManage or
FTP is obligated to purchase a policy with the coverage available for such
amount.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material United States federal
income tax consequences of the exchange of shares of FTP Common Stock for
NetManage Common Stock pursuant to the Merger that are generally applicable to
holders of FTP Common Stock, NetManage, Merger Sub and FTP. This discussion is
based on currently existing provisions of the Code, currently applicable
Treasury Regulations thereunder, published administrative rulings, and court
decisions, all of which are subject to change. Any such change, which may or may
not be retroactive, could alter the tax consequences to NetManage, Merger Sub,
FTP or
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the FTP Stockholders as described herein. For purposes of this discussion, each
share of FTP Common Stock shall be deemed to include the associated right
granted under the FTP Rights Agreement.
The FTP Stockholders should be aware that this discussion does not deal
with all United States federal income tax considerations that may be relevant to
particular FTP Stockholders in light of their particular circumstances, such as
dealers in securities, banks, insurance companies, tax-exempt organizations or
foreign persons, stockholders subject to the alternative minimum tax provisions
of the Code, stockholders who acquired their shares in connection with employee
stock option or stock purchase plans or in other compensatory transactions, or
stockholders who hold their shares as part of a hedging, straddle, conversion or
other risk reduction or constructive sale transaction. In addition, the
following discussion does not address the tax consequences of the Merger under
foreign, state or local tax laws or the tax consequences of any other
transactions effectuated concurrently with, prior to or after the Merger
(whether or not such transactions are in connection with the Merger). THE FTP
STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC
CONSEQUENCES OF THE MERGER TO THEM, INCLUDING THE APPLICABLE FEDERAL, STATE,
LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE MERGER IN THEIR PARTICULAR
CIRCUMSTANCES.
The Merger has been structured to qualify as a reorganization under Section
368(a) of the Code (a "Reorganization") and, subject to the limitations and
qualifications referred to herein, the following federal income tax consequences
should result:
(a) No gain or loss will be recognized by the holders of FTP Common
Stock upon the receipt of NetManage Common Stock solely in exchange for
such FTP Common Stock in the Merger (except to the extent of cash received
by such stockholders in lieu of fractional shares of NetManage Common
Stock).
(b) The aggregate tax basis of the NetManage Common Stock received by
the FTP Stockholders in the Merger (including any fractional share of
NetManage Common Stock not actually received) will be the same as the
aggregate tax basis of the FTP Common Stock surrendered in exchange
therefor.
(c) The holding period of the NetManage Common Stock received by each
FTP Stockholder in the Merger will include the period for which the FTP
Common Stock surrendered in exchange therefor was held or considered to be
held, provided that the FTP Common Stock so surrendered is held as a
capital asset at the Effective Time of the Merger.
(d) Cash payments received by holders of FTP Common Stock in lieu of
fractional shares of NetManage Common Stock will be treated as if such
fractional shares had been issued in the Merger and then redeemed by
NetManage. An FTP Stockholder receiving such cash will generally recognize
gain or loss upon such payment, measured by the difference (if any) between
the amount of cash received and the portion of the basis of the share of
FTP Common Stock allocable to such fractional share. The gain or loss
should be capital gain or loss provided that such share of FTP Common Stock
was held as a capital asset at the Effective Time of the Merger.
(e) FTP Stockholders who perfect their appraisal rights under
Massachusetts law with respect to their FTP Common Stock and receive
payment for such stock in cash and who do not own any shares of NetManage
Common Stock (either actually or constructively within the meaning of
Section 318 of the Code) following the receipt of such cash, will generally
recognize capital gain or loss (if such stock was held as a capital asset
at the Effective Time of the Merger) measured by the difference between the
amount of cash received and the stockholder's basis in such share.
(f) None of NetManage, Merger Sub or FTP will recognize gain solely as
a result of the Merger.
Neither NetManage nor FTP has requested a ruling from the Internal Revenue
Service (the "IRS") with regard to any of the federal income tax consequences of
the Merger. The obligations of NetManage and FTP to consummate the Merger are
conditioned on the receipt by NetManage of an opinion from Wilson Sonsini, and
the receipt by FTP of an opinion from Ropes & Gray, that the Merger constitutes
a Reorganization within the meaning of Section 368(a) of the Code (collectively,
the "Tax Opinions"). The
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Tax Opinions are subject to certain assumptions and qualifications and are based
on the truth and accuracy of certain representations of NetManage, Merger Sub
and FTP, including representations in certain certificates delivered to counsel
by the respective managements of NetManage, Merger Sub and FTP.
A successful IRS challenge to the Reorganization status of the Merger would
result in FTP Stockholders recognizing taxable capital gain or loss with respect
to each share of FTP Common Stock surrendered equal to the difference between
the stockholder's tax basis in such share and the fair market value, as of the
Effective Time, of the NetManage Common Stock received in exchange therefor. In
such event, a stockholder's aggregate basis in the NetManage Common Stock so
received would equal its fair market value as of the Effective Time and the
holding period for such stock would begin the day after the Effective Time.
Certain noncorporate FTP Stockholders may be subject to backup withholding
at a rate of 31% on cash payments received in lieu of a fractional share
interest in NetManage Common Stock. Backup withholding will not apply, however,
to a stockholder who furnishes a correct taxpayer identification number ("TIN")
and certifies that he or she is not subject to backup withholding on the
substitute Form W-9 included in the transmittal letter to be delivered to each
FTP Stockholder following the Merger, who provides a certificate of foreign
status on Form W-8, or who is otherwise exempt from backup withholding. A
stockholder who fails to provide the correct TIN on Form W-9 may be subject to a
$50 penalty.
Each FTP Stockholder will be required to retain records and file with such
holder's United States federal income tax return a statement setting forth
certain facts relating to the Merger.
ANTICIPATED ACCOUNTING TREATMENT
The Merger is intended to qualify as a "pooling of interests" for
accounting and financial reporting purposes. Under this method of accounting,
the assets and liabilities of NetManage and FTP will be carried forward to the
combined company at their recorded amounts and income (loss) from the combined
company will include income (loss) from NetManage and FTP for the entire fiscal
period in which the combination occurs and the reported income (loss) of the
separate companies for prior periods will be combined and restated as the
results of operations of the combined company.
It is a condition to consummation of the Merger that NetManage receive a
letter dated as of the Effective Time from Arthur Andersen LLP, independent
public accountants for NetManage, and PricewaterhouseCoopers LLP, independent
accountants for FTP, concurring with the applicable company's conclusion
regarding the appropriateness of pooling of interests accounting treatment for
the Merger under Accounting Principles Board Opinion No. 16, provided the Merger
is consummated in accordance with the Reorganization Agreement. See "THE
REORGANIZATION AGREEMENT -- Conditions to the Merger" and "UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS."
Under the pooling of interests accounting rules, none of the executive
officers, directors or affiliates of either of the combining companies may sell
any shares of either of the combining companies (except for certain de minimis
sales) until the combined company releases financial results covering at least
30 days of combined operations of NetManage and FTP. Accordingly, if sales
(except for certain de minimis sales) by such stockholders occur subsequent to
the Merger, pooling of interests accounting treatment for the Merger may not be
available in spite of such treatment being appropriate as of the consummation of
the Merger. As a result of the unavailability of such accounting treatment, the
Merger would be accounted for under the purchase method of accounting, which
would have the effects discussed below. Each of the current executive officers
and directors of NetManage and each of the current executive officers and
directors of FTP has entered into an affiliate agreement agreeing to comply with
this restriction. See "THE REORGANIZATION AGREEMENT -- Affiliate Agreements."
There can be no assurance that an executive officer, director or affiliate
of either company will not sell shares of NetManage or FTP Common Stock or that
all requirements necessary to qualify for pooling of interests will be met. If
the requirements necessary to qualify for pooling of interests are not met prior
to consummation of the Merger, then NetManage is not required to consummate the
Merger. However, if
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NetManage nevertheless elects to consummate the Merger, the Merger would
necessarily be accounted for under the purchase method of accounting, which
would have the effect of FTP's assets being recognized at their fair value and
any excess of the purchase price over such fair value (other than amounts
charged to in-process research and development costs) being recognized as
goodwill on NetManage's balance sheet. The goodwill would thereafter be
amortized as an expense over its anticipated useful life. The impact of such
treatment could have a material adverse effect on the combined company's results
of operations. The Merger would also be required to be accounted for under the
purchase method of accounting, which would have the effect on the combined
company's results of operations as described above if, among other things, any
executive officer, director or affiliate of either company sells shares in
NetManage subsequent to consummation of the Merger and prior to the release of
financial results covering at least 30 days of combined operations.
EFFECT ON EMPLOYEE EQUITY PLANS
STOCK OPTION PLANS. Under the terms of the Reorganization Agreement, each
FTP Stock Option outstanding under FTP's employee stock option plans will be
assumed by NetManage and converted into an option to acquire, on the same terms
and conditions as were applicable to such FTP Stock Option immediately prior to
the Effective Time, the number of shares of NetManage Common Stock equal to the
number of shares of FTP Common Stock subject to such FTP Stock Option
immediately prior to the Effective Time multiplied by the Exchange Ratio,
rounded down to the nearest whole share. The per share exercise price under each
such FTP Stock Option shall be adjusted by dividing the per share exercise price
under such FTP Stock Option by the Exchange Ratio and rounding up to the nearest
cent.
As of July 13, 1998, options to acquire 5,644,894 shares of FTP Common
Stock were outstanding under FTP's employee stock option plans.
As soon as practicable after the Effective Time, NetManage will deliver to
each holder of an outstanding FTP Stock Option an appropriate notice setting
forth such holder's rights pursuant thereto, and such FTP Stock Option shall,
except as described above, continue in effect on the same terms and conditions
(including antidilution provisions) as immediately prior to the Effective Time.
NetManage will comply with FTP's employee stock option plans and take such
actions within its control that are reasonably necessary to ensure that the FTP
Stock Options that qualified as incentive stock options under Section 422 of the
Code prior to the Effective Time will continue to so qualify thereafter.
No later than five days after the Effective Time, NetManage will file a
Registration Statement on Form S-8 with respect to the shares of NetManage
Common Stock subject to such options.
EMPLOYEE STOCK PURCHASE PLANS. FTP's employee stock purchase plans shall be
treated in a manner reasonably acceptable to FTP and NetManage.
REGULATORY MATTERS
ANTITRUST. The consummation of the Merger is subject to the expiration or
termination of the relevant waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"). NetManage and FTP have
filed notification and report forms under the HSR Act. The filings made under
the HSR Act are not expected to adversely impact the timing of the consummation
of the Merger.
FILING WITH THE MASSACHUSETTS SECRETARY OF STATE. Articles of Merger must
be filed with the Secretary of The Commonwealth of Massachusetts to consummate
the Merger.
SECURITIES LAWS. NetManage and FTP must comply with the federal securities
laws and applicable securities laws of various states.
FEDERAL SECURITIES LAW CONSEQUENCES
All of the NetManage Common Stock issued in connection with the Merger will
be freely transferable, except that any NetManage Common Stock received by
persons who are deemed to be "affiliates" (as such term is defined under the
Securities Act) of FTP or NetManage prior to the Merger may be sold by them only
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in transactions permitted by the resale provisions of Rule 145 under the
Securities Act with respect to affiliates of FTP, or Rule 144 under the
Securities Act with respect to persons who are or become affiliates of
NetManage, or as otherwise permitted under the Securities Act. Persons who may
be deemed to be affiliates of FTP or NetManage generally include individuals or
entities that control, are controlled by, or are under common control with, such
corporation and may include certain officers and directors of such corporation
as well as principal stockholders of such corporation.
Affiliates of FTP or NetManage may not sell their shares of NetManage
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 (or Rule 144 under the Securities Act in the case
of persons who are or become affiliates of NetManage) or another applicable
exemption from the registration requirements of the Securities Act. In general,
under Rule 145, for one year following the Effective Time an affiliate (together
with certain related persons) would be entitled to sell shares of NetManage
Common Stock acquired in connection with the Merger only through unsolicited
"brokers' transactions" or in transactions directly with a "market maker," as
such terms are defined in Rule 145. Additionally, under Rule 145, the number of
shares to be sold by such an affiliate (together with certain related persons
and certain persons acting in concert) within any three-month period may not
exceed the greater of 1% of the outstanding shares of NetManage Common Stock or
the average weekly trading volume of such stock during the four calendar weeks
preceding such sale. Rule 145 would only remain available, however, to
affiliates if NetManage remained current with its informational filings under
the Exchange Act. One year after the Effective Time, an affiliate would be able
to sell such NetManage Common Stock without such manner of sale or volume
limitations provided that NetManage is then current with its Exchange Act
informational filings and such affiliate is not then an affiliate of NetManage.
Two years after the Effective Time, an affiliate would be able to sell such
shares of NetManage Common Stock without any restrictions so long as such
affiliate had not been an affiliate of NetManage for at least three months prior
to such sale.
STOCK LISTING
It is a condition to NetManage's and FTP's obligation to consummate the
Merger that the shares of NetManage Common Stock to be issued pursuant to the
Merger be approved for listing on the Nasdaq National Market. An application
will be filed for listing such shares of NetManage Common Stock on the Nasdaq
National Market prior to consummation of the Merger.
APPRAISAL RIGHTS
Pursuant to Massachusetts law, FTP Stockholders of record have the right to
object to the Merger and, if the Merger is consummated, to be paid the "fair
value" of their shares of FTP Common Stock determined as of the day preceding
the date of the vote of the FTP Stockholders approving the Merger (without
taking into account any element of value arising from the expectation or
accomplishment of the Merger). FTP and any stockholders desiring to exercise
such dissenters' rights will have the respective rights and duties and must
follow the procedures set forth in Sections 85 to 98, inclusive, of the
Massachusetts BCL in order to perfect such rights. A brief summary of Sections
85 to 98, inclusive, of the Massachusetts BCL is set forth below. The following
summary does not purport to be a complete statement of the procedures to be
followed by FTP Stockholders desiring to exercise their appraisal rights and is
qualified in its entirety by express reference to those sections, the full text
of which is included as Annex C to this Joint Proxy Statement/Prospectus. FTP
STOCKHOLDERS ARE URGED TO READ ANNEX C IN ITS ENTIRETY SINCE FAILURE TO COMPLY
WITH THE PROCEDURES SET FORTH THEREIN MAY RESULT IN THE LOSS OF APPRAISAL
RIGHTS.
To exercise appraisal rights under Massachusetts law, a stockholder must
(i) deliver to FTP, before the FTP Stockholder vote on the Merger, a written
objection to the Merger stating that such stockholder objects to the Merger and
intends to demand payment for his or her shares if the Merger is approved and
consummated through the exercise of statutory appraisal rights, (ii) not vote
his or her shares in favor of or consent to the approval of the Merger and (iii)
within 20 days after the date of mailing to such stockholder of a written notice
that the Merger has become effective, make written demand upon FTP for payment
of his or her shares and an appraisal of the value thereof. A stockholder who
fails to satisfy all of the conditions set forth
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above will acquire no right to payment for such stockholder's shares under
Massachusetts law other than the consideration to be paid in the Merger as
described in more detail under "-- Conversion of Shares; Procedures For Exchange
of Certificates." Signed proxies returned to FTP but left blank will be voted in
favor of the Merger; therefore, in order to be assured that shares are not voted
in favor of the Merger, a stockholder must either vote in person or by proxy
against the Merger or abstain from voting. Failure to vote against the Merger
will not constitute a waiver of appraisal rights, but voting against the Merger
will not by itself satisfy the obligations of a stockholder described in clauses
(i) and (iii) above. The written objection described in clause (i) above must be
sent to FTP at 2 High Street, North Andover, Massachusetts 01845, Attention:
Clerk.
If, following the Merger, a stockholder perfects a demand for payment of
his or her shares as provided above, and if FTP and such dissenting stockholder
are able to reach agreement on the fair value of the shares, FTP will pay to the
dissenting stockholder the fair value of such shares of FTP Common Stock, as the
case may be, within 30 days after the expiration of the period during which the
demand may be made. If within the 30-day period the parties fail to agree as to
the fair value of such shares, either FTP or the dissenting stockholder may have
the fair value of the stock of all dissenting stockholders determined by
judicial proceedings by filing a bill in equity in the Massachusetts Superior
Court for Essex County within four months after the 30-day period expires. If
(i) no suit is filed within four months to determine the value of the stock,
(ii) any such suit is dismissed as to that stockholder or (iii) the stockholder
withdraws his or her objection in writing with the written approval of FTP, the
stockholder will have only the rights of a nondissenting stockholder to receive
the consideration to be paid in the Merger as described in more detail under
"-- Conversion of Shares; Procedures For Exchange of Certificates." After the
FTP Special Meeting, a dissenting stockholder will not be entitled to notices of
meetings of stockholders, to vote at any such meeting or to receive dividends or
other distributions on the FTP or NetManage Common Stock.
Under Massachusetts statutory law, the enforcement by a dissenting
stockholder of such stockholder's right to receive payment for his or her shares
in the manner provided by Sections 85 through 98, inclusive, of the
Massachusetts BCL is stated to be the exclusive remedy of a stockholder
objecting to the Reorganization Agreement and the Merger, except upon the
grounds that consummation of the Merger will be or is illegal or fraudulent as
to such stockholder. The Massachusetts Supreme Judicial Court, however, has held
that dissenting stockholders are not limited to the statutory remedy of judicial
appraisal in cases where violations of fiduciary duty are found.
FTP Stockholders who receive cash for their shares of FTP Common Stock upon
exercise of dissenters' rights will generally realize taxable gain or loss. See
"-- Certain United States Federal Income Tax Consequences."
It is a condition to the obligation of NetManage to consummate the Merger
that the number of Dissenting Shares be less than 2% of the outstanding FTP
Common Stock. See "THE REORGANIZATION AGREEMENT -- Conditions to the Merger."
MERGER EXPENSES AND FEES AND OTHER COSTS
Each of NetManage and FTP will pay its own expenses in connection with the
Merger. NetManage and FTP will, however, share equally all fees and expenses,
other than accountants' and attorneys' fees, incurred in connection with the
filing, printing and mailing of this Joint Proxy Statement/Prospectus (including
any preliminary materials related thereto) and the Registration Statement
(including financial statements and exhibits) and any amendments or supplements
thereto.
THE REORGANIZATION AGREEMENT
The description of the Reorganization Agreement set forth below does not
purport to be complete and is qualified in its entirety by reference to the
Reorganization Agreement, a copy of which is attached to this Joint Proxy
Statement/Prospectus as Annex A and incorporated herein by reference. All
stockholders are urged to read the Reorganization Agreement in its entirety.
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TERMS OF THE MERGER
THE MERGER. At the Effective Time and subject to and upon the terms and
conditions of the Reorganization Agreement and the Massachusetts BCL, Merger Sub
will be merged with and into FTP, the separate corporate existence of Merger Sub
will cease, and FTP will continue as the surviving corporation and a
wholly-owned subsidiary of NetManage.
EFFECTIVE TIME. As promptly as practicable after the approval of the Merger
Proposal by the FTP Stockholders and the approval of the Share Proposal and the
Certificate Amendment Proposal, by the NetManage Stockholders, subject to the
satisfaction or waiver of the other conditions to the Merger, the Merger will be
consummated by filing Articles of Merger with the Secretary of The Commonwealth
of Massachusetts in accordance with the provisions of the Massachusetts BCL.
ARTICLES OF ORGANIZATION AND BYLAWS. The Reorganization Agreement provides
that the Articles of Organization and Bylaws of FTP, as in effect immediately
prior to the Effective Time, will be amended to read as did the Articles of
Organization and Bylaws of the Merger Sub until thereafter amended, except that
the name of FTP will remain unchanged.
DIRECTORS AND OFFICERS. The directors and officers of Merger Sub
immediately prior to the Effective Time will be the initial directors and
officers of FTP as the surviving corporation, each to hold office in accordance
with the Articles of Organization and Bylaws of the surviving corporation, in
each case until their respective successors are duly elected or appointed and
qualified.
CONVERSION OF FTP COMMON STOCK IN THE MERGER. At the Effective Time, each
share of FTP Common Stock issued and outstanding immediately prior to the
Effective Time (other than shares owned by NetManage, FTP or Merger Sub and
Dissenting Shares, if any) will be converted into the right to receive a
fraction of a share of NetManage Common Stock equal to the Exchange Ratio. Cash
will be paid to the FTP Stockholders in lieu of fractional shares of NetManage
Common Stock. See "-- Fractional Shares" and "-- Exchange of Certificates and
Merger Consideration."
ADJUSTMENT TO EXCHANGE RATIO. If (i) the net revenues of FTP (A) for the
quarter ended June 30, 1998 ("FTP Second Quarter Revenues") are less than
$9,000,000 and/or (B) for the two months ending August 31, 1998 ("FTP Third
Quarter Revenues") are less than $4,900,000 if the closing of the Merger occurs
on or after August 31, 1998 (or, if the Merger closes before August 31, 1998,
net revenues for the month ending July 31, 1998 are less than $2,450,000),
and/or (ii) the cash, cash equivalents and short- and long-term cash investments
of FTP on June 30, 1998 are less than $60,000,000, the Exchange Ratio will be
reduced to the amount obtained by dividing the number of Adjusted Merger Shares
by 34,024,336. "Adjusted Merger Shares" means a number of shares of NetManage
Common Stock equal to 24,758,452 minus the number of shares of NetManage Common
Stock obtained by dividing (A)(1) the amount by which FTP Second Quarter
Revenues plus the excess, if any, of FTP Third Quarter Revenues over $4,900,000
if the Closing occurs on or after August 31, 1998 (or, if the Merger closes
before August 31, 1998, the excess, if any, of FTP's net revenues for the month
ending July 31, 1998 over $2,450,000) are less than $9,000,000, plus (2) the
amount by which FTP Third Quarter Revenues are less than $4,900,000 if the
Closing occurs on or after August 31, 1998 (or, if the Merger closes before
August 31, 1998, the amount by which FTP's net revenues for the month ending
July 31, 1998 are less than $2,450,000), plus (3) the amount by which the cash,
cash equivalents and short- and long-term cash investments of FTP on June 30,
1998 are less than $60,000,000, by (B) the average of the closing prices (the
"Average Price") of the NetManage Common Stock as reported on the Nasdaq
National Market for the 20 trading days ending on the third trading day prior to
the date on which the Merger closes. While FTP's cash, cash equivalents and
short- and long-term cash investments on June 30, 1998 were in excess of $60
million, FTP expects that FTP Second Quarter Revenues will be between $7,700,000
and $8,400,000. As a result, unless FTP's net revenues for the month ending July
31, 1998 are at least $2,450,000 plus the amount of any such shortfall from
$9,000,000, the Exchange Ratio would be between 0.71345 and 0.72111 assuming an
Average Price of $2.6875 (the closing sales price of the NetManage Common Stock
on July 14, 1998). See "SUMMARY -- Conversion of Shares; Adjustment to Exchange
Ratio."
STOCK OPTIONS. Under the terms of the Reorganization Agreement, at the
Effective Time each FTP Stock Option granted pursuant to FTP's employee stock
option plans will be converted into an option to
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acquire, on the same terms and conditions as were applicable to such FTP Stock
Option immediately prior to the Effective Time, the number of shares of
NetManage Common Stock equal to the number of shares of FTP Common Stock
issuable upon exercise of such FTP Stock Option immediately prior to the
Effective Time multiplied by the Exchange Ratio, rounded down to the nearest
whole share. The per share exercise price under each such FTP Stock Option will
be adjusted by dividing the per share exercise price under such FTP Stock Option
by the Exchange Ratio and rounding up to the nearest cent. See "THE MERGER --
Effect on Employee Equity Plans."
FRACTIONAL SHARES. No certificates representing less than one share of
NetManage Common Stock will be issued in connection with the Merger. In lieu of
any such fractional share, each holder of a certificate or certificates for FTP
Common Stock who would otherwise have been entitled to a fraction of a share of
NetManage Common Stock (after aggregating all fractional shares of NetManage
Common Stock that would otherwise be received by such holders) upon surrender of
such certificates for exchange shall be paid upon such surrender cash (without
interest) equal to the product of (i) such fraction, multiplied by (ii) the
average closing price per share of NetManage Common Stock for the five most
recent days that the NetManage Common Stock has traded ending on the trading day
immediately prior to the Effective Time, as reported on the Nasdaq National
Market.
EXCHANGE OF CERTIFICATES AND MERGER CONSIDERATION
EXCHANGE AGENT. NetManage shall supply, or shall cause to be supplied, to
or for the account of the Exchange Agent, in trust for the benefit of the FTP
Stockholders, for exchange in accordance with the Reorganization Agreement,
certificates evidencing the shares of NetManage Common Stock issuable in
exchange for the outstanding FTP Common Stock.
EXCHANGE PROCEDURES. Promptly after the Effective Time, NetManage will
instruct the Exchange Agent to mail to each holder of record of FTP Common Stock
a letter of transmittal and instructions to effect the surrender of the
certificates formerly representing FTP Common Stock in exchange for certificates
evidencing NetManage Common Stock and cash in an amount sufficient for payment
in lieu of fractional shares.
MERGER CONSIDERATION. Upon surrender of each certificate formerly
representing FTP Common Stock for cancellation to the Exchange Agent together
with the letter of transmittal, duly executed, the holder of such certificate
will be entitled to receive in exchange therefor (i) certificates evidencing
that number of whole shares of NetManage Common Stock which such holder has the
right to receive in the Merger, (ii) any dividends or distributions on the
shares of NetManage Common Stock which such holder is entitled to receive, and
(iii) cash in respect of fractional shares of NetManage Common Stock (the
NetManage Common Stock, distributions and cash described in clauses (i), (ii)
and (iii) being, collectively, the "Merger Consideration"), and the certificate
representing FTP Common Stock so surrendered will forthwith be canceled. In the
event of a transfer of ownership of shares of FTP Common Stock which is not
registered in the transfer records of FTP as of the Effective Time, the Merger
Consideration may be issued and paid to a transferee if the certificate
evidencing such shares of FTP Common Stock is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
by evidence that any applicable stock transfer taxes have been paid or are not
payable. Until so surrendered, each outstanding certificate that, prior to the
Effective Time, represented shares of FTP Common Stock will be deemed from and
after the Effective Time, for all corporate purposes (other than payment of
dividends), to evidence the ownership of the number of full shares of NetManage
Common Stock into which such shares of FTP Common Stock shall have been so
converted.
LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any certificates
representing shares of FTP Common Stock have been lost, stolen or destroyed, the
Exchange Agent will issue shares of NetManage Common Stock, cash for fractional
shares, if any, and any dividends or distributions payable pursuant to the
Reorganization Agreement in exchange for such lost, stolen or destroyed
certificates upon the making of an affidavit of that fact by the holder of such
certificates and, at the request of NetManage, upon delivery of a bond in such a
sum as NetManage may reasonably direct as indemnity against any claim that may
be made
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against NetManage, FTP as the surviving corporation or the Exchange Agent with
respect to the certificates alleged to have been lost, stolen or destroyed.
DETAILED INSTRUCTIONS, INCLUDING A TRANSMITTAL LETTER, WILL BE MAILED TO
THE FTP STOCKHOLDERS PROMPTLY FOLLOWING THE EFFECTIVE TIME AS TO THE METHOD OF
EXCHANGING CERTIFICATES FORMERLY REPRESENTING SHARES OF FTP COMMON STOCK. FTP
STOCKHOLDERS SHOULD NOT SEND CERTIFICATES REPRESENTING THEIR SHARES TO THE
EXCHANGE AGENT PRIOR TO RECEIPT OF THE TRANSMITTAL LETTER.
REPRESENTATIONS AND WARRANTIES
The Reorganization Agreement contains various customary representations and
warranties made by FTP, in respect of itself, in favor of NetManage and Merger
Sub, and made by NetManage and Merger Sub, in respect of NetManage and Merger
Sub, in favor of FTP, relating, among other things, to the following matters
with respect to FTP, and to certain of the following matters with respect to
NetManage and Merger Sub: (i) corporate organization, standing, qualification,
approvals and similar matters; (ii) the capital structure of each company and
the absence of obligations with respect to the capital stock of each such
company; (iii) the authorization, execution, delivery and enforceability of the
Reorganization Agreement; (iv) reports and other documents filed with the
Commission and the fair presentation of the financial statements contained
therein in accordance with generally accepted accounting principles; (v) the
absence of certain changes in operations; (vi) payment of taxes and certain
other tax matters; (vii) ownership, rights to use and absence of liens and
encumbrances with respect to property; (viii) ownership, rights to use and
absence of violations or claims or restrictions with respect to intellectual
property; (ix) the absence of conflict with, default under or violation of
agreements and applicable laws, and the holding of permits necessary for the
conduct of business; (x) pending or threatened litigation; (xi) the absence of
any governmental audit; (xii) absence of brokers', finders' and investment
bankers' fees (other than the fees and expenses payable to CIBC Oppenheimer and
Cowen); (xiii) certain employee benefit matters; (xiv) certain labor matters and
claims or threatened claims; (xv) compliance with environmental laws; (xvi)
certain material agreements, contracts and commitments; (xvii) the accuracy of
statements in this Joint Proxy Statement/Prospectus; (xviii) the existence of
certain Board approvals; (xix) receipt of the opinions of FTP's and NetManage's
respective financial advisors as to fairness of the Merger from a financial
point of view; (xx) the absence of certain related transactions and agreements;
(xxi) the non-applicability of Massachusetts antitakeover laws; (xxii)
compliance with customs, import and export controls; and (xxiii) the
availability of the pooling of interests method of accounting with respect to
the Merger.
CONDUCT OF BUSINESS PENDING THE MERGER
OPERATION OF FTP'S BUSINESS PRIOR TO THE MERGER. Pursuant to the
Reorganization Agreement, FTP has agreed that from the date of the
Reorganization Agreement until the Effective Time (the "Pre-Closing Period"), it
will conduct its business and operations in the ordinary course in substantially
the same manner as previously conducted and in material compliance with
applicable legal requirements, pay its debts and taxes when due subject to good
faith disputes over such debts or taxes, pay or perform other material
obligations when due, and use commercially reasonable efforts, consistent with
past practices, to preserve substantially intact its current business
organization, keep available the services of its current officers and employees,
and maintain its relations with customers, suppliers, distributors, licensors,
licensees and other persons having significant business relationships with FTP,
and make reasonable efforts to retain and preserve the value of all office
equipment, fixtures and other assets used in the conduct of its business. FTP
has also agreed that it will not, and will not permit its subsidiaries to, among
other things (without the consent of NetManage, which may not be unreasonably
withheld), subject to certain exceptions: (a) accelerate, amend or change the
period of exercisability or reprice any stock options or authorize cash payments
in exchange for any stock options; (b) grant any severance or termination pay to
any officer or employee except pursuant to previously existing written
agreements or policies, or adopt any new severance plan; (c) sell or transfer
any intellectual property, or enter into any license agreement with respect to
FTP's intellectual property with any third party other than
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in the ordinary course of business; (d) buy any intellectual property of a third
party or enter into any license agreement with respect to the intellectual
property of any third party for an acquisition or license, the price for which
exceeds $50,000 individually or in the aggregate, other than "shrink-wrap,"
"click-wrap" and similar widely available commercial end-user licenses; (e)
declare, set aside or pay any dividend or make any other distribution in respect
of any shares of its capital stock, or repurchase, redeem or otherwise reacquire
any shares of capital stock, or split, combine or reclassify any capital stock
or issue or authorize the issuance of any other securities in respect of any
capital stock; (f) issue, deliver, sell, authorize, pledge or otherwise encumber
any shares of capital stock or any securities convertible into shares of capital
stock, or subscriptions, rights, warrants or options to acquire any shares of
capital stock or any securities convertible into shares of capital stock, or
enter into other agreements or commitments of any character obligating it to
issue any such shares or convertible securities, other than the issuance,
delivery and/or sale of (i) shares of the FTP Common Stock pursuant to the
exercise of outstanding stock options and (ii) shares of the FTP Common Stock
issuable to participants in FTP's employee stock purchase plans; (g) cause,
permit or propose any amendments to its articles of organization, bylaws or
other charter documents; (h) acquire or agree to acquire any business or
material assets or enter into any material joint ventures, strategic
partnerships or alliances; (i) sell, lease, license, encumber or dispose of any
properties or assets, except sales in the ordinary course of business; (j) incur
any indebtedness for borrowed money or guarantee any such indebtedness of
another person, issue or sell any debt securities or options, warrants, calls or
other rights to acquire any debt securities of FTP, enter into any agreement to
maintain any financial statement condition or enter into any arrangement having
the economic effect of any of the foregoing; (k) adopt or amend any employee
benefit plan or employee stock purchase or employee stock option plan, enter
into any employment contract or collective bargaining agreement other than in
the ordinary course, pay any special bonus or special remuneration to any
director or employee in excess of $150,000 in the aggregate, or increase the
amount of any compensation payable to any of its directors, officers, employees
or consultants; (l) pay, discharge or satisfy any claim, liability or obligation
other than in the ordinary course of business or in accordance with applicable
contractual requirements; (m) except in the ordinary course of business, amend
or terminate, or waive, release or assign any material right under, any material
contract; (n) enter into any agreements or obligations relating to the
distribution, sale, license or marketing of FTP's products by third parties
other than in the ordinary course of business; (o) materially revalue any of its
assets or, except as required by GAAP, make any change in accounting methods,
principles or practices; (p) make any tax election, adopt or change any
accounting method in respect of taxes, settle any claim or assessment in respect
of taxes, or consent to any waiver of the limitation period applicable to any
claim or assessment in respect of taxes in an amount in excess of $50,000 in the
aggregate; (q) commence or settle any legal proceeding other than in the
ordinary course of business; (r) take any action that would be reasonably likely
to interfere with NetManage's ability to account for the Merger as a pooling of
interests; (s) terminate the employment of any employee of FTP other than for
cause; or (t) agree to take any action described in the clauses "(a)" through
"(s)" above.
OPERATION OF NETMANAGE'S BUSINESS PRIOR TO THE MERGER. Pursuant to the
Reorganization Agreement, NetManage has agreed that, during the Pre-Closing
Period, it will not (without FTP's consent, which may not be unreasonably
withheld): (a) take any action that would be reasonably likely to interfere with
NetManage's ability to account for the Merger as a pooling of interests; (b)
declare, set aside or pay any dividend on or make any other distribution in
respect of any capital stock, or split, combine or reclassify any capital stock
or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for any capital stock; (c) purchase, redeem or
otherwise acquire any shares of capital stock except repurchases of unvested
shares at cost in connection with termination of the employment relationship
with any employee pursuant to certain stock option or purchase agreements; (d)
materially revalue any of its assets or, except as required by GAAP, make any
change in accounting methods, principles or practices; or (e) agree to take any
of the actions described in clauses "(a)" through "(d)" above.
ADDITIONAL COVENANTS
The Reorganization Agreement also contains certain additional covenants of
the parties including covenants relating to, among other things: (i) the
preparation and filing of the Registration Statement and this Joint Proxy
Statement/Prospectus; (ii) FTP's obligations with respect to the FTP Special
Meeting;
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(iii) NetManage's obligations with respect to the NetManage Special Meeting;
(iv) the assumption of the FTP Stock Options; (v) confidentiality; (vi) subject
to certain limitations, the preparation and filing of filings and notices and
obtaining approvals, consents, waivers and authorizations; (vii) public
disclosures regarding the Merger, the Reorganization Agreement and the
transactions contemplated thereby or other proposals received by FTP; (viii)
affiliate agreements; (ix) tax matters; (x) regulatory approvals; (xi) listing
of the shares of NetManage Common Stock issued or issuable in the Merger on the
Nasdaq National Market (xii) amendment of the FTP Rights Agreement; and (xiii)
financial information and reporting.
INDEMNIFICATION OF OFFICERS AND DIRECTORS. Pursuant to the Reorganization
Agreement, NetManage has agreed that, from the Effective Time, NetManage will,
and NetManage will cause the surviving corporation to, fulfill and honor in all
respects the obligations of FTP pursuant to any indemnification agreement in
effect on the date of the Reorganization Agreement between FTP and each person
who is or was a director or officer of FTP at or prior to the Effective Time and
any indemnification provisions under FTP's Articles of Organization or Bylaws as
each was in effect on the date of the Reorganization Agreement (the "Indemnified
Parties.") The Articles of Organization and Bylaws of the surviving corporation
will contain provisions with respect to indemnification and exculpation from
liability at least as favorable to the Indemnified Parties as those contained in
FTP's Articles of Organization and Bylaws on the date of the Reorganization
Agreement, which provisions will not be modified, repealed or amended for a
period of four years after the Effective Time in any manner that would adversely
affect the rights of any Indemnified Parties, unless required by applicable law.
Moreover, subject to certain limitations, NetManage has agreed to cause FTP
as the surviving corporation to maintain in effect, during the four-year period
commencing as of the Effective Time, a policy of directors' and officers'
liability insurance for the benefit of each of the Indemnified Parties on terms
comparable to FTP's existing policy of directors' and officers' liability
insurance as of the date of the Reorganization Agreement, provided, however,
that FTP as the surviving corporation shall not be required to expend in excess
of 125% of the annual premium currently paid by FTP for such coverage.
NO SOLICITATION
Pursuant to the Reorganization Agreement, FTP has agreed that it will not,
directly or indirectly, and will not authorize or permit its representatives,
directly or indirectly, to (a) solicit, initiate, encourage or induce the
making, submission or announcement of any Acquisition Proposal (as defined
below) or take any action that could reasonably be expected to lead to any
Acquisition Proposal, (b) furnish any non-public information to any third party
with respect to any Acquisition Proposal, (c) engage in discussions or
negotiations with any third party with respect to any Acquisition Proposal, (d)
approve, endorse or recommend (except as described below) any Acquisition
Proposal or (e) enter into any letter of intent or similar document or any
contract contemplating or otherwise relating to any Acquisition Transaction (as
defined below); provided, however, that prior to the approval of the Merger
Proposal by the FTP Stockholders, FTP may furnish nonpublic information
regarding FTP to, or enter into discussions and participate in negotiations
with, any third party in response to a superior offer that is submitted by such
third party (and not then withdrawn) if (1) neither FTP nor any of the
representatives of FTP violate any of the non-solicitation provisions set forth
in the Reorganization Agreement, (2) the FTP Board concludes in good faith,
after consultation with outside legal counsel, that such action is required in
order for the FTP Board to comply with its fiduciary obligations to the FTP
Stockholders under applicable law, (3) prior to furnishing any such nonpublic
information to, or entering into discussions or negotiations with, such third
party, FTP gives NetManage written notice of the identity of such third party
and of FTP's intention to furnish nonpublic information to, or enter into
discussions or negotiations with, such third party, and FTP receives from such
third party an executed confidentiality agreement containing customary and
reasonable limitations on the use and disclosure of all nonpublic written and
oral information furnished to such third party by or on behalf of FTP and (4)
concurrently with furnishing any such nonpublic information to such person, FTP
furnishes such nonpublic information to NetManage (to the extent such nonpublic
information has not been previously furnished by FTP to NetManage). The
Reorganization Agreement also provides that any violation of any of the above
restrictions by any representative of FTP, whether or not such representative is
purporting to act on behalf of FTP, shall be deemed to
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constitute a breach of the above-described no solicitation restrictions. In
addition, FTP has agreed that it will provide NetManage with at least 24 hours
notice prior to any meeting of the FTP Board at which the FTP Board is
reasonably expected to consider a superior offer and provide NetManage at least
two days prior notice of a meeting of the FTP Board at which the FTP Board is
reasonably expected to recommend a superior offer.
"Acquisition Proposal" means any offer or proposal (other than an offer or
proposal by NetManage) relating to any Acquisition Transaction.
"Acquisition Transaction" means any transaction or series of related
transactions, other than the transactions contemplated by the Reorganization
Agreement, involving: (i) any acquisition or purchase from FTP by any person or
"group" (as defined in the Exchange Act and the rules promulgated thereunder) of
more than a 15% interest in the total outstanding voting securities of FTP or
any of its subsidiaries or any tender offer or exchange offer that if
consummated would result in any such person or "group" beneficially owning 15%
or more of the total outstanding voting securities of FTP or any of its
subsidiaries or any merger, consolidation, business combination or similar
transaction involving FTP pursuant to which the stockholders of FTP immediately
preceding such transaction hold less than 85% of the equity interests in the
surviving or resulting entity of such transaction; (ii) any sale, lease (other
than in the ordinary course of business), exchange, transfer, license (other
than in the ordinary course of business), acquisition or disposition of more
than 25% of the assets of FTP; or (iii) any liquidation or dissolution of FTP.
CONDITIONS TO THE MERGER
The obligations of NetManage and Merger Sub to effect the Merger and
otherwise consummate the transactions contemplated by the Reorganization
Agreement are subject to the satisfaction, at or prior to the Closing Date, of
each of the following conditions, among others: (i) the representations and
warranties of FTP contained in the Reorganization Agreement were accurate in all
material respects as of the date of the Reorganization Agreement and will be
true and correct in all material respects as of the Closing Date as if made on
and as of the Closing Date, except where the failure to be true and correct
would not have a "Material Adverse Effect" on FTP, as defined below; (ii) each
covenant or obligation that FTP is required to comply with or to perform at or
prior to the Closing shall have been complied with and performed in all material
respects; (iii) the absence of a Material Adverse Effect with respect to FTP;
(iv) that the employment and non-competition agreements executed by certain
employees of FTP as described under "THE MERGER -- Interests of Certain Persons
in the Merger" will be in full force and effect as of the Closing; (v) FTP will
have obtained certain consents, waivers and approvals in connection with certain
agreements; (vi) the execution of Affiliate Agreements by certain affiliates of
FTP; (vii) fewer than 2% of the outstanding shares of FTP Common Stock shall
have exercised appraisal rights; (viii) FTP shall have amended its shareholder
rights agreement to prevent triggering the rights therein upon the Merger; (ix)
NetManage shall have received letters from the independent public accountants
for both NetManage and FTP concurring with the conclusion of the management of
each of NetManage and FTP that the Merger will qualify for "pooling of
interests" accounting treatment; (x) the receipt by NetManage of a legal opinion
of counsel to FTP regarding the affiliate status of certain FTP stockholders;
(xi) the Merger Proposal shall have been duly approved by the FTP Stockholders
and the Share Proposal and the Certificate Amendment Proposal shall have been
duly approved by the NetManage Stockholders; (xii) no stop order shall have been
issued by the Commission with respect to the Registration Statement; (xiii) no
injunction or other order preventing the consummation of the Merger shall have
been issued by any court or other governmental authority, and there shall not be
any legal requirement applicable to the Merger that makes consummation of the
Merger illegal; (xiv) NetManage shall have received an opinion from Wilson
Sonsini and FTP shall have received an opinion from Ropes & Gray to the effect
that Merger will constitute a reorganization under Section 368(a) of the Code;
and (xv) the shares of NetManage Common Stock to be issued in the Merger shall
have been approved, upon official notice of issuance, for quotation on the
Nasdaq National Market.
The obligations of FTP to effect the Merger and otherwise consummate the
transactions contemplated by the Reorganization Agreement are subject to the
satisfaction, at or prior to the Closing Date, of the following conditions: (i)
the representations and warranties of NetManage contained in the Reorganization
Agreement were accurate in all material respects as of the date of the
Reorganization Agreement and will be true and correct in all material respects
as of the Closing Date as if made on and as of the Closing Date, except where
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the failure to be true and correct would not have a Material Adverse Effect on
NetManage; (ii) each covenant and obligation that NetManage and Merger Sub are
required to comply with or to perform at or prior to the Closing shall have been
complied with and performed in all material respects; (iii) the absence of a
Material Adverse Effect with respect to NetManage; (iv) the Merger Proposal
shall have been duly approved by the FTP Stockholders and the Share Proposal and
the Certificate Amendment Proposal shall have been duly approved by the
NetManage Stockholders; (v) no stop order shall have been issued by the
Commission with respect to the Registration Statement; (vi) no injunction or
other order preventing the consummation of the Merger shall have been issued by
any court or other governmental authority, and there shall not be any legal
requirement applicable to the Merger that makes consummation of the Merger
illegal; (vii) NetManage shall have received an opinion from Wilson Sonsini and
FTP shall have received an opinion from Ropes & Gray to the effect that Merger
will constitute a reorganization under Section 368(a) of the Code; and (viii)
the shares of NetManage Stock to be issued in the Merger shall have been
approved, upon official notice of issuance, for quotation on the Nasdaq National
Market.
Pursuant to the Reorganization Agreement, the term "Material Adverse
Effect" when used in connection with an entity means any change, event,
violation, inaccuracy, circumstance or effect that is materially adverse to the
business, assets (including intangible assets), capitalization, financial
condition or results of operations of such entity and its subsidiaries taken as
a whole. A Material Adverse Effect will be deemed to have occurred with respect
to FTP if, among other things: (i) FTP Second Quarter Revenues (together with
the excess, if any, of (A) FTP Third Quarter Revenues over $3,500,000 (if the
closing of the Merger occurs on or after August 31, 1998) or (B) the net
revenues of FTP for the month ending July 31, 1998 over $1,750,000 (if the
closing of the Merger occurs prior to August 31, 1998)) are less than $7,500,000
or (ii) FTP Third Quarter Revenues are less than $3,500,000 (if the Closing
occurs on or after August 31, 1998) (or, if the Closing occurs prior to August
31, 1998, the net revenues of FTP for the month ending July 31, 1998 are less
than $1,750,000) (each of (i) and (ii) a "FTP Net Revenue Threshold"). A
Material Adverse Effect shall be deemed to have occurred with respect to
NetManage if, among other things, (A) the net revenues of NetManage for the
fiscal quarter ending June 30, 1998 (together with the excess, if any, of (1)
the net revenues of NetManage for the two months ending August 31, 1998
("NetManage Third Quarter Revenues") over $5,500,000 (if the closing of the
Merger occurs on or after August 31, 1998) or (2) the net revenues of NetManage
for the month ending July 31, 1998 over $2,750,000 (if the closing of the Merger
occurs prior to August 31, 1998)) are less than $11,250,000 or (B) NetManage
Third Quarter Revenues are less than $5,500,000 (if the closing of the Merger
occurs on or after August 31, 1998) (or, if the closing of the Merger occurs
prior to August 31, 1998, the net revenues of NetManage for the month ending
July 31, 1998 are less than $2,750,000) (each of (A) and (B) a "NetManage Net
Revenue Threshold"). For purposes of the Reorganization Agreement, the
determination of whether a Material Adverse Effect with respect to FTP or
NetManage has occurred, in the event that each of FTP Net Revenue Thresholds or
NetManage Net Revenue Thresholds, as the case may be, are satisfied, will not
take into account the net revenues of FTP or the net revenues of NetManage, as
the case may be, for such periods. However, for avoidance of doubt, a Material
Adverse Effect may occur if changes, events, violations, inaccuracies,
circumstances or effects other than a failure to meet each FTP Net Revenue
Threshold or NetManage Net Revenue Threshold, as the case may be, shall exist.
In addition, for purposes of the Reorganization Agreement, if each of the FTP
Net Revenue Thresholds or NetManage Net Revenue Thresholds, as the case may be,
are satisfied, a Material Adverse Effect with respect to FTP or NetManage, as
the case may be, will not be deemed to have occurred if such change, event,
violation, inaccuracy, circumstance or effect is directly attributable and
consistent with trends affecting such party's business, results of operations
and financial condition on and as of March 31, 1998.
TERMINATION
The Reorganization Agreement provides that it may be terminated at any time
prior to the Effective Time, whether before or after the required approvals of
the stockholders of NetManage and FTP: (i) by written mutual consent of
NetManage and FTP; (ii) by either NetManage or FTP if the Merger is not
consummated by October 31, 1998, provided, however, that such right to terminate
the Reorganization Agreement shall not be available to any party whose action or
failure to act is a principal cause of or results in
60
<PAGE> 75
the failure of the Merger to occur on or before such date, and such action or
failure to act constitutes a breach of the Reorganization Agreement; (iii) by
either NetManage or FTP if a court of competent jurisdiction or other
governmental body shall have issued a final and nonappealable order, decree or
ruling, or shall have taken any other action, having the effect of permanently
restraining, enjoining or otherwise prohibiting the Merger; (iv) by either
NetManage or FTP if the FTP Stockholders have not approved the Merger Proposal
at the FTP Special Meeting (provided, however, that such right to terminate the
Reorganization Agreement shall not be available to FTP where the failure to
obtain the required FTP Stockholder vote is caused by the action or failure to
act of FTP and such action or failure to act constitutes a breach by FTP of the
Reorganization Agreement); (v) by either NetManage or FTP if the NetManage
Stockholders have not approved the Share Proposal and the Certificate Amendment
Proposal at the NetManage Special Meeting (provided, however, that such right to
terminate the Reorganization Agreement shall not be available to NetManage where
the failure to obtain the required NetManage Stockholder vote is caused by the
action or failure to act of NetManage and such action or failure to act
constitutes a breach by NetManage of the Reorganization Agreement); (vi) by
NetManage or FTP if a Triggering Event (as defined below) shall have occurred
prior to the FTP Special Meeting and the NetManage Special Meeting, provided,
however, that in such a case, FTP may not so terminate the Reorganization
Agreement for 120 days following the date of the Reorganization Agreement; (vii)
by FTP, upon breach of any representation, warranty, covenant or agreement on
the part of NetManage or Merger Sub under the Reorganization Agreement, or if
any representation or warranty of NetManage or Merger Sub becomes untrue, in
either case such that the conditions to FTP's obligations to consummate the
Merger are not satisfied, provided, however, that if an inaccuracy in
NetManage's representations and warranties or a breach by NetManage is curable
by NetManage and NetManage is continuing to exercise commercially reasonable
efforts to cure such inaccuracy or breach, then FTP may not so terminate the
Reorganization Agreement for 15 days after delivery of written notice by FTP to
NetManage of such breach; (viii) by NetManage upon breach of any representation,
warranty, covenant or agreement on the part of FTP under the Reorganization
Agreement, or if any representation or warranty of FTP becomes untrue, in either
case such that the conditions to NetManage's obligations to consummate the
Merger are not satisfied, provided, however, that if an inaccuracy in FTP's
representations and warranties or a breach of a covenant by FTP is curable by
FTP and FTP is continuing to exercise commercially reasonable efforts to cure
such inaccuracy or breach, then NetManage may not so terminate the
Reorganization Agreement for 15 days after delivery of written notice by FTP to
NetManage of such breach.
A "Triggering Event" will be deemed to have occurred if: (i) the FTP Board
fails to recommend unanimously, or for any reason withdraws, amends or modifies
in a manner adverse to NetManage, its unanimous recommendation in favor of
approval of the Reorganization Agreement and the Merger; (ii) FTP fails to
include in this Joint Proxy Statement/Prospectus the unanimous recommendation of
the FTP Board in favor of approval of the Reorganization Agreement and the
Merger; (iii) the FTP Board fails to reaffirm its unanimous recommendation in
favor of approval of the Reorganization Agreement and the Merger within five
days after NetManage requests that such recommendation be reaffirmed at any time
following the public announcement of an Acquisition Proposal; (iv) the FTP Board
or any committee of the FTP Board approves or publicly recommends any
Acquisition Proposal; (v) FTP enters into any letter of intent or similar
document or any contract accepting any Acquisition Proposal; and (vi) a tender
or exchange offer relating to securities of FTP shall have been commenced by a
person or entity affiliated with NetManage and FTP has not sent to its
securityholders, within 10 business days after the commencement of such tender
or exchange offer, a statement disclosing that FTP recommends rejection of such
tender or exchange offer.
TERMINATION FEES
The Reorganization Agreement provides that if the Reorganization Agreement
is terminated (i) by NetManage due to the failure of the FTP Stockholders to
approve the Merger Proposal or (ii) by NetManage if a Triggering Event with
respect to FTP shall have occurred, then FTP shall pay to NetManage, within two
business days following the date of such termination, the sum of $3,100,000 in
immediately available funds.
The Reorganization Agreement further provides that if the Reorganization
Agreement is terminated by FTP due to the failure of the NetManage Stockholders
to approve the Share Proposal or the Certificate
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<PAGE> 76
Amendment Proposal, NetManage shall pay to FTP, within two business days
following the date of such termination, the sum of $3,100,000 in immediately
available funds.
AMENDMENT; WAIVER
The Reorganization Agreement may be amended by FTP and NetManage at any
time, provided, however, that (i) after any approval of the Merger Proposal by
the FTP Stockholders, no amendment shall be made which by law requires further
approval of the FTP Stockholders without the further approval of the FTP
Stockholders, and (ii) after any approval of the Share Proposal or the
Certificate Amendment Proposal by the NetManage Stockholders, no amendment shall
be made which by law or NASD regulation requires further approval of the
NetManage Stockholders without the further approval of the NetManage
Stockholders.
AFFILIATE AGREEMENTS
NetManage has entered into Affiliate Agreements with each of NetManage's
and FTP's directors and executive officers which restrict sales, dispositions or
other transactions that reduce such persons' risk of investment in respect of
the shares of NetManage Common Stock and FTP Common Stock held by them in order
to enable the Merger to be treated as a pooling of interests for accounting and
financial reporting purposes. In particular, such persons may not sell shares of
NetManage Common Stock or FTP Common Stock for the period beginning 30 days
prior to signing of the Reorganization Agreement and ending on the date of
announcement of financial results of NetManage covering at least 30 days of
combined operations of NetManage and FTP.
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<PAGE> 77
THE CERTIFICATE AMENDMENT PROPOSAL
GENERAL
At the NetManage Special Meeting, NetManage Stockholders are being asked to
approve an amendment to NetManage's Certificate of Incorporation (the
"Certificate Amendment") to increase the number of authorized shares of
NetManage Common Stock from 75,000,000 to 125,000,000 (the "Certificate
Amendment Proposal").
The Certificate Amendment was approved by the NetManage Board in June 1998,
subject to stockholder approval at the NetManage Special Meeting. The
Certificate Amendment would give the NetManage Board the authority to issue
additional shares of NetManage Common Stock without requiring future stockholder
approval of such issuances, except as may otherwise be required by applicable
law or exchange rules.
SHARES RESERVED
Of the 75,000,000 currently authorized shares of NetManage Common Stock,
44,209,692 shares of Common Stock were issued and outstanding as of July 13,
1998. In addition, as of July 13, 1998, approximately 8,100,000 shares were
subject to outstanding stock options or available for future grant under
NetManage's option plans. Based upon the number of outstanding shares of FTP
Common Stock and outstanding FTP Stock Options on the FTP Record Date and
assuming an Exchange Ratio of 0.72767, NetManage would issue approximately
24,766,585 shares of NetManage Common Stock and the FTP Stock Options to be
assumed by NetManage in connection with the Merger would be converted into
options to purchase approximately 4,107,620 shares of NetManage Common Stock.
PURPOSE AND EFFECT OF THE CERTIFICATE AMENDMENT
While the current number of shares of NetManage Common Stock is expected to
be sufficient for issuances or potential issuances as a result of the Merger,
the NetManage Board is seeking NetManage Stockholder approval of the Certificate
Amendment Proposal in order to ensure that there remain sufficient authorized
shares after the Merger for potential future stock splits, sales of NetManage's
securities to raise additional capital, acquisitions of other companies or their
businesses or assets, establishing strategic relationships with corporate
partners, or providing options or other stock incentives to NetManage's
employees, consultants or others.
The NetManage Board has no present agreement or arrangement, plan or
understanding with respect to the issuance of any such additional shares, other
than under its existing stock option and employee stock purchase plans. If the
Certificate Amendment is approved by the NetManage Stockholders, the NetManage
Board would be able to issue such additional shares without further stockholder
approval, except as may be required by applicable law or exchange rules. In
addition, NetManage Stockholders have no statutory preemptive rights with
respect to future issuances of NetManage Common Stock.
The increase in the number of authorized shares of NetManage Common Stock
will not have any immediate effect on the rights of existing NetManage
Stockholders. To the extent that the additional authorized shares are issued in
the future, they will decrease the then-existing stockholders' percentage equity
ownership and, depending on the price at which they are issued, could be
dilutive to the then-existing stockholders.
POTENTIAL ANTI-TAKEOVER EFFECT
The increase in the number of authorized shares of NetManage Common Stock
and any subsequent issuance of such shares could have the effect of delaying or
preventing a change in control of NetManage without further action by the
stockholders. Shares of authorized and unissued NetManage Common Stock could
(within the limits imposed by applicable law) be issued in one or more
transactions that would make a change in control of NetManage more difficult,
and therefore less likely. Any such issuance of additional stock could have the
effect of diluting the earnings per share and book value per share of
outstanding shares of
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<PAGE> 78
NetManage Common Stock, and such additional shares could be used to dilute the
stock ownership or voting rights of a person seeking to obtain control of
NetManage.
REQUIRED VOTE
Approval of the Certificate Amendment Proposal requires the affirmative
vote of not less than a majority of the votes entitled to be cast at the
NetManage Special Meeting by all shares of NetManage Common Stock issued and
outstanding on the NetManage Record Date. The effect of an abstention or broker
non-vote is the same as that of a vote against the Certificate Amendment
Proposal. The NetManage Board recommends voting "FOR" approval of the
Certificate Amendment Proposal. If the Certificate Amendment Proposal is not so
approved, NetManage's authorized Common Stock will not change.
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<PAGE> 79
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
give effect to the Merger and are based upon, and should be read in conjunction
with, the historical consolidated financial statements and accompanying notes
for NetManage and FTP included elsewhere herein. The Merger is conditioned on,
among other things, approval of the Merger Proposal by the FTP Stockholders and
approval by the NetManage Stockholders of the Share Proposal and the Certificate
Amendment Proposal.
The unaudited pro forma condensed combined statements of operations for the
years ended December 31, 1995, 1996 and 1997 and the three-month periods ended
March 31, 1997 and 1998 give effect to the Merger, which is intended to be
accounted for as a pooling of interests, as if the Merger were completed at the
beginning of the periods presented. The unaudited pro forma condensed combined
balance sheet has been prepared as if the Merger were completed as of March 31,
1998.
The pro forma information is presented for illustrative purposes only and
is not necessarily indicative of the operating results or financial position
that would have occurred if the Merger had been consummated on the date
indicated, nor is it necessarily indicative of future operating results or
financial position.
65
<PAGE> 80
NETMANAGE AND FTP
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
NETMANAGE FTP ADJUSTMENTS BALANCES
--------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenues.................................. $125,446 $128,815 $ (350)(1) $253,911
Cost of revenues.............................. 13,065 15,852 (1,755)(1) 27,162
-------- -------- --------
Gross margin................................ 112,381 112,963 226,749
Expenses:
Research and development.................... 23,861 22,298 (350)(1) 45,809
Sales and marketing......................... 46,117 36,593 82,710
General and administrative.................. 9,808 12,699 22,507
Amortization of goodwill.................... 1,298 -- 1,298
Acquisition costs........................... 1,701 -- 1,701
-------- -------- --------
Income from operations........................ 29,596 41,373 72,724
Other income, net............................. 4,188 6,156 10,344
-------- -------- --------
Income from continuing operations before
income taxes................................ 33,784 47,529 83,068
Provision for income taxes.................... 11,487 17,587 29,074
-------- -------- --------
Income from continuing operations............. $ 22,297 $ 29,942 $ 53,994
======== ======== ========
Income from continuing operations per share:
Basic....................................... $ 0.55 $ 1.19 $ 0.91
Diluted..................................... 0.52 1.06 0.85
Weighted average common shares and
equivalents:
Basic....................................... 40,749 25,158 (6,851)(2) 59,056
Diluted..................................... 42,955 28,245 (7,692)(2) 63,508
</TABLE>
- ---------------
(1) To eliminate intercompany revenues and expenses.
(2) Converts FTP's weighted average common shares outstanding to NetManage
Common Stock based on an assumed Exchange Ratio of 0.72767.
See accompanying notes to unaudited pro forma condensed combined financial
statements.
66
<PAGE> 81
NETMANAGE AND FTP
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
NETMANAGE FTP ADJUSTMENTS BALANCES
--------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenues................................ $104,596 $101,091 $ (176)(1) $205,511
Cost of revenues............................ 11,837 16,796 (1,305)(1) 27,328
-------- -------- --------
Gross margin.............................. 92,759 84,295 178,183
Expenses:
Research and development.................. 27,938 26,752 (176)(1) 54,514
Sales and marketing....................... 52,167 46,896 99,063
General and administrative................ 11,198 19,782 30,980
Write-off of in-process research and
development............................ 13,384 37,900 51,284
Amortization of goodwill.................. 1,526 -- 1,526
Acquisition costs......................... 199 -- 199
-------- -------- --------
Loss from operations........................ (13,653) (47,035) (59,383)
Other income, net........................... 4,620 4,284 8,904
-------- -------- --------
Loss from continuing operations before
income taxes.............................. (9,033) (42,751) (50,479)
Provision (benefit) for income taxes........ (3,328) 1,027 (2,301)
-------- -------- --------
Loss from continuing operations............. $ (5,705) $(43,778) $(48,178)
======== ======== ========
Loss from continuing operations per share:
Basic..................................... $ (0.13) $ (1.46) $ (0.75)
Diluted................................... (0.13) (1.46) (0.75)
Weighted average common shares and
equivalents:
Basic..................................... 42,341 29,896 (8,142)(2) 64,095
Diluted................................... 42,341 29,896 (8,142)(2) 64,095
</TABLE>
- ---------------
(1) To eliminate intercompany revenues and expenses.
(2) Converts FTP's weighted average common shares outstanding to NetManage
Common Stock based on an assumed Exchange Ratio of 0.72767.
See accompanying notes to unaudited pro forma condensed combined financial
statements.
67
<PAGE> 82
NETMANAGE AND FTP
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
NETMANAGE FTP ADJUSTMENTS BALANCES
--------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenues............................... $ 61,524 $ 67,734 $(1,319)(1) $ 127,939
Cost of revenues........................... 4,093 21,129 (303)(1) 24,919
-------- -------- ---------
Gross margin............................. 57,431 46,605 103,020
Expenses:
Research and development................. 20,670 27,044 (619)(1) 47,095
Sales and marketing...................... 41,455 45,196 86,651
General and administrative............... 10,428 16,289 26,717
Write-off of in-process research and
development........................... 20,643 -- 20,643
Amortization of goodwill................. 1,137 -- 1,137
Restructuring charge..................... 5,172 18,330 23,502
-------- -------- ---------
Loss from operations....................... (42,074) (60,254) (102,725)
Other income, net.......................... 7,859 3,646 11,505
-------- -------- ---------
Loss from continuing operations before
income taxes............................. (34,215) (56,608) (91,220)
Provision (benefit) for income taxes....... (460) 1,208 748
-------- -------- ---------
Loss from continuing operations............ $(33,755) $(57,816) $ (91,968)
======== ======== =========
Loss from continuing operations per share:
Basic.................................... $ (0.78) $ (1.71) $ (1.35)
Diluted.................................. (0.78) (1.71) (1.35)
Weighted average common shares and
equivalents:
Basic.................................... 43,385 33,842 (9,216)(2) 68,011
Diluted.................................. 43,385 33,842 (9,216)(2) 68,011
</TABLE>
- ---------------
(1) To eliminate intercompany revenues and expenses.
(2) Converts FTP's weighted average common shares outstanding to NetManage
Common Stock based on an assumed Exchange Ratio of 0.72767.
See accompanying notes to unaudited pro forma condensed combined financial
statements.
68
<PAGE> 83
NETMANAGE AND FTP
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
NETMANAGE FTP ADJUSTMENTS BALANCES
--------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenues................................ $16,379 $ 21,355 $ (263)(1) $ 37,471
Cost of revenues............................ 1,125 5,881 (103)(1) 6,903
------- -------- --------
Gross margin.............................. 15,254 15,474 30,568
Expenses:
Research and development.................. 6,090 7,857 (263)(1) 13,684
Sales and marketing....................... 10,299 14,281 24,580
General and administrative................ 2,390 4,335 6,725
Amortization of goodwill.................. 260 -- 260
------- -------- --------
Loss from operations........................ (3,785) (10,999) (14,681)
Other income, net........................... 1,046 635 1,681
------- -------- --------
Loss before income taxes.................... (2,739) (10,364) (13,000)
Provision for income taxes.................. -- 650 650
------- -------- --------
Net loss.................................... $(2,739) $(11,014) $(13,650)
======= ======== ========
Net loss per share:
Basic..................................... $ (0.06) $ (0.33) $ (0.20)
Diluted................................... (0.06) (0.33) (0.20)
Weighted average common shares and
equivalents:
Basic..................................... 43,182 33,688 (9,174)(2) 67,696
Diluted................................... 43,182 33,688 (9,174)(2) 67,696
</TABLE>
- ---------------
(1) To eliminate intercompany revenues and expenses.
(2) Converts FTP's weighted average common shares outstanding to NetManage
Common Stock based on an assumed Exchange Ratio of 0.72767.
See accompanying notes to unaudited pro forma condensed combined financial
statements.
69
<PAGE> 84
NETMANAGE AND FTP
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
NETMANAGE FTP ADJUSTMENTS BALANCES
--------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenues................................. $17,313 $10,928 $ (168)(1) $28,073
Cost of revenues............................. 991 2,545 (346)(1) 3,190
------- ------- -------
Gross margin............................... 16,322 8,383 24,883
Expenses:
Research and development................... 4,530 3,609 (168)(1) 7,971
Sales and marketing........................ 9,179 6,160 15,339
General and administrative................. 2,667 3,341 6,008
Amortization of goodwill................... 487 -- 487
------- ------- -------
Loss from operations......................... (541) (4,727) (4,922)
Other income, net............................ 1,271 1,010 2,281
------- ------- -------
Income (loss) before income taxes............ 730 (3,717) (2,641)
Provision for income taxes................... 199 100 299
------- ------- -------
Net income (loss)............................ $ 531 $(3,817) $(2,940)
======= ======= =======
Net income (loss) per share:
Basic...................................... $ 0.01 $ (0.11) $ (0.04)
Diluted.................................... 0.01 (0.11) (0.04)
Weighted average common shares and
equivalents:
Basic...................................... 43,728 33,973 (9,252)(2) 68,449
Diluted.................................... 43,903 33,973 (9,427)(2) 68,449
</TABLE>
- ---------------
(1) To eliminate intercompany revenues and expenses.
(2) Converts FTP's weighted average common shares outstanding to NetManage
Common Stock based on an assumed Exchange Ratio of 0.72767 and excludes
anti-dilutive common stock equivalents.
See accompanying notes to unaudited pro forma condensed combined financial
statements.
70
<PAGE> 85
NETMANAGE AND FTP
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
NETMANAGE FTP ADJUSTMENTS BALANCES
--------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents............... $ 15,091 $ 36,969 $ -- $ 52,060
Short-term investments.................. 40,690 12,100 52,790
Accounts receivable, net................ 12,923 7,759 20,682
Prepaid expenses and other.............. 13,802 6,273 (125)(1) 19,950
-------- -------- --------
Total current assets............ 82,506 63,101 145,482
-------- -------- --------
Property and equipment, net............... 7,897 7,268 15,165
-------- -------- --------
Long-term investments..................... 15,365 16,381 31,746
Goodwill and other intangibles, net....... 2,786 -- 2,786
Other assets.............................. 9,395 3,314 (1,820)(1) 10,889
-------- -------- --------
$117,949 $ 90,064 $206,068
-------- -------- --------
Current Liabilities:
Accounts payable and accrued
liabilities.......................... $ 5,367 $ 9,242 $ 7,000(2) $ 21,609
Accrued payroll and payroll-related
expenses............................. 3,573 2,039 5,612
Deferred revenue........................ 8,926 5,691 (125)(1) 14,492
Income taxes payable.................... 2,515 1,818 4,333
-------- -------- --------
Total current liabilities....... 20,381 18,790 46,046
-------- -------- --------
Long-term liabilities..................... 454 -- 454
-------- -------- --------
Stockholders' Equity:
Common stock and additional paid-in
capital.............................. 92,494 137,148 229,642
Retained earnings (accumulated
deficit)............................. 6,526 (65,863) (8,820)(1,2) (68,157)
Accumulated translation adjustment...... (1,906) (11) (1,917)
-------- -------- --------
Total stockholders' equity...... 97,114 71,274 159,568
-------- -------- --------
$117,949 $ 90,064 $206,068
-------- -------- --------
</TABLE>
- ---------------
(1) Reflects elimination of remaining unamortized purchased technology and
deferred revenue balances related to intercompany revenues.
(2) Reflects estimated expenses of the Merger of approximately $3.4 million and
severance costs of approximately $3.6 million which are expected to be paid
upon closing of the Merger.
See accompanying notes to unaudited pro forma condensed combined financial
statements.
71
<PAGE> 86
NETMANAGE AND FTP
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The unaudited pro forma condensed combined financial statements combine the
historical consolidated financial statements of NetManage and FTP for all
periods presented following the pooling of interests method of accounting. No
adjustments were necessary to conform the accounting policies of the combining
companies.
NOTE 2. PRO FORMA NET INCOME (LOSS) PER SHARE
The pro forma combined net income per share is based on the combined
weighted average number of common and dilutive equivalent shares of NetManage
and FTP based upon the Exchange Ratio of 0.72767 of a share of NetManage Common
Stock for each share of FTP Common Stock.
The pro forma combined net loss per share is based on the combined weighted
average number of common shares of NetManage and FTP based upon the Exchange
Ratio of 0.72767 of a share of NetManage Common Stock for each share of FTP
Common Stock.
NOTE 3. MERGER RELATED EXPENSES OF NETMANAGE AND FTP
NetManage and FTP estimate that they will incur Merger-related expenses,
consisting primarily of transaction costs for investment banker fees, attorneys,
accountants, financial printing and other related charges, of approximately $3.4
million. This estimate does not include any costs associated with restructuring,
integrating or consolidating the operations of the two companies. This estimate
is preliminary and is therefore subject to change. Additionally, NetManage
expects that the combined company will pay up to approximately $3.6 million in
severance costs to officers of FTP in connection with the termination of their
employment upon consummation of the Merger. These non-recurring expenses will be
charged to operations during the period in which the Merger is consummated. The
pro forma condensed combined balance sheet gives effect to such expenses as if
they had been incurred as of March 31, 1998, but the pro forma condensed
combined statements of operations do not give effect to such expenses as such
expenses are non-recurring.
NOTE 4. INTERCOMPANY REVENUES AND EXPENSES
NetManage has licensed certain proprietary technology to FTP and has
generally recognized revenue under such licensing arrangements upon delivery of
the corresponding rights to the technology. Royalty payments related to the
licensed technology were recognized as revenue by NetManage in the period in
which payment was received from FTP. FTP historically capitalized payments made
for licensed technology and amortized the amounts over the estimated useful life
of the technology. Royalty payments made by FTP were expensed by FTP in the
period in which they were incurred under the licensing agreements. The
accompanying unaudited pro forma condensed combined statements of operations
reflect the elimination of the above transactions in the periods in which they
were historically recorded by the respective companies. Additionally, the
unaudited condensed combined balance sheet reflects the elimination of any
remaining unamortized amounts as of March 31, 1998.
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<PAGE> 87
NETMANAGE BUSINESS
The discussion in this Joint Proxy Statement/Prospectus contains
forward-looking statements which involve risks and uncertainties. NetManage's
actual results could differ materially from those discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include, without limitation, those discussed in this section and the
sections entitled "RISK FACTORS" and "NETMANAGE MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" as well as those
discussed elsewhere in this Joint Proxy Statement/Prospectus.
NetManage develops, markets and supports software tools for connecting
personal computers to corporate UNIX, AS/400 midrange and IBM mainframe
computers, and software that increases the productivity of corporate call
centers. NetManage is a recognized leader in "PC connectivity" and was one of
the first to develop and market a Windows-based transmission protocol that has
since become the industry standard for the Internet. In 1997, NetManage
reorganized its business to take advantage of three major industry trends:
expansion of the Internet, continued mobilization of personal computer users and
broader access to corporate data and information. Its products are fully
compatible with Microsoft's Windows 3.1, Windows 95 and Windows NT platforms,
IBM operating systems, including OS/2, and Novell operating systems. NetManage
was incorporated in 1990 as a California corporation and changed its
incorporation to Delaware in 1993 in conjunction with its initial public
offering.
NetManage is organized into two business units, Core Technology and
Emerging Technology. Current Core Technology products provide the technology to
make the connection between personal computers and large corporate computers
possible. These products leverage the strengths and popularity of the Internet
and offer features to improve network manageability. Core Technology products
include NetManage's strongest brands: the Chameleon family (Chameleon HostLink
97, Chameleon UNIXLink 97 and Chameleon 3270LT) and the NS/Portfolio family
(NS/Portfolio Enterprise, NS/Portfolio for Mainframe, NS/Portfolio for AS/400
and NS/Router). Emerging Technology develops products that add value to the Core
Technology product offerings and also target new market segments. Current
products include SupportNow and OpSession, real-time software tools that help
reduce the length of support phone calls from end-users.
During 1997, NetManage acquired NetSoft, a California corporation
("NetSoft"), a developer and supplier of software for connecting personal
computers to midrange and mainframe platforms. The NetSoft acquisition expanded
NetManage's range of PC connectivity solutions for corporations, especially in
the IBM AS/400 market. Netsoft also had strong brand equity in its NS/Portfolio
name. Its President and CEO, D. Patrick Linehan, moved into NetManage as Senior
Vice President and General Manager of the Core Business Unit. During 1997,
NetManage also acquired Relay Technology, Inc., a Delaware corporation
("Relay"). This purchase brought to NetManage a 3270 terminal emulator, more
connectivity software and increased expertise and penetration in the original
equipment manufacturers ("OEM") sales channel. Theodore (Ted) Joseph, President
and CEO of Relay, became Vice President of OEM sales at NetManage.
INDUSTRY BACKGROUND
Three important industry trends had strong influence on NetManage's
business strategy in 1997: (i) the further development of the Internet,
intranets and extranets as mission-critical business applications in large
companies; (ii) an increased desire on the part of corporations to make
information stored in mainframes and midrange computers ("legacy" systems)
broadly accessible; and (iii) the continued mobilization of users of personal
computers on a global basis.
NetManage uses the term "inter-networking" to describe the technology of
global connectivity. Inter-networking had its origins in the Internet, a
worldwide "network of networks" which allows communication between different
organizations and locations, each with its own individual network of computers.
With the rapid development of the Internet, the breadth of the connectivity
industry has quickly expanded beyond proprietary-based solutions to Web-based
technologies and other open protocol solutions. The application of this same
inter-networking technology within a company on its own computer networks is
known as an "intranet" to distinguish it from the larger public Internet. When
companies use inter-networking technology for connecting to outside customers
and suppliers, it's known as an "extranet." Importantly, inter-networking
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is comprised of many different applications which must communicate with one
another, each according to its function, and which must follow certain standards
or conventions which ensure interoperability.
The personal computer has continued to grow in importance as a tool for
facilitating communications, information sharing and group productivity in large
companies. As professional workers have become more and more mobile, there is an
accelerated effort to connect personal computers easily and reliably to
corporate networks to improve communications and organizational productivity. As
a result, the personal computer has become an important tool to connect workers
to shared repositories of information and to other people, regardless of
location, network or type of computer. Inter-networking also facilitates
activities such as mobile computing by allowing users to use and to access more
effectively all of a company's computer systems from a remote location.
The specific tasks facilitated by inter-networking are numerous and include
basic functions such as file transfer and file sharing capabilities, remote data
access, login to remote computers and information publishing. Within
organizations, PCs must connect not only to other PCs via LANs (local area
networks), but also to workstations, servers, minicomputers and mainframes, many
of which may run different operating system software and connect to different
physical networks. In addition, more companies are seeking ways to link their
computer systems directly with those of vendors, customers and other business
partners to enhance the flow of information and reduce expenses.
For a network to function properly, all connected devices must follow rules
or "protocols" that govern access to the network and communication with other
devices. TCP/IP (Transmission Control Protocol/Internet Protocol) is the name of
the protocol family used by all inter-networking devices and applications
because it is an open (non-proprietary) protocol capable of linking disparate
environments. NetManage was one of the first software vendors to deliver the
TCP/IP protocol and related applications for the Microsoft Windows platform.
Selling primarily to the business user, NetManage has promoted standards based
on its implementation of TCP/IP that have been adopted by the industry at large.
The most notable example is the Windows Sockets, or "WinSock" interface, which
is used today by a wide range of Windows inter-networking software vendors
including Microsoft.
NetManage believes that because of the open and interoperable
characteristics of inter-networking technology, the use of intranets and the
software that enables them will continue to grow significantly within
organizations, and may emerge as the dominant corporate networking
technology -- replacing other proprietary LAN technology from vendors such as
Novell, IBM and Digital Equipment Corporation ("Digital").
The required software to implement an inter-networking solution includes
applications for the desktop, the software which transports information over the
wires, the servers at the other end and management and development tools to
create and administer a network of this type. Additionally, an easy-to-use,
intuitive interface extends the use of these software components to a large,
non-technical audience and facilitates adoption by such an audience.
NetManage's vision is to provide inter-networking connectivity products
that greatly improve the communication between personal computers and legacy
systems regardless of where the PCs are located and to deliver products and
services that provide an easy to use, standards-based infrastructure that
ensures businesses run more efficiently, thereby bringing personal computers
together with corporate host systems and connecting both to the Internet. As
NetManage continues to deliver on its vision, personal computer users will be
able to access corporate data and information more efficiently and more easily
than ever before.
PRODUCTS AND TECHNOLOGY
NetManage's comprehensive suite of products provides organizations with
cost-effective solutions for connecting people, their computers and their
businesses. NetManage's products extend the functionality of these
organizations' technology investments by providing essential services that are
not included in desktop and network operating systems. The result is streamlined
communication, reductions in the total cost of ownership and increased
productivity throughout an organization.
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NetManage has been a long-time proponent of industry standards, and it
pursues partnerships and alliances with key industry players. In addition to
promoting technological progress, these alliances help strengthen NetManage's
market insight and lead to improved customer solutions with greater value. Some
of NetManage's strategic partners include Microsoft, Intel Corporation, IBM and
AT&T. All NetManage products are developed around the following:
EASE OF USE -- NetManage's goal is to create applications for non-technical
users. NetManage's products are designed to be set up on any personal computer
in a few minutes and to determine with minimum user intervention all the
appropriate settings and installation parameters for each PC's configuration and
network. For corporate users, the cost of training, installation and support can
exceed software acquisition costs. Ease of use can reduce such costs. Moreover,
ease of use increases product utilization, thereby enhancing product value to
the customer. Thus, by reducing costs and enhancing value, the benefit of ease
of use is significant to NetManage's target market.
MANAGEABILITY -- NetManage offers a fully integrated suite of applications,
improving network manageability for system administrators. For example,
customers do not have to buy terminal emulation from one vendor and file
transfer from another, each with its own setup, user interface and feature set.
Client applications are compatible with custom intranet applications built using
NetManage developer toolkits. The common characteristics of the product suite
tend to increase user satisfaction and product utilization. A well-integrated
product lowers the cost of ownership and increases product value to the
customer.
FUNCTIONALITY -- The depth and completeness of the applications in
NetManage's products are designed to compete with "best of class" functionality
from specialist vendors in each category. The value proposition of NetManage's
product offerings is enhanced by eliminating multi-source product purchases with
no compromise on advanced software functionality. The economic proposition for
the customer is enhanced by purchasing software and service from a single
vendor.
SUPPORTABILITY -- NetManage recognizes its customers' need to reduce
continually the cost-of-ownership associated with personal computer connectivity
software. Unlike competitors, who have focused solely on improved manageability
to reduce costs, NetManage has also invested in the development of unique
support tools. Products are designed with well-integrated support tools that
reduce the time required to resolve software problems and reduce downtime,
significantly enhancing the value of NetManage's product offerings to customers.
ADHERENCE TO STANDARDS -- The very foundation of the Internet is predicated
upon the notion that any client can talk to any server, and that all APIs
(Application Program Interfaces) and protocols are published as free open
standards. In the corporate computing environment it is impossible to guarantee
a common set of software on every client and every server. NetManage's
commitment to open standards insures that the plug and play interoperability
that has made the Internet successful extends to the corporate intranet as well.
NetManage's best-known products include the Chameleon and NS/Portfolio
product families. NetManage recently acquired NetSoft to increase substantially
the capability of its AS/400 offering, and Relay to expand the capability of its
mainframe offering and OEM sales efforts. NetManage's products include:
CHAMELEON UNIXLINK97
Complete PC-to-UNIX connectivity, including PC NFS (Network File System)
file sharing, the most comprehensive suite of Telnet terminal emulation for
TCP/IP and asynchronous connections and the industry's first Web-enabled X
Windows server.
CHAMELEON HOSTLINK 97
Complete PC-to-IBM mainframe and AS/400 connectivity -- including Web
browser access and simplified management.
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CHAMELEON 3270LT
IBM mainframe connectivity software for TCP/IP networks.
CHAMELEON HOST AGENT
Scalable, server-based host connectivity software designed for Windows NT.
NS/PORTFOLIO ENTERPRISE
Full-featured, manageable access to IBM mainframes and AS/400 systems from
all Windows platforms.
NS/PORTFOLIO FOR MAINFRAMES
Comprehensive, fully-featured PC-to-IBM mainframe communications solution
for all Microsoft Windows platforms.
NS/PORTFOLIO FOR AS/400
Comprehensive, fully-featured PC-to-IBM AS/400 communications solution for
all Microsoft Windows platforms.
NS/ROUTER PORTFOLIO
The industry-standard Microsoft Windows-based APPC router offering
increased productivity, ease of installation and configuration and enhanced
security for host-server data.
NS/PORTFOLIO TOOLBOX
Software application development tools for NS/Portfolio clients.
SUPPORTNOW
Real-time software support tool that reduces the length of corporate
support calls. It provides independent software vendors ("ISVs") a way to offer
faster and more effective technical support to their customers via interactive
sessions.
SUPPORTNOW SERVER
Comprehensive real-time support server offering SupportNow Call Queue
Management, conferencing, backend help desk integration, and proxy services for
OpSession and SupportNow products.
OPSESSION
Software support tool, like SupportNow, for corporations. It enables
companies to manage and complete internal support calls quickly and efficiently.
It enables real-time, interactive sharing of documents and applications, and
improves remote training and demonstrations.
OPSESSION SDK
Comprehensive software developer tool that enables programmers to add
real-time application and workgroup sharing capability, using standard Internet
technology, to any Microsoft Windows 95/NT application.
Substantially all of NetManage's net revenues have been derived from the
sales of products that provide inter-networking applications for the Microsoft
Windows environment and are marketed primarily to Microsoft or Windows users. As
a result, sales of NetManage's products would be materially adversely affected
by market developments adverse to Windows. In addition, NetManage's strategy of
developing products based on the Windows operating environment is substantially
dependent on its ability to gain pre-
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release access to, and to develop expertise in, current and future Windows
developments by Microsoft. No assurance can be given as to the ability of
NetManage to provide on a timely basis products compatible with future Windows
releases. See "RISK FACTORS -- Risks Relating to NetManage, FTP and the Combined
Company -- Product Development and Competition."
NetManage's competitors could seek to expand their product offerings by
designing and selling similar or new technology that could render NetManage's
products obsolete or adversely affect sales of NetManage's products. These
developments may adversely affect NetManage's sales of its own products either
by directly affecting customer purchasing decisions or by making potential
customers delay their purchases of NetManage's products. See "RISK
FACTORS -- Risks Relating to NetManage, FTP and the Combined Company -- Product
Development and Competition."
SALES AND MARKETING
NetManage's products are designed to meet the needs of corporate end-users,
network administrators, system administrators and MIS managers. NetManage,
through its Core Business Unit, targets three key connectivity market segments:
connecting personal computers to UNIX, IBM AS/400 midrange and IBM mainframe
systems. Through its Emerging Technology Business Unit, NetManage recently
introduced an innovative software application that reduces the length of support
calls for organizations of all sizes.
To serve the corporate marketplace, NetManage is developing more robust
applications to provide greater value. NetManage believes that the markets for
these PC connectivity solutions are large segments where NetManage has
established products, reputation and expertise.
NetManage is organized to solve the critical network and application needs
of corporations in a wide range of industries. From education and government to
finance and manufacturing, NetManage's products are being used to streamline
communications throughout organizations. NetManage's products are used by more
than 30,000 organizations, encompassing more than 9 million users worldwide.
NetManage's marketing strategy is to establish itself as the preferred
supplier of complete personal computer connectivity solutions for corporations.
It has a competitive advantage as a "single-source" supplier for corporations.
NetManage's products are marketed and sold in the United States and
internationally by NetManage's direct sales force and authorized channel
partners.
In the United States, NetManage combines advertising and promotion with
direct sales through a telephone-based sales force, assisted by designated
personnel specifically assigned to the needs of major accounts. As part of its
continuing strategy to develop multiple distribution channels, NetManage expects
to increasingly utilize indirect channels, such as resellers, particularly value
added resellers and systems integrators, distributors and OEMs. NetManage
expects that indirect sales will grow as a percentage of both domestic and total
revenues and that any material increase in NetManage's indirect sales as a
percentage of revenues will adversely affect NetManage's average selling prices
and gross margins due to the lower unit costs that are typically charged when
selling through indirect channels. There can be no assurance that NetManage will
be able to attract resellers and distributors who will be able to market
NetManage's products effectively and will be qualified to provide timely and
cost-effective customer support and service. NetManage ships products to
resellers and distributors on a purchase-order basis, and many of NetManage's
resellers and distributors carry competing product lines. Therefore, there can
be no assurance that any reseller or distributor will continue to represent
NetManage's products, and the inability to recruit or retain important resellers
or distributors could adversely affect NetManage's results of operations. See
"RISK FACTORS -- Risks Relating to NetManage, FTP and the Combined
Company -- Product Development and Competition."
Internationally, NetManage has sales offices in Belgium, France, Germany,
Israel, Italy, Japan, the Netherlands, Sweden and the United Kingdom. NetManage
also utilizes local distributors internationally. NetManage supports the sales
activity of these sales offices and distributors in target countries through
localization of products and sales material, local training and participation in
local trade shows.
In 1997, NetManage derived approximately 23% of its net revenues from
international sales, including export sales. NetManage believes that the
potential international markets for its products are substantial,
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based on the extent to which Windows and inter-networking products are used
internationally. Accordingly, NetManage localizes its products for use in the
native language of target countries. Further, NetManage has adopted its software
to support computing standards that are unique to these countries, such as the
NEC PC in Japan. NetManage will continue to target major European and Asian
countries for additional sales and marketing activity and to expand the use of
its local sales offices and Israel subsidiary in the support of its
international sales. While NetManage expects that international sales will
continue to account for a significant portion of its net revenues, there can be
no assurance that NetManage will be able to maintain or increase international
market demand for NetManage's products or that NetManage's distributors will be
able to meet effectively that demand.
Risks inherent in NetManage's international business activities generally
include unexpected changes in regulatory requirements, tariffs and other trade
barriers, costs and risks of localizing products for foreign countries, longer
accounts receivable payment cycles, difficulties in managing international
operations, currency fluctuations, potentially adverse tax consequences,
repatriation of earnings and the burdens of complying with a wide variety of
foreign laws. There can be no assurance that such factors will not have an
adverse effect on NetManage's future international sales and, consequently, on
NetManage's results of operations. See "RISK FACTORS -- Risks Relating to
NetManage, FTP and the Combined Company -- Global Market Risks."
CUSTOMER SUPPORT
NetManage's domestic support organization consists of an experienced staff
of engineers providing support by telephone from NetManage's facilities in
California and New Hampshire. Both telephone support and regular update releases
of the software are provided to customers who purchase an annual maintenance
agreement. The sales and the customer support organizations at NetManage work
together closely to provide customer satisfaction.
International customers are supported by local distributors who are trained
by NetManage and also are supported by NetManage personnel located in various
sales offices.
EMPLOYEES
As of June 30, 1998, NetManage had a total of 390 full-time employees, of
whom 212 were engaged in sales, marketing and technical support, 63 in general
management, administration and finance, 109 in software development and
engineering and six in production. None of NetManage's employees are subject to
a collective bargaining agreement, and NetManage has not experienced any work
stoppage. NetManage believes that its employee relations are good.
LEGAL PROCEEDINGS
On January 9, 1997, a securities class action complaint, Head, et al. v.
NetManage, Inc., et al., No. 07763295, was filed in the Superior Court of
California, Santa Clara County, against NetManage and certain of its directors
and current and former officers. On January 10, 1997, the same plaintiffs filed
a securities class action complaint, Head, et al. v. NetManage, Inc., et al.,
No. C-97-4385-CRB, in the United States District Court for the Northern District
of California, against the same defendants. Both complaints allege that, between
July 25, 1995 and January 11, 1996, the defendants made false or misleading
statements of material fact about NetManage's prospects and failed to follow
generally accepted accounting principles. The state court complaint asserts
claims under California state law; the federal court complaint asserts claims
under the federal securities laws. In addition, on September 10, 1997, NetManage
and several of its officers and directors were named in a securities class
action complaint filed in the Northern District of California, Beasley v.
NetManage, Inc., et al., C-97-3329-FMS. This complaint is substantially similar
to the previously-filed case of Head, et al. v. NetManage, Inc., et al.,
discussed above, and contains similar allegations, names the same defendants,
and purports to represent purchasers of NetManage stock during the same class
period as in the previously-filed complaint. The complaints seek an unspecified
amount of damages. On February 24, 1998, the federal court granted the
defendants' motion to dismiss the federal class action complaint in Head, et al.
v. NetManage, Inc., et al. Plaintiffs have filed an amended complaint. NetManage
believes there is no merit to these cases and intends to defend both cases
vigorously. There can be no assurance that NetManage will be
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able to prevail in the lawsuits. As the outcome of this matter cannot be
reasonably determined, NetManage has not accrued for any potential loss
contingencies.
On March 21, 1997, a securities class action complaint, Interactive Data
Systems, Inc., et al. v. NetManage, Inc., et al., No. CV764945, was filed in the
Superior Court of California, Santa Clara County, against NetManage and certain
of its directors and officers. On June 19, 1997, one of the plaintiffs in that
action filed a securities class action complaint, Molinari v. NetManage, Inc.,
et al., No. C-98-202-CRB, in the United States District Court for the Northern
District of California against the same defendants. Both complaints allege that,
between April 18, 1996 and July 18, 1996, the defendants made false or
misleading statements of material fact about NetManage's prospects. The state
court complaint asserts claims under California state law; the federal complaint
asserts claims under the federal securities laws. Both complaints seek an
unspecified amount of damages. On February 26, 1998, the state court entered
judgment in favor of NetManage in the state case. Plaintiffs have filed a notice
of appeal from this judgment and are expected to file an amended complaint as to
the individual defendants. NetManage believes there is no merit to either case
and intends to defend both cases vigorously. There can be no assurance that
NetManage will be able to prevail in the lawsuits. As the outcome of this matter
cannot be reasonably determined, NetManage has not accrued for any potential
loss contingencies.
On October 10, 1997, a verified derivative complaint was filed in the
United States District Court for the Northern District of California against
nine present and former officers and directors of NetManage alleging that these
persons violated various duties to NetManage, captioned Sucher v. Alon, et al.,
No. C-98-203-CRB. The derivative complaint also names NetManage as a nominal
defendant. The derivative complaint is predicated on the factual allegations
contained in the class action complaints discussed above. No demand was
previously made to NetManage's Board of Directors concerning the allegations of
the derivative complaint, which seeks an unspecified amount of damages.
NetManage has moved to dismiss the complaint on the ground that plaintiff was
obligated to make a demand on the NetManage Board. The individual defendants
have separately moved to dismiss the complaint.
On November 26, 1997, a complaint was filed against NetManage in the
Superior Court of California, San Diego County, Shaw, et al. v. NetManage, Inc.,
No. 176081. The plaintiffs, who held a significant ownership interest in AGE
before it was acquired by NetManage, bring causes of action alleging fraud,
negligent misrepresentations, negligence and breach of contract with respect to
NetManage's acquisition of AGE. The complaint seeks an unspecified amount of
damages. NetManage believes there is no merit to the case and intends to defend
the case vigorously. There can be no assurance that NetManage will be able to
prevail in the lawsuit. As the outcome of this matter cannot be reasonably
determined, NetManage has not accrued for any loss contingencies.
NetManage has filed a complaint in Harris County Civil Court, Texas,
against Overlook Communications International Corporation, formerly known as
Phoenix Datanet and Charter Communications International, Inc. ("Phoenix"), a
former customer, seeking to recover approximately $50,000 owed to NetManage.
Phoenix recently counterclaimed against NetManage claiming breach of warranty
and related claims and seeking unspecified damages and other remedies. NetManage
believes the claim is without merit and intends to contest it vigorously.
PROPERTIES
In the United States, NetManage's principal sales, marketing, technical
support, administration, product development and support functions occupy an
aggregate of approximately 83,000 square feet of facilities comprised of two
buildings located in Cupertino, California, one building in San Diego,
California and one building in Irvine, California. NetManage also leases
approximately 12,000 square feet in Nashua, New Hampshire which is used for
sales and technical support and 10,000 square feet in Vienna, Virginia which is
used for sales.
Internationally, NetManage leases approximately 35,000 square feet in
Haifa, Israel for the purpose of international sales, marketing and technical
support, administration, and product development. NetManage also leases sales
office space in Belgium, France, Germany, Italy, Japan, the Netherlands, Sweden
and the United Kingdom.
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NETMANAGE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of NetManage should be read in conjunction with the historical
consolidated financial statements of NetManage and the related notes thereto
included elsewhere herein. The discussion in this Joint Proxy
Statement/Prospectus contains forward-looking statements that involve risks and
uncertainties. NetManage's actual results could differ materially from those
discussed in the forward-looking statements. Factors that could cause or
contribute to such differences include, without limitation, those discussed in
this section and the sections entitled "RISK FACTORS" and "NETMANAGE BUSINESS,"
as well as those discussed elsewhere in this Joint Proxy Statement/Prospectus.
OVERVIEW
NetManage develops, markets and supports PC connectivity software for the
Microsoft Windows 3.1, Windows 95 and Windows NT platforms, IBM system OS/2 and
Novell platforms, offering applications for UNIX, AS/400 and IBM mainframe host
systems. NetManage also provides remote access, application sharing and help
desk technology in its newly introduced OpSession and SupportNow products. Its
products are sold and serviced worldwide by NetManage's direct sales force,
international subsidiaries and authorized channel partners. Since NetManage's
inception, revenues from its Chameleon family of products have represented
substantially all of NetManage's revenues, and NetManage expects that revenues
from its Core Technology products will continue to account for a substantial
portion of NetManage's revenues for the foreseeable future.
ACQUISITIONS
In July 1997, NetManage acquired all of the outstanding shares of Network
Software Associates, Inc. ("NSA"), a holding company for NetSoft, for $26.0
million in cash. In November 1997, NetManage acquired all of the outstanding
shares of Relay for $4.2 million in cash. Both of these acquisitions were
accounted for using the purchase method of accounting and, accordingly, the
results of the acquired companies from the acquisition date forward have been
recorded in NetManage's consolidated financial statements.
RESTRUCTURING
In the third quarter of 1997, NetManage initiated a plan to restructure its
operations worldwide due to adverse business conditions including reduced sales
of its products. The restructuring plan included the termination of a number of
employees worldwide and the reduction in worldwide office space, which primarily
consisted of the consolidation of certain domestic technical support and
engineering locations. The restructuring actions remaining to be completed as of
March 31, 1998 are expected to be completed by the third quarter of 1998.
NetManage anticipates that these remaining restructuring actions will require
the expenditure of approximately $0.3 million of cash during the remainder of
1998, all of which is reflected in accrued liabilities on the accompanying
balance sheet of NetManage at March 31, 1998.
QUARTERLY RESULTS OF OPERATIONS
During the past year, NetManage discontinued several low revenue generating
products and focused efforts on controlling costs in order to reduce operating
expenses, including a restructuring plan announced and executed in the third
quarter of 1997, in an attempt to return NetManage to profitability. These
efforts have contributed to improved operating results.
Because NetManage generally ships software products within a short period
after receipt of an order, NetManage does not have a material backlog of
unfilled orders, and revenues in any one quarter are substantially dependent on
orders booked in that quarter. NetManage's operating expense levels are based in
part on its expectations as to future revenues and to a large extent are fixed.
Operating expenses decreased during the first quarter of 1998 as compared to the
same period in 1997 as a result of the restructuring plan discussed above, the
resulting reduction of headcount and the closing and/or consolidation of
facilities.
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Operating expenses are expected to fluctuate as a percentage of revenues as
NetManage's newly introduced products begin contributing to revenues.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, CHANGE
------------------ --------------
1997 1998 $ %
------- ------- ---- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Net revenues:
License fees............................................ $ 12.3 $ 13.9 1.6 13.0%
Services................................................ 4.1 3.4 (0.7) (1.7)%
Total net revenues.............................. $ 16.4 $ 17.3 0.9 (5.5)%
As a percentage of net revenues:
License fees............................................ 75.0% 80.6%
Services................................................ 25.0% 19.4%
Total net revenues.............................. 100.0% 100.0%
Gross margin.............................................. $ 15.3 $ 16.3 1.0 6.5
As a percentage of net revenues......................... 93.1% 94.3%
Research and development.................................. $ 6.1 $ 4.5 (1.6) (2.6)%
As a percentage of net revenues......................... 37.2% 6.1%
Sales and marketing....................................... $ 10.3 $ 9.2 (1.1) (10.7)%
As a percentage of net revenues......................... 62.9% 53.0%
General and administrative................................ $ 2.4 $ 2.7 0.3 12.5%
As a percentage of net revenues......................... 14.6% 15.4%
Interest income and other, net............................ $ 1.3 $ 0.8 (0.5) (38.5)%
As a percentage of net revenues......................... 7.7% 4.5%
Provision for income taxes................................ $ -- $ 0.2 0.2 (100.0)%
Effective tax rate...................................... -- 27.0%
Net income (loss)......................................... $ (2.7) $ 0.5 3.2 118.5%
As a percentage of net revenues......................... n/a 3.1%
</TABLE>
NET REVENUES
Historically, the majority of NetManage's net revenues have been derived
from software license fees. Service revenues have been primarily attributable to
maintenance agreements associated with licenses.
NetManage has operations worldwide with sales offices located in the United
States, Europe and Japan. International revenues as a percentage of total net
revenues were approximately 21% and 28% for the three-month periods ended March
31, 1997 and 1998, respectively. In the latter half of 1997, NetManage took
steps to reorganize its staffing and management, distributor relationships, and
product marketing in Europe as well as Japan. These efforts, together with
NetManage's July 1997 acquisition of NetSoft which had historically been
successful in marketing and selling its products internationally, resulted in
the increase in international revenues both in absolute dollars and as a
percentage of total net revenues for the quarter ended March 31, 1998 as
compared to the same period in 1997.
License fees increased both in absolute dollars and as a percentage of
total net revenues during the three-month period ended March 31, 1998 as
compared to the same period in 1997. This increase is primarily attributable to
NetManage's expanded product offerings as a result of NetManage's 1997
acquisitions of NetSoft and Relay, as discussed above.
The decline in service revenues both in absolute dollars and as a
percentage of total net revenues for the three-month period ended March 31, 1998
as compared to the same period of 1997 is primarily due to the decline in the
license fee revenues during the first half of 1997 which will generally affect
service revenues for the trailing months.
Software license fees are generally recognized as revenue upon shipment if
the fee is considered fixed or determinable, the arrangement does not include
significant customization of the software and collectibility is
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probable. Allowances for returns and doubtful accounts are provided based on
historical rates of returns and write-offs, which have not been material to
date. Certain of NetManage's sales to distributors are under agreements
providing rights of return and price protection on unsold merchandise.
Accordingly, NetManage defers recognition of such sales until the merchandise is
sold by the distributor.
NetManage provides ongoing maintenance and support to its customers,
generally under annual service agreements. Maintenance and support is comprised
of software updates for existing products and telephone support. Service
revenues are recognized on a pro-rata basis over the term of such agreements.
Periodically, NetManage has provided training and consulting services to
selected customers. Such revenue is recognized as the related services are
performed and has not been material to date. NetManage does not expect that
revenues generated from such training and consulting services will constitute a
material portion of total revenues.
No customer accounted for more than 10% of net revenues during the
three-month periods ended March 31, 1997 or March 31, 1998.
GROSS MARGIN
Cost of revenues primarily includes royalties paid to third parties for
licensed software incorporated into NetManage's products as well as costs
associated with product packaging, documentation and software duplication. Cost
of service revenues through March 31, 1998 has not been material and is not
reported separately. Gross margin increased both in absolute dollars and as a
percentage of total net revenues for the three-month period ended March 31, 1998
as compared to the three-month period ended March 31, 1997 primarily as a result
of the increase in the net revenue base while costs remained relatively fixed.
Gross margin as a percentage of net revenues may fluctuate in the future due to
increased price competition, the mix of distribution channels used by NetManage,
the mix of license fee revenues versus service revenues, the mix of products
sold and the mix of international versus domestic revenues. NetManage typically
recognizes higher gross margins on direct sales than on sales through indirect
channels.
RESEARCH AND DEVELOPMENT
Research and development ("R&D") expenses consist primarily of salaries and
benefits, as well as fees paid to certain outside consultants. The decrease in
R&D expenses in absolute dollars for the three-month period ended March 31, 1998
as compared to the same period of the prior year primarily reflects cost
savings, particularly in salaries and benefits, associated with employee
attrition and the previously discussed restructuring. NetManage expects R&D
spending to initially increase following the Merger. NetManage expects R&D
spending to fluctuate as a percentage of net revenues depending on future
revenue levels, acquisitions and licensing of technology.
Software development costs are accounted for in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 86 "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed," under which
NetManage is required to capitalize software development costs after
technological feasibility is established, which NetManage defines as a working
model and further defines as a beta version of the software. The establishment
of technological feasibility and the ongoing assessment of the recoverability of
these costs requires considerable judgment by management with respect to certain
external factors, including, but not limited to, anticipated future gross
product revenue, estimated economic life and changes in technology. Costs that
do not qualify for capitalization are charged to R&D expense when incurred. To
date, internal software development costs that were eligible for capitalization
have not been significant and NetManage has charged all internal software
developments costs to R&D expense as incurred.
SALES AND MARKETING
Sales and marketing ("S&M") expenses consist primarily of salaries and
commissions of sales and marketing personnel, advertising and promotion
expenses, and customer service and support costs. The decrease in S&M expenses
in both absolute dollars and as a percentage of total net revenues for the
three-month period ended March 31, 1998 as compared to the same period in 1997
primarily reflects cost savings
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related to employee attrition and the restructuring mentioned above, as well as
a decline in advertising costs as NetManage re-evaluated its marketing and
selling strategies.
NetManage believes that S&M expenses, particularly related to advertising
and promotion expenses, will initially increase following the Merger. NetManage
expects that S&M expenses as a percentage of total net revenues will fluctuate
depending on future revenue levels.
GENERAL AND ADMINISTRATIVE
General and administrative ("G&A") expenses increased in absolute dollars
for the three-month period ended March 31, 1998 as compared to the same period
of 1997 largely due to additional legal fees associated with defending the
lawsuits filed against NetManage in 1997 as discussed in "NETMANAGE
BUSINESS -- Legal Proceedings." NetManage anticipates G&A expenses will
initially increase following the Merger and that, as a percentage of total net
revenues, G&A expenses will fluctuate depending on future revenue levels.
INTEREST INCOME AND OTHER, NET
Interest income and other, net includes interest income earned on
NetManage's cash and investments as well as foreign exchange gains and losses.
The decline in interest income and other, net in both absolute dollars and as a
percentage of total net revenues for the three-month period ended March 31, 1998
as compared to the same period in 1997 is primarily the result of a decrease in
the aggregate amount of cash and investments from $105.3 million for the quarter
ended March 31, 1997 to $71.2 million for the quarter ended March 31, 1998.
PROVISION FOR INCOME TAXES
NetManage's effective tax rate for the three-month period ended March 31,
1998 was 27%, which reflects the benefit of tax credits and net operating loss
carryforwards. Due to NetManage's loss position in the three-month period ended
March 31, 1997, it did not have a tax provision.
ANNUAL RESULTS OF OPERATIONS
During the past year, NetManage has discontinued several low revenue
generating products and focused efforts on controlling costs in order to reduce
operating expenses and attempt to return to profitability. As previously
discussed, in the third quarter of 1997 NetManage initiated a plan to
restructure its operations worldwide and focus on its core competencies.
Additionally, during the fourth quarter of 1996 NetManage consolidated its
operations into two distinct business groups, each with dedicated development,
sales, marketing and support resources. The Core Technology Business Unit
products provide the technology to make the connection between personal
computers and large corporate computers possible. These products leverage the
strengths and popularity of the Internet and offer features to improve network
manageability. Core Technology products include NetManage's strongest brands:
the Chameleon family (Chameleon HostLink 97, Chameleon UNIXLink 97 and Chameleon
3270LT) and the NS/Portfolio family (NS/Portfolio Enterprise, NS/Portfolio for
Mainframe, NS/Portfolio for AS/400 and NS/Router). The Emerging Technology
Business Unit develops products that add value to the Core Technology product
offerings and also target new market segments. Current products include
SupportNow and OpSession, real-time software tools that help reduce the length
of support phone calls from end-users.
For the year ended December 31, 1997 as compared to the prior year,
NetManage experienced a significant decline in net revenues and an increase in
net loss. The decline in net revenues primarily reflected NetManage's lack of
success in marketing and selling its products, particularly in Europe and Japan,
as well as increased competition and pricing pressures. While additional
revenues resulted from both the NetSoft and Relay acquisitions, consolidated net
revenues also declined as a direct result of these acquisitions as NetManage was
incorporating acquired products into existing product lines, integrating the
operations of NetManage and the acquired companies and restructuring the
combined companies' focus on becoming the premier single source provider of
PC-to-host connectivity. As a result of these integration efforts, as well as
the
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timing of the acquisitions of NetSoft and Relay in the third and fourth quarters
of 1997, respectively, the acquisitions did not contribute significantly to
revenue for the year ended December 31, 1997. Finally, Chameleon HostLink 97
began shipping towards the end of the third quarter of 1997 and, therefore, did
not contribute significantly to revenues until the fourth quarter of 1997.
Operating expense levels are based in part on NetManage's expectations as
to future revenues and to a large extent are fixed. Operating expenses,
excluding the write-off of in-process research and development and restructuring
charges, decreased in absolute dollars for the year ended December 31, 1997
compared to 1996. Operating expenses are expected to initially increase
following the Merger.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, CHANGE
---------------- ----------------
1996 1997 $ %
------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Net revenues:
License fees.......................................... $ 89.3 $ 45.8 $(43.5) (48.7)%
Services.............................................. 15.3 15.7 0.5 3.1%
------ ------ ------ ------
Total net revenues............................ $104.6 $ 61.5 $(43.1) (41.2)%
As a percentage of net revenues:
License fees.......................................... 85.4% 74.4%
Services.............................................. 14.6% 25.6%
------ ------
Total net revenues............................ 100.0% 100.0%
Gross margin............................................ $ 92.8 $ 57.4 $(35.3) (38.1)%
As a percentage of net revenues....................... 88.7% 93.3%
Research and development................................ $ 27.9 $ 20.7 $ (7.3) (26.0)%
As a percentage of net revenues....................... 26.7% 33.6%
Sales and marketing..................................... $ 52.2 $ 41.4 $(10.7) (20.5)%
As a percentage of net revenues....................... 49.9% 67.4%
General and administrative.............................. $ 11.2 $ 10.4 $ (0.8) (6.9)%
As a percentage of net revenues....................... 10.7% 16.9%
Write-off of in-process research and development........ $ 13.4 $ 20.6 $ 7.3 54.2%
As a percentage of net revenues....................... 12.8% 33.6%
Restructuring charge.................................... $ -- $ 5.2 $ 5.2 n/a
As a percentage of net revenues....................... -- 8.4%
Interest income......................................... $ 5.6 $ 4.6 $ (1.1) (18.9)%
As a percentage of net revenues....................... 5.4% 7.4%
Equity in income (losses) of unconsolidated affiliate... $ (1.0) $ 1.1 $ 2.2 (213.9)%
As a percentage of net revenues....................... 1.0% 1.0%
Unrealized gain on investment in unconsolidated
affiliate............................................. $ -- $ 2.2 $ 2.2 n/a
As a percentage of net revenues....................... -- 3.5%
Benefit for income taxes................................ $ (3.3) $ (0.5) $ 2.9 (86.2)%
Effective tax rate.................................... n/a n/a
Net loss................................................ $ (5.7) $(33.8) $(30.2) 491.7%
As a percentage of net revenues....................... n/a n/a
</TABLE>
NET REVENUES
License fees decreased substantially both in absolute dollars and as a
percentage of total net revenues during the year ended December 31, 1997 as
compared to the same period of 1996. As previously discussed,
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the decline in license fees was primarily attributable to increased competition
and heightened pricing pressures and NetManage's lack of success in marketing
and selling its products, particularly in the international marketplace.
Further, as discussed above, the timing of the NetSoft and Relay acquisitions
and the release of NetManage's Chameleon HostLink 97 product prevented these
events from contributing significantly to revenues during the year ended
December 31, 1997. While NetManage did realize increased revenues on a
sequential quarterly basis in the fourth quarter of 1997 as a result of its
recently introduced products, including both Chameleon HostLink 97 and UNIXLink
97, as well as its 1997 acquisitions, there can be no assurance that revenues
will continue to increase or stabilize in the future. The increase in service
revenues as a percentage of total net revenues for the year ended December 31,
1997 as compared to 1996 primarily reflected the decline in the total net
revenues base as a result of the aforementioned decline in license fee revenues.
International revenues as a percentage of total net revenues were
approximately 33% and 23% for the years ended December 31, 1996 and 1997,
respectively. The decline in international revenues as a percentage of total net
revenues was due largely to NetManage's lack of success in marketing and selling
its products, particularly in Europe and Japan, the latter of which accounted
for the majority of NetManage's international revenues during 1996. NetSoft has
historically been successful in marketing and selling its products
internationally, and NetManage is in the process of integrating and streamlining
overlapping functions, particularly in Europe, to benefit from NetSoft's success
historically in the international marketplace. NetManage is addressing and
taking steps with respect to staffing and management, distributor relationships,
and product marketing in Europe as well as in Japan. There can be no assurance
that such integration will be accomplished expeditiously or successfully, or
that NetManage will succeed in its attempts to improve its international
marketing and sales efforts.
No customer accounted for more than 10% of net revenues during the years
ended December 31, 1996 and 1997.
GROSS MARGIN
A charge of approximately $2.7 million is included in cost of revenues for
the year ended December 31, 1996, for the amortization and write-off of software
purchased in early 1996. The write-off of purchased software primarily resulted
from NetManage's decision during the fourth quarter of 1996 to discontinue its
ChameleonNFS for Mac OS and Xoftware for Mac OS product lines. Amounts incurred
for the amortization and writedown of purchased software in 1997 were
immaterial. Gross margin, as a percentage of net revenues, increased between the
years ended December 31, 1996 and 1997 primarily as a result of decreased
packaging and documentation costs as well as the 1996 charge of $2.7 million for
the amortization and writedown of purchased software discussed above. Cost of
service revenues through December 31, 1997 has not been material and is not
reported separately.
Gross margin as a percentage of net revenues may fluctuate in the future
due to increased price competition, the mix of distribution channels used by
NetManage, the mix of license fee revenues versus service revenues, the mix of
products sold and the mix of international versus domestic revenues. NetManage
typically recognizes higher gross margins on direct sales than on sales through
indirect channels and higher gross margins on license fee revenues than on
service revenues. NetManage expects that indirect sales will grow as a
percentage of both domestic and total revenues and that any material increase in
indirect sales as a percentage of revenues will adversely affect average selling
prices and gross margins due to lower unit costs that are typically charged when
selling through indirect channels. See "RISK FACTORS -- Risks Relating to
NetManage, FTP and the Combined Company -- Significant Fluctuations in Operating
Results."
RESEARCH AND DEVELOPMENT
The decrease in R&D expenses in absolute dollars for the year ended
December 31, 1997 as compared to the prior year is primarily the result of cost
savings, particularly salaries and benefits, associated with employee attrition
and the previously discussed restructuring. The decline in the total net
revenues base resulted in the
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increase in R&D expenses as a percentage of net revenues for the year ended
December 31, 1997 as compared to 1996.
SALES AND MARKETING
The decrease in S&M expenses in absolute dollars for the year ended
December 31, 1997 as compared to the prior year primarily reflects cost savings
related to employee attrition and the restructuring discussed above, and the
resulting declines in salaries and benefits, as well as a decline in advertising
as NetManage re-evaluated its marketing and selling strategies. As a percentage
of total net revenues for the year ended December 31, 1997 as compared to 1996,
the increase in S&M expenses was attributable to the decreased total net
revenues base.
GENERAL AND ADMINISTRATIVE
G&A expenses decreased in absolute dollars for the year ended December 31,
1997 as compared to the prior year due to cost savings related to employee
attrition and the previously discussed restructuring. As a percentage of total
net revenues for the year ended December 31, 1997 as compared to 1996, the
increase in G&A expenses was attributable to the decreased total net revenue
base.
WRITE-OFF OF IN-PROCESS RESEARCH AND DEVELOPMENT
As previously discussed, in connection with the acquisitions of all of the
outstanding shares of NSA and Relay during the third and fourth quarters of
1997, respectively, NetManage acquired a total of $24.4 million of intangible
assets. Of this amount, $20.6 million was reflected as a charge to operations
for the write-off of in-process research and development that had not reached
technological feasibility and, in management's opinion, had no probable
alternative future use. This charge is reflected in NetManage's audited
consolidated statement of operations for the year ended December 31, 1997
included elsewhere herein.
During the fourth quarter of 1996, NetManage purchased technology from
Applicom Software Industries (1990) Ltd. and U.S. Computer Software, Inc. In
management's opinion, neither of these purchased technologies had reached
technological feasibility nor had a probable alternative future use.
Accordingly, these technology purchases, totaling approximately $13.4 million,
were deemed to be in-process research and development and were charged to
operations for the year ended December 31, 1996.
RESTRUCTURING CHARGE
As discussed above, in the third quarter of 1997, NetManage initiated a
plan to restructure its operations worldwide. In connection with this plan, a
restructuring charge of $5.2 million was recorded in NetManage's statement of
operations for the year ended December 31, 1997. No such charges were incurred
for the year ended December 31, 1996.
INTEREST INCOME
The decline in interest income for the year ended December 31, 1997 as
compared to the same period of the prior year was primarily the result of a
decrease in the aggregate cash and investments from $103.3 million at December
31, 1996 to $69.3 million at December 31, 1997. The increase in interest income
as a percentage of total net revenues for the year ended December 31, 1997 as
compared to 1996 is attributable to the decreased total net revenues base.
EQUITY IN INCOME (LOSSES) OF UNCONSOLIDATED AFFILIATE AND UNREALIZED GAIN ON
INVESTMENT IN UNCONSOLIDATED AFFILIATE
In December 1997, NetVision, Ltd., a provider of internet services in
Israel and an unconsolidated affiliate of NetManage, issued an additional
800,000 preferred shares which were sold to Tevel Israel International
Communications, Ltd. ("Tevel"), an unrelated party, for $10.0 million cash in
exchange for a one-third interest in NetVision. As a result of the issuance and
sale of these shares by NetVision,
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NetManage's ownership interest in NetVision decreased from 50% to approximately
32%. In connection with this transaction, NetManage recorded an unrealized gain
on the sale of stock by NetVision of approximately $2.1 million, which is
included in NetManage's audited consolidated statement of operations for the
year ended December 31, 1997 included elsewhere herein.
BENEFIT FOR INCOME TAXES
NetManage recorded a benefit for income taxes for the years ended December
31, 1996 and 1997 of approximately $3.3 million and $0.5 million, respectively,
on a pretax loss of $9.0 million and $34.2 million, respectively.
At December 31, 1997, NetManage had a net deferred tax asset of
approximately $7.3 million. Realization of the net deferred tax asset is
dependent on NetManage generating sufficient future taxable income. Although
realization is not assured, management believes that it is more likely than not
that the net deferred tax asset will be realized. The amount of the net deferred
tax asset, however, could be reduced in the near term if actual future taxable
income differs from estimated amounts.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, CHANGE
---------------- ----------------
1995 1996 $ %
------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Net revenues:
License fees.......................................... $112.1 $ 89.3 $(22.7) (20.3)%
Services.............................................. 13.4 15.3 1.9 14.2%
------ ------ ------ ------
Total net revenues................................. $125.5 $104.6 $(20.8) (16.6)%
As a percentage of net revenues:
License fees.......................................... 89.3% 85.4%
Services.............................................. 10.7% 14.6%
------ ------
Total net revenues................................. 100.0% 100.0%
Gross margin............................................ $112.4 $ 92.8 $(19.6) (17.4)%
As a percentage of net revenues....................... 89.6% 88.7%
Research and development................................ $ 23.9 $ 27.9 $ 4.1 17.1%
As a percentage of net revenues....................... 19.0% 26.7%
Sales and marketing..................................... $ 46.1 $ 52.2 $ 6.1 13.1%
As a percentage of net revenues....................... 36.8% 49.9%
General and administrative.............................. $ 9.8 $ 11.2 $ 1.4 14.2%
As a percentage of net revenues....................... 7.8% 10.7%
Write-off of in-process research and development........ $ -- $ 13.4 $ 13.4 100.0%
As a percentage of net revenues....................... -- 2.8%
Acquisition costs....................................... $ 1.7 $ 0.2 $ (1.5) (88.3)%
As a percentage of net revenues....................... 1.4% 0.2%
Interest income......................................... $ 4.5 $ 5.6 $ 1.1 25.2%
As a percentage of net revenues....................... 3.6% 5.4%
Provision (benefit) for income taxes.................... $ 11.5 $ (3.3) $(14.8) (129.0)%
Effective tax rate.................................... 34.0% n/a
Net income (loss)....................................... $ 22.3 $ (5.7) $(28.0) (125.6)%
As a percentage of net revenues....................... 17.8% n/a
</TABLE>
NET REVENUES
During the year ended December 31, 1996, license fees declined
significantly and service revenues increased in absolute dollars year over year
by approximately 14%.
License fees decreased both in absolute dollars and as a percentage of net
revenues during the year ended December 31, 1996 as compared to the same period
of 1995. The decline in license fees was primarily
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attributable to increased competition, heightened pricing pressures and the
general confusion within the marketplace resulting from rapidly changing
technology and product introductions, the delayed release of Windows NT 4.0 and
the slow adoption of Windows 95 in corporate accounts, all of which contributed
to delayed buying decisions, particularly by corporate users. In addition, the
decline reflects NetManage's lack of success in marketing and selling its
products in the United States and Japan in particular and also reflects the
inability of NetManage to realize any significant revenues from its 1995 and
1996 acquisitions of products and technology. These factors led to lower unit
volumes as well as lower average prices. Service revenues increased in absolute
dollars year over year by approximately 14% and as a percentage of net revenues
increased to nearly 15% of total net revenues. These increases primarily
reflected NetManage's focus on marketing its customer support services
domestically in 1996.
During mid-1995, NetManage expanded its worldwide operations with new sales
offices internationally in Europe and Japan. International revenues as a
percentage of total net revenues were 30% and 33% for the years ended December
31, 1995 and 1996, respectively. During the fourth quarter of 1996, in
particular, NetManage was unsuccessful in marketing and selling its products in
Japan, which in 1995 and the first half of 1996 accounted for the majority of
NetManage's international revenues.
No customer accounted for more than 10% of net revenues during the years
ended December 31, 1995 and 1996.
GROSS MARGIN
A charge of approximately $2.7 million was included in cost of revenues for
the year ended December 31, 1996 for the amortization and write-off of software
purchased in early 1996. The write-off of purchased software primarily resulted
from NetManage's decision during the fourth quarter of 1996 to discontinue its
ChameleonNFS for Mac OS and Xoftware for Mac OS product lines. No such charges
for the amortization and writedown of purchased software were incurred for the
year ended December 31, 1995. Gross margin, as a percentage of net revenues,
declined slightly between the years ended December 31, 1996 and 1995, primarily
as a result of the decline in the revenue base and the write-off discussed
above. Cost of service revenues through December 31, 1996 was not material and
was not reported separately.
RESEARCH AND DEVELOPMENT
The increase in R&D for the year ended December 31, 1996 as compared to the
prior year primarily reflected the hiring of product development engineers in
the United States and Israel during 1996, in part reflecting the high employee
attrition experienced in both locations.
SALES AND MARKETING
The increase in S&M expenses for the year ended December 31, 1996 compared
to the prior year, both in absolute dollars and as a percentage of net revenues,
reflected increased costs related to NetManage's investment in expanding its
direct corporate sales and support functions in the United States and increased
marketing activities, including advertising, trade show participation and
promotions.
GENERAL AND ADMINISTRATIVE
G&A expenses increased in absolute dollars and as a percentage of net
revenues for the year ended December 31, 1996 compared to the prior year. This
increase was primarily the result of increased staffing and associated expenses
necessary to support and improve NetManage's infrastructure. The increase as a
percentage of net revenues was also attributable to the decreased revenue base.
WRITE-OFF OF IN-PROCESS RESEARCH AND DEVELOPMENT
During the year ended December 31, 1996, NetManage purchased technology
from several parties. The majority of the $13.4 million charge in the fourth
quarter of 1996 was attributable to NetManage's purchases of technology from
Applicom Software Industries (1990) Ltd. and U.S. Computer Software, Inc. In
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management's opinion, both purchases of technology had not reached technological
feasibility and had no probable alternative future use. Accordingly, such
amounts were deemed to be in-process research and development and were charged
to operations for the year ended December 31, 1996. No such expenses were
incurred for the year ended December 31, 1995.
ACQUISITION COSTS
NetManage incurred acquisition costs during the year ended December 31,
1996 related to the acquisition of MaxInfo, which was accounted for as a pooling
of interests. Acquisition costs for the year ended December 31, 1995 primarily
related to the acquisitions of Syzygy and AGE, which were also accounted for as
poolings of interests. Acquisition costs consisted primarily of investment
banking, legal, accounting and other related expenses.
INTEREST INCOME
Interest income increased in absolute dollars and as a percentage of net
revenues primarily as a result of higher average cash and investment balances
during the year ended December 31, 1996 compared to the prior year.
PROVISION (BENEFIT) FOR INCOME TAXES
NetManage recorded a benefit for income taxes of approximately $3.3 million
on a pretax loss of approximately $9.0 million for the year ended December 31,
1996 compared to a provision for income taxes of approximately $11.5 million on
pretax income of approximately $33.8 million for the year ended December 31,
1995.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
AS OF MARCH 31,
----------------
1997 1998
----- -----
(IN MILLIONS)
<S> <C> <C>
Cash and cash equivalents.................................. $21.1 $15.1
Short-term investments..................................... 36.9 40.7
Long-term investments...................................... 47.3 15.4
Net cash provided by operating activities.................. 3.5 1.6
Net cash provided by (used in) investing activities........ (1.5) 0.1
Net cash provided by financing activities.................. 0.1 0.5
</TABLE>
Since NetManage's inception, growth has been financed primarily through
cash provided by operations and sales of capital stock. NetManage's primary
financing activities to date have consisted of its initial and secondary stock
offerings and preferred stock issuances, resulting in aggregate net proceeds to
NetManage of approximately $72.5 million. NetManage does not have a bank line of
credit or an equipment lease facility. NetManage's cash and cash equivalents,
short-term investments and long-term investments increased from $69.3 million at
December 31, 1997 to $71.2 million at March 31, 1998. This increase was
primarily due to cash provided by NetManage's operations.
NetManage's principal investing activities to date have been the purchase
of short- and long-term investments, purchases of property and equipment, and
cash payments for acquisitions. Net of amounts invested, NetManage received
proceeds of $0.5 million from maturities of short-term and long-term investments
during the three-month period ended March 31, 1998. Expenditures for purchases
of property and equipment were minimal during the first quarter of 1998 due to
NetManage's efforts to control expenses. NetManage does not have any specific
commitments with regard to future capital expenditures. NetManage's principal
commitment as of March 31, 1998 consists of leases on its facilities.
Net cash provided by financing activities during the three months ended
March 31, 1998 reflects proceeds from the issuance of common stock under
NetManage's stock option plan.
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At March 31, 1998, NetManage had working capital of $62.1 million.
NetManage believes that its current cash balances and cash flows from current
operations will be sufficient to meet NetManage's working capital and capital
expenditure requirements for the next 12 months. However, there can be no
assurance that NetManage will not require additional funds sooner or that if
required they would be available on reasonable terms, if at all.
NEW ACCOUNTING STANDARDS
In 1997, NetManage adopted SFAS No. 129, "Disclosure of Information About
Capital Structure." SFAS No. 129 requires companies to disclose certain
information about their capital structure. SFAS No. 129 did not have a material
impact on NetManage's consolidated financial statement disclosures.
In the first quarter of 1998, NetManage adopted SFAS No. 130,
"Comprehensive Income." SFAS No. 130 requires companies to report a new,
additional measure of income on the income statement or to create a new
financial statement that has the new measure of income on it. "Comprehensive
Income" is to include foreign currency translation gains and losses and other
unrealized gains and losses that have been previously excluded from net income
and reflected instead in equity. The adoption of SFAS No. 130 did not have a
material impact on NetManage's consolidated financial statements or disclosures.
In 1997, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position ("SOP")
97-2, "Software Revenue Recognition," which was adopted by NetManage in the
first quarter of 1998. SOP 97-2 provides guidance on applying generally accepted
accounting principles in recognizing revenue on software transactions. The
adoption of SOP 97-2 did not have a material impact on NetManage's consolidated
financial statements.
In 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which NetManage will adopt in its 1998
annual consolidated financial statements. SFAS No. 131 requires companies to
report financial and descriptive information about its reportable operating
segments, including segment profit or loss, certain specific revenue and expense
items, and segment assets, as well as information about the revenues derived
from NetManage products and services, the countries in which NetManage earns
revenues and holds assets, and major customers.
DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
NetManage's exposure to market risk for changes in interest rates relates
primarily to its investment portfolio. NetManage places its investments with
high credit quality issuers and, by policy, limits the amount of credit exposure
to any one issuer. As stated in its policy, NetManage is averse to principal
loss and seeks to preserve its invested funds by limiting default risk,
liquidity risk and territory risk.
NetManage mitigates default and liquidity risks by investing in only safe
and high credit quality securities and by positioning its portfolio to respond
appropriately to a significant reduction in a credit rating of any investment
issuer or guarantor. The portfolio includes only marketable securities with
active secondary or resale markets to ensure portfolio liquidity. NetManage
mitigates territory risk by only allowing up to 25% of the portfolio to be
placed outside of the United States.
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<PAGE> 105
The table below presents the carrying value, market value and related
weighted average interest rates for NetManage's investment portfolio as of
December 31, 1997. All investments mature, by policy, in four years or less.
<TABLE>
<CAPTION>
CARRYING MARKET AVERAGE
VALUE VALUE INTEREST RATE
-------- ------ -------------
(IN MILLIONS, EXCEPT FOR
AVERAGE INTEREST RATES)
<S> <C> <C> <C>
Investment securities:
Cash equivalents -- fixed rate.............. $ 4.5 $ 4.5 48.7%
Short-term investments -- fixed rate........ 36.8 37.0 6.11%
Long-term investments -- fixed rate......... 19.7 19.8 5.9%
----- -----
Total investment securities......... 61.0 61.3 5.95%
Money market funds -- variable rate........... 0.4 0.4 5.30%
----- -----
Total interest bearing
instruments....................... $61.4 $61.7 5.95%
===== =====
</TABLE>
FOREIGN CURRENCY RISK
NetManage transacts business in various foreign currencies, primarily in
Europe and Israel. NetManage has established a foreign currency hedging program,
utilizing foreign currency forward exchange contracts ("forward contracts") to
hedge certain foreign currency exposures in certain European countries. Under
this program, increases or decreases in NetManage's foreign currency
transactions are partially offset by gains and losses on the forward contracts,
so as to mitigate the possibility of short-term earnings volatility. NetManage
does not use forward contracts for trading purposes. All outstanding forward
contracts at the end of a period are marked-to-market with unrealized gains and
losses included in interest income and, thus, are recognized in income in
advance of the actual foreign currency cash flows. As these forward contracts
mature, the realized gains and losses are recorded and are included in net
income (loss) as a component of interest income. NetManage's ultimate realized
gain or loss with respect to currency fluctuations will depend upon the currency
exchange rates and other factors in effect as the contracts mature.
The table below provides information as of December 31, 1997 about
NetManage's forward contracts. The information is provided in U.S. dollar
equivalent amounts. The table presents the notional amount (at contract exchange
rates) and the contractual foreign currency exchange rates. These forward
contracts mature in less than 30 days.
<TABLE>
<CAPTION>
NOTIONAL CONTRACT
AMOUNT RATE
---------- ----------
(IN THOUSANDS, EXCEPT FOR
AVERAGE CONTRACT RATES)
<S> <C> <C>
Forward contracts:
British pounds sterling............................... $609 0.60
German deutschemarks.................................. $700 1.77
French francs......................................... $568 5.92
Belgian francs........................................ $ 33 36.20
</TABLE>
The unrealized gain (loss) on the outstanding forward contracts at December
31, 1997 was immaterial to NetManage's consolidated financial statements. Due to
the short-term nature of the forward contracts, the fair value at December 31,
1997 was negligible. The realized gain (loss) on these contracts as they matured
was not material to the consolidated operations of NetManage.
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<PAGE> 106
NETMANAGE MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following persons are expected to serve as the executive officers and
directors of NetManage immediately following the Merger (ages are as of June 30,
1998):
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Zvi Alon................ 46 Chairman of the Board, President and Chief Executive
Officer
Gary R. Anderson........ 51 Chief Financial Officer, Senior Vice President, Finance and
Secretary
John Bosch.............. 63 Director
Uzia Galil.............. 73 Director
Dr. Shelley Harrison.... 55 Director
D. Patrick Linehan...... 50 Senior Vice President, General Manager of the Core Business
Unit
Darrell Miller.......... 51 Director
Abraham Ostrovsky....... 55 Director
Patricia M. 44 Senior Vice President, Human Resources
Roboostoff............
</TABLE>
Zvi Alon is the founder of NetManage and has served as its Chairman of the
Board, President and Chief Executive Officer since NetManage's formation. From
1986 to 1989, Mr. Alon was the President of Halley Systems, a manufacturer of
networking equipment including bridges and routers. He also has served as
Manager, Standard Product Line at Sytek, Inc., a networking company, and Manager
of the Strategic Business Group for Architecture, Graphics and Data
Communications at Intel, a semiconductor manufacturer. Mr. Alon received a B.S.
degree in electrical engineering from the Technion-Israel Institute of
Technology in Haifa, Israel. He is a member of the board of directors of
NetVision, Ltd., a 33%-owned subsidiary of NetManage. Mr. Alon is the son-in-law
of Mr. Uzia Galil, a director of NetManage.
Gary R. Anderson has served as Senior Vice President, Finance and Chief
Financial Officer since December 1997 when he joined NetManage. From September
1996 to July 1997, Mr. Anderson was Chief Financial Officer and Executive Vice
President of NetSource Communications, a telecommunications and telemanagement
services provider and from April 1995 to April 1996 he was Chief Financial
Officer and Vice President of Air Net Communications, a telecommunications
hardware developer. Mr. Anderson also served as Senior Vice President and Chief
Financial Officer of WYSE Technology, Inc., a hardware manufacturer, from June
1989 to January 1995. Mr. Anderson is a Certified Public Accountant. Mr.
Anderson graduated from the University of Massachusetts where he received a
bachelor's degree in accounting.
John Bosch has served as a director of NetManage since December 1991. Since
1981, Mr. Bosch has been a general partner of Bay Partners, a venture capital
firm. In 1976, he co-founded Cronus Precision Products, Inc., a digital timing
company, and he served as its President and Chief Executive Officer until 1981.
In 1970, Mr. Bosch co-founded Anixter, Bosch and Russell, a consulting firm
specializing in marketing and sales consulting for high technology companies and
in technical venture analysis for the venture capital community. Mr. Bosch is
currently a director of five portfolio companies. He is a graduate of the
University of Southern California where he received a B.S. degree in mechanical
engineering and an M.B.A. in marketing.
Uzia Galil has served as a director of NetManage since December 1991. Mr.
Galil is the Chairman of the Board of Directors of Elron Electronic Industries,
Ltd. ("Elron"), its founder and also has been its President and Chief Executive
Officer since its formation. Mr. Galil has been Chairman of the Board of
Directors of Elbit Ltd., an affiliate of Elron, since January 1981, having been
President and Chief Executive Officer of Elbit Ltd. from 1967 to 1978. Mr. Galil
also serves as Chairman of the Board of Directors of Zoran Corporation, and as a
director of Elscint Ltd., Elbit Systems Ltd., Elbit Medical Imaging Ltd.,
Orbotech Ltd., and most of the private companies of the Elron Group. Mr. Galil
received a B.S. degree from the Technion and an M.S. in electrical engineering
from Purdue University, Lafayette, Indiana. An honorary doctorate in technical
sciences was granted to him by the Technion in 1977 in recognition of his
contribution to the development of science-based industries in Israel, an
honorary doctorate in philosophy was granted to him by
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<PAGE> 107
the Weizman Institute of Science in 1991 and an honorary doctorate in
engineering was granted to him in 1995 by the Polytechnic University in New
York. Mr. Galil is the recipient of the Israel Prize 1997 for his special
contribution to the high technology industry in Israel. From 1980 through
mid-1990, Mr. Galil served as Chairman of the International Board of Governors
of the Technion. Mr. Galil is the father-in-law of Mr. Zvi Alon, the Chairman of
the Board of Directors of NetManage and NetManage's President and Chief
Executive Officer.
Dr. Shelley Harrison has served as a director of NetManage since July 1996,
filling an open vacancy on the NetManage Board. Dr. Harrison has served as
Chairman of the Board of Directors since 1993 and Chief Executive Officer since
April 1996 of Spacehab, Inc., a company which develops, owns and operates
habitable modules and logistics supply services for the manned U.S. Space
Shuttle missions. In addition, Dr. Harrison is a managing general partner of
PolyVentures L.P. and PolyVentures II, L.P., which are high technology venture
capital firms. Dr. Harrison also serves on the board of directors of Globecomm
Systems, Inc. and Asymetrix Learning Systems, Inc., as well as several private
technology companies, and on the board of trustees of Polytechnic University in
New York. He received his B.S. in electrical engineering from New York
University and received an M.S. and Ph.D. in electrophysics from Polytechnic
University.
D. Patrick Linehan joined NetManage in July 1997 as Senior Vice President,
General Manager of the Core Business Unit. Prior to joining NetManage, he served
as President and Chief Executive Officer of NetSoft (acquired by NetManage in
July 1997), a software developer, since May 1996. From January 1995 to May 1996,
Mr. Linehan was President and Chief Executive Officer of MiraLink Corporation, a
hardware manufacturer and software developer. Previously, he was Chief Executive
Officer at Starbase Corporation, a software developer, from October 1993 to
January 1995 and President and Chief Executive Officer of Castelle, Inc., a
networking hardware manufacturer, from July 1991 to October 1993. Mr. Linehan
received a B.A. degree in business administration from the University of
Washington in Seattle.
Darrell Miller has served as a director of NetManage since February 1994
and served as Executive Vice President, Corporate Strategic Marketing for
NetManage from December 1994 to February 1996. From 1987 to 1993, Mr. Miller was
at Novell, a computer network company, in numerous positions including Executive
Vice President responsible for strategic and marketing operations and Executive
Vice President responsible for product development. From 1984 to 1987, Mr.
Miller acted as the Director of Marketing for Ungermann-Bass, a manufacturer of
networking equipment. Since 1994, Mr. Miller has served on the board of
directors of Xpoint Technologies, Inc., a switched ethernet company. Mr. Miller
is a graduate of the University of Denver where he received a B.S. in business
administration.
Abraham Ostrovsky joined the NetManage Board in January 1998. Mr. Ostrovsky
has served as Chairman of the Board of Jetform Corporation, a provider of
electronic forms and enterprise workflow products, since January 1996 and served
as its Chief Executive Officer from 1991 to 1995. Mr. Ostrovsky also served as
Chairman of the Board and Chief Executive Officer of Compressent, a company
which develops and licenses color facsimile and communications software, from
March 1996 to December 1997. Mr. Ostrovsky also serves as a director of SEEC,
Inc. and Indigo, Inc. Mr. Ostrovsky attended the University of Miami.
Patricia M. Roboostoff joined NetManage in December 1994 as Vice President,
Human Resources and since March of 1996 has held the position of Senior Vice
President, Human Resources. Prior to joining NetManage, she was Vice President
Administration/Human Resources at Maxtor Corporation, a disk drive manufacturer,
from October 1991 to November 1994. From 1978 to 1991, Ms. Roboostoff was at
Intel, in several positions, most recently as Human Resources Manager of the
Microprocessor/Technology/Manufacturing organization.
COMPENSATION OF DIRECTORS OF NETMANAGE
NetManage's non-employee directors currently receive a fixed sum of twelve
thousand dollars ($12,000) in cash compensation per annum, payable quarterly,
for service on the NetManage Board. In addition, non-employee directors may be
reimbursed for certain expenses in connection with attendance at Board and Board
committee meetings. Employee directors do not receive separate compensation for
their services on the
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<PAGE> 108
NetManage Board, although service on the Board may be considered when
establishing their compensation as employees.
COMPENSATION OF EXECUTIVE OFFICERS OF NETMANAGE
The following table sets forth all compensation awarded, earned or paid for
services rendered in all capacities to NetManage and its subsidiaries during
each of 1997, 1996 and 1995 to NetManage's Chief Executive Officer, NetManage's
two most highly compensated executive officers other than the Chief Executive
Officer who were serving as executive officers at the end of 1997 whose total
salary and bonus exceeded $100,000, and a former executive officer who would
have been among NetManage's executive officers but for the fact that the
individual was not serving as an executive officer of NetManage at the end of
1997 (collectively, the "Named Executive Officers"). This information includes
the dollar values of base salaries, bonus awards, the number of stock options
granted and certain other compensation, if any, whether paid or deferred.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ----------------------
--------------------------- SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($)(2) OPTIONS
--------------------------- ---- ------------ ------------ ----------------------
<S> <C> <C> <C> <C>
Zvi Alon................................... 1997 302,500 45,375 -0-
Chairman of the Board and Chief 1996 302,500 90,750 -0-
Executive Officer 1995 275,000 151,250 -0-
Patricia Roboostoff........................ 1997 143,359 18,750 346,000(3)
Sr. Vice President, Human Resources 1996 133,533 33,383 128,000(4)
1995 123,600 67,980 13,000
D. Patrick Linehan(5)...................... 1997 126,576 31,250 312,500
Sr. Vice President and General 1996 -- -- --
Manager, Core Products Division 1995 -- -- --
Walter Amaral(6)........................... 1997 134,277 -- 215,000(7)
Sr. Vice President, Finance and 1996 192,400 48,100 140,000(8)
Chief Financial Officer 1995 127,187 93,625 100,000
</TABLE>
- ---------------
(1) Includes amounts deferred pursuant to Section 401(k) of the Code.
(2) Bonus payments are based on the individual's performance, the individual's
salary level and NetManage's overall financial performance.
(3) Includes an original option grant of 75,000 shares and 271,000 of options
that were repriced in January and September 1997.
(4) Includes an original option grant of 35,000 shares and 93,000 of options
that were repriced in February 1996.
(5) Mr. Linehan joined NetManage in July 1997.
(6) Mr. Amaral served as NetManage's Senior Vice President of Finance and Chief
Financial Officer until his resignation from NetManage in August 1997.
(7) Includes an original option grant of 75,000 shares and 140,000 of options
that were repriced in January 1997.
(8) Includes an original option grant of 40,000 shares and 100,000 of options
that were repriced in February 1996.
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<PAGE> 109
STOCK OPTION GRANTS AND EXERCISES
The following table sets forth certain information with respect to stock
options granted to the Named Executive Officers in 1997. The exercise price of
the options was set at the fair market value as of the date of grant.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE PRICE GRANT DATE
OPTIONS EMPLOYEES IN PER SHARE EXPIRATION PRESENT VALUE
NAME GRANTED FISCAL YEAR ($/SHARE) DATE ($)(1)
---- --------------- --------------- -------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Zvi Alon................ -- -- -- -- --
Patricia Roboostoff..... 128,000(2) 1.7% $6.00 (2) $390,945
15,000(3) 0.2% $5.38 01/23/07 $ 76,489
60,000(4) 0.8% $2.81 04/15/07 $138,201
143,000(5) 1.9% $3.06 (5) $ 72,319
D. Patrick Linehan...... 312,500(6) 4.2% $3.06 09/05/07 $864,369
Walter Amaral........... 140,000(7) 1.9% $3.06 (7) $ 68,024
15,000(8) 0.2% $5.38 01/23/07 $ 76,489
60,000(9) 0.8% $2.81 04/15/07 $138,201
</TABLE>
- ---------------
(1) In determining the grant date present value of options, the Black-Scholes
valuation method was used. The assumptions used in this valuation included
an expected volatility of approximately 1.83, risk-free interest rates
ranging from 4.93% to 5.66%, no dividend yields, and an expected term from
vest date of approximately seven months.
(2) This option grant represents the January 1997 repricing of options granted
in prior years. The number of shares, expiration dates and related vesting
terms are as follows: (i) 80,000 shares expiring on 12/13/04 and vesting
21,666 shares on 8/13/96 then the balance monthly thereafter; (ii) 13,000
shares expiring on 10/23/05 and vesting 417 shares on 7/1/99 then the
balance monthly thereafter; and (iii) 35,000 shares expiring on 7/18/06 and
vesting 8,000 shares monthly through 1999, 15,000 shares monthly through
2000 and 12,000 shares monthly through 2001. Prior to the repricing, the
exercise prices on these options ranged from $10.375 to $11.125 per share.
(3) This option grant vests monthly throughout 12 months beginning 1/1/02. This
option was subsequently repriced to $3.06 per share in September 1997.
(4) This option grant has a 50% cliff vesting on 4/15/98 and another 50% cliff
vesting on 4/15/99.
(5) This option grant represents the September 1997 repricing of options
previously granted. For the terms of such repriced options, please see
footnotes (2) and (3) above.
(6) This option grant has a 20% cliff vesting on 8/1/98 and then vests monthly
thereafter.
(7) This option grant represents the January 1997 repricing of options granted
in prior years. The number of shares, expiration dates and related vesting
terms are as follows: (i) 100,000 shares expiring on 4/25/05 and a 25% cliff
vesting on 11/1/96 then the balance monthly thereafter; and (ii) 40,000
shares expiring on 7/18/06 and vesting 20,000 shares monthly throughout 2000
and 20,000 shares monthly throughout 2001. Prior to the repricing, the
exercise prices on these options ranged from $10.375 to $11.125 per share.
(8) This option grant vests monthly over 12 months beginning 1/1/02.
(9) This option grant has a 50% cliff vesting on 4/15/98 and another 50% cliff
vesting on 4/15/99.
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<PAGE> 110
The following table sets forth certain information concerning the number
and value at December 31, 1997 of unexercised "in the money" options held by the
Named Executive Officers. The values set forth below have not been, and may
never be, realized and are based on the positive spread between the respective
exercise prices of outstanding stock options and the closing price of the
NetManage Common Stock on December 31, 1997, which was $2.63 per share as
reported by the Nasdaq National Market.
AGGREGATE OPTION EXERCISES IN FISCAL YEAR 1997 AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF SECURITIES UNDERLYING IN-THE-MONEY OPTIONS AT
ACQUIRED VALUE UNEXERCISED OPTIONS AT FY-END FISCAL YEAR END
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- -------- ------------------------------- ---------------------------
<S> <C> <C> <C> <C>
Zvi Alon.............. -- -- -0- -0-/-0-
Patricia Roboostoff... -- -- 48,333/154,667 -0-/-0-
D. Patrick Linehan.... -- -- -0-/312,500 -0-/-0-
Walter Amaral(1)...... -- -- -0-/-0- -0-/-0-
</TABLE>
- ---------------
(1) Mr. Amaral was not employed at NetManage as of December 31, 1997 and
therefore had no outstanding options at the end of the year.
TEN-YEAR OPTION REPRICINGS
The following table sets forth certain information related to the repricing
of stock options to any executive officer since NetManage's initial public
offering in 1993. In February 1996, all options granted to employees in 1995 and
certain options granted to employees in the last quarter of 1994 were repriced
to $11.13 per share by the NetManage Board. The vesting schedule of these
repriced options was delayed six months. All out-of-the-money options previously
granted to employees were subsequently repriced by the NetManage Board to $6.00
per share in January 1997 and to $3.06 in September 1997. There was no change in
the vesting schedule for the options repriced in 1997.
<TABLE>
<CAPTION>
NUMBER OF LENGTH OF
SECURITIES ORIGINAL OPTION
UNDERLYING MARKET PRICE OF EXERCISE PRICE TERM REMAINING
OPTIONS STOCK AT TIME AT TIME OF NEW EXERCISE AT DATE OF
NAME DATE REPRICED OF REPRICING REPRICING PRICE REPRICING
---- ------- ---------- --------------- -------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Zvi Alon................... -- -0- -0- -0- -0- -0-
President & CEO
Patricia Roboostoff........ 2/13/96 80,000 $11.13 $12.63 $11.13 8.83 yrs
Sr. VP, Human Resources 2/13/96 13,000 $11.13 $19.81 $11.13 9.75 yrs
1/02/97 80,000 $ 6.00 $11.13 $ 6.00 7.95 yrs
1/02/97 13,000 $ 6.00 $11.13 $ 6.00 8.80 yrs
1/02/97 35,000 $ 6.00 $10.38 $ 6.00 9.54 yrs
9/05/97 13,000 $ 3.06 $ 6.00 $ 3.06 8.13 yrs
9/05/97 35,000 $ 3.06 $ 6.00 $ 3.06 8.86 yrs
9/05/97 80,000 $ 3.06 $ 6.00 $ 3.06 7.27 yrs
9/05/97 15,000 $ 3.06 $ 6.00 $ 3.06 9.38 yrs
D. Patrick Linehan......... -- -0- -0- -0- -0- -0-
Sr. VP & General Manager
Walter Amaral.............. 2/13/96 100,000 $11.13 $16.13 $11.13 9.25 yrs
Sr. VP & CFO 01/02/97 100,000 $ 6.00 $11.13 $ 3.06 8.31 yrs
01/02/97 40,000 $ 6.00 $10.38 $ 3.06 9.54 yrs
Robert Williams............ 2/13/96 10,500 $11.13 $19.81 $11.13 9.75 yrs
VP Business Development
</TABLE>
REPORT OF THE NETMANAGE BOARD ON REPRICING OF OPTIONS
The NetManage Board determined that as a result of declines in the price of
NetManage Common Stock, the incentive provided by the options previously granted
to all employees was insufficient to assist NetManage in retaining its
employees. The price of the NetManage Common Stock fell from $23.25 per
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<PAGE> 111
share at the end of 1995 to $10.88 per share at the end of the first quarter of
1996, then fell again to $6.00 at the end of 1996 and to $3.72 at the end of the
third quarter of 1997. Employee retention had become a significant challenge for
the Company due to the extremely competitive nature of the employment
marketplace, which, combined with the Company's performance and declining stock
price, had led to substantial turnover. To assist the Company in retaining its
employees by providing additional incentive to remain with the Company over the
long-term, the Board of Directors decided to reprice outstanding options,
including the options held by the executives in the table above. The Board
considered other alternatives such as the issuance of more shares at the lower
prices, but felt that the effects of doing so would be too dilutive. As such, in
February 1996 the Board repriced all options granted to employees in 1995 and
certain options granted in the last quarter of 1994 to $11.13; the vesting on
these repriced options was delayed six months. Due to the continued decline in
the stock price throughout 1996 and 1997 the Board repriced all out-of-the money
options in January 1997 and September 1997, with no change in the current
vesting schedules. The Board believed that the factors affecting the decision as
to whether to reprice the options held by officers were identical to those for
all other employees, and that it was in the interests of the Company to provide
adequate incentive to assist in employee, including executive officer,
retention.
Zvi Alon
John Bosch
Uzia Galil
Darrell Miller
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires NetManage's directors and
executive officers, and persons who beneficially own more than 10% of a
registered class of NetManage's equity securities, to file with the Commission
initial reports of ownership and reports of changes in ownership of NetManage
Common Stock and other equity securities of NetManage. Officers, directors and
greater than 10% stockholders are required by the regulation to furnish
NetManage with copies of all Section 16(a) forms they file.
To NetManage's knowledge, based solely on a review of the copies of such
reports furnished to NetManage and written representations that no other reports
were required, during the year ended December 31, 1997, all Section 16(a) filing
requirements applicable to its officers, directors and greater than 10%
beneficial owners were complied with except that one Form 5 filed for Mr. Gary
Anderson and one Form 5 for Mr. Patrick Linehan, each relating to one option
grant, were filed late.
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<PAGE> 112
BENEFICIAL SECURITY OWNERSHIP OF
CERTAIN OWNERS AND MANAGEMENT OF NETMANAGE
The following table and footnotes set forth certain information regarding
the beneficial ownership of the NetManage Common Stock as of June 30, 1998 by:
(i) each director of NetManage; (ii) each of the executive officers named in the
Summary Compensation Table included under "NETMANAGE MANAGEMENT" above; (iii)
all executive officers and directors of NetManage as a group; and (iv) all those
known by NetManage to be beneficial owners of more than 5% of the NetManage
Common Stock. The information as to each person has been furnished by such
person, and each person has sole voting power and sole investment power with
respect to all shares beneficially owned by such person except as otherwise
indicated and subject to community property laws where applicable. Except as set
forth below, the address of each named individual is the address of NetManage as
set forth herein.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES TOTAL(%)(1)
---------------- ---------- -----------
<S> <C> <C>
Zvi Alon(2)................................................. 8,906,204 20.1
Elron Electronic Industries, Ltd.(3)........................ 925,000 2.1
P.O. Box 1573
Haifa 31015, Israel
Uzia Galil(4)............................................... 1,551,500 3.5
Patricia Roboostoff(5)...................................... 94,111 *
John Bosch(6)............................................... 41,251 *
Darrell Miller(7)........................................... 28,333 *
Shelley Harrison(8)......................................... 22,333 *
D. Patrick Linehan(9)....................................... 62,500 *
Gary Anderson............................................... 0 *
Abraham Ostrovsky........................................... 0 *
All executive officers and directors as a group (9
persons)(10).............................................. 10,706,232 24.2
</TABLE>
- ---------------
* Less than one percent.
(1) Based on 44,209,692 shares of NetManage Common Stock outstanding as of June
30, 1998.
(2) Includes (i) 8,868,204 shares held by the Zvi and Ruth Alon Living Trust
(the "Living Trust") and (ii) 38,000 shares held by the Zvi Alon Family
Foundation (the "Foundation"). Mr. Alon and his wife, Ruth Alon, are the
trustees of the Living Trust and the Foundation. Excludes 990,500 shares
held by the Zvi and Ruth Alon 1993 Children's Trust (the "Children's
Trust"), of which Mr. Uzia Galil is sole trustee.
(3) These shares are owned by Elron Electronic Industries, Ltd. (the "Elron
Shares"). Mr. Galil is Chairman of the Board of Directors, President and
Chief Executive Officer of Elron. Mr. Galil disclaims beneficial ownership
of the Elron Shares.
(4) Includes (i) 500,000 shares owned by Uzia and Ella Galil, (ii) 990,500
shares held by the Children's Trust, and (iii) 61,000 shares issuable upon
exercise of options that are exercisable within 60 days of June 30, 1998.
Mr. Galil is the sole trustee of the Children's Trust; however, he disclaims
beneficial ownership of the shares that are held in the Children's Trust.
The number of shares also excludes the Elron Shares for which Mr. Galil
disclaims beneficial ownership. Mr. Galil is the Chairman of the Board of
Directors, President and Chief Executive Officer of Elron.
(5) Includes (i) 2,445 shares owned by the Spindler-Roboostoff Revocable Trust
and (ii) 91,666 shares issuable upon exercise of options that are
exercisable within 60 days of June 30, 1998.
(6) Includes 40,501 shares issuable upon exercise of options that are
exercisable within 60 days of June 30, 1998.
(7) Includes 28,333 shares issuable upon exercise of options that are
exercisable within 60 days of June 30, 1998.
(8) Includes 22,333 shares issuable upon exercise of options that are
exercisable within 60 days of June 30, 1998.
(9) Includes 62,500 shares issuable upon exercise of options that are
exercisable within 60 days of June 30, 1998.
(10) Includes 306,333 shares issuable upon exercise of options that are
exercisable within 60 days of June 30, 1998.
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FTP BUSINESS
The discussion in this Joint Proxy Statement/Prospectus contains
forward-looking statements which involve risks and uncertainties. FTP's actual
results could differ materially from those discussed in the forward-looking
statements. Factors that could cause or contribute to such differences include,
without limitation, those discussed in this section and the sections entitled
"RISK FACTORS" and "FTP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS," as well as those discussed elsewhere in
this Joint Proxy Statement/Prospectus.
FTP is engaged in the design, development, marketing and support of
connectivity software applications that enable users to connect to information
across TCP/IP networks, including data residing on mainframes, minicomputers and
servers. These applications include terminal emulation, NFS file sharing and
printing, file transfer and legacy host access. FTP's OnWeb(TM) Host product, a
web-based host access product, and the latest versions of its OnNet(R) Host and
InterDrive(R) Client products, provide capabilities for ease of use and secure
access to corporate information across TCP/IP networks for end users, and
user-based management features to enable centralized desktop administration.
FTP has been engaged in the development of client networking software
products since 1986. These products, which are based upon the industry standard
TCP/IP data communications protocol suite, enable PC users to find, access and
use heterogeneous hardware, information and applications resources across local
area, enterprise-wide and global networks and a variety of operating systems,
computing platforms and network environments.
From time to time during the past five years, FTP has explored other
opportunities in the computer software market. In September 1996, FTP announced
its VIP Network strategy, a software architecture concept designed to enable
organizations to secure, manage and transparently extend their networks beyond
traditional boundaries, intranets and the Internet. FTP narrowed its focus
during 1997 to embedding key VIP Network attributes of security and user-based
and user-specific centralized management into its core connectivity software
products. From 1995 to 1996, FTP also explored, including through acquisitions,
opportunities in the then-emerging collaborative and Internet software markets.
FTP subsequently determined to focus on its core connectivity products and
technologies and disposed of certain lines of business and product lines during
1996 and 1997. See "-- Discontinued Operations" below.
In July and December 1997, FTP effected an internal reorganization of its
operations. For a description of these reorganizations, see "FTP MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Overview."
FTP was incorporated in Massachusetts in 1986. Its corporate headquarters
are located at 2 High Street, North Andover, Massachusetts 01845, telephone
number (978) 685-4000.
PRODUCTS
The following is a brief description of the principal products currently
marketed by FTP. FTP has designed its products based on open technology
standards, with an emphasis on ease of use, security and centralized management
both to enhance and protect its customers' investments in different networking
hardware and software and to provide its customers with flexibility for future
investments. FTP offers products that include one or more networking
applications as either point solutions or suites to target customer operating
system and networking requirements.
FTP's OnNet family of products includes applications for Windows 3.x,
Windows 95 and Windows NT operating systems. Most significant in this family are
the suite products OnNet32, targeting 32-bit operating systems, and OnNet16,
targeting 16-bit operating systems. These products provide end users with a full
range of applications designed to reach and share information on corporate
intranets and the Internet and across legacy systems, such as FTP's
implementation of NFS file and print sharing (also sold separately as part of
FTP's InterDrive product family described below) and advanced terminal
emulation. These products may include FTP's own implementation of the TCP/IP
protocol suite described below and/or be designed to alternatively operate on
the TCP/IP kernel embedded in the operating system.
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FTP's terminal emulation applications include VT 52-420, IBM PC, 3270 and
5250, SCO ANSI, BBS ANSI, Wyse 50/60, Telnet and serial support enabling access
to IBM, Digital and other host systems, and include usability features for
highly configurable emulation sessions, such as full keyboard remapping and a
customizable toolbar, as well as management and other features.
Certain OnNet products also include other networking applications,
utilities and features, including: mobile IP support; electronic mail
("e-mail"); remote file transfer; remote command, remote printing and remote
tape backup; and installation and configuration utilities.
FTP's TCP/IP kernel is a high performance, highly reliable implementation
of FTP's core TCP/IP suite of protocols which includes a number of advanced
features, such as gateway fallback and router discovery, that allow for
performance optimization, network redundancy, easy configuration and error
recovery in complex networks. The kernel is made available in both a 16-bit
implementation and a Winsock 2.0 compliant 32-bit version.
The newest offering in FTP's applications products is OnWeb Host, a
Web-based terminal emulation software product that enables host access through
any Java-enabled Web browser. Because OnWeb Host is installed only on the
server, deployment, upgrades and support are handled centrally, permitting
control and audit of user-based host access. OnWeb Host includes the OnWeb
Application server, a Java servlet, that delivers applets containing the
terminal emulation engine and works with the Web server to manage and audit
security and network activity.
FTP's InterDrive family of network file system solutions includes
InterDrive Client NFS for Windows 95 and InterDrive Client NFS for Windows NT,
client applications that provide network users with access to printers,
directories and file systems on network servers running the NFS server software,
and InterDrive Server NFS for Windows NT, a server product that lets users share
applications, information and devices (such as CD-ROMs) that are located on the
NFS server as if it were connected directly to a desktop PC.
FTP's X OnNet products allow Windows users to access networked applications
based on the X-Windows (X.11) standard. X OnNet is designed to be both powerful
and easy to use, and can run on any Windows Sockets compliant network software.
X OnNet is available for Windows 3.x, Windows 95 and Windows NT.
FTP continues to derive significant revenue from its PC/TCP(R) Network
Software product line, particularly outside the United States. FTP's PC/TCP
products are compatible with MS-DOS, NetWare, LAN Manager, Windows for
WorkGroups and Vines, but are generally deployed in MS-DOS environments, and
include a TCP/IP kernel for that environment. FTP's PC/TCP products allow PC
users to share information, access data from other sources, run host-based
applications and use network services across an organization's computing
environment.
SALES AND MARKETING
FTP distributes its products through multiple channels, including
value-added resellers, systems integrators, OEMs, distributors and direct sales.
FTP's distribution strategy is to select and to utilize the various channels to
address cost-effectively the broadest available market while minimizing
conflicts among its distribution channels. FTP also seeks to enter into
strategic alliances to extend FTP's distribution channels or to jointly market
or gain market awareness for FTP's products. FTP's distribution strategy has
resulted and is expected to continue to result in changes from time to time in
FTP's distribution model. See "FTP MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Results of Continuing
Operations -- Total Revenue -- Factors Affecting Revenue" and "RISK
FACTORS -- Risks Relating to NetManage, FTP and the Combined Company --
Marketing and Distribution Risks" and "-- Global Market Risks."
FTP generally seeks to market its products to large and mid-size
organizations with a wide range of networking requirements by identifying
various features and applications of FTP's products that address the customer's
networking needs. Marketing activities include advertising in trade
publications, direct mailings to
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target customers, participating in trade shows and conferences, publishing
articles in newsletters and technical journals, and participating in the TCP/IP,
Internet and other emerging standards setting processes.
As of June 30, 1998, FTP had approximately 77 sales employees and 17
marketing employees. FTP's sales and marketing operations are conducted from its
principal offices in North Andover, Massachusetts, and additional offices in San
Jose, California and Arlington, Virginia. FTP's principal European sales support
and marketing offices are located in England, France and Germany.
UNITED STATES. In the United States, FTP markets its products through
distributors, value-added resellers, systems integrators and OEMs, as well as
directly to large and mid-size companies and educational institutions. These
companies and institutions generally have complex enterprise and networking
requirements that include a wide range of applications. FTP's sales to the
United States federal, state and local governments are conducted directly and
through government resellers and OEMs. During 1997, FTP increased its focus on
selling its products in the United States through distributors, value-added
resellers, systems integrators and OEMs rather than directly. See "FTP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Results of Continuing Operations -- Total Revenue -- Factors
Affecting Revenue."
INTERNATIONAL. In the years ended December 31, 1995, 1996 and 1997, FTP
derived 46%, 42% and 41% of its sales, respectively, from outside the United
States. FTP relies on a network of resellers, systems integrators and
distributors located in Europe, the Middle East, South America, Canada, Russia
and Asia Pacific to sell its products internationally. FTP's offices in England,
France and Germany provide assistance to resellers, systems integrators and
distributors in their efforts to license FTP's products. See "FTP MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Results of Continuing Operations -- Total Revenue -- Factors
Affecting Revenue."
For financial information about geographic industry segments, see Note K of
the notes to FTP's audited consolidated financial statements included elsewhere
herein.
CUSTOMERS
FTP's customers include large corporations in the aerospace, automotive,
cable television, data processing, energy, financial services, mobile
communications, retail, telecommunications and other industries; federal, state,
local and foreign government organizations; and educational and research
institutions. No single customer accounted for more than 10% of FTP's revenue
for 1997.
CUSTOMER SERVICE AND SUPPORT
FTP believes that a high level of continuing customer support and service
is critical to its objectives of developing long-term relationships with its
customers. FTP's service and support activities are related to software and
network configuration issues and are provided by telephone support and remote
telephone access from FTP's facilities located in North Andover, Massachusetts.
FTP also provides customers with on-site installation support. FTP has a
toll-free technical support number available from 8:00 a.m. to 8:00 p.m.
(Eastern time), Monday through Friday. Support is also available through e-mail
and electronic bulletin boards. Since the second quarter of 1997, FTP has also
maintained a service and support center in Europe.
FTP currently offers maintenance contracts for site licenses. Site license
customers can purchase maintenance contracts at a price generally equal to 15%
of the suggested retail site license price, which entitles them both to
unlimited telephone support and to free updates of the product during the
maintenance period. During the third quarter of 1997, FTP entered into an
agreement with a third party that provides for the sale by such party on behalf
of FTP of certain maintenance services, support services and products in the
U.S. and Canada, with certain limited geographic exclusivity with respect to
certain of such services. See "FTP MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Results of Continuing
Operations -- Total Revenue -- Factors Affecting Revenue."
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FTP also currently offers a Partnership Support Program for its strategic
customers that provides 24-hour support seven days a week. This program requires
the customer to establish and maintain a help desk on site to provide front-line
support to all users. A group of support engineers at FTP is available to assist
customer personnel at these help desks in providing support.
EMPLOYEES
As of June 30, 1998, FTP had approximately 264 full-time employees,
including 94 in marketing and sales, 43 in technical support, 65 in product
development, five in manufacturing and 57 in general and administrative
functions and management. Approximately 204 of such employees were based in the
United States and approximately 60 were based in Europe. FTP's employees are not
represented by a labor union or other collective bargaining agent.
SUBSIDIARIES
FTP currently conducts its operations directly and through several
subsidiaries. FTP's subsidiaries include Firefox Communications Inc., Firefox
(U.S.) Inc., FTP Software Limited (U.K.), FTP Software Worldwide, Inc. (France)
and FTP Software GmbH (Germany).
PROPERTIES
FTP leases approximately 135,000 square feet at its corporate headquarters
in North Andover, Massachusetts. FTP also leases approximately 130,000 square
feet at its former headquarters facility in Andover, Massachusetts, of which
approximately 84,000 square feet are subleased to third parties, and
approximately 32,000 square feet at its former manufacturing facility in
Wilmington, Massachusetts, all of which is subleased to a third party. FTP also
leases approximately 98,000 square feet for sales, sales support and marketing
offices in San Jose, California, Arlington, Virginia, England, France and
Germany.
DISCONTINUED OPERATIONS
In 1995 and 1996, FTP explored technology opportunities in the
then-emerging collaborative and Internet software markets. During 1996, FTP
acquired the following for an aggregate net cash purchase price of approximately
$28.7 million: the Mariner Internet software product line of Network Computing
Devices, Inc.; substantially all of the assets of HyperDesk Corporation,
including its collaborative GroupWorks software product; and Campbell Services,
Inc., the developer of OnTime, a scheduling software product. FTP also acquired
a line of document viewer and conversion products from Keyword Office
Technologies Ltd. in early 1995 for a net cash purchase price of approximately
$2.4 million. The majority of the purchase price for these acquisitions was
attributable to incomplete technology and charged to product development
expenses at the time of the respective acquisitions, which charges are reported
in discontinued operations as described below.
In September 1996, FTP announced a formal plan to spin off, through the
sale to third parties, its collaborative lines of business and to discontinue
other selected product lines, including those described above. Accordingly,
these operations are treated as discontinued operations in FTP's consolidated
financial statements included elsewhere herein, and FTP recorded a $4.8 million
charge in the third quarter of 1996 to write down the related assets to
estimated net realizable values. FTP completed the dispositions of its
discontinued operations during 1997; the actual aggregate loss from such
dispositions was approximately $3.6 million (this actual loss being
approximately $1.2 million lower than originally estimated).
LEGAL PROCEEDINGS
In March 1996, a class action lawsuit was filed in the United States
District Court for the District of Massachusetts, naming FTP and certain of its
current and former officers as defendants. The lawsuit, captioned Lawrence M.
Greebel v. FTP Software, Inc., et al., Civil Action No. 96-10544, alleges that
the defendants publicly issued false and misleading statements and omitted to
disclose material facts necessary to make such statements not false and
misleading, which the plaintiffs contend caused an artificial inflation in the
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price of the FTP Common Stock. Specifically, the original complaint alleged that
the defendants knowingly concealed adverse facts and made false or misleading
forward and non-forward looking statements concerning the operating results and
financial condition of FTP, the effects of FTP's July 1995 corporate
restructuring and changing competitive factors in FTP's industry. The lawsuit,
which is purportedly brought on behalf of a class of purchasers of the FTP
Common Stock during the period from July 14, 1995 to January 3, 1996, alleges
violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5
thereunder and seeks relief in the form of unspecified compensatory damages,
costs and expenses and such other relief as the court deems proper and just. In
August 1996, plaintiffs filed an amended complaint adding allegations concerning
what plaintiffs claim were wrongful sales and accounting practices by FTP during
the class period, but asserting the same causes of action as the original
complaint. In October 1996, FTP filed a motion to dismiss the complaint on the
grounds that the plaintiffs had not met the pleading requirements of the Private
Securities Litigation Reform Act of 1995. The motion was denied by the court on
February 13, 1997. On February 13, 1998, FTP filed a motion for partial summary
judgment and renewed motion to dismiss; plaintiffs filed their response on March
20, 1998. The court has not yet set a date for a hearing on these motions.
FTP has reviewed the allegations in the lawsuit, believes them to be
without merit, and intends to defend itself and its officers vigorously. In
order to support an adequate defense, FTP has spent and expects to continue to
spend substantial sums for legal and expert fees and costs. The cost of
defending the litigation and the outcome of the litigation are uncertain and
cannot be estimated. If the lawsuit were determined adversely to FTP, FTP could
be required to pay a substantial judgment, which could have a material adverse
effect on FTP's business, financial condition and results of operations.
In February 1996, a class action lawsuit, captioned Richard Zeid and Siom
Misrah, et al. v. John Kimberley, Frank M. Richardson, Mark A. Rowlinson and
Firefox Communications, Inc., Case No. C96 20136, was filed in the United States
District Court for the Northern District of California, San Francisco Division
(transferred to the San Jose Division), naming Firefox Communications Inc.,
which FTP acquired in July 1996 ("Firefox"), and certain of its current and
former officers and former directors as defendants. The original complaint
alleged that the defendants misrepresented or failed to disclose material facts
about Firefox's operations and financial results, which the plaintiffs contended
resulted in an artificial inflation in the price of Firefox's common stock. The
suit was purportedly brought on behalf of a class of purchasers of Firefox's
common stock during the period from August 3, 1995 to January 2, 1996. The
complaint alleged claims for violations of Sections 10(b) and 20(a) of the
Exchange Act and Rule 10b-5 thereunder and sought relief in the form of
unspecified compensatory damages, pre- and post-judgment interest, attorneys'
and expert witness fees and such extraordinary, equitable and/or injunctive
relief as permitted by law, equity and the federal statutory provisions under
which the suit was brought. In June 1996, the District Court entered an order
dismissing plaintiffs' complaint. In the order, the court dismissed with
prejudice certain of plaintiffs' claims that warnings and disclosures in
Firefox's Form 10-Q were false and misleading, while granting plaintiffs
permission to amend their complaint as it concerned certain of plaintiffs'
claims that Firefox was responsible for false and misleading analysts reports,
Firefox statements and financial statements.
In July 1996, plaintiffs filed their amended complaint. The amended
complaint alleged that defendants misrepresented or failed to disclose material
facts about Firefox's operations and financial results which the plaintiffs
contended resulted in an artificial inflation of the price of Firefox's common
stock. The amended complaint was purportedly brought on behalf of a class of
purchasers of Firefox's common stock during the period from July 20, 1995 to
January 2, 1996. The amended complaint again alleged claims for violations of
Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 thereunder and
sought relief in the form described above. Specifically, the amended complaint
alleged that defendants knew allegedly material adverse non-public information
about Firefox's financial results and business conditions which allegedly was
not disclosed, that they improperly directed that certain sales and revenues be
recognized and failed to keep adequate reserves and that they participated in
drafting, reviewing and/or approving allegedly misleading statements, releases,
analysts reports and other public representations, including disclaimers and
warnings of and about Firefox. The amended complaint also alleged that John A.
Kimberley, then an officer and director of Firefox, and Frank Richardson, a
former officer and director of Firefox, were liable as "controlling persons"
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of Firefox. In September 1996, Firefox filed a motion to dismiss the amended
complaint on the grounds that the plaintiffs had not met the pleading
requirements of the Private Litigation Reform Act of 1995. On May 8, 1997, the
court dismissed the amended complaint on such grounds, without leave to amend.
Plaintiffs have appealed the dismissal to the Ninth Circuit Court of Appeals.
The court has not yet set a date for a hearing on the appeal.
Firefox has reviewed the allegations in the lawsuit, believes them to be
without merit, and intends to defend itself and its officers and directors
vigorously. In order to support an adequate defense, Firefox has spent and
expects to continue to spend substantial sums for legal and expert fees and
costs. The cost of defending the litigation and the outcome of the litigation
are uncertain and cannot be estimated. If the lawsuit were determined adversely
to Firefox, Firefox could be required to pay a substantial judgment, which could
have a material adverse effect on Firefox's business, financial condition and
results of operations.
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FTP MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of FTP should be read in conjunction with the historical consolidated
financial statements FTP and the related notes thereto included elsewhere
herein. The discussion in this Joint Proxy Statement/Prospectus contains
forward-looking statements that involve risks and uncertainties. FTP's actual
results could differ materially from those discussed in the forward-looking
statements. Factors that could cause or contribute to such differences include,
without limitation, those discussed in this section and the sections entitled
"RISK FACTORS" and "FTP BUSINESS," as well as those discussed elsewhere in this
Joint Proxy Statement/Prospectus.
OVERVIEW
The following discussion and analysis provides information that management
of FTP believes is relevant to an assessment and understanding of FTP's
consolidated results of operations and financial condition. This discussion
should be read in conjunction with FTP's consolidated financial statements and
the related notes included elsewhere herein.
FTP is engaged in the design, development, marketing and support of
connectivity software applications that enable users to connect to information
across TCP/IP networks, including data residing on mainframes, minicomputers and
servers. These applications include terminal emulation, NFS file sharing and
printing, file transfer and legacy host access.
In July 1997, FTP reorganized its business into strategic business units in
order to create greater focus on the different product, sales and economic
models that FTP believed would most effectively enable it to take advantage of
strategic opportunities in its products and technologies, ultimately focusing
primarily on its client and Web-based connectivity products. In connection with
the restructuring, and in order to reduce its overall cost structure, FTP also
effected a reduction in its worldwide workforce in continuing operations of
approximately 44%. The restructuring was substantially complete, and FTP had
paid a substantial majority of all related expenses (including severance
expenses), as of the end of the third quarter of 1997. FTP recognized a charge
of approximately $17.1 million in the third quarter of 1997, of which
approximately $7.0 million related to the workforce reduction, approximately
$2.9 million related to the consolidation of FTP's Andover, Massachusetts
headquarters and Wilmington, Massachusetts manufacturing facility into its North
Andover, Massachusetts development offices, approximately $6.3 million related
to the disposition of other physical assets, and approximately $0.9 million
consisted of other restructuring-related items such as losses related to
cancelled contracts. In addition, FTP's operating expenses for the third quarter
of 1997 included approximately $8 million in transition-related expenses,
consisting primarily of compensation expenses associated with personnel employed
on a transitional basis through various periods ending on or before December 31,
1997 and with short-term retention incentives as well as certain transitional
facilities expenses.
In late December 1997, following a review of the financial results of its
business units for the second half of 1997, FTP decided to further streamline
its operations and to recombine its business units into one worldwide
organization. This restructuring resulted in a charge of approximately $1.3
million in the fourth quarter of 1997, which included costs similar to those
incurred in connection with the third quarter restructuring.
The following summarizes the charges, the related write-offs and cash paid
in connection with the July and December 1997 restructurings.
<TABLE>
<CAPTION>
SEVERANCE EXCESS EXCESS
PAYMENTS FACILITIES FIXED ASSETS OTHER TOTAL
--------- ---------- ------------ ----- -------
<S> <C> <C> <C> <C> <C>
1997 restructuring charges...................... $ 7,391 $ 3,087 $ 6,871 $ 981 $18,330
Noncash write-offs.............................. -- -- (7,779) -- (7,779)
Cash paid....................................... (6,168) (1,553) -- (86) (7,807)
Reclassifications............................... (457) 176 908 (627) 0
------- ------- ------- ----- -------
Accrued restructuring charge at December 31,
1997.......................................... $ 766 $ 1,710 $ 0 $ 268 $ 2,744
======= ======= ======= ===== =======
</TABLE>
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In May 1996, FTP effected a reorganization and took certain cost-cutting
measures that included a reduction of approximately 10% in the number of FTP's
full-time employees at that time.
In 1995 and 1996, FTP explored technology opportunities in the
then-emerging collaborative and Internet software markets. During 1996, FTP
acquired the following for an aggregate net cash purchase price of approximately
$28.7 million: the Mariner Internet software product line of Network Computing
Devices, Inc.; substantially all of the assets of HyperDesk Corporation,
including its collaborative GroupWorks software product; and all of the
outstanding stock of Campbell Services, Inc., the developer of OnTime, a
scheduling software product. FTP also acquired a line of document viewer and
conversion products from Keyword Office Technologies Ltd. in early 1995 for a
net cash purchase price of approximately $2.4 million. The majority of the
purchase price for these acquisitions was attributable to incomplete technology
and charged to product development expense at the time of the respective
acquisitions, which charges are reported in discontinued operations as discussed
below.
In September 1996, FTP announced a formal plan to spin off, through the
sale to third parties, its collaborative lines of business and to discontinue
other selected product lines, including those described in the preceding
paragraph. Accordingly, these operations are treated as discontinued operations
in FTP's consolidated financial statements included elsewhere herein, and FTP
recorded a $4.8 million charge in the third quarter of 1996 to write down the
related assets to estimated net realizable values. FTP completed the
dispositions of its discontinued operations during 1997; the actual aggregate
net loss from such dispositions was approximately $3.6 million (this actual loss
being approximately $1.2 million lower than originally estimated).
In July 1996, FTP acquired Firefox Communications Inc. ("Firefox") through
the merger of a subsidiary of FTP into Firefox, which continues to operate as a
wholly-owned subsidiary of FTP. Pursuant to the merger, all of the outstanding
common stock of Firefox was converted into a total of approximately 6.4 million
shares of FTP Common Stock and approximately $9.1 million in cash, and
outstanding employee options to purchase shares of the common stock of Firefox
were converted into options to purchase approximately 336,000 shares of FTP
Common Stock.
Looking forward, if the Merger is not consummated, FTP expects to continue
to make substantial investments in its businesses (including through internal
and joint third party product development, marketing and distribution
activities, licensing agreements and technology and other acquisitions) over the
foreseeable future, through the use of FTP's internal cash resources, the
issuance of shares of its common stock or other securities, or a combination
thereof. There can be no assurance, however, that the capital resources
necessary to make such investments will be available or that, if available, such
resources will be on terms acceptable to FTP.
RESULTS OF CONTINUING OPERATIONS
TOTAL REVENUE
Total revenue consists of product revenue and service revenue. Product
revenue includes revenue from product sales and royalties from certain OEM
customers. Service revenue includes revenue from support, consulting and
training. Payments received in advance for support contracts are initially
recorded as deferred revenue and are recognized ratably over the term of the
contract. Revenue from consulting and training is recognized as the services are
performed.
Total revenue decreased from approximately $128.8 million for 1995 to
approximately $101.1 million for 1996 and approximately $67.7 million for 1997.
Product revenue decreased from approximately $115.7 million for 1995 to
approximately $84.6 million for 1996 and approximately $50.6 million for 1997.
Service revenue increased from approximately $13.1 million for 1995 to
approximately $16.5 million for 1996 and approximately $17.1 million for 1997.
As a percentage of total revenue, product revenue decreased from approximately
90% for 1995 to approximately 84% for 1996 and approximately 75% for 1997, while
service revenue increased from approximately 10% for 1995 to approximately 16%
for 1996 and approximately 25% for 1997.
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Total revenue decreased from approximately $21.4 million for the first
quarter of 1997 to approximately $10.9 million for the first quarter of 1998.
Product revenue decreased from approximately $16.8 million for the first quarter
of 1997 to approximately $7.7 million for the first quarter of 1998. Service
revenue decreased from approximately $4.5 million for the first quarter of 1997
to approximately $3.2 million for the first quarter of 1998. As a percentage of
total revenue, product revenue decreased from approximately 79% for the first
quarter of 1997 to approximately 71% for the first quarter of 1998, and service
revenue increased from approximately 21% for the first quarter of 1997 to
approximately 29% for the first quarter of 1998.
PRODUCT REVENUE. Product revenue decreased from 1995 to 1996 and from 1996
to 1997 primarily as a result of decreases in sales volumes over such periods, a
decrease in sales prices for certain of FTP's products during the latter half of
1996 and early 1997, and longer product sales cycles during 1996, all of which
factors FTP believes are primarily attributable to the increase in lower-priced
or no cost TCP/IP connectivity products introduced by certain of FTP's
competitors commencing in late 1995, an increase in competition in the
networking applications segment of the networking software industry during 1997
and decreases in customer demand for DOS- and 16-bit Windows-based products
since 1996. FTP also believes that the impact of its July 1997 restructuring on
its business activities, as well as a disruption in U.S. sales resulting from
the implementation during the third quarter of 1997 of FTP's plans to increase
sales in the U.S. through indirect channels, contributed to the decrease in
sales for 1997. See also "-- Factors Affecting Revenue" below.
Product revenue decreased in the first quarter of 1998 compared to the
first quarter of 1997 both in dollar amount and as a percentage of total revenue
primarily as a result of decreases in sales volumes and sales prices over such
periods. FTP believes these decreases were primarily due to the same factors
described in the preceding paragraph. In addition, product revenue for the first
quarter of 1997 included a payment from a strategic partner in the amount of
approximately $1 million payable under a contract for the completion of certain
milestones, primarily product deliverables, and did not depend upon the amount
of royalties actually earned in that quarter. Revenues under this contract for
1998 are expected to be significantly less than 1997 revenues under this
contract.
SERVICE REVENUE. The dollar increase in service revenue from 1995 to 1996
was primarily due to growth in FTP's installed product base over these periods.
The dollar increase in service revenue from 1996 to 1997 was primarily due to
growth during 1996 in FTP's installed product base from which such revenues are
obtained. While service revenue increased by approximately $0.6 million from
1996 to 1997, service revenue for 1997 was lower than expected by FTP primarily
as a result of adverse customer reaction to a new support program offered by FTP
during the second quarter of 1997, the impact of FTP's July 1997 restructuring
on its business activities, a decrease in FTP's installed product base during
1997 and an increase in the sale of support contracts through indirect channels
(which resulted in a decrease in FTP's operating margins on such sales due to
the lower per unit revenue realized by FTP on such sales) beginning in the third
quarter of 1997. The dollar decrease in service revenue from the first quarter
of 1997 to the first quarter of 1998 was also primarily due to such factors. The
percentage increase from the first quarter of 1997 to the first quarter of 1998
was primarily due to the decrease in product revenue over such periods described
above.
INTERNATIONAL REVENUE. International sales consist of export sales,
primarily to customers in Europe, Asia Pacific, Latin America and Canada.
International sales of approximately $59.2 million, $42.6 million and $27.9
million accounted for approximately 46%, 42% and 41% of FTP's total revenue for
1995, 1996 and 1997, respectively. International sales of approximately $9.5
million and $5.2 million accounted for approximately 44% and 48% of FTP's total
revenue for the first quarter of 1997 and 1998, respectively.
The dollar decreases from 1995 to 1996, from 1996 to 1997 and from the
first quarter of 1997 to the first quarter of 1998 were primarily due to the
same factors that resulted in the decrease in total product revenue described
above under "-- Product Revenue." Such factors particularly affected sales to
customers in Europe during the second half of 1997 and sales to customers in the
Asia Pacific region throughout 1997. Also contributing to the decrease in Asia
Pacific sales in 1997 were a delay in the localization of certain of FTP's
products and a period of adverse foreign currency exchange rate changes which
resulted in a relative increase in the price of FTP's products.
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FTP prices, invoices and collects international sales primarily in United
States dollars. To date, currency fluctuations have not had a material effect on
FTP's results of operations or financial condition.
FACTORS AFFECTING REVENUE. FTP has experienced a decrease in sales volumes
since 1995 and a decrease in sales prices during various periods since 1995,
which decreases FTP believes are primarily attributable to increased
competition, particularly the increase during 1997 in competition in the
networking applications software market, as well as to technological changes in
the market. Looking forward, FTP anticipates that some or all of these trends
will continue, and believes that, if the Merger is not consummated, FTP's future
will be substantially dependent on the ability of FTP (i) to create greater
focus on specific product opportunities and customer needs within FTP's product
categories, (ii) to formulate and implement its sales and distribution
strategies to most effectively take advantage of strategic opportunities in its
various product categories, (iii) to successfully develop new product strategies
and to timely release new products and product enhancements, (iv) to take
advantage of the emerging Web-based networking applications software market and
the continued development of such market and (v) to enter into and implement
strategic alliances and OEM relationships to develop necessary products or
technologies, to expand FTP's distribution channels or to jointly market or gain
market awareness for FTP's products. If FTP is unsuccessful in any such regard,
or if the Web-based networking applications software market does not develop as
anticipated by FTP, FTP believes that the trends described above will continue
to have a material adverse effect on FTP's business, results of operations and
financial condition. Even if FTP is successful in implementing new product
strategies, there can be no assurance that it will result in a material
improvement in FTP's business, results of operations or financial condition. See
"RISK FACTORS -- Risks Relating to NetManage, FTP and the Combined
Company -- Product Development and Competition."
The number of FTP's employees decreased significantly during 1997 and the
first half of 1998, both prior to and following FTP's 1997 restructurings, as a
result both of the restructurings and significant competition for qualified
personnel in the industry. FTP believes that this decrease, which resulted in
significant turnover in FTP's U.S. sales force, contributed to the decline in
revenue for the 1997 and the first quarter of 1998. In connection with the 1997
restructurings, FTP reduced its workforce by approximately 320 employees in
total, to approximately 336 employees. As a result of FTP's December 1997
restructuring, which included a workforce reduction involving approximately 21
employees, and attrition experienced primarily in the first half of 1998, the
number of FTP's employees has decreased to approximately 264 at June 30, 1998.
FTP's ability to maintain or increase revenue will depend in part on its ability
to retain, hire and train qualified personnel. See "RISK FACTORS -- Risks
Relating to NetManage, FTP and the Combined Company -- Employee Retention,
Dependence upon Key Personnel."
During the third quarter of 1997, FTP increased its focus in the United
States on sales through distributors, value-added resellers, systems integrators
and OEMs rather than direct sales, including, among other things, by entering
into an agreement with a third party that provides for the sale by such party on
behalf of FTP of certain maintenance services, support services and products in
the U.S. and Canada, with certain limited geographic exclusivity with respect to
certain of such services. As noted above, FTP believes that the transition to a
more indirect sales model resulted in a disruption in sales during the second
half of 1997. While the third party arrangement described above was intended to
increase sales of FTP's products and services in the U.S., there can be no
assurance that such arrangement will be successful or that sales of such
products and services will not decrease as a result. As noted above under
"-- Service Revenue," service revenue was lower than expected for the first
quarter of 1998 due in part to an increase in sales of support contracts through
indirect channels. FTP continues to evaluate its distribution channels in the
ordinary course of business. Additional changes in distribution channels may
adversely affect sales of FTP's products and consequently may adversely affect
FTP's business, financial condition and results of operations, at least in the
near term. Any material increase in sales through indirect channels may have an
adverse effect on FTP's operating margins due to the lower per unit revenue
realized by FTP on sales through indirect channels if FTP is unable to
proportionately reduce selling, general and administrative expenses. See "RISK
FACTORS -- Risks Relating to NetManage, FTP and the Combined
Company -- Marketing and Distribution."
In May 1998, Microsoft announced that it has licensed from Intergraph
Corporation source code for certain Intergraph NFS client and server products
for use in Windows NT Services for UNIX, Microsoft's
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new Windows NT and UNIX interoperability add-on product. FTP believes that
Microsoft's marketing and distribution of this technology is likely to increase
the sales cycle for certain of FTP's products and result in a decrease in the
sale of such products, which could have a material adverse effect on FTP's
business, results of operations and financial condition.
See "-- Liquidity and Capital Resources" below for a description of certain
legal proceedings and "RISK FACTORS" for additional discussion of the factors
described above and other factors which may affect FTP's business, financial
condition and results of operations.
GROSS MARGIN
Product gross margin as a percentage of product revenue was approximately
94%, 92% and 77% in 1995, 1996 and 1997, respectively. The decrease from 1995 to
1996 resulted primarily from an increase in costs associated with the
amortization of technologies licensed or purchased in 1995 and 1996 and the
decrease in revenues during 1996. The decrease from 1996 to 1997 resulted
primarily from the decrease in product revenue described under "-- Product
Revenue" above as well as an increase in costs associated with the amortization
of technologies licensed or purchased in 1995 and 1996 and an increase in costs
associated with the localization of certain of FTP's products. Amortization
expense was approximately $2.2 million, $2.7 million and $5.2 million in 1995,
1996 and 1997, respectively. The increase in amortization expense from 1996 to
1997 was primarily due to the increase in purchased technology resulting from
FTP's acquisition of Firefox in July 1996.
Product gross margin as a percentage of product revenue was approximately
82% and 85% in the first quarter of 1997 and 1998, respectively. This increase
also resulted primarily from a decrease in both costs associated with the
amortization of technologies licensed or purchased in 1995 and 1996 and costs
associated with the localization of certain of FTP's products, partially offset
by the decrease in product revenue described under "-- Product Revenue" above.
Amortization expense was approximately $1.1 million and $0.5 million in the
first quarter of 1997 and 1998, respectively.
Service gross margin as a percentage of service revenue increased from
approximately 30% in 1995 to approximately 41% in 1996 and 44% in 1997, and from
approximately 36% in the first quarter of 1997 to approximately 58% in the first
quarter of 1998. The increase from 1995 to 1996 was primarily due to a higher
rate of increase over such periods in FTP's installed product base compared to
the rate of increase over such periods in the cost of providing such services.
The increases from 1996 to 1997 and from the first quarter of 1997 to the first
quarter of 1998 were primarily due to reductions in costs over such periods
related to a decrease in professional services and technical support personnel
resulting from FTP's July 1997 restructuring and workforce reduction.
The gross margins reported above are not necessarily indicative of gross
margin for future periods, which may vary significantly depending on, among
other things, changes in product strategy and mix, price competition,
technological changes, cost changes and changes in product distribution
channels.
SALES AND MARKETING
Sales and marketing expenses were approximately $36.6 million, $46.9
million and $45.2 million in 1995, 1996 and 1997, respectively. Such expenses as
a percentage of total revenue were approximately 28%, 46% and 67% in 1995, 1996
and 1997, respectively.
The $10.3 million increase in sales and marketing expenses from 1995 to
1996 was primarily the result of (i) an increase in compensation expenses
associated with an increase in the number of sales and marketing employees and
an increase in the compensation levels of sales and marketing employees over
such periods and (ii) increases in the levels of advertising, trade show and
international marketing activities over such periods. The percentage increase
over such periods was primarily due to these factors as well as to the decrease
in revenue over such periods described above under "-- Total Revenue."
The $1.7 million decrease from 1996 to 1997 reflected the reduction in
expense resulting from FTP's July 1997 reorganization and workforce reduction,
as well as a decrease in the levels of FTP's advertising,
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tradeshow and other marketing activities. The percentage increase over such
periods was primarily due to the decrease in total revenue over such periods
described above under "-- Total Revenue."
Sales and marketing expenses were approximately $14.3 million and $6.2
million in the first quarter of 1997 and 1998, respectively. Such expenses as a
percentage of total revenue were approximately 67% and 56% in the first quarter
of 1997 and 1998, respectively. The $8.1 million decrease from the first quarter
of 1997 to the first quarter of 1998 was also primarily due to the decrease in
sales and marketing personnel resulting primarily from FTP's 1997
restructurings, as well as a decrease in the levels of FTP's advertising,
tradeshow and other marketing activities over such periods. The percentage
decrease over such periods was also primarily due to such factors.
FTP expects that sales and marketing expenses will continue to decrease in
1998 from 1997 dollar amounts as a result of the FTP's 1997 restructurings.
PRODUCT DEVELOPMENT
Product development expenses were approximately $22.3 million, $64.7
million and $27.0 million in 1995, 1996 and 1997, respectively, representing
approximately 17%, 64% and 40% of total revenue for each period, respectively.
The increase in product development expenses of approximately $42.4 million
from 1995 to 1996 was primarily due to the $37.9 million charge for acquired
in-process technology related to the July 1996 acquisition of Firefox. An
increase in compensation expenses related to an increase in development
personnel during 1996 (resulting in part from the Firefox acquisition), as well
as an increase in the use of outside contractors in connection with new product
releases in 1996, in each case compared to 1995, also contributed to the 1996
increase in product development expenses. The percentage increase from 1995 to
1996 (excluding the charge described above) was primarily due to the decrease in
revenue over such periods and the increase in compensation expenses and the use
of outside contractors described above.
The decrease in product development expenses of approximately $37.7 million
from 1996 to 1997 was due to the charge in the third quarter of 1996 of
approximately $37.9 million for acquired in-process technology described above.
Excluding such charge, product development expenses increased from approximately
$26.8 million for 1996 to approximately $27.0 million for 1997, representing
approximately 26% and 40% of total revenue for each period, respectively. The
$0.2 million increase from 1996 to 1997 primarily reflected an increase in
compensation expense related to an increase in development personnel over the
first six months of 1997 (resulting primarily from the Firefox acquisition), net
of the effect of the workforce reduction effected in connection with FTP's July
1997 reorganization. The percentage increase over such periods was primarily due
to the decrease in total revenue over such periods described above under
"-- Total Revenue."
Product development expenses were approximately $7.9 million and $3.6
million in the first quarter of 1997 and 1998, respectively, representing
approximately 37% and 33% of total revenue for each period, respectively. The
$4.3 million decrease from the first quarter of 1997 to the same period in 1998
primarily reflects a decrease in development personnel resulting primarily from
FTP's 1997 restructurings. The percentage decrease over such periods was also
primarily due to such factor.
FTP expects that product development expenses will continue to decrease in
1998 from 1997 dollar amounts as a result of FTP's 1997 restructurings.
FTP allocates the purchase price of acquired technologies to completed
technology and in-process technology based upon their respective fair values.
Completed technology that has reached technological feasibility is valued using
a risk adjusted cash flow model under which future cash flows are discounted,
taking into account risks related to existing and future markets and assessments
of the life expectancy of the completed technology. In-process technology that
has not reached technological feasibility and that has no alternative future use
is valued using the same method. Expected future cash flows associated with
in-process technology are discounted considering risks and uncertainties related
to the viability of and to the potential changes in future target markets and to
the completion of the products expected to ultimately be marketed by
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FTP. Amounts charged to product development expense for in-process technology
either are not fully deductible in the same period or are not deductible for tax
purposes.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were approximately $12.7 million, $19.8
million and $16.3 million in 1995, 1996 and 1997, respectively, representing
approximately 10%, 20% and 24% of total revenue for each period, respectively.
The dollar increase in general and administrative expenses from 1995 to
1996 was primarily due to expenses relating to an increase in personnel during
1996 (including the hiring of several senior executive officers), costs incurred
in connection with the defense of the legal proceedings described under
"-- Liquidity and Capital Resources" below and increased general and
administrative expenses resulting from the Firefox acquisition. The percentage
increase from 1995 to 1996 was also due to such factors as well as to the
decrease in revenue over such periods.
The $3.5 million decrease from 1996 to 1997 was primarily the result of the
reduction in expenses resulting from FTP's July 1997 reorganization and
workforce reduction, partially offset by an increase in administrative expenses
incurred in 1997 resulting primarily from an increase in general and
administrative personnel over such periods (due primarily to the Firefox
acquisition), and the incurrence in the second quarter of 1996 of approximately
$1.0 million in severance-related expenses related to FTP's May 1996 workforce
reduction. The percentage increase over such periods was primarily due to the
decrease in total revenue over such periods described above under "-- Total
Revenue."
General and administrative expenses were approximately $4.3 million and
$3.3 million in the first quarter of 1997 and 1998, respectively, representing
approximately 20% and 31% of total revenue for each period, respectively. The
$1.0 million decrease from the first quarter of 1997 to the same period in 1998
was primarily the result of a decrease in general and administrative personnel
resulting primarily from FTP's 1997 restructurings. The percentage increase over
such periods was primarily due to the decrease in total revenue over such
periods described above under "-- Total Revenue."
FTP expects that general and administrative expenses will continue to
decrease in 1998 from 1997 dollar amounts as a result of FTP's 1997
restructurings.
OPERATING INCOME (LOSS)
FTP had income from continuing operations of approximately $41.4 million in
1995, representing approximately 32% of total revenue for such year. FTP
experienced losses from continuing operations of approximately $47.0 million and
$60.3 million in 1996 and 1997, respectively, representing approximately 47% and
89% of total revenue for each period, respectively. Excluding the $37.9 million
charge for acquired in-process technology in 1996 and the restructuring charges
of $18.3 million in 1997, FTP experienced losses from continuing operations of
approximately $9.1 million and $42.0 million in 1996 and 1997, respectively,
representing approximately 9% and 62% of total revenue for each period,
respectively. These incremental losses were primarily due to the decrease in
total revenue over such periods described above under "-- Total Revenue."
FTP experienced losses from operations of approximately $11.0 million and
$3.8 million in the first quarter of 1997 and 1998, respectively, representing
approximately 52% and 35% of total revenue for each period, respectively. This
incremental loss was primarily due to the decrease in total revenue over such
periods described above under "-- Total Revenue."
INVESTMENT AND OTHER INCOME, NET
Investment and other income, net, was approximately $6.2 million, $4.3
million and $3.6 million for 1995, 1996 and 1997, respectively. The decreases in
investment income over these periods was primarily due to a reduction in FTP's
cash and investment balances over such periods resulting from operating losses
in 1997 and the investment of cash in the 1996 acquisitions described above
under "-- Overview." FTP invests excess cash
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in high grade municipal bonds, U.S. government treasury obligations, high grade
corporate obligations and equity investments.
Investment and other income, net, was approximately $0.6 million and $1.0
million for the first quarter of 1997 and 1998, respectively. This increase was
primarily due to a loss on disposal of fixed assets recognized in the first
quarter of 1997.
PROVISION FOR INCOME TAXES
The provision for income taxes was approximately $17.6 million, $1.0
million and $1.2 million for 1995, 1996 and 1997, respectively. FTP's effective
tax rate for 1995, 1996 and 1997 was 37.0%. 2.4% and 2.1%, respectively. Due to
the uncertainty as to when the deferred tax assets may be realized, FTP has
recorded a valuation allowance for all tax assets in excess of amounts available
to be recovered pursuant to tax loss carrybacks for the years ended December 31,
1996 and 1997. The difference between the statutory rate and the effective rate
for 1995 resulted primarily from the benefits received from FTP's foreign sales
corporation and research and experimentation credits.
The provision for income taxes was approximately $0.7 million and $0.1
million in the first quarter of 1997 and 1998, respectively. The provision
represents certain foreign and state tax obligations which cannot be offset by
FTP's net operating losses. Due to the uncertainty as to when the deferred tax
assets may be realized, FTP has recorded a valuation allowance for all tax
assets in excess of amounts available to be recovered pursuant to tax loss
carrybacks.
DISCONTINUED OPERATIONS
In September 1996, FTP announced a formal plan to spin off, through the
sale to third parties, its collaborative lines of business and to discontinue
other selected product lines. Accordingly, these operations are treated as
discontinued operations in the historical consolidated financial statements of
FTP included elsewhere herein. Such financial statements have been restated to
report separately in all periods presented the net assets and operating results
of the discontinued operations. Net assets of discontinued operations consist
primarily of cash, receivables, purchased software and fixed assets less
accounts payable and accrued expenses. As a result, FTP recorded a $4.8 million
charge to write down the related assets to estimated net realizable value at
September 30, 1996. FTP completed the dispositions of its discontinued
operations during 1997; the aggregate net loss from such dispositions was
approximately $3.6 million (this actual loss being approximately $1.2 million
lower than originally estimated).
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, FTP had an aggregate of approximately $65.5 million in
cash and cash equivalents, short-term investments and long-term investments. Of
this amount, approximately $37.0 million was invested primarily in highly liquid
investments with original maturities of three months or less, approximately
$12.1 million was invested in short-term investments consisting of U.S.
government obligations and commercial paper with maturities of less than one
year, and approximately $16.4 million was invested in U.S. government
obligations, commercial paper and municipal obligations with maturities of
greater than one year.
FTP generated funds from continuing operations of approximately $35.1
million and $23.5 million in 1995 and 1996, respectively, and used approximately
$31.0 million of cash for continuing operations in 1997 and approximately $5.6
million of cash for operations in the first quarter of 1998. Of the $31.0
million of cash used during 1997, approximately $7.8 million was used in
connection with FTP's July 1997 restructuring. See Note C of the notes to FTP's
audited consolidated financial statements included elsewhere herein. FTP made
capital expenditures of approximately $11.9 million, $9.1 million and $3.5
million in 1995, 1996 and 1997, respectively, and approximately $1.2 million and
$0.04 million in the first quarter of 1997 and 1998, respectively. Included in
the capital expenditures for 1995, 1996 and 1997 were payments for acquired
technologies and related assets in the amounts of approximately $2.0 million,
$5.6 million and $0.8 million, respectively.
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Accounts receivable, net, decreased from approximately $16.6 million at
December 31, 1996 to approximately $8.3 million at December 31, 1997 and
approximately $7.8 million at March 31, 1998. These decreases were primarily due
to the decreases in total revenue during 1997 and the first quarter of 1998
described above under "-- Total Revenue," as well as, in the case of the quarter
ended March 31, 1998, an increase in FTP's reserves for doubtful accounts.
With respect to Year 2000 compliance by the software products used in FTP's
internal software systems, the vendor of FTP's financial and accounting systems
has advised FTP that the current version of such vendor's product is Year 2000
compliant and that FTP will receive such version at no additional cost under
such vendor's maintenance program. FTP currently intends to install such version
during the third quarter of 1998. FTP believes that its technical support
system, being FTP's other primary internal software system, is Year 2000
compliant. Accordingly, FTP does not anticipate that it will incur any material
costs in connection with addressing Year 2000 compliance of its internal
systems.
With respect to Year 2000 compliance by the software products sold by FTP,
certain of such products are currently Year 2000 compliant, and FTP is testing
its other products for Year 2000 compliance and believes such testing will be
substantially complete by mid-summer of 1998. FTP does not anticipate that it
will incur any material costs in connection therewith.
To date, inflation has not had a material impact on FTP's financial
results.
On March 14, 1996, a class action lawsuit was filed against FTP and certain
of its current and former officers alleging violations of Sections 10(b) and
20(a) of the Exchange Act and Rule 10b-5 thereunder. On February 23, 1996, a
class action lawsuit was filed against Firefox and certain of its current and
former officers and former directors also alleging violations of Sections 10(b)
and 20(a) of the Exchange Act and Rule 10b-5. For a more detailed description of
these legal proceedings, see "FTP BUSINESS -- Legal Proceedings" and Note J of
the notes to FTP's audited consolidated financial statements included elsewhere
herein. Each of FTP and Firefox has reviewed the allegations in the lawsuit
against it, believes such allegations to be without merit and intends to defend
itself and its officers vigorously. In order to support an adequate defense,
each of FTP and Firefox has spent and expects to continue to spend substantial
sums for legal and expert fees and costs. The costs of defending each lawsuit
and the ultimate outcome of each lawsuit are uncertain and cannot be estimated.
If the lawsuit against FTP were ultimately determined adversely to FTP, or if
the lawsuit against Firefox were ultimately determined adversely to Firefox,
such company could be required to pay a substantial judgment, which could have a
material adverse effect on FTP's consolidated business, financial condition and
results of operations.
Looking forward, FTP believes that its available cash, cash equivalents and
short-term investments will be sufficient to fund its ordinary operating
expenses at least through 1998. As noted under "-- Overview" above, if the
Merger is not consummated, FTP expects to continue to make substantial
investments in its businesses. There can be no assurance, however, that the
capital resources necessary to make such investments will be available or that,
if available, such resources will be on terms acceptable to FTP.
NEW ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosure about Segments of an Enterprise." SFAS
No. 130 establishes standards for reporting and display of comprehensive income
and its components (revenue, expenses, gains and losses) in a full set of
general-purpose financial statements. FTP adopted the provisions of SFAS No. 130
effective January 1, 1998. SFAS No. 131 changes the way public companies report
information about operating segments. SFAS No. 131, which is based on the
management approach to segment reporting, establishes requirements to report
selected segment information quarterly and to report entity-wide disclosures
about products and services, major customers and the material countries in which
the entity holds assets and reports revenue. FTP intends to adopt SFAS No. 131
for its fiscal year ending December 31, 1998. FTP management does not expect
such adoption to have any material impact on the way it reports information.
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In October 1997, the American Institute of Certified Public Accountants
issued SOP 97-2, "Software Revenue Recognition," which provides guidance on
applying generally accepted accounting principles in recognizing revenue on
software transactions and supersedes SOP 91-1, "Software Revenue Recognition."
FTP will adopt SOP 97-2 for its fiscal year ending December 31, 1998 and does
not expect such adoption to have any material impact on its revenue recognition
policies.
DISCLOSURES ABOUT MARKET RISKS
In January 1997, the Commission issued Financial Reporting Release No. 48,
which expands disclosure requirements for certain derivative and other financial
instruments. FTP adopted the sensitivity analysis approach effective in the
fourth quarter of 1997. The sensitivity approach presents the hypothetical
change in market rates.
As a result of FTP's worldwide operations, it faces exposure to adverse
movements in foreign currency exchange rates. These exposures may change over
time as business practices evolve and could have a material adverse effect on
FTP's financial results in the future. Historically, FTP's primary exposures
have been related to local currency operating expenses in Europe and Asia
Pacific, where FTP sells primarily in U.S. dollars. FTP generally does not hedge
anticipated foreign currency cash flows.
The carrying amounts reflected in the historical consolidated balance
sheets of FTP, included elsewhere herein, for cash and cash equivalents,
accounts receivable and accounts payable approximate fair value due to the short
maturities of these instruments. The fair values represent estimates of possible
value that may not be realized in the future.
FTP maintains investment portfolio holdings of various issuers, types and
maturities. These securities are generally classified as available for sale, and
consequently are recorded on the balance sheet of FTP at fair value, with
unrealized gains or losses reported as a separate component of stockholders'
equity. The sensitivity analysis assumes an instantaneous 10% move in interest
rates from their levels at December 31, 1997, with all other variables
(including equity prices and foreign exchange rates) held constant. A 10%
increase in market interest rates would result in a $3.4 million decrease in the
fair value of FTP's investment portfolio. FTP management does not anticipate
that an increase in interest rates would have a material adverse effect on FTP's
income. As a result, FTP does not currently hedge these interest rate exposures.
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BENEFICIAL SECURITY OWNERSHIP OF CERTAIN
OWNERS AND MANAGEMENT OF FTP
The following table and footnotes set forth information regarding the
beneficial ownership of the FTP Common Stock as of June 30, 1998 by (i) the
chief executive officer of FTP, the other three executive officers of FTP who
were serving as such at December 31, 1997 and two other individuals who would
have been included among the most highly compensated executive officers of FTP
for 1997 but for the fact that they were not employed or not serving as
executive officers of FTP at the end of 1997 (the "FTP Named Executive
Officers"), (ii) each director of FTP, (iii) all directors and Named Executive
Officers of FTP as a group and (iv) each person (including any "group" as that
term is used in Section 13(d)(3) of the Exchange Act) known by FTP to be the
beneficial owner of more than 5% of the outstanding shares of FTP Common Stock,
the only outstanding class of voting securities of FTP. The information as to
each person has been furnished by such person, and each of the persons named
below has sole voting power and sole investment power with respect to the shares
of FTP Common Stock beneficially owned by such person except as otherwise
indicated and subject to community property laws where applicable.
<TABLE>
<CAPTION>
SHARES OF FTP COMMON
STOCK BENEFICIALLY OWNED
-------------------------
NUMBER OF PERCENT OF
DIRECTORS AND FTP NAMED EXECUTIVE OFFICERS(1) SHARES CLASS
--------------------------------------------- --------- ----------
<S> <C> <C>
Glenn C. Hazard...................................... 325,000(2) *
Douglas F. Flood..................................... 154,475(3) *
John A. Kimberley(4)................................. 1,360,288(4) 3.89%
Dennis Leibl......................................... 62,500(5) *
Peter R. Simkin...................................... 511,657(6) 1.46%
James A. Tholen...................................... 112,500(7) *
Kevin J. Burns....................................... 2,936(8) *
Vinton G. Cerf....................................... 55,000(9) *
Louise M. Cromwell................................... 38,768(10) *
David D. Clark....................................... 28,768(11) *
F. David Fowler...................................... 35,167(12) *
All FTP Named Executive Officers and directors as a
group (11 persons)................................. 2,687,059(13) 7.69%
5% BENEFICIAL OWNERS
- -----------------------------------------------------
LeRoy C. Kopp........................................ 6,387,484(14) 18.28%
Kopp Investment Advisors, Inc...................... 5,767,484(14) 16.50%
Kopp Holding Company............................... 5,767,484(14) 16.50%
6600 France Avenue South, Suite 672
Edina, Minnesota 55435
</TABLE>
- ---------------
* Less than 1%.
(1) The address of all FTP Named Executive Officers and directors is care of
FTP Software, Inc., 2 High Street, North Andover, Massachusetts 01845.
(2) Consists of 325,000 shares issuable pursuant to outstanding options
exercisable within 60 days of June 30, 1998.
(3) Includes 152,800 shares issuable pursuant to outstanding options
exercisable within 60 days of June 30, 1998.
(4) Mr. Kimberley resigned as a director and officer of FTP on December 17,
1997. All such shares are held in a trust for the benefit of Mr. Kimberly
and his family.
(5) Consists of 62,500 shares issuable pursuant to outstanding options
exercisable within 60 days of June 30, 1998.
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(6) Includes 100,000 shares issuable pursuant to outstanding options
exercisable within 60 days of June 30, 1998.
(7) Consists of 112,500 shares issuable pursuant to outstanding options
exercisable within 60 days of June 30, 1998.
(8) Consists of 2,936 shares issuable pursuant to outstanding options
exercisable within 60 days of June 30, 1998.
(9) Consists of 55,000 shares issuable pursuant to outstanding options
exercisable within 60 days of June 30, 1998.
(10) Consists of 38,768 shares issuable pursuant to outstanding options
exercisable within 60 days of June 30, 1998.
(11) Consists of 28,768 shares issuable pursuant to outstanding options
exercisable within 60 days of June 30, 1998.
(12) Includes 34,167 shares issuable pursuant to outstanding options exercisable
within 60 days of June 30, 1998.
(13) Includes 912,439 shares issuable pursuant to outstanding options
exercisable within 60 days of June 30, 1998.
(14) Based on a Schedule 13D dated February 10, 1998, LeRoy C. Kopp has sole
voting and sole dispositive power with respect to 620,000 shares. In
addition, according to such Schedule 13D, Mr. Kopp beneficially owns an
additional 5,767,484 shares owned by Kopp Investment Advisors, Inc.
("KIA"), through his ownership of Kopp Holding Company ("KHC"), which is
the parent company of KIA. Based on such Schedule 13D, KIA has sole voting
power with respect to 716,123 shares, sole dispositive power with respect
to 160,000 shares and shared dispositive power with respect to 5,607,484
shares and KHC does not have sole or shared voting or dispositive power
with respect to any of such shares.
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DESCRIPTION OF CAPITAL STOCK
DESCRIPTION OF NETMANAGE CAPITAL STOCK
Effective upon the approval of the Certificate Amendment Proposal, the
authorized capital stock of NetManage will consist of 125,000,000 shares of
Common Stock, $0.01 par value, and 5,000,000 shares of Preferred Stock, $0.01
par value.
NETMANAGE COMMON STOCK
As of July 13, 1998, there were 44,209,692 shares of NetManage Common Stock
outstanding.
The holders of NetManage Common Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of the stockholders. The
holders of NetManage Common Stock are not entitled to cumulative voting rights
with respect to the election of directors, and as a consequence, minority
stockholders will not be able to elect directors on the basis of their votes
alone. Subject to preferences that may be applicable to any then outstanding
Preferred Stock, holders of NetManage Common Stock are entitled to receive
ratably such dividends as may be declared by the NetManage Board out of funds
legally available therefor. In the event of a liquidation, dissolution or
winding up of NetManage, holders of the NetManage Common Stock are entitled to
share ratably in all assets remaining after payment of liabilities and the
liquidation preference of any then outstanding Preferred Stock. Holders of
NetManage Common Stock have no preemptive rights and no right to convert such
stock into any other securities. There are no redemption or sinking fund
provisions applicable to the NetManage Common Stock.
NETMANAGE PREFERRED STOCK
NetManage has the authority to issue up to 5,000,000 shares of Preferred
Stock in one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption, liquidation preferences, sinking fund terms and the
number of shares constituting any series or the designation of such series. The
issuance of Preferred Stock could adversely affect the voting power of holders
of NetManage Common Stock or the likelihood that such holders will receive
dividend payments or payments upon liquidation and could have the effect of
delaying, deferring or preventing a change in control of NetManage. There are no
shares of Preferred Stock outstanding and NetManage has no present plan to issue
any shares of Preferred Stock.
REGISTRATION RIGHTS
Pursuant to an agreement between NetManage and certain holders ("Holders")
of up to 3,526,268 shares in the aggregate of NetManage Common Stock, the
Holders are contractually entitled to certain rights with respect to the
registration of such shares under the Securities Act. If NetManage proposes to
register any of its securities under the Securities Act either for its own
account or for the account of other security holders (except in connection with
a merger, including the transactions and registration of NetManage Common Stock
contemplated in connection with the Merger), the Holders are entitled to notice
of the registration and are entitled to include, at NetManage's expense, such
shares therein, provided, among other conditions, that the underwriters of any
offering have the right to limit the number of such shares included in the
registration. In addition, certain of the Holders may require NetManage, on not
more than two occasions, to file a registration statement under the Securities
Act, at NetManage's expense, with respect to their shares of NetManage Common
Stock, and NetManage is required to use its best efforts to effect the
registration, subject to certain conditions and limitations. Further, certain of
the Holders may require NetManage on two occasions in any 12-month period, at
NetManage's expense, to register their shares on Form S-3 if such form is
available to NetManage, subject to certain conditions and limitations. A
Holder's registration rights terminate at such time as such Holder sells or
transfers its NetManage Common Stock, subject to certain exceptions.
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DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
NetManage is subject to the provisions of Section 203 of the Delaware GCL,
an anti-takeover law. In general, the statute prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. For purposes of Section 203, a
"business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder, and an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock. See "COMPARISON OF RIGHTS OF HOLDERS OF NETMANAGE
COMMON STOCK AND HOLDERS OF FTP COMMON STOCK."
NetManage's Certificate of Incorporation also requires that any action
required or permitted to be taken by its stockholders must be effected at a duly
called annual or special meeting of the stockholders and may not be effected by
a consent in writing. In addition, special meetings of the NetManage
Stockholders may be called only by the NetManage Board, the Chairman of the
Board or the Chief Executive Officer of NetManage. NetManage's Certificate of
Incorporation also provides for a classified Board of Directors consisting of
three classes of directors. In addition, NetManage's Certificate of
Incorporation provides that the authorized number of directors may be changed
only by resolution of the NetManage Board. Furthermore, directors may be removed
without cause only upon a vote of two-thirds of the stockholders. These
provisions may have the effect of deterring hostile takeovers or delaying
changes in control or management of NetManage.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the NetManage Common Stock is Boston
EquiServe L.P.
DESCRIPTION OF FTP CAPITAL STOCK
The following description of the capital stock of FTP, certain provisions
of the FTP Restated Articles of Organization, as amended (the "FTP Charter"),
and FTP's Amended and Restated Bylaws (the "FTP Bylaws") and certain provisions
of the FTP Rights Agreement is a summary and is qualified in its entirety by the
provisions of the FTP Charter and Bylaws and the Rights Agreement, copies of
which previously have been filed with the Commission.
FTP's authorized capital stock consists of 50,000,000 shares of FTP Common
Stock and 5,000,000 shares of preferred stock, $0.01 par value per share ("FTP
Preferred Stock"), of which the FTP Board has designated 500,000 shares as
Junior Preferred Stock, $0.01 par value per share ("Junior Preferred Stock"). As
of July 13, 1998, there were approximately 34,035,463 shares of FTP Common Stock
outstanding. As of such date, there were no shares of FTP Preferred Stock or
Junior Preferred Stock outstanding.
FTP COMMON STOCK
Holders of FTP Common Stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders and have no preemptive,
conversion or other rights to subscribe for additional shares or other
securities of FTP. There are no cumulative voting rights, with the result that,
subject to the rights of the holders of outstanding shares of any series of FTP
Preferred Stock issued in the future, holders of an aggregate of more than 50%
of the outstanding shares of FTP Common Stock are able to elect FTP's directors
whose terms expire at the next annual meeting. See "-- Junior Preferred Stock"
below for a description of the voting rights of such stock. Holders of FTP
Common Stock are entitled to such dividends as may be declared by the FTP Board
out of funds legally available therefor. On liquidation, dissolution or winding
up of FTP, the holders of FTP Common Stock are entitled to receive pro rata the
net assets of FTP remaining after the payment of all creditors and all
liquidation preferences, if any, of holders of FTP Preferred Stock. See
"-- Junior Preferred Stock" below for a description of certain preferential
dividend and liquidation rights of such stock.
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FTP PREFERRED STOCK
The FTP Board is authorized, subject to any limitations prescribed by law,
from time to time to issue up to an aggregate of 5,000,000 shares of Preferred
Stock with such powers, designations, preferences and relative, participating,
optional or other special rights and such qualifications, limitations or
restrictions thereof, as shall be determined by the FTP Board in a resolution or
resolutions providing for the issue of such Preferred Stock. Thus, any series
may, if so determined by the FTP Board, have full voting rights with the FTP
Common Stock or superior or limited voting rights, be convertible into FTP
Common Stock or another security of FTP, and have such other preferences,
relative rights and limitations as the FTP Board shall determine. As a result,
any series of FTP Preferred Stock could have rights which would adversely affect
the voting power of the FTP Common Stock. See "-- Junior Preferred Stock" below
for a description of the voting rights of such stock. The shares of any class or
series of FTP Preferred Stock need not be identical. The issuance of FTP
Preferred Stock could have the effect of delaying or preventing a change in
control of FTP without any further action by stockholders. See "-- Junior
Preferred Stock" and "-- Rights" below. FTP has no present plans,
understandings, agreements or arrangements to issue any shares of FTP Preferred
Stock other than shares of Junior Preferred Stock issuable upon exercise of the
Rights described under "-- Rights" below.
JUNIOR PREFERRED STOCK
The FTP Board has designated 500,000 shares of the FTP Preferred Stock as
Junior Preferred Stock, which may be purchased by the holders of the Rights
described under "-- Rights" below. The rights of the holders of Junior Preferred
Stock are set forth in a Certificate of Designation, Preferences and Rights of
Junior Preferred Stock filed with the Secretary of The Commonwealth of
Massachusetts on December 11, 1995. The number of shares of Junior Preferred
Stock may be increased or decreased by the FTP Board, but may not be decreased
below the number of shares of Junior Preferred Stock then outstanding plus the
number of shares reserved for issuance upon the exercise of outstanding options,
rights or warrants or upon conversion of any outstanding securities convertible
into Junior Preferred Stock.
Subject to the prior and superior rights of the holders of any shares of
any series of FTP Preferred Stock ranking prior and superior to the shares of
Junior Preferred Stock with respect to dividends, the holders of shares of
Junior Preferred Stock shall be entitled to receive, when, as and if declared by
the FTP Board out of funds legally available for the purpose, quarterly
dividends payable in cash on the last day of March, June, September and December
in each year (each, a "Quarterly Dividend Payment Date"), in an amount equal to
the greater of (i) $1.00 or (ii) subject to adjustment in certain events, 100
times the aggregate per share amount of all cash dividends, and 100 times the
aggregate per share amount (payable in kind) of all non-cash dividends or other
distributions (other than a dividend payable in shares of FTP Common Stock or a
subdivision of the outstanding shares of FTP Common Stock) declared on the FTP
Common Stock since the immediately preceding Quarterly Dividend Payment Date or,
with respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Junior Preferred Stock. The
rights of the holders of Junior Preferred Stock to receive dividends are
cumulative.
The terms of the Junior Preferred Stock provide that FTP shall declare a
dividend or distribution on the Junior Preferred Stock immediately after it
declares a dividend or distribution on the FTP Common Stock (other than a
dividend payable in shares of, or a subdivision with respect to, the FTP Common
Stock). However, if no dividend or distribution shall have been declared on the
FTP Common Stock during the period between any Quarterly Dividend Payment Date,
a dividend of $1.00 per share on the Junior Preferred Stock shall nevertheless
be payable on such subsequent Quarterly Dividend Payment Date.
Holders of shares of Junior Preferred Stock are entitled to 100 votes,
subject to adjustment in certain events, for each share of Junior Preferred
Stock held, on all matters submitted to a vote of stockholders. On liquidation,
dissolution or winding up of FTP, the holders of shares of Junior Preferred
Stock are entitled to receive $100.00 per share plus an amount equal to all
accrued and unpaid dividends and distributions thereon, prior to any
distribution to the holders of shares of FTP Common Stock or any other stock of
FTP ranking junior to the Junior Preferred Stock. If FTP shall enter into any
consolidation, merger, combination or other
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transaction in which the outstanding shares of FTP Common Stock are exchanged
for or changed into other stock or securities, cash and/or any other property,
then the outstanding shares of Junior Preferred Stock shall be similarly
exchanged or changed in an amount per share (subject to adjustment in certain
events) equal to 100 times the aggregate amount of stock, securities, cash
and/or any other property (payable in kind), as the case may be, into which or
for which each share of FTP Common Stock is changed or exchanged. Shares of
Junior Preferred Stock may be purchased by FTP at such times and on such terms
as may be agreed to between FTP and the holder of such shares, subject to any
limitation which may be imposed by law or by the FTP Charter. The terms of the
Junior Preferred Stock further provide that the FTP Charter shall not be amended
in any manner which would materially alter or change the powers, preferences or
special rights of the Junior Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of at least two-thirds of the
outstanding shares of Junior Preferred Stock, voting together as a single class.
RIGHTS
On December 1, 1995, the FTP Board adopted a plan under which one purchase
right (a "Right") was issued for every outstanding share of FTP Common Stock.
The Rights were distributed to holders of record of the FTP Common Stock as of
the close of business on December 8, 1995 (the "Rights Record Date"). The terms
of the Rights are set forth in a Rights Agreement dated as of December 1, 1995
between FTP and State Street Bank and Trust Company (the "Rights Agent"), as
amended by Amendment to Rights Agreement dated as of November 7, 1996, Amendment
No. 2 to Rights Agreement dated as of February 27, 1998 and Amendment No. 3 to
Rights Agreement dated as of June 15, 1998 (as amended, the "FTP Rights
Agreement"). The Rights Agreement provides for the issuance of one Right for
every share of FTP Common Stock issued and outstanding on the Rights Record Date
and for each share of FTP Common Stock which is issued or sold after that date
and prior to the "Distribution Date" (as defined below).
Each Right entitles the holder to purchase from FTP one one-hundredth of a
share of Junior Preferred Stock at an exercise price of $150.00, subject to
adjustment in certain events. The Rights will expire on December 1, 2005 (the
"Expiration Date"), or upon the earlier redemption of the Rights, and are not
exercisable until the Distribution Date.
No separate Rights certificates have been issued as of the date of this
Joint Proxy Statement/Prospectus. Until the Distribution Date (or earlier
redemption or expiration of the Rights), (i) the Rights will be evidenced by the
FTP Common Stock certificates and will be transferred with and only with the FTP
Common Stock certificates, (ii) new FTP Common Stock certificates issued after
the Rights Record Date upon transfer or new issuance of shares of FTP Common
Stock will contain a notation incorporating the FTP Rights Agreement by
reference and (iii) the surrender for transfer of any FTP Common Stock
certificate will also constitute the transfer of the Rights associated with the
shares of FTP Common Stock represented by such certificate.
The Rights will separate from the FTP Common Stock on the Distribution
Date. Unless otherwise determined by a majority of the FTP Board then in office,
the Distribution Date (the "Distribution Date") will occur on the earlier of (i)
the 10th business day following the later of (A) the date of a public
announcement that a person, together with its affiliates and associates, except
as described below, has acquired or obtained the right to acquire beneficial
ownership of 15% or more of the outstanding shares of FTP Common Stock
(collectively, an "Acquiring Person") or (B) the date on which an executive
officer of FTP has actual knowledge that an Acquiring Person has become such
(the "Stock Acquisition Date"), or (ii) the 10th business day following
commencement of a tender offer or exchange offer that would result in any
person, together with its affiliates and associates, owning 15% or more of the
outstanding FTP Common Stock. After the Distribution Date, separate certificates
evidencing the Rights ("Rights Certificates") will be mailed to holders of
record of the FTP Common Stock as of the close of business on the Distribution
Date and thereafter such separate Rights Certificates alone will evidence the
Rights. The FTP Board may delay the distribution of the Rights Certificates.
The Rights Agreements provides that the following persons shall be excluded
from the definition of Acquiring Person: (i) Kopp Investment Advisors, Inc.
("KIA"), Kopp Holding Company ("KHC") or
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LeRoy C. Kopp ("Kopp") (but no purchaser or assignee of any such Person or
direct or indirect purchaser or transferee of any shares of FTP Common Stock
from any such person) so long as (A) the number of shares of FTP Common Stock
beneficially owned by all such persons does not exceed 6,722,400 shares in the
aggregate (such number to be adjusted in the event of any stock dividend, stock
split or combination of shares, recapitalization, repurchase of shares by FTP or
any other change in FTP's capital stock which in the determination of the FTP
Board requires an adjustment to such number to maintain it at less that 20% of
FTP's outstanding shares), (B) none of such persons has filed a Schedule 13D or
Schedule 13G that expresses any intention or reservation of the right (1) to
control or influence the management or policies of FTP or (2) to engage in any
of the actions specified in Item 4 of such Schedule 13D (other than both the
disposition of FTP Common Stock and the acquisition of FTP Common Stock up to
the maximum number set forth above, provided that the condition in the preceding
clause (B)(1) is met), and (C) neither KHC nor Kopp owns directly 5% or more of
the shares of FTP Common Stock then outstanding; and (ii) NetManage as a result
of the execution, delivery or performance by the parties thereto of the
Reorganization Agreement or the consummation of the transactions contemplated
thereby pursuant to the terms thereof.
If, at any time after December 1, 1995, any person or group of affiliated
or associated persons (other than FTP and its affiliates) shall become an
Acquiring Person, each holder of a Right will have the right to receive, upon
payment of the then current exercise price of the Right, shares of FTP Common
Stock (or, in certain circumstances, cash, property or other securities of FTP)
having a market value of two times the then current exercise price of the Right.
Following the occurrence of any of such event, any Rights that are, or (under
certain circumstances specified in the Rights Agreement) were, beneficially
owned by any Acquiring Person shall immediately become null and void.
The FTP Board may, at its option, at any time after any person becomes an
Acquiring Person, exchange all or part of the then outstanding and exercisable
Rights for shares of FTP Common Stock at an exchange ratio of one share of FTP
Common Stock per Right, appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after December 1, 1995 (as the same
may be adjusted, the "Rights Exchange Ratio"). The FTP Board, however, may not
effect any exchange at any time after any person (other than (i) FTP, (ii) any
subsidiary of FTP, (iii) any employee benefit plan of FTP or of any subsidiary
of FTP or (iv) any entity holding FTP Common Stock for or pursuant to the terms
of any such plan), together with all affiliates of such person, becomes the
beneficial owner of 50% or more of the FTP Common Stock then outstanding.
Immediately upon the action of the FTP Board ordering the exchange of any Rights
and without any further action and without any notice, the right to exercise
such Rights will terminate and the only right thereafter of a holder of such
Rights will be to receive that number of shares of FTP Common Stock equal to the
number of such Rights held by the holder multiplied by the Rights Exchange
Ratio.
The exercise price of the Rights, and the number of one one-hundredths of a
share of Junior Preferred Stock or other securities or property issuable upon
exercise of the Rights, are subject to adjustment from time to time to prevent
dilution (i) in the event of a stock dividend on, or a subdivision, combination
or reclassification of, the Junior Preferred Stock, (ii) upon the grant to
holders of the Junior Preferred Stock of certain rights or warrants to subscribe
for shares of the Junior Preferred Stock or certain convertible securities at
less than the current market price of the Junior Preferred Stock, or (iii) upon
the distribution to holders of the Junior Preferred Stock of evidences of
indebtedness or assets (excluding cash dividends paid out of the earnings or
retained earnings of FTP and certain other distributions) or of subscription
rights or warrants (other than those referred to above).
At any time prior to the close of business on the Expiration Date, FTP, by
a majority vote of the FTP Board, may redeem the Rights at a redemption price of
$0.01 per Right, subject to adjustment in certain events (as the same may be
adjusted, the "Redemption Price"). Immediately upon the action of the FTP Board
electing to redeem the Rights, the right to exercise the Rights will terminate,
and the only right of the holders of Rights will be to receive the Redemption
Price.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of FTP, including, without limitation, the right to vote
or to receive dividends.
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The FTP Rights Agreement may be amended by the FTP Board at any time prior
to the Distribution Date without the approval of the holders of the Rights. From
and after the Distribution Date, the FTP Rights Agreement may be amended by the
FTP Board without the approval of the holders of the Rights in order to cure any
ambiguity, to correct any defective or inconsistent provisions, to change any
time period for redemption or any other time period under the FTP Rights
Agreement or to make any other changes that do not adversely affect the
interests of the holders of the Rights (other than any Acquiring Person or its
affiliates and associates or their transferees).
As a result of the Merger, each Right (other than Rights associated with
Dissenting Shares) will be exchanged, together with the associated share of FTP
Common Stock, for a fraction of a share of NetManage Common Stock equal to the
Exchange Ratio and, therefore, will no longer be outstanding after the Effective
Time.
CERTAIN FTP CHARTER AND BYLAW PROVISIONS
The FTP Charter and Bylaws contain certain provisions that are intended to
enhance the likelihood of continuity and stability in the composition of the FTP
Board and in the policies formulated by the FTP Board and to delay or prevent a
change in control of FTP if the FTP Board determines that such a change in
control is not in the best interests of FTP and its stockholders. The FTP Board,
in determining whether a change of control is in the best interests of FTP and
its stockholders, may consider a variety of factors, depending on the
circumstances, including, without limitation, the long-term and short-term
interests of FTP and its stockholders, whether the proposed transaction might
violate federal or state laws, the consideration being offered in a proposed
transaction in relation to current and historical market prices, economic,
market and other factors bearing on securities prices, FTP's financial condition
and future prospects, the interests of FTP's employees, suppliers, creditors and
customers, the economy and community and societal considerations. These
provisions could have the effect of discouraging attempts to acquire control of
FTP even if some or a majority of FTP's stockholders deem such an attempt to be
in its best interest.
The FTP Board is permitted pursuant to the FTP Charter to consider special
factors, such as employee welfare and the future prospects of FTP, in
determining what the FTP Board reasonably believes to be in the best interests
of FTP when evaluating proposed tender or exchange offers or business
combinations.
Pursuant to the FTP Charter and Bylaws, the FTP Board has been divided into
three classes serving staggered three-year terms. Directors can be removed from
office only for cause and only by the affirmative vote of the holders of
two-thirds of the voting power of the then outstanding shares of capital stock
of FTP entitled to vote generally in the election of directors, voting together
as a single class.
The FTP Bylaws provide that stockholders may not take action by written
consent.
The FTP Charter authorizes, and the FTP Bylaws establish, procedures,
including advance notice procedures, with regard to the nomination, other than
by or at the direction of the FTP Board, of candidates for election as directors
and with regard to certain matters to be brought before meetings of stockholders
of FTP. In general, notice must be received by FTP not less than 60 days nor
more than 90 days prior to the stockholder meeting and must contain certain
specified information concerning the persons to be nominated or the matters to
be brought before the meeting and concerning the stockholder submitting the
proposal. In addition, the FTP Bylaws require that any such nomination of a
candidate for election as a director be accompanied by a petition signed by at
least 100 record holders of the capital stock entitled to vote in the election
of directors, representing in the aggregate at least 1% of the outstanding
capital stock entitled to vote thereon. Such procedures also authorize
regulation of the order of business and conduct of stockholder meetings, the
authority of the presiding officer and attendance at such meetings.
The affirmative vote of 80% of the total number of votes of the then
outstanding shares of capital stock of FTP entitled to vote generally in the
election of directors, voting together as a single class, is required to amend
certain provisions of the FTP Charter, including the provisions referred to
above relating to the classification of the FTP Board, interested transaction
provisions, director exculpation provisions, evaluation of certain transactions
and regulation of nominations of directors and of business to be conducted at
meetings of
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stockholders. The requirement of a supermajority vote to approve certain
amendments to the FTP Charter could enable a minority of the FTP Stockholders to
exercise veto powers over such transactions and amendments.
The FTP Charter provides that no director of FTP shall be liable to FTP or
its stockholders for monetary damages for any breach of fiduciary duty, except
to the extent such exculpation from liability is not permitted under the
Massachusetts BCL. This provision does not prevent stockholders from obtaining
injunctive or other equitable relief against directors nor does it shield
directors from liability under federal or state securities laws.
MASSACHUSETTS "ANTI-TAKEOVER" LAWS
FTP is covered by the provisions of Chapter 110F of the Massachusetts
General Laws, known as the Business Combination Statute. Under Chapter 110F, a
Massachusetts corporation with more than 200 stockholders may not engage in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person becomes an
interested stockholder, unless (i) the interested stockholder obtains the
approval of the board of directors prior to becoming an interested stockholder,
(ii) the interested stockholder acquires 90% of the outstanding voting stock of
the corporation (excluding shares held by certain affiliates of the corporation)
at the time it becomes an interested stockholder or (iii) the business
combination is approved by both the board of directors and the holders of
two-thirds of the outstanding voting stock of the corporation (excluding shares
held by the interested stockholder). An "interested stockholder" is a person
who, together with its affiliates and associates, owns (or at any time within
the prior three years did own) 5% or more of the outstanding voting stock of the
corporation. A "business combination" includes a merger, a stock or asset sale,
and other transactions resulting in a financial benefit to the interested
stockholder. See "COMPARISON OF RIGHTS OF HOLDERS OF NETMANAGE COMMON STOCK AND
HOLDERS OF FTP COMMON STOCK."
The FTP Bylaws provide that the provisions of Chapter 110D of the
Massachusetts BCL, known as the Control Share Statute, shall not apply to FTP.
However, FTP may in the future become subject to the statute if the FTP Board
votes to amend the FTP Bylaws so as to make the statute applicable to FTP. In
general, if the Control Share Statute were applicable, it would provide that any
person or entity that acquired 20% or more of FTP's outstanding voting stock
could not vote such stock unless the other stockholders of FTP were to so
authorize. See "COMPARISON OF RIGHTS OF HOLDERS OF NETMANAGE COMMON STOCK AND
HOLDERS OF FTP COMMON STOCK."
FTP is not subject to the provisions of Chapter 156B, Section 50A of the
Massachusetts BCL providing for an automatic classified board of directors for
any corporation which has a class of voting stock registered under the Exchange
Act. However, the FTP Charter and Bylaws provide for a classified board of
directors as described above under "-- Certain FTP Charter and Bylaw
Provisions." See also "COMPARISON OF RIGHTS OF HOLDERS OF NETMANAGE COMMON STOCK
AND HOLDERS OF FTP COMMON STOCK."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the FTP Common Stock is Boston
EquiServe L.P.
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COMPARISON OF RIGHTS OF HOLDERS OF NETMANAGE
COMMON STOCK AND HOLDERS OF FTP COMMON STOCK
Upon consummation of the Merger, the stockholders of FTP, a Massachusetts
corporation, will become stockholders of NetManage, a Delaware corporation. The
Delaware GCL and the Massachusetts BCL differ in many respects, and these
differences will result in changes in the rights of FTP stockholders. The
following description summarizes certain differences between the Delaware GCL
and the Massachusetts BCL that may affect the rights of FTP Stockholders as a
result of the Merger.
ACTION BY WRITTEN CONSENT OF STOCKHOLDERS
Under Section 228 of the Delaware GCL, unless otherwise provided in a
corporation's certificate of incorporation, any action required or permitted to
be taken at an annual or special meeting of stockholders may be taken without
such a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action to be taken, is signed by the holders of
outstanding stock representing the number of shares necessary to take such
action at a meeting at which all shares entitled to vote were present. The
Certificate of Incorporation of NetManage provides that the stockholders of
NetManage may not take action by written consent in lieu of a meeting but must
take any such actions at a duly called annual or special meeting.
Under Section 43 of the Massachusetts BCL, any action required or permitted
to be taken at any meeting of FTP Stockholders may be taken without a meeting if
all stockholders entitled to vote consent to the action in writing and the
written consents are filed with the records of the meetings of stockholders.
According to the FTP Bylaws, however, action required or permitted to be taken
at any meeting of the stockholders may not be taken without a meeting by written
consent.
CLASS VOTES OF STOCKHOLDERS
Neither the Delaware GCL nor the Massachusetts BCL requires separate class
votes of all voting classes in order to approve charter amendments, mergers and
sales of substantially all assets. Section 242 of the Delaware GCL and Section
71 of the Massachusetts BCL, however, provide that all classes of stock, even a
nonvoting class of stock, vote on charter amendments that adversely affect the
rights of holders of shares of such class. In addition, Section 78 of the
Massachusetts BCL provides that all classes of stock, even a nonvoting class of
stock, vote in the proportion provided for in that section on a merger agreement
that would adversely affect the rights of holders of shares of either
constituent corporation of such class.
STOCKHOLDER VOTING
The Delaware GCL generally requires a majority vote of the shares of stock
of each constituent corporation outstanding and entitled to vote in order to
effectuate a merger between two Delaware corporations (Section 251) or of the
Delaware corporation in the case of a merger between the Delaware corporation
and a corporation organized under the laws of another state (a "foreign"
corporation) (Section 252).
Section 78 of the Massachusetts BCL provides that a merger between two or
more Massachusetts corporations must be approved by two-thirds of the shares of
each class of stock of each constituent corporation outstanding and entitled to
vote thereon or by such lesser proportion (but not less than a majority) thereof
as the corporations' articles of organization may provide. Where the merger is
between one or more Massachusetts corporations and one or more foreign
corporations and the surviving corporation is to be a foreign corporation, the
foregoing vote is required for the domestic corporation under Section 79 of the
Massachusetts BCL, but the foreign corporation is required only to comply with
the applicable provisions of its jurisdiction of incorporation. The FTP Charter
provides that FTP may authorize, by a vote of a majority of the shares of each
class of stock outstanding and entitled to vote thereon, the merger or
consolidation of FTP into any other corporation if stockholder approval of such
merger is otherwise required by the provisions of the Massachusetts BCL.
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STOCKHOLDER APPROVAL OF CERTAIN BUSINESS COMBINATIONS
Section 203 of the Delaware GCL ("Section 203") prohibits a Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for three years following the time that such person becomes an
interested stockholder. With certain exceptions, an interested stockholder is a
person or group who or which owns 15% or more of the corporation's outstanding
voting stock (including any rights to acquire stock pursuant to an option,
warrant, agreement, arrangement or understanding, or upon the exercise of
conversion or exchange rights, and stock with respect to which the person has
voting rights only), or is an affiliate or associate of the corporation and was
the owner of 15% or more of such voting stock at any time within the previous
three years.
For purposes of Section 203, the term "business combination" is defined
broadly to include: mergers with or caused by the interested stockholder; sales
or other dispositions to the interested stockholder (except proportionately with
the corporation's other stockholders) of assets of the corporation or a
subsidiary equal to 10% or more of the aggregate market value of the
corporation's consolidated assets or its outstanding stock; the issuance or
transfer by the corporation or a subsidiary of stock of the corporation or such
subsidiary to the interested stockholder (except for transfers in a conversion
or exchange or a pro rata distribution or certain other transactions, none of
which increase the interested stockholder's proportionate ownership of any class
or series of the corporation's or such subsidiary's stock); and receipt by the
interested stockholder (except proportionately as a stockholder), directly or
indirectly, of any loans, advances, guarantees, pledges or other financial
benefits provided by or through the corporation or a subsidiary.
The three-year moratorium imposed on business combinations by Section 203
does not apply if: (i) prior to the time such stockholder becomes an interested
stockholder, the board of directors approves either the business combination or
the transaction which resulted in the person becoming an interested stockholder;
(ii) the interested stockholder owns 85% of the corporation's voting stock upon
consummation of the transaction which made him, her or it an interested
stockholder (excluding shares held by certain affiliates of the corporation); or
(iii) at or after the time such person becomes an interested stockholder, the
business combination is approved by both the board of directors and 66 2/3% of
the outstanding voting stock of the corporation (excluding shares held by the
interested stockholder).
Section 203 only applies to Delaware corporations which have a class of
voting stock that is listed on a national securities exchange, is quoted on an
interdealer quotation system such as Nasdaq (as is NetManage) or is held of
record by more than 2,000 stockholders. A Delaware corporation may elect in its
original certificate of incorporation, or by amending its certificate of
incorporation or bylaws, that it will not be governed by Section 203. Any such
amendment must be approved by the stockholders and may not be further amended by
the board of directors. NetManage is governed by Section 203.
Section 203 has been challenged in lawsuits arising out of ongoing takeover
disputes, and it is not yet clear whether and to what extent its
constitutionality will be upheld by the courts. Although the United States
District Court for the District of Delaware has consistently upheld the
constitutionality of Section 203, the Delaware Supreme Court has not yet
considered the issue. NetManage believes that so long as the constitutionality
of Section 203 is upheld, Section 203 will encourage any potential acquiror to
negotiate with the NetManage Board. Section 203 also has the effect of limiting
the ability of a potential acquiror to make a two-tiered bid for NetManage in
which all stockholders would not be treated equally. Section 203 should also
discourage certain potential acquirers unwilling to comply with its provisions.
FTP is subject to the provisions of Chapter 110F of the Massachusetts
General Laws, an antitakeover law. In general, this statute prohibits a publicly
held Massachusetts corporation, with sufficient ties to Massachusetts, from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
becomes an interested stockholder, unless either: (i) prior to the date on which
such stockholder becomes an interested stockholder the board of directors
approves either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder; (ii) the interested
stockholder owns 90% of the corporation's outstanding voting stock upon
consummation of the transaction which made him, her or it an interested
stockholder (excluding shares held by certain affiliates of the corporation); or
(iii) on or after the date such person
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becomes an interested stockholder, the business combination is approved by both
the board of directors and two-thirds of the outstanding voting stock of the
corporation (excluding shares held by the interested stockholder). An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or at any time within the prior three years did own) 5% or
more of the corporation's voting stock. A "business combination" includes a
merger, stock and asset sales and other transactions resulting in a financial
benefit to the stockholder. FTP has not elected, and does not intend to elect,
not to be governed by Chapter 110F. FTP, however, may at any time amend its
Charter or Bylaws to elect not to be governed by Chapter 110F by a vote of the
holders of a majority of its voting stock, but such an amendment would not be
effective for 12 months and would not apply to a business combination with any
person who became an interested stockholder prior to the date of the amendment.
CONTROL SHARE ACQUISITIONS
Massachusetts has adopted a "control share" statute (Chapter 110D of the
Massachusetts General Laws) under which a person who acquires voting stock of a
Massachusetts corporation which results in such person's voting power exceeding
certain specified amounts (20%, 33 1/3% and 50%, respectively) would lose the
right to vote such stock unless the stockholders of the corporation so
authorize. Any person making such a control share acquisition may file a
statement with the corporation demanding that such corporation call a
stockholders' meeting to vote on whether to reinstate that person's voting
rights. Stockholders who vote not to reinstate such voting rights may demand
certain appraisal rights in the event such voting rights are reinstated. In the
absence of an affirmative election to opt out by amending its articles of
organization or by-laws, the control share statute applies to a Massachusetts
corporation that has (i) 200 stockholders of record, (ii) its principal
executive office or substantial assets within Massachusetts and (iii) either
more than 10% of its stockholders of record in Massachusetts or more than 10% of
its issued and outstanding shares held by Massachusetts residents. FTP has opted
out of the control share statute. Delaware does not have a control share
statute.
APPRAISAL RIGHTS
Section 262 of the Delaware GCL provides for appraisal rights only in the
case of a statutory merger or consolidation of a corporation where the
petitioning stockholder does not consent to the transaction. In addition, no
appraisal rights are available where the corporation is to be the surviving
corporation and a vote of its stockholders is not required under Delaware GCL
Section 251(f). There are also no appraisal rights, unless otherwise provided
for in a corporation's certificate of incorporation, for shares of stock listed
on a national securities exchange, or designated as a national market system
security on an inter-dealer quotation system by the NASD or held by more than
2,000 holders of record, unless such stockholders would be required to accept
anything other than shares of stock of the surviving corporation, shares of
another corporation so listed or held by such number of holders of record, cash
in lieu of fractional shares of such stock or any combination thereof. The
Certificate of Incorporation of NetManage does not provide for such additional
appraisal rights.
Pursuant to Section 76 of the Massachusetts BCL, a stockholder of a
Massachusetts corporation who complies with the statutory procedure is entitled
to demand payment for his or her stock in the event that the corporation has
voted to sell, lease or exchange all or substantially all of its property and
assets or has adopted any amendment of its articles of organization that
adversely affects the rights of such stockholder. Pursuant to Section 85 of the
Massachusetts BCL, a stockholder of a Massachusetts corporation who complies
with the statutory procedures is entitled to demand payment for his or her stock
from the surviving corporation and an appraisal in the event that the
corporation has voted to consolidate or merge with another corporation or
corporations, subject to certain limited exceptions. For more information
concerning appraisal rights under the Massachusetts BCL, see "THE
MERGER -- Appraisal Rights."
AMENDMENT OF BYLAWS
Section 109 of the Delaware GCL provides that the power to adopt, amend or
repeal bylaws shall be in the stockholders entitled to vote, provided that a
corporation may, in its certificate of incorporation, confer such powers on the
board of directors. In accordance with the Certificate of Incorporation of
NetManage, the
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Board of Directors of NetManage is expressly authorized to adopt, amend or
repeal the Bylaws of NetManage, or the affirmative vote of at least two-thirds
of the voting power of all then outstanding stock is required to alter, amend or
institute new Bylaws.
Section 17 of the Massachusetts BCL provides that the stockholders have the
power to make, amend or repeal by-laws and, if authorized in the articles of
organization of the corporation, the by-laws may provide that directors may also
make, amend or repeal by-laws, except with respect to any provision thereof
which by law, the articles of organization or the by-laws requires action by the
stockholders. Any by-law adopted by the directors of the corporation may be
amended or repealed by the stockholders. In the event the directors make, amend
or repeal any by-law, notice of such action stating the substance of the change
to the by-laws must be given to all stockholders entitled to vote on by-law
amendments not later than the time of the giving of notice of the meeting of
stockholders next following the action by the directors. Under the FTP Charter,
the FTP Board has the power to make, alter, amend and repeal the FTP Bylaws,
except with respect to any provision thereof which by law or by the FTP Charter
or Bylaws requires action by the stockholders, who also have power to make,
alter, amend and repeal the FTP Bylaws. The affirmative vote of the holders of
at least 80% of the voting power of all shares of FTP entitled to vote generally
in the election of directors, voting together as a class, shall be required to
amend or repeal, or to adopt any provision inconsistent with the purpose or
intent of, certain provisions of the FTP Charter and Bylaws.
LIMITATION ON DIRECTORS' LIABILITY; INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 102 of the Delaware GCL allows a corporation to include in its
certificate of incorporation a provision that limits or eliminates the personal
liability of directors to the corporation and its stockholders for monetary
damages for breach of fiduciary duty as a director. Section 102 of the Delaware
GCL does not, however, permit a corporation to limit or eliminate the personal
liability of a director for (i) any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
intentional or negligent payment of unlawful dividends or unlawful stock
purchases or redemptions or (iv) any transaction from which the director derived
an improper personal benefit. The Certificate of Incorporation of NetManage
provides for limitations on directors' liability to the fullest extent permitted
by the Delaware GCL.
Section 145 of the Delaware GCL provides that a corporation may indemnify
any of its officers and directors party to any action, suit or proceeding by
reason of the fact that he or she is or was a director, officer, employee or
agent of the corporation or is or was serving at the request of the corporation
as a director, officer, employee or agent of another organization by, among
other things, a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, provided that such officer or
director acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the corporation. The Bylaws of
NetManage provide for indemnification of officers and directors of NetManage to
the maximum extent and in the manner permitted by the Delaware GCL.
Section 67 of the Massachusetts BCL provides that indemnification of
directors, officers, employees and other agents of a corporation, and persons
who serve at its request as directors, officers, employees or other agents of
another organization, may be provided by it to whatever extent specified in or
authorized by (i) the articles of organization, (ii) a by-law adopted by the
stockholders or (iii) a vote adopted by the holders of a majority of the shares
of stock entitled to vote on the election of directors. The FTP Charter includes
provisions eliminating the personal liability of FTP's directors for monetary
damages resulting from breaches of their fiduciary duty except (i) for any
breach of the director's duty of loyalty to FTP or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 61 of the Massachusetts BCL
(unauthorized distributions) and Section 62 of the Massachusetts BCL (loans to
insiders) or (iv) for any transaction from which the director derived an
improper personal benefit. The FTP Bylaws generally provide that FTP will
indemnify to the fullest extent authorized by the Massachusetts BCL each of its
directors and officers (including persons who serve at its request as directors,
officers or trustees of another organization, or in any capacity with respect to
any employee benefit plan).
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CLASSIFIED BOARD OF DIRECTORS
Delaware law permits, but does not require, a classified board of
directors, with staggered terms under which one-half or one-third of the
directors are elected for terms of two or three years, respectively. The
Certificate of Incorporation of NetManage provides for a Board of Directors
which is divided into three classes. This method of electing directors makes
change in the composition of the board of directors, and a potential change in
control of a corporation, a lengthier and more difficult process.
Section 50A of the Massachusetts General Laws generally requires that
publicly-held Massachusetts corporations have a classified board of directors
consisting of three classes as nearly equal in size as possible, unless those
corporations elect to opt out of the statute's coverage. The FTP Charter
provides that the directors, other than those who may be elected by the holders
of any class or series of FTP Preferred Stock voting separately by class or
series, shall be classified, with respect to the duration of the term for which
they severally hold office, into three classes which shall be as nearly equal in
number as possible and as provided in the FTP Bylaws.
CUMULATIVE VOTING FOR DIRECTORS
Section 214 of the Delaware GCL permits cumulative voting for directors to
the extent provided for in a Delaware corporation's certificate of
incorporation. The Certificate of Incorporation of NetManage does not provide
for cumulative voting and there is no cumulative voting rights provision in
NetManage's Bylaws. As a result, the stockholders of NetManage do not have
cumulative voting rights. In addition, NetManage's Certificate of Incorporation
requires the affirmative vote of the holders of at least two-thirds of the
combined voting power of all the then-outstanding voting shares to amend the
voting provisions relating to the election of directors. The elimination of the
cumulative voting provision limits the ability of minority stockholders to
obtain representation on the NetManage Board.
While the Massachusetts BCL does not expressly prohibit cumulative voting,
it is generally understood that cumulative voting is not permitted in
Massachusetts corporations.
REMOVAL OF DIRECTORS
Under Section 141 of the Delaware GCL, any director or the entire board of
directors may be removed, with or without cause, by the holders of a majority of
the shares entitled to vote at an election of directors, except (i) unless the
certificate of incorporation otherwise provides, in the case of a corporation
having a classified board, stockholders may effect such removal only for cause
and (ii) in the case of a corporation having cumulative voting, if less than the
entire board is to be removed, no director may be removed without cause if the
votes cast against his or her removal would be sufficient to elect him or her if
then cumulatively voted at an election of the entire board of directors.
Under Section 51 of the Massachusetts BCL, unless the articles of
organization or by-laws provide otherwise: (i) directors and officers elected by
stockholders may be removed from their respective offices with or without cause
by the vote of the holders of a majority of the shares entitled to vote in the
election of directors or such officers, as the case may be, provided that the
directors of a class elected by a particular class of stockholders and officers
elected by a particular class of stockholders may be removed only by the vote of
the holders of a majority of the shares of the particular class of stockholders
entitled to vote for the election of such directors or officers, as the case may
be; (ii) officers elected or appointed by the directors may be removed from
their respective offices, with or without cause, by vote of a majority of the
directors then in office; and (iii) any director, and any officer elected by the
stockholders, may be removed from office for cause by vote of a majority of the
directors then in office. A director or officer may be removed for cause only
after reasonable notice and an opportunity to be heard before the body proposing
to remove such director or officer.
The FTP Charter generally provides that any director or directors may be
removed from office at any time for cause by either (i) the affirmative vote of
two-thirds of the total number of the then outstanding shares of capital stock
of FTP entitled to vote generally in the election of directors, voting together
as a single class, or (ii) the affirmative vote of two-thirds of the directors
then in office.
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NEWLY CREATED DIRECTORSHIPS AND VACANCIES
Section 223 of the Delaware GCL provides that vacancies and newly created
directorships may be filled by a majority of the directors then in office (even
though less than a quorum), or by a sole remaining director, unless (i)
otherwise provided in the certificate of incorporation or by-laws of the
corporation (NetManage's Certificate of Incorporation and Bylaws do not provide
otherwise) or (ii) the certificate of incorporation directs that a particular
class is to elect such director, in which case any other directors elected by
such class, or a sole remaining director, shall fill such vacancy (NetManage's
Certificate of Incorporation does not have such a provision). In addition, if,
at the time of filling any vacancy or newly created directorship, the directors
then in office constitute less than a majority of the whole board, the Delaware
Court of Chancery may, upon application of stockholders holding at least 10% of
the shares outstanding at the time and entitled to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in office. Such elections are to be conducted in accordance with the procedures
provided by the Delaware GCL. Unless otherwise provided in the certificate of
incorporation or bylaws, when one or more directors resign from the board, a
majority of directors then in office, including those who have so resigned, may
vote to fill the vacancy (NetManage's Certificate of Incorporation and Bylaws do
not provide otherwise).
Section 52 of the Massachusetts BCL provides that, unless otherwise
provided in a corporation's articles of organization, any vacancy in the board
of directors (including a vacancy resulting from the enlargement of the board)
may be filled in the manner prescribed in the by-laws or in the absence of such
a by-law, by the directors. The FTP Bylaws provide that, subject to the rights
of the holders of shares of any class or series of FTP Preferred Stock, any
vacancies resulting from death, resignation or removal shall only be filled by
the affirmative vote of a majority of the remaining directors then in office,
even though less than a quorum of the Board of Directors, or by a sole remaining
director, and newly created directorships resulting from any increase in the
number of directors shall be filled by the FTP Board, or if not so filled, by
the stockholders at the next annual meeting thereof or at a special meeting
called for that purpose in accordance with such Bylaws.
SPECIAL MEETINGS
Under Section 211 of the Delaware GCL, special meetings of stockholders may
be called by the board of directors and by such other person or persons
authorized to do so by the corporation's certificate of incorporation or bylaws.
Under NetManage's Bylaws, a special meeting of stockholders may be called by the
NetManage Board, by the Chairman of the Board, or by the Chief Executive
Officer.
Under Section 34 of the Massachusetts BCL, special meetings of stockholders
of a corporation with a class of voting stock registered under the Exchange Act
may be called by the president or by the directors and, unless otherwise
provided in the articles of organization or by-laws, shall be called by the
clerk, or in case of the death, absence, incapacity or refusal of the clerk, by
any other officer, upon written application of one or more stockholders who hold
at least 40% in interest of the capital stock entitled to vote thereat. In case
none of the officers is able and willing to call a special meeting, the
Massachusetts Supreme Judicial or Superior Court, upon application of one or
more stockholders who hold at least 40% in interest, or such other percentage as
specified in the corporation's articles of organization or by-laws, of the
capital stock entitled to vote thereat, will have jurisdiction in equity to
authorize one or more of such stockholders to call a meeting by giving such
notice as is required by law. The FTP Bylaws provide that a special meeting of
the stockholders may be called at any time by the president or by the directors
and shall be called by the clerk, or in the case of the death, absence,
incapacity, or refusal of the clerk, by any other officer, upon written
application of one or more stockholders who hold at least 40% in interest of the
capital stock entitled to vote thereat.
INSPECTION RIGHTS
Section 220 of the Delaware GCL provides that any stockholder, upon written
demand stating the purpose of the inspection, shall have the right to inspect
for any proper purpose the corporation's stock ledger, a list of its
stockholders, and its other books and records.
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Section 32 of the Massachusetts BCL generally provides that a stockholder
may inspect a corporation's articles of organization, its by-laws, records of
its meetings of incorporators and stockholders, a list of its stockholders, and
its other stock and transfer records for any proper purpose.
ELECTION OF DIRECTORS
The Bylaws of NetManage give the NetManage Board the power to set the
number of directors on the NetManage Board. The NetManage Board is currently set
at six.
The FTP Bylaws provide that the FTP Board will consist of not less than
three nor more than 15 directors; provided, however, that the number of
directors shall be fixed at not less than two whenever there shall be only two
stockholders and not less than one whenever there shall be only one stockholder.
The number of directors may be increased or decreased at any time or from time
to time either by the stockholders or by the directors by a vote of a majority
of the directors then in office, but decreases in the number of directors may
occur only to eliminate vacancies existing by reason of the death, resignation,
removal or disqualification of one or more directors.
EXPERTS
The audited financial statements of NetManage included in this Joint Proxy
Statement/Prospectus have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said report.
The consolidated balance sheets of FTP as of December 31, 1996 and 1997 and
the consolidated statements of operations, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1997, included in
this Joint Proxy Statement/Prospectus have been included herein in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of that firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the shares of NetManage Common Stock to be issued in
connection with the Merger will be passed upon for NetManage by Wilson Sonsini
Goodrich & Rosati, Professional Corporation, Palo Alto, California.
REPRESENTATIVES OF INDEPENDENT PUBLIC ACCOUNTANTS
Representatives of Arthur Andersen LLP and PricewaterhouseCoopers LLP
expect to be present at the NetManage Special Meeting and the FTP Special
Meeting, respectively, and, while such representatives have stated that they do
not plan to make a statement at such meetings, they will be available to respond
to appropriate questions from stockholders in attendance.
STOCKHOLDER PROPOSALS
NetManage Stockholders who wish to submit proposals for presentation to
NetManage's 1999 Annual Meeting of Stockholders must have submitted the proposal
to NetManage, Inc., 10725 North De Anza Boulevard, Cupertino, California 95014,
Attention: Secretary, in advance of December 4, 1998, for inclusion, if
appropriate, in NetManage's proxy statement and form of proxy relating to its
1999 Annual Meeting.
FTP Stockholders who wish to submit proposals for presentation at FTP's
1999 Annual Meeting of Stockholders (if the Merger has not been consummated
prior to the date the meeting is to be held) must submit the proposal to FTP
Software, Inc., 2 High Street, North Andover, Massachusetts 01845, Attention:
Clerk. Such proposal must be received not later than January 12, 1999, for
inclusion, if appropriate, in FTP's proxy statement and form of proxy relating
to its 1999 Annual Meeting.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
NETMANAGE, INC.:
Report of Independent Public Accountants.................. F-2
Consolidated Balance Sheets at December 31, 1996 and
1997................................................... F-3
Consolidated Statements of Operations --
Years Ended December 31, 1995, 1996 and 1997........... F-4
Consolidated Statements of Stockholders' Equity --
Years Ended December 31, 1995, 1996 and 1997........... F-5
Consolidated Statements of Cash Flows -- Years Ended
December 31, 1995, 1996 and 1997....................... F-6
Notes to Consolidated Financial Statements................ F-7
Report of Independent Public Accountants on Schedule...... F-21
Schedule II -- Valuation and Qualifying Accounts.......... F-22
Condensed Consolidated Balance Sheets at December 31, 1997
and March 31, 1998..................................... F-23
Condensed Consolidated Statements of Operations --
Three Months Ended March 31, 1997 and 1998............. F-24
Condensed Consolidated Statements of Cash Flows -- Three
Months Ended March 31, 1997 and 1998................... F-25
Notes to Condensed Consolidated Financial Statements...... F-26
FTP SOFTWARE, INC.:
Report of Independent Accountants......................... F-29
Consolidated Balance Sheets at December 31, 1996 and
1997................................................... F-30
Consolidated Statements of Operations --
Years Ended December 31, 1995, 1996 and 1997........... F-31
Consolidated Statements of Stockholders' Equity --
Years Ended December 31, 1995, 1996 and 1997........... F-32
Consolidated Statements of Cash Flows -- Years Ended
December 31, 1995, 1996 and 1997....................... F-33
Notes to Consolidated Financial Statements................ F-34
Report of Independent Accountants on Schedule............. F-51
Schedule II -- Valuation and Qualifying Accounts.......... F-52
Consolidated Balance Sheets (unaudited) at December 31,
1997 and March 31, 1998................................ F-53
Consolidated Statements of Operations (unaudited) --
Three Months Ended March 31, 1997 and 1998............. F-54
Consolidated Statements of Cash Flows (unaudited) -- Three
Months Ended March 31, 1997 and 1998................... F-55
Notes to Interim Consolidated Financial Statements........ F-56
</TABLE>
F-1
<PAGE> 146
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To NetManage, Inc.:
We have audited the accompanying consolidated balance sheets of NetManage,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1996 and 1997,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with 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 financial statements referred to above present fairly,
in all material respects, the financial position of NetManage, Inc. and
subsidiaries as of December 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Jose, California
January 26, 1998
F-2
<PAGE> 147
NETMANAGE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 19,483 $ 12,706
Short-term investments.................................... 46,609 36,845
Accounts receivable, less allowances of $2,012 and $1,375,
respectively........................................... 13,915 13,408
Prepaid expenses and other current assets................. 13,191 15,726
-------- --------
Total current assets.............................. 93,198 78,685
-------- --------
PROPERTY AND EQUIPMENT, at cost:
Computer software and equipment........................... 14,874 13,010
Furniture and fixtures.................................... 5,622 5,512
Leasehold improvements.................................... 1,434 1,308
-------- --------
21,930 19,830
Less -- Accumulated depreciation.......................... (9,872) (10,999)
-------- --------
Net property and equipment........................... 12,058 8,831
-------- --------
LONG-TERM INVESTMENTS....................................... 37,201 19,734
GOODWILL AND OTHER INTANGIBLES, net......................... 1,763 3,293
OTHER ASSETS................................................ 8,309 9,050
-------- --------
$152,529 $119,593
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 2,060 $ 1,674
Accrued liabilities....................................... 4,154 5,185
Accrued payroll and payroll-related expenses.............. 4,779 4,804
Deferred revenue.......................................... 8,839 9,118
Income taxes payable...................................... 1,698 2,362
-------- --------
Total current liabilities......................... 21,530 23,143
-------- --------
LONG-TERM LIABILITIES....................................... 1,708 363
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value --
Authorized -- 75,000,000 shares
Outstanding -- 43,148,350 shares and 43,752,930 shares,
respectively.......................................... 431 438
Additional paid-in capital................................ 90,193 91,564
Retained earnings......................................... 39,751 5,996
Cumulative translation adjustment......................... (1,084) (1,911)
-------- --------
Total stockholders' equity........................ 129,291 96,087
-------- --------
$152,529 $119,593
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 148
NETMANAGE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1995 1996 1997
-------- ------- --------
<S> <C> <C> <C>
NET REVENUES:
License fees.............................................. $112,079 $89,334 $ 45,795
Services.................................................. 13,367 15,262 15,729
-------- ------- --------
Total net revenues................................ 125,446 104,596 61,524
COST OF REVENUES............................................ 13,065 11,837 4,093
-------- ------- --------
GROSS MARGIN................................................ 112,381 92,759 57,431
-------- ------- --------
OPERATING EXPENSES:
Research and development.................................. 23,861 27,938 20,670
Sales and marketing....................................... 46,117 52,167 41,455
General and administrative................................ 9,808 11,198 10,428
Write-off of in-process research and development.......... -- 13,384 20,643
Amortization of goodwill.................................. 1,298 1,526 1,137
Restructuring charge...................................... -- -- 5,172
Acquisition costs......................................... 1,701 199 --
-------- ------- --------
Total operating expenses.......................... 82,785 106,412 99,505
-------- ------- --------
INCOME (LOSS) FROM OPERATIONS............................... 29,596 (13,653) (42,074)
INTEREST INCOME............................................. 4,494 5,625 4,562
EQUITY IN INCOME (LOSSES) OF UNCONSOLIDATED AFFILIATE....... (306) (1,005) 1,145
UNREALIZED GAIN ON INVESTMENT IN UNCONSOLIDATED AFFILIATE... -- -- 2,152
-------- ------- --------
INCOME (LOSS) BEFORE INCOME TAXES........................... 33,784 (9,033) (34,215)
PROVISION (BENEFIT) FOR INCOME TAXES........................ 11,487 (3,328) (460)
-------- ------- --------
NET INCOME (LOSS)........................................... $ 22,297 $(5,705) $(33,755)
======== ======= ========
NET INCOME (LOSS) PER SHARE:
Basic..................................................... $ 0.55 $ (0.13) $ (0.78)
Diluted................................................... $ 0.52 $ (0.13) $ (0.78)
WEIGHTED AVERAGE COMMON SHARES AND EQUIVALENTS:
Basic..................................................... 40,749 42,341 43,385
Diluted................................................... 42,955 42,341 43,385
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 149
NETMANAGE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE
------------------- PAID-IN RETAINED TRANSLATION
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT TOTAL
---------- ------ ---------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994................... 40,320,287 $203 $74,752 $ 24,351 $ -- $ 99,306
Two-for-one stock dividend................. -- 199 (199) -- -- --
Sale of common stock under employee stock
purchase plan........................... 145,145 2 2,020 -- -- 2,022
Exercise of stock options.................. 740,550 8 2,734 -- -- 2,742
Compensation costs related to stock option
grants.................................. -- -- 109 -- -- 109
Income tax benefit from stock option
transactions............................ -- -- 2,080 -- -- 2,080
Pooling of interests with Syzygy
Communications, Inc..................... 394,000 4 1,251 (798) -- 457
Common stock issued in connection with the
acquisition of Pacer Software, Inc...... 64,600 1 773 -- -- 774
Repurchase of common stock from employees
for cash................................ (4,250) -- -- -- -- --
Translation adjustment..................... -- -- -- -- (390) (390)
Net income................................. -- -- -- 22,297 -- 22,297
---------- ---- ------- -------- ------- --------
BALANCE, DECEMBER 31, 1995................... 41,660,332 417 83,520 45,850 (390) 129,397
Sale of common stock under employee stock
purchase plan........................... 226,124 2 1,868 -- -- 1,870
Exercise of stock options.................. 666,399 7 2,831 -- -- 2,838
Income tax benefit from stock option
transactions............................ -- -- 642 -- -- 642
Pooling of interests with Maximum
Information, Inc........................ 590,448 6 334 (394) -- (54)
Issuance of common stock for purchase of
technology.............................. 121,997 1 999 -- -- 1,000
Repurchase of common stock from employees
for cash................................ (116,950) (2) (1) -- -- (3)
Translation adjustment..................... -- -- -- -- (694) (694)
Net loss................................... -- -- -- (5,705) -- (5,705)
---------- ---- ------- -------- ------- --------
BALANCE, DECEMBER 31, 1996................... 43,148,350 431 90,193 39,751 (1,084) 129,291
Sale of common stock under employee stock
purchase plan........................... 343,142 4 785 -- -- 789
Exercise of stock options.................. 272,035 3 437 -- -- 440
Income tax benefit from stock option
transactions............................ -- -- 149 -- -- 149
Repurchase of common stock from employees
for cash................................ (10,597) -- -- -- -- --
Translation adjustment..................... -- -- -- -- (827) (827)
Net loss................................... -- -- -- (33,755) -- (33,755)
---------- ---- ------- -------- ------- --------
BALANCE, DECEMBER 31, 1997................... 43,752,930 $438 $91,564 $ 5,996 $(1,911) $ 96,087
========== ==== ======= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 150
NETMANAGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 22,297 $ (5,705) $(33,755)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 6,545 9,846 8,204
Compensation costs related to stock issuances and stock
option grants......................................... 109 -- --
Provision for doubtful accounts and returns............ 1,842 886 268
Equity in (income) losses of unconsolidated
affiliate............................................. 306 1,005 (1,145)
Write-off of in-process research and development....... -- 13,384 20,643
Write-down of assets related to restructure............ -- -- 1,831
Write-down of purchased technology to net realizable
value................................................. -- 1,248 --
Unrealized gain on investment in unconsolidated
affiliate............................................. -- -- (2,152)
Changes in assets and liabilities, net of business
combinations:
Accounts receivable.................................. (7,885) 5,611 6,688
Prepaid expenses and other current assets............ (4,407) (6,201) (1,012)
Accounts payable..................................... 3,073 (2,689) (1,447)
Accrued liabilities, payroll and payroll-related
expenses............................................ 424 (330) (2,838)
Deferred revenue..................................... 3,625 (2,094) (4,034)
Income taxes payable................................. 2,183 (1,268) 2,918
-------- -------- --------
Net cash provided by (used in) operating
activities...................................... 28,112 13,693 (5,831)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments....................... (75,550) (44,201) (27,395)
Proceeds from maturities of short-term investments........ 47,220 45,045 36,320
Purchases of long-term investments........................ (15,133) (32,841) (23,925)
Proceeds from maturities of long-term investments......... 11,111 23,205 40,675
Purchases of property and equipment....................... (10,103) (4,716) (326)
Acquisition of businesses, net of cash acquired........... 540 (1,325) (26,651)
Acquisition of in-process research and development........ -- (11,384) --
Purchases of technology and other intangible assets....... -- (2,668) (530)
Investment in unconsolidated affiliate.................... (1,529) (1,929) (58)
-------- -------- --------
Net cash used in investing activities............. (43,444) (30,814) (1,890)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock, net of issuance
costs.................................................. 4,764 4,708 1,229
Repurchase of common stock................................ -- (3) --
-------- -------- --------
Net cash provided by financing activities......... 4,764 4,705 1,229
-------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH..................... (390) (694) (285)
-------- -------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (10,958) (13,110) (6,777)
CASH AND CASH EQUIVALENTS, beginning of year................ 43,551 32,593 19,483
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of year...................... $ 32,593 $ 19,483 $ 12,706
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest............................................... $ 46 $ -- $ --
Income taxes........................................... 11,240 2,852 358
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 151
NETMANAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND ORGANIZATION:
NetManage, Inc. (the "Company") develops, markets and supports software
tools for connecting personal computers to corporate mainframe, midrange and
UNIX(R) computers and software that increases the productivity of corporate call
centers. The Company is a recognized leader in "PC Connectivity" and was one of
the first to develop and market a Windows-based transmission protocol that has
since become the industry standard for the Internet. In 1997, the Company
organized its business to take advantage of three major industry trends:
expansion of the Internet, continued mobilization of personal computer users and
broader access to corporate data and information. Its products are fully
compatible with Microsoft Corporation's ("Microsoft") Windows 3.1, Windows 95
and Windows NT platforms and IBM systems, including OS/2, and Novell operating
systems.
Substantially all of the Company's net revenues have been derived from the
sales of products that provide inter-networking applications for the Microsoft
Windows environment and are marketed primarily to Windows users. As a result,
sales of the Company's products would be materially adversely affected by market
developments adverse to Windows. In addition, the Company's strategy of
developing products based on the Windows operating environment is substantially
dependent on its ability to gain pre-release access to, and to develop expertise
in, current and future Windows developments by Microsoft. No assurance can be
given as to the ability of the Company to provide products compatible with
future Windows releases on a timely basis.
Additionally, the market for the Company's products is intensely
competitive and characterized by rapidly changing technology, evolving industry
standards, changes in customers' needs and frequent new product introductions.
To maintain or improve its position in this industry, the Company must continue
to enhance its current products and develop new products on a timely and
cost-effective basis. There can be no assurance that the Company will be
successful in developing new products or enhancing its existing products on a
timely basis, or that such new products or product enhancements will achieve
market acceptance.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All intercompany accounts and transactions
have been eliminated. The Company's investment in NetVision, Ltd. ("NetVision")
is accounted for using the equity method.
Use of Estimates
The preparation of consolidated 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
disclosures of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Foreign Currency Translation and Foreign Exchange Contracts
The functional currency of the Company's foreign subsidiaries is the local
currency. Gains and losses resulting from the translation of the foreign
subsidiaries' financial statements are reported as a separate component of
stockholders' equity. The Company enters into forward exchange contracts to
reduce the impact of foreign currency fluctuations on those balance sheet
accounts denominated in foreign currency, other than the entities' local
currency, that give rise to transaction gains or losses. The notional amount of
the forward contracts was approximately $11.2 million, $2.9 million and $1.9
million at December 31, 1995, 1996 and
F-7
<PAGE> 152
NETMANAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1997, respectively. The 1997 contracts expired on January 30, 1998. Gains and
losses on foreign exchange contracts were immaterial for the years ended
December 31, 1995, 1996 and 1997.
Revenue Recognition
License fees are earned under software license agreements to end-users and
resellers and are generally recognized when a customer purchase order has been
received, the software has been shipped, the Company has a right to invoice the
customer, collection of the receivable is probable and there are no significant
obligations remaining. The Company offers its customers a 30-day right of return
on sales and records an estimate of such returns at the time of product delivery
based on historical experience. To date, such returns have been insignificant.
Certain of the Company's sales are made to domestic distributors under
agreements allowing rights of return and price protection on unsold merchandise.
Accordingly, the Company defers recognition of such sales until the merchandise
is sold by the distributor. The Company's international distributors generally
do not have return rights and, as such, the Company generally recognizes sales
to international distributors upon shipment, if all other revenue recognition
criteria has been met.
Service revenues consist of fees for providing system updates for existing
software products, user documentation and technical support, generally under
annual service agreements, and are recognized ratably over the term of such
agreements. If such services are included in the initial licensing fee, the
value of the services is unbundled and recognized ratably over the related
service period. The cost of service revenues is not material and is included in
cost of revenues in the accompanying Consolidated Statements of Operations.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Short-term and Long-term Investments
The Company accounts for its investments under the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". Under SFAS No. 115, the Company's
investments are classified as held-to-maturity and are valued using the
amortized cost method. The Company's investments mature at various dates through
April 2000. Investments with a maturity of greater than one year from the
balance sheet date are classified as long-term investments. At December 31, 1996
and 1997, the fair value of the investments approximated amortized cost and, as
such, gross unrealized holding gains and losses were not material. The fair
value of the investments was determined based on quoted market prices at the
reporting dates for those instruments. The carrying value of the Company's
investments by major security type consisted of the following as of December 31,
1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
DESCRIPTION 1996 1997
----------- ------- -------
<S> <C> <C>
Municipal bonds.......................................... $69,441 $44,754
Auction rate securities.................................. 11,200 3,500
Corporate bonds.......................................... -- 4,313
CDs/Bankers acceptance notes............................. 1,669 12
Government securities.................................... 1,500 4,000
------- -------
$83,810 $56,579
======= =======
</TABLE>
F-8
<PAGE> 153
NETMANAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Property and Equipment
Property and equipment are recorded at cost. Betterments, renewals and
extraordinary repairs that extend the life of the asset are capitalized, other
repairs and maintenance are expensed. Depreciation is computed using the
straight-line method over the following estimated useful lives:
<TABLE>
<CAPTION>
CLASSIFICATION LIFE
-------------- ----
<S> <C>
Computer software and equipment 2 to 3 years
Furniture and fixtures 5 years
Leasehold improvements Shorter of the lease term or the
estimated useful life
</TABLE>
Goodwill
Goodwill arising from the Company's acquisitions (see Note 3) is amortized
on a straight-line basis over two years. Accumulated amortization was $3,137,000
and $3,117,00 at December 31, 1996 and 1997, respectively.
Software Development Costs
Software development costs are accounted for in accordance with SFAS No.
86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed," under which capitalization of software development costs
begins upon the establishment of technological feasibility of the product, which
the Company defines as the development of a working model and further defines as
the development of a beta version of the software. The establishment of
technological feasibility and the ongoing assessment of the recoverability of
these costs requires considerable judgment by management with respect to certain
external factors, including, but not limited to, anticipated future gross
product revenue, estimated economic life and changes in technology. Such costs
are reported at the lower of unamortized cost or net realizable value.
Amortization of purchased software is generally computed on a straight-line
basis over one to five years or, if less, the estimated remaining economic life
of the underlying products. To date, internal software development costs that
were eligible for capitalization have not been significant and the Company has
charged all software development costs to research and development as incurred.
For the year ended December 31, 1996 and 1997, approximately $2.7 and $0.4
million, respectively, is included in the accompanying Consolidated Statements
of Operations in cost of revenues for the amortization and writedown to net
realizable value of software purchased and capitalized during 1996 and 1997.
Prior to 1996, purchased software costs eligible for capitalization had not been
significant and the Company charged all such costs to research and development
as incurred.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash investments and trade
receivables. The Company has cash investment policies that limit the amount of
credit exposure to any one issuer and restrict placement of these investments to
issuers evaluated as credit worthy. Concentrations of credit risk with respect
to trade receivables are limited due to the large number of customers comprising
the Company's customer base and their dispersion across many different
industries and geographies.
Net Income (Loss) Per Share
In 1997, the Company adopted SFAS No. 128, "Earnings Per Share." SFAS No.
128 requires companies to compute net income (loss) per share under two
different methods, basic and diluted. Basic net income (loss) per share data has
been computed using the weighted average number of shares of common
F-9
<PAGE> 154
NETMANAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
stock outstanding during the periods. Diluted net income (loss) per share data
has been computed using the weighted average number of shares of common stock
and dilutive potential common shares. Potential common shares include dilutive
shares issuable upon the exercise of outstanding common stock options computed
using the treasury stock method. Potentially dilutive securities of 2,385,061,
4,270,780 and 3,697,106 were not included in the computation of diluted earnings
per common share because to do so would have been antidilutive for the years
ended December 31, 1995, 1996 and 1997, respectively.
For the years ended December 31, 1996 and 1997, the number of shares used
in the computation of diluted earnings per share were the same as those used for
the computation of basic earnings per share. For the year ended December 31,
1995 a reconciliation of the shares used in the computation of basic and diluted
earnings per share is as follows:
<TABLE>
<CAPTION>
NUMBER OF PER SHARE
SHARES AMOUNT
---------- ---------
<S> <C> <C>
Basic earnings per share.............................. 40,749,000 $0.52
Common stock options.................................. 2,206,000 0.03
---------- -----
Diluted earnings per share............................ 42,955,000 $0.55
========== =====
</TABLE>
Reclassifications
Certain prior year financial statement amounts have been reclassified to
conform to the current year presentation.
New Accounting Standards
In 1997, the Company adopted SFAS No. 129, "Disclosure of Information About
Capital Structure." SFAS No. 129 requires companies to disclose certain
information about their capital structure. SFAS No. 129 did not have a material
impact on the Company's consolidated financial statement disclosures.
In 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
130, "Comprehensive Income," which will be adopted by the Company in the first
quarter of 1998. SFAS No. 130 requires companies to report a new, additional
measure of income on the income statement or to create a new financial statement
that has the new measure of income on it. "Comprehensive Income" is to include
foreign currency translation gains and losses and other unrealized gains and
losses that have been previously excluded from net income and reflected instead
in equity. The Company anticipates that SFAS No. 130 will not have a material
impact on its consolidated financial statements.
In 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which the Company will adopt in its 1998
annual consolidated financial statements. SFAS No. 131 requires companies to
report financial and descriptive information about its reportable operating
segments, including segment profit or loss, certain specific revenue and expense
items, and segment assets, as well as information about the revenues derived
from the Company's products and services, the countries in which the Company
earns revenues and holds assets, and major customers.
In 1997, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position ("SOP")
97-2, "Software Revenue Recognition," which will be adopted by the Company in
the first quarter of 1998. SOP 97-2 provides guidance on applying generally
accepted accounting principles in recognizing revenue on software transactions.
The Company anticipates that SOP 97-2 will not have a material impact on its
consolidated financial statements.
F-10
<PAGE> 155
NETMANAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS AND OTHER INVESTMENTS:
In December 1997, NetVision, Ltd., ("NetVision") a provider of internet
services in Israel and an unconsolidated affiliate of the Company issued an
additional 800,000 preferred shares which were sold to Tevel Israel
International Communications, Ltd ("Tevel"), an unrelated party, for $10.0
million cash in exchange for a one-third interest in NetVision. As a result of
the issuance and sale of these shares by NetVision, the Company's ownership
interest in NetVision decreased from 50% to approximately 32%. In connection
with this transaction, the Company recorded an unrealized gain on NetVision's
sale of stock of $2,152,000, which is included in the accompanying Consolidated
Statement of Operations for the year ended December 31, 1997.
In July 1995, the Company had agreed to an investment by Elron Electronics,
Ltd. ("Elron") in NetVision. Elron's investment in NetVision, comprised of
various assets, was equal to the net equity of NetVision as of June 30, 1995.
Following the investment by Elron, the Company's ownership interest in NetVision
decreased from 100% to 50%. During 1996, the Company and Elron each invested
approximately an additional $1,500,000 in NetVision. The Company's ownership
percentage did not change as a result of this investment. Neither the Company
nor Elron invested additional monies in NetVision in 1997. The investment in
NetVision of approximately $4,968,000 and $1,859,000 is included in other assets
in the accompanying Consolidated Balance Sheets at December 31, 1997 and 1996,
respectively.
A director of the Company also serves as the Chairman of the Board of
Directors, President and Chief Executive Officer of Elron. Elron holds an
investment in the common stock of the Company representing approximately 2% of
the Company's outstanding shares as of December 31, 1997.
In November 1997, the Company acquired all of the outstanding shares of
Relay Technology, Inc. ("Relay"), a privately-held company, primarily engaged in
the development, marketing and support of network connectivity, file transfer
and terminal emulation software for $4.2 million in cash. The acquisition has
been accounted for as a purchase, and accordingly, the results of Relay from the
date of acquisition forward have been recorded in the Company's consolidated
financial statements. In connection with the purchase, net intangibles of
approximately $5.8 million were acquired, of which $4.6 million is reflected as
a charge to operations for the write-off of in-process research and development
that had not yet reached technological feasibility and, in management's opinion,
had no probable alternative future use. The remaining intangible of $1.2
million, consisting of goodwill, is included in goodwill and other intangibles
in the accompanying balance sheet and is being amortized over its estimated
useful life of two years. Comparative pro forma financial information has not
been presented as the results of Relay are not material to the Company's
consolidated financial statements.
In July 1997, the Company acquired all of the outstanding shares of Network
Software Associates, Inc. ("NSA") for $26.0 million in cash. NSA is a holding
company for NetSoft ("NetSoft"), a privately-held company specializing in the
development, marketing and support of PC-to-Host connectivity software
solutions. As of the date of the acquisition, NSA and NetSoft have continued as
wholly-owned subsidiaries of NetManage. The acquired company hereinafter will be
referred to as NetSoft. The acquisition was accounted for using the purchase
method of accounting and, accordingly, the results of NetSoft from the date of
acquisition forward have been recorded in the Company's consolidated financial
statements. In connection with the acquisition, net intangibles of $18.6 million
were acquired, of which $16.0 million was reflected as a charge to operations
for the write-off of in-process research and development that had not reached
technological feasibility and, in management's opinion, had no probable
alternative future use. The remaining intangible of $2.6 million, consisting of
goodwill, is included in goodwill and other intangibles in the accompanying
Consolidated Balance Sheets and is being amortized over its estimated useful
life of two years.
F-11
<PAGE> 156
NETMANAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
\ In connection with the NetSoft acquisition, net assets acquired were as
follows (in thousands):
<TABLE>
<S> <C>
Cash and cash equivalents................................... $ 2,719
Trade accounts receiveivable and other current assets....... 8,802
Intangibles, including in-process research and
development............................................... 18,589
Property, equipment and other long-term assets.............. 2,733
Current liabilities assumed................................. (6,224)
Long-term liabilities....................................... (619)
-------
Net assets acquired............................... $26,000
=======
</TABLE>
The following unaudited pro forma information shows the result of
operations for the years ended December 31, 1996 and 1997 as if the NetSoft
acquisition had occurred at the beginning of each of the years presented and at
the purchase price established in July 1997. The results are not necessarily
indicative of what would have occurred had the acquisition actually been made at
the beginning of each of the respective years presented or the future operations
of the combined companies.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1996 1997
---------- ----------
<S> <C> <C>
Revenue................................................ $134,214 $ 81,103
Net loss............................................... $ (4,565) $(35,137)
Net loss per share, diluted............................ $ (0.11) $ (0.80)
Weighted average common shares, diluted................ 42,341 43,385
</TABLE>
In November 1996, the Company purchased collaborative computing software
technology from Applicom Software Industries (1990) Ltd. ("Applicom") for cash
consideration of approximately $10.0 million. In the opinion of management, the
purchased technology had not reached technological feasibility and had no
probable alternative future use. Accordingly, the entire purchase price was
deemed to be in-process research and development and was charged to operations
in 1996.
In July 1996, the Company acquired all of the outstanding stock of Maximum
Information, Inc. ("MaxInfo"), in exchange for approximately 590,000 shares of
the Company's common stock. The Company also assumed MaxInfo's outstanding
employee stock options, which were converted into options to purchase
approximately 129,000 shares of the Company's common stock. This transaction was
accounted for as a pooling of interests during the third quarter of 1996. The
operations of MaxInfo, however, were not material to the Company's consolidated
results of operations and financial position and, therefore, the historical
financial statements have not been restated to reflect the acquisition
retroactively. Accordingly, the operations of MaxInfo from the date of
acquisition forward have been recorded in the Company's consolidated financial
statements.
In November 1995, the Company acquired all of the outstanding common and
preferred stock of AGE Logic, Inc. ("AGE") in exchange for approximately 833,000
shares of the Company's common stock. AGE was a supplier of Desktop-to-UNIX(R)
connectivity software and provided a full family of high performance X server,
file sharing and terminal emulation products for PC and Macintosh desktops. The
Company also assumed AGE's outstanding employee stock options and warrants,
which were converted to options and warrants to purchase approximately 167,000
shares of the Company's common stock. The merger was accounted for as a pooling
of interests and, accordingly, the Company's financial statements for the years
ended December 31, 1995 and 1994 were restated to include the results of AGE.
Prior to the merger with the Company, in March 1995, AGE acquired all of
the outstanding stock, stock options and warrants of Pacer Software, Inc.
("Pacer") in exchange for approximately 64,600 shares of the Company's common
stock. Pacer was involved in the development and marketing of computer software
products. The acquisition was accounted for as a purchase. Accordingly, the
results of Pacer from the date of
F-12
<PAGE> 157
NETMANAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the acquisition forward have been recorded in the Company's consolidated
financial statements. The value of the Company's common stock issued in
connection with the acquisition was equal to the net assets acquired from Pacer
which approximated $774,000. Accordingly, no goodwill was recorded for this
transaction. Comparative pro forma financial information has not been presented
as the results of operations for Pacer were not material to the Company's
consolidated financial statements.
In October 1995, the Company acquired all of the outstanding stock of
Syzygy Communications, Inc. ("Syzygy") in exchange for approximately 394,000
shares of the Company's common stock. Syzygy was an inter-networking
communications software company and developer of interconnection and network
management software for hardware and software vendors and also provided custom
communications software for commercial customers. The Company also assumed
Syzygy's outstanding employee stock options and warrants, which were converted
to options and warrants to purchase approximately 48,000 shares of the Company's
common stock. The transaction was accounted for as a pooling of interests. The
operations of Syzygy were not material to the Company's consolidated operations
and financial position and, therefore, prior period financial statements were
not restated. The results of Syzygy from the date of acquisition forward have
been recorded in the Company's consolidated financial statements.
4. RESTRUCTURING OF OPERATIONS:
In the third quarter of 1997, the Company initiated a plan to restructure
its operations worldwide due to business conditions. The plan is intended to
realign the Company to focus solely on its core competencies -- UNIX(R),
AS/400(R) midrange and IBM mainframe connectivity. In connection with this plan,
the Company recorded a $5.2 million charge to operating expenses. The
restructuring charge includes approximately $1.8 million of estimated
employee-related expenses for employee terminations, approximately $2.4 million
for the write-off of excess equipment and facilities-related expenses associated
with the consolidation of operations and approximately $1.0 million for the
write-off of intangible assets related to certain unprofitable products. The
restructuring plan includes the termination of employees worldwide and the
reduction in worldwide office space, which primarily consists of the
consolidation of sales offices in Europe resulting from the acquisition of
NetSoft in the third quarter of 1997 as well as the consolidation of certain
domestic technical support and engineering locations. As of December 31, 1997,
the Company had incurred costs totaling approximately $4.3 million related to
the restructuring. The remaining actions are expected to be completed within one
year from the date the restructuring plan was initiated. The Company anticipates
that these remaining restructuring actions will require the expenditures of
approximately $0.9 million of cash during 1998, which the Company expects will
be funded by internally generated cash. Accrued liabilities at December 31, 1997
included a reserve related to this restructuring plan of approximately $0.9
million.
5. COMMITMENTS AND CONTINGENCIES:
On January 9, 1997, a securities class action complaint, Head, et al. v.
NetManage, Inc., et al., No. 07763295, was filed in the Superior Court of
California, Santa Clara County, against the Company and certain of its directors
and current and former officers. On January 10, 1997, the same plaintiffs filed
a securities class action complaint, Head, et al. v. NetManage, Inc., et al.,
No. C-97-20061-CRB, in the United States District Court for the Northern
District of California, against the same defendants. Both complaints allege
that, between July 25, 1995 and January 11, 1996, the defendants made false or
misleading statements of material fact about the Company's prospects and failed
to follow generally accepted accounting principles. The state court complaint
asserts claims under California state law; the federal court complaint asserts
claims under the federal securities laws. In addition, on September 10, 1997,
the Company and several of its officers and directors were named in a securities
class action complaint filed in the Northern District of California, Beasley v.
NetManage, Inc., et al., C-97-3329 FMS, (N.D. Cal.). This complaint is
substantially similar to the previously-filed case of Head et al. v. NetManage,
Inc. et al., discussed above, and contains similar allegations, names the same
defendants, and purports to represent purchasers of NetManage stock during the
same class
F-13
<PAGE> 158
NETMANAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
period as in the previously-filed complaint. The complaints seek an unspecified
amount of damages. On February 24, 1998, the federal court granted the
defendants' motion to dismiss the federal class action complaint in Head, et al.
V. NetManage, Inc., et al. Plaintiffs are expected to file an amended complaint.
The Company believes there is no merit to these cases and intends to defend both
cases vigorously. There can be no assurance that the Company will be able to
prevail in the lawsuits, or that the pendency of the lawsuits will not adversely
affect the Company's operations. As the outcome of these matters cannot be
reasonably determined, the Company has not accrued for any potential loss
contingencies.
On March 21, 1997, a securities class action complaint, Interactive Data
Systems, Inc., et al. v. NetManage, Inc., et al., No. CV764945, was filed in the
Superior Court of California, Santa Clara County, against the Company and
certain of its directors and officers. On June 19, 1997, one of the plaintiffs
in that action filed a securities class action complaint, Molinari v. NetManage,
Inc., et al., No. C-97-20544-CRB, in the United States District Court for the
Northern District of California against the same defendants. Both complaints
allege that, between April 18, 1996 and July 18, 1996, the defendants made false
or misleading statements of material fact about the Company's prospects. The
state court complaint asserts claims under California state law; the federal
complaint asserts claims under the federal securities laws. Both complaints seek
an unspecified amount of damages. The Company believes there is no merit to
either case and intends to defend both cases vigorously. There can be no
assurance that the Company will be able to prevail in the lawsuits, or that the
pendency of the lawsuits will not adversely affect the Company's operations. As
the outcome of these matters cannot be reasonably determined, the Company has
not accrued for any potential loss contingencies.
On October 10, 1997, a verified derivative complaint was filed in the
United States District Court for the Northern District of California, Sucher v.
Alon et al., No. C-97-20897-CRB, against nine present and former officers and
directors of the Company alleging that these persons violated various duties to
the Company. The derivative complaint also names the Company as a nominal
defendant. The derivative complaint is predicated on the factual allegations
contained in the class action complaints discussed above. No demand was
previously made to the Company's Board of Directors concerning the allegations
of the derivative complaint, which seeks an unspecified amount of damages. The
Company believes there is no merit to the case and intends to defend the case
vigorously. There can be no assurance that the Company will be able to prevail
in the lawsuit, or that the pendency of the lawsuit will not adversely affect
the Company's operations. As the outcome of this matter cannot be reasonably
determined, the Company has not accrued for any loss contingencies.
On November 26, 1997, a complaint was filed against the Company in the
Superior Court of California, San Diego County, Shaw et al. v. NetManage, Inc.,
No. 716081. The plaintiffs, who held a significant ownership interest in AGE
before it was acquired by NetManage, bring causes of action alleging fraud,
negligent misrepresentation, negligence and breach of contract with respect to
the Company's acquisition of AGE. The complaint seeks an unspecified amount of
damages. The Company believes there is no merit to the case and intends to
defend the case vigorously. There can be no assurance that the Company will be
able to prevail in the lawsuit, or that the pendency of the lawsuit will not
adversely affect the Company's operations. As the outcome of this matter cannot
be reasonably determined, the Company has not accrued for any loss
contingencies.
The Company may be contingently liable with respect to certain asserted and
unasserted claims that arise during the normal course of business. In the
opinion of management, the outcome of all other such matters presently known to
management will not have a material adverse effect on the Company's business,
financial position or results of operations.
F-14
<PAGE> 159
NETMANAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Facilities and equipment are leased under noncancelable operating leases
expiring on various dates through the year 2007. As of December 31, 1997, future
minimum rental payments under operating leases are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR
----
<S> <C>
1998............................................... $ 5,197
1999............................................... 3,317
2000............................................... 2,193
2001............................................... 885
2002............................................... 757
Thereafter......................................... 1,613
-------
$13,962
=======
</TABLE>
Rent expense was approximately $2,885,000, $3,448,000 and $3,945,000 for
the years ended December 31, 1995, 1996 and 1997, respectively.
6. CAPITAL STOCK:
Common Stock
In April 1995 the Company effected a two-for-one stock split (in the form
of a stock dividend) of the Company's common stock. All share and per share
amounts in the accompanying consolidated financial statements and notes have
been adjusted retroactively to reflect the stock dividend.
As of December 31, 1997, the Company has reserved the following shares of
authorized but unissued common stock:
<TABLE>
<S> <C>
Employee stock option plan.................................. 7,496,057
Directors' stock option plan................................ 739,835
Employee stock purchase plan................................ 1,474,091
---------
9,709,983
=========
</TABLE>
Employee Stock Option Plan
During 1992, the Company established the 1992 Employee Stock Option Plan
(the "Plan"). The Company currently has authorized a total of 9,800,000 shares
for issuance under this Plan. The Company may grant incentive stock options or
non-statutory stock options to employees, officers, directors and consultants at
an exercise price of not less than 100% of the fair market value of the common
stock on the date of grant, except that non-statutory options may be granted at
85% of such fair value. Up until mid-1997, options granted under the Plan
generally become exercisable at a rate of one-fourth of the shares subject to
the option at the end of the first year and 1/48 of the shares subject to the
option at the end of each calendar month thereafter. Since then, options granted
under the Plan for new hires generally become exercisable at a rate of one-fifth
of the shares subject to the option at the end of the first year and 1/60 of the
shares subject to the option at the end of each calendar month thereafter. The
maximum term of a stock option under the Plan is ten years, but if the optionee
at the time of grant has voting power over more than 10% of the Company's
outstanding capital stock, the maximum term is five years.
The Company has assumed certain options granted to former employees of the
companies acquired during 1995 and 1996 (the "Acquired Options"). The Acquired
Options were assumed by the Company outside of the Plan, but all are
administered as if assumed under the Plan. All of the Acquired Options have been
adjusted to effectuate the conversion under the Agreements and Plans of
Reorganization between the Company and the companies acquired. The Acquired
Options related to two of the companies acquired
F-15
<PAGE> 160
NETMANAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
became immediately exercisable under the original terms of the option
agreements. The Acquired Options related to the other company acquired continue
to vest under the original vesting schedule over a four-year period. No
additional options will be granted under any of the acquired companies' plans.
In February 1996, January 1997 and September 1997, upon approval by the
Company's Board of Directors, the Company repriced 2,302,338, 3,451,079 and
1,703,624 options, respectively, originally issued at prices ranging from $11.63
to $24.62, $6.63 to $21.25, and $3.25 to $6.00, respectively. The options were
repriced at the then current market value of the Company's common stock of
$11.13 for the February 1996 repricing, $6.00 for the January 1997 repricing,
and $3.06 for the September 1997 repricing. The Company's Board of Directors
extended the vesting period for all options repriced in February 1996 by an
additional six months.
Directors' Stock Option Plan
In July 1993, the Company adopted the 1993 Directors' Stock Option Plan
(the "Directors' Plan") and reserved 800,000 shares of common stock for issuance
thereunder. Under the Directors' Plan, options may be granted only to
non-employee directors of the Company at an exercise price of 100% of the fair
market value of the stock on the date of grant. Options granted under the
Directors' Plan become exercisable at a rate of one-fourth of the shares subject
to the option at the end of the first year and 1/48 of the shares subject to the
option at the end of each calendar month thereafter. The maximum term of a stock
option under the Directors' Plan is ten years.
Employee Stock Purchase Plan
In July 1993, the Company adopted the Employee Stock Purchase Plan (the
"Purchase Plan") and reserved 2,400,000 shares of common stock for future
issuance under the Purchase Plan. Under the Purchase Plan, the Company's
employees, subject to certain restrictions, may purchase shares of common stock
at a price per share that is equal to 85% of the lower of the fair market value
of the common stock on the commencement date of each offering period or the
relevant purchase date. For the years ended December 31, 1995, 1996 and 1997
shares issued under the Purchase Plan were 145,145, 226,124 and 343,142,
respectively, at prices ranging from $12.22 to $15.51 per share, $5.79 to $12.54
per share and $2.28 to $2.34 per share, respectively.
Stock-Based Compensation Plans
The Company accounts for the above plans under Accounting Principles Board
Opinion ("APB") No. 25, under which no compensation cost has been recognized.
Had compensation cost for these plans been determined consistent with SFAS No.
123, "Accounting for Stock-Based Compensation," the Company's net income (loss)
and net income (loss) per share would have been adjusted to the following pro
forma amounts (in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
Net income (loss):
As reported............................... $22,297 $ (5,705) $(33,755)
Pro forma................................. 16,548 (11,135) (42,453)
Net income (loss) per share:
As reported............................... $ 0.52 $ (0.13) $ (0.78)
Pro forma -- Basic........................ 0.39 (0.26) (0.98)
Pro forma -- Diluted...................... 0.41 (0.26) (0.98)
</TABLE>
F-16
<PAGE> 161
NETMANAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Because the method of accounting prescribed by SFAS No. 123 has not been
applied to options granted prior to January 1, 1995, the resulting pro forma
effect of compensation cost may not be representative of that to be expected in
future years.
Option activity, including the Acquired Options, under the Company's stock
option plans was as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
-----------------------------------------------
WEIGHTED AVERAGE
OPTIONS AVAILABLE SHARES PRICE PER SHARE EXERCISE PRICE
----------------- ---------- --------------- ----------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994.......... 3,086,933 3,741,697 $0.08 - $13.00 $ 6.74
Authorized.......................... 1,000,000 --
Granted............................. (2,288,420) 2,288,420 0.76 - 21.25 10.52
Exercised........................... -- (689,561) 0.08 - 13.00 3.87
Terminated.......................... 749,495 (749,495) 0.08 - 20.63 8.11
---------- ----------
Balance at December 31, 1995.......... 2,548,008 4,591,061 0.08 - 21.25 8.83
Authorized.......................... 2,000,000 --
Granted............................. (1,852,317) 1,852,317 2.03 - 16.63 9.71
Exercised........................... -- (631,142) 0.08 - 13.00 4.42
Terminated.......................... 1,541,456 (1,541,456) 0.08 - 21.25 10.32
---------- ----------
Balance at December 31, 1996.......... 4,237,147 4,270,780 0.08 - 21.25 9.99
Granted............................. (7,856,064) 7,856,064 2.63 - 6.00 4.28
Exercised........................... -- (272,035) 0.08 - 4.00 1.62
Terminated.......................... 8,157,703 (8,157,703) 0.08 - 21.25 7.50
---------- ----------
Balance at December 31, 1997.......... 4,538,786 3,697,106 0.08 - 6.00 3.04
========== ==========
</TABLE>
The following table summarizes the Company's outstanding options as of
December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------ ----------------------------
WEIGHTED AVERAGE WEIGHTED
RANGE OF NUMBER REMAINING LIFE WEIGHTED AVERAGE NUMBER AVERAGE
EXERCISE PRICE OUTSTANDING (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- -------------- ----------- ---------------- ---------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.08 - $2.94 993,786 8.42 $2.37 266,028 $1.24
$3.06 2,463,955 8.59 $3.06 598,977 $3.06
$3.44 - $6.00 239,365 7.76 $5.51 166,747 $6.00
--------- ---------
Total 3,697,106 8.49 $3.04 1,031,752 $3.07
========= =========
</TABLE>
The weighted average fair values of options granted during 1995, 1996 and
1997 were $14.08, $6.20 and $3.55 per share, respectively. The fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option pricing with the following weighted average assumptions used for grants
in 1995, 1996 and 1997:
<TABLE>
<CAPTION>
1995 1996 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Volatility.............. 77.89% 77.89% 183.16%
Risk-free interest
rate.................. 4.94% - 6.65% 4.94% - 6.68% 4.93% - 5.79%
Dividend yield.......... 0.00% 0.00% 0.00%
Expected term........... 3 - 7 months 3 - 7 months 3 - 7 months
beyond vest date beyond vest date beyond vest date
</TABLE>
F-17
<PAGE> 162
NETMANAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES:
The provision (benefit) for income taxes is based upon income (loss) before
income taxes as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
-------- ------- --------
<S> <C> <C> <C>
Domestic................................... $ 22,803 $(5,502) $(25,573)
Foreign.................................... 10,981 (3,531) (8,642)
-------- ------- --------
$ 33,784 $(9,033) $(34,215)
======== ======= ========
</TABLE>
The components of the provision (benefit) for income taxes are as follows
(in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Current --
Federal...................................... $ 8,575 $ 2,008 $(3,134)
State........................................ 2,398 536 1
Foreign...................................... 367 830 235
------- ------- -------
Total current........................ 11,340 3,374 (2,898)
------- ------- -------
Deferred --
Federal...................................... 423 (4,816) 2,231
State........................................ (276) (1,886) 207
------- ------- -------
Total deferred....................... 147 (6,702) 2,438
------- ------- -------
Provision (benefit) for income taxes........... $11,487 $(3,328) $ (460)
======= ======= =======
</TABLE>
The provision (benefit) for income taxes differs from the amounts which
would result by applying the applicable statutory Federal income tax rate to
income before taxes, as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
-------- ------- --------
<S> <C> <C> <C>
Provision (benefit) at Federal statutory rate....... $ 11,824 $(3,162) $(11,975)
State income taxes, net of Federal tax benefit...... 2,042 (546) (2,068)
Nontaxable interest income.......................... (1,219) (1,016) (982)
Foreign losses benefited at a lower tax rate........ -- -- 2,140
Nondeductible write-off of in-process research and
development....................................... -- 1,803 8,464
Change in valuation allowance....................... -- -- 3,292
Acquisition costs................................... 701 161 --
Tax credits......................................... (868) (889) --
Tax savings from foreign operations................. (2,095) (1,429) --
Nondeductible expenses.............................. 150 240 94
Foreign taxes....................................... -- 830 235
Other............................................... 952 680 340
-------- ------- --------
Provision (benefit) for income taxes.............. $ 11,487 $(3,328) $ (460)
======== ======= ========
Effective tax rate................................ 34% 37% 1%
======== ======= ========
</TABLE>
F-18
<PAGE> 163
NETMANAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The components of the net deferred income tax asset are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- -------
<S> <C> <C>
Deferred revenue recognized currently for tax purposes...... $ 817 $ 1,079
Reserves and accruals not currently deductible for tax
purposes.................................................. 2,565 2,499
Net operating loss carryforwards............................ 28 1,179
Tax credit carryforwards.................................... 139 185
State taxes, not currently deductible for federal tax
purposes.................................................. 112 35
Write-off of in-process research and development, not
currently deductible for tax purposes..................... 6,056 5,819
Depreciation and amortization............................... 651 (291)
Deemed dividend due to excess foreign passive assets........ (171) --
Other temporary differences................................. 33 579
------- -------
Total deferred tax asset.......................... 10,230 11,084
Less: Valuation allowance................................... -- (3,292)
------- -------
Net deferred tax asset...................................... $10,230 $ 7,792
======= =======
</TABLE>
Realization of the net deferred tax asset of $7,792,000 is dependent on
generating sufficient future taxable income. Although realization is not
assured, management believes it is more likely than not that the net deferred
tax asset will be realized. The amount of the deferred tax asset considered
realizable, however, could be reduced if actual future taxable income differs
from estimated amounts.
The Company's subsidiary in Haifa, Israel has a ten-year tax holiday, which
commenced January 1, 1995. During the first two years of the tax holiday, the
subsidiary was exempt from taxation on income generated during that period.
During the remaining eight years, income generated by the subsidiary will be
taxed at a reduced income tax rate of 10%. The Haifa tax holiday increased
consolidated net income by approximately $593,000 ($0.01 per share) for the year
ended December 31, 1995 and decreased the consolidated net loss by approximately
$1,429,000 ($0.03 per share) for the year ended December 31, 1996. There was no
impact on the net loss for the year ended December 31, 1997.
F-19
<PAGE> 164
NETMANAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. OPERATIONS BY GEOGRAPHIC AREA AND SIGNIFICANT CUSTOMERS:
Operating primarily in one industry segment, the Company's products are
marketed and sold in the United States and internationally by the Company's
direct sales force and authorized channel partners.
The following table presents a summary of operations by geographic area (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Domestic operations...................... $ 99,262 $ 74,996 $ 48,155
European operations...................... 14,395 16,377 10,574
Asian operations......................... 11,789 13,223 2,795
-------- -------- --------
Consolidated.......................... $125,446 $104,596 $ 61,524
======== ======== ========
Income (loss) from operations:
Domestic operations...................... $ 26,128 $(10,780) $(29,877)
European operations...................... (6,339) (3,396) (12,380)
Asian operations......................... 9,807 523 133
-------- -------- --------
Consolidated.......................... $ 29,596 $(13,653) $(42,074)
======== ======== ========
Identifiable assets:
Domestic operations...................... $145,526 $147,581 $121,582
European operations...................... 31,503 23,299 27,690
Asian operations......................... 14,138 2,204 1,433
Eliminations............................. (36,696) (20,555) (31,112)
-------- -------- --------
Consolidated.......................... $154,471 $152,529 $119,593
======== ======== ========
</TABLE>
Domestic revenues include export revenues of approximately $5,994,000,
$3,207,000 and $750,000 to Asia for the years ended December 31, 1995, 1996 and
1997, respectively, and $4,585,000, $2,090,000 and $2,447,000 to the rest of the
world for the years ended December 31, 1995, 1996 and 1997, respectively.
There were no customers that accounted for more than 10% of net revenues
for the years ended December 31, 1995, 1996 or 1997.
F-20
<PAGE> 165
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
We have audited in accordance with generally accepted auditing standards,
the financial statements of NetManage, Inc. included in this registration
statement and have issued our report thereon dated January 26, 1998. Our audit
was made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The schedule listed in the index above is the responsibility
of the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
San Jose, California
January 26, 1998
F-21
<PAGE> 166
SCHEDULE II
NETMANAGE, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED TO
BALANCE AT REVENUES, DEDUCTIONS BALANCE AT
BEGINNING OF COSTS OR AND END OF
PERIOD EXPENSES WRITE-OFFS PERIOD
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1995:
Allowance for doubtful accounts and sales $2,281 $1,842 $(1,607) $2,516
returns.........................................
Year ended December 31, 1996:
Allowance for doubtful accounts and sales 2,516 886 (1,390) 2,012
returns.........................................
Year ended December 31, 1997:
Allowance for doubtful accounts and sales 2,012 268 (905) 1,375
returns.........................................
</TABLE>
F-22
<PAGE> 167
NETMANAGE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 12,706 $ 15,091
Short-term investments.................................... 36,845 40,690
Accounts receivable, net.................................. 13,408 12,923
Prepaid expenses and other current assets................. 15,726 13,802
-------- --------
Total current assets.............................. 78,685 82,506
-------- --------
PROPERTY AND EQUIPMENT, at cost:
Computer software and equipment........................... 13,010 13,137
Furniture and fixtures.................................... 5,512 5,495
Leasehold improvements.................................... 1,308 1,302
-------- --------
19,830 19,934
Less -- Accumulated depreciation.......................... (10,999) (12,037)
-------- --------
Net property and equipment........................ 8,831 7,897
-------- --------
LONG-TERM INVESTMENTS....................................... 19,734 15,365
GOODWILL AND OTHER INTANGIBLES, net......................... 3,293 2,786
OTHER ASSETS................................................ 9,050 9,395
-------- --------
$119,593 $117,949
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 1,674 $ 2,097
Accrued liabilities....................................... 5,185 3,270
Accrued payroll and payroll-related expenses.............. 4,804 3,573
Deferred revenue.......................................... 9,118 8,926
Income taxes payable...................................... 2,362 2,515
-------- --------
Total current liabilities......................... 23,143 20,381
-------- --------
LONG-TERM LIABILITIES....................................... 363 454
-------- --------
STOCKHOLDERS' EQUITY:
Common stock.............................................. 438 440
Additional paid-in capital................................ 91,564 92,054
Retained earnings......................................... 5,996 6,526
Accumulated translation adjustment........................ (1,911) (1,906)
-------- --------
Total stockholders' equity........................ 96,087 97,114
-------- --------
$119,593 $117,949
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-23
<PAGE> 168
NETMANAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
MARCH 31, MARCH 31,
1997 1998
--------- ---------
<S> <C> <C>
NET REVENUES:
License fees.............................................. $12,280 $13,955
Services.................................................. 4,099 3,358
------- -------
Total net revenues................................ 16,379 17,313
COST OF REVENUES............................................ 1,125 991
------- -------
GROSS MARGIN................................................ 15,254 16,322
------- -------
OPERATING EXPENSES:
Research and development.................................. 6,090 4,530
Sales and marketing....................................... 10,299 9,179
General and administrative................................ 2,390 2,667
Amortization of goodwill.................................. 260 487
------- -------
Total operating expenses.......................... 19,039 16,863
------- -------
LOSS FROM OPERATIONS........................................ (3,785) (541)
INTEREST INCOME AND OTHER, NET.............................. 1,255 822
EQUITY IN INCOME (LOSSES) OF UNCONSOLIDATED AFFILIATE....... (209) 449
------- -------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES............. (2,739) 730
PROVISION FOR INCOME TAXES.................................. -- 199
------- -------
NET INCOME (LOSS)........................................... $(2,739) $ 531
======= =======
NET INCOME (LOSS) PER SHARE
Basic..................................................... $ (0.06) $ 0.01
Diluted................................................... $ (0.06) $ 0.01
WEIGHTED AVERAGE COMMON SHARES AND EQUIVALENTS
Basic..................................................... 43,182 43,728
Diluted................................................... 43,182 43,903
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-24
<PAGE> 169
NETMANAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
MARCH 31, MARCH 31,
1997 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ (2,739) $ 531
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 2,779 1,741
Provision for doubtful accounts and returns............ -- 68
Equity in (income) losses of unconsolidated
affiliate............................................. 209 (449)
Changes in assets and liabilities:
Accounts receivable.................................. 3,823 417
Prepaid expenses and other assets.................... 3,455 1,997
Accounts payable..................................... (942) 423
Accrued liabilities, payroll and payroll-related
expenses............................................ (743) (3,059)
Deferred revenue..................................... (2,136) (188)
Income taxes payable................................. (169) 153
-------- -------
Net cash provided by operating activities......... 3,537 1,634
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments....................... (4,100) (5,746)
Proceeds from maturity of short-term investments.......... 13,592 1,900
Purchases of long-term investments........................ (12,781) (2,134)
Proceeds from maturity of long-term investments........... 2,417 6,451
Purchases of property and equipment....................... (68) (287)
Purchases of technology and other intangible assets....... (530) (90)
-------- -------
Net cash provided by (used in) investing
activities...................................... (1,470) 94
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net............... 105 492
-------- -------
Net cash provided by financing activities......... 105 492
-------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH..................... (526) 165
-------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 1,646 2,385
CASH AND CASH EQUIVALENTS, beginning of period.............. 19,483 12,706
-------- -------
CASH AND CASH EQUIVALENTS, end of period.................... $ 21,129 $15,091
======== =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-25
<PAGE> 170
NETMANAGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. INTERIM FINANCIAL DATA
The interim condensed consolidated financial statements for the three-month
periods ended March 31, 1997 and 1998 for NetManage, Inc. (the "Company") have
been prepared on the same basis as the year end consolidated financial
statements and, in the opinion of management, include all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the financial information set forth therein in accordance with generally
accepted accounting principles. While the Company believes that the disclosures
presented are adequate to make the information not misleading, these financial
statements should be read in conjunction with the audited consolidated financial
statements and notes related thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997. The Company believes the results
of operations for the interim periods are subject to fluctuation and may not be
an indicator of future financial performance.
2. CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All intercompany accounts and transactions
have been eliminated. The Company's investment in an unconsolidated affiliate,
NetVision, Ltd., is accounted for by the equity method.
3. NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share data has been computed using the weighted
average number of shares of common stock outstanding during the periods. Diluted
net income per share data has been computed using the weighted average number of
shares of common stock and potential common shares. Potential common shares
include dilutive shares issuable upon the exercise of outstanding common stock
options computed using the treasury stock method. Potentially dilutive
securities of 3,710,170 and 2,828,873 were not included in the computation of
diluted earnings per common share because to do so would have been antidilutive
for the three months ended March 31, 1997 and 1998, respectively. For the three
months ended March 31, 1997, the number of shares used in the computation of
diluted earnings per share was the same as those used for the computation of
basic earnings per share as all potential common shares were antidilutive. For
the three months ended March 31, 1998, a reconciliation of the shares used in
the computation of basic and diluted earnings per share is as follows:
<TABLE>
<CAPTION>
NUMBER OF PER SHARE
SHARES AMOUNT
---------- ---------
<S> <C> <C>
Basic earnings per share.............................. 43,728,143 $.01
Common stock options.................................. 175,244 .00
---------- ----
Diluted earnings per share............................ 43,903,387 $.01
========== ====
</TABLE>
4. REVENUE RECOGNITION
During the quarter ended March 31, 1998, the Company adopted Statement of
Position (SOP) 97-2 "Software Revenue Recognition," which provides guidance on
applying generally accepted accounting principles in recognizing revenue on
software transactions. The adoption of SOP 97-2 did not have a material impact
on the consolidated financial statements for the three months ended March 31,
1998.
5. COMPREHENSIVE INCOME (LOSS)
During the quarter ended March 31, 1998, the Company adopted SFAS No. 130
"Comprehensive Income" which was issued by the FASB in 1997. SFAS No. 130
requires companies to report a new, additional measure of income on the income
statement or to create a new financial statement that has the new
F-26
<PAGE> 171
NETMANAGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
measure of income on it. "Comprehensive Income" includes foreign currency
translation gains and losses and other unrealized gains and losses that have
previously been excluded from net income and reflected instead in equity. The
following table summarizes comprehensive income (loss) for the three-month
periods ended March 31, 1997 and 1998.
<TABLE>
<CAPTION>
1997 1998
------- ----
<S> <C> <C>
Net income (loss).......................................... $(2,739) $531
Foreign currency translation adjustments, (net of tax
benefit of $0 in 1997 and 1998).......................... (526) (5)
------- ----
Comprehensive income (loss)................................ $(3,265) $526
======= ====
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
On January 9, 1997, a securities class action complaint, Head, et al. v.
NetManage, Inc., et al., No. 07763295, was filed in the Superior Court of
California, Santa Clara County, against the Company and certain of its directors
and current and former officers. On January 10, 1997, the same plaintiffs filed
a securities class action complaint, Head, et al. v. NetManage, Inc., et al.,
No. C-97-20061-JW, in the United States District Court for the Northern District
of California, against the same defendants. Both complaints allege that, between
July 25, 1995 and January 11, 1996, the defendants made false or misleading
statements of material fact about the Company's prospects and failed to follow
generally accepted accounting principles. The state court complaint asserts
claims under California state law; the federal court complaint asserts claims
under the federal securities laws. In addition, on September 10, 1997, the
Company and several of its officers and directors were named in a securities
class action complaint filed in the Northern District of California, Beasley v.
NetManage, Inc., et al., C-97-3329 FMS, (N.D. Cal.). This complaint is
substantially similar to the previously-filed case of Head et al. v. NetManage,
Inc. et al., discussed above, and contains similar allegations, names the same
defendants, and purports to represent purchasers of NetManage stock during the
same class period as in the previously-filed complaint. The complaints seek an
unspecified amount of damages. On February 24, 1998, the federal court granted
the defendants' motion to dismiss the federal class action complaint in Head, et
al. v. NetManage, Inc., et al. The plaintiffs are expected to file an amended
complaint. The Company believes there is no merit to these cases and intends to
defend both cases vigorously. There can be no assurance that the Company will be
able to prevail in the lawsuits, or that the pendency of the lawsuits will not
adversely affect the Company's operations. As the outcome of this matter cannot
be reasonably determined, the Company has not accrued for any potential loss
contingencies.
On March 21, 1997, a securities class action complaint, Interactive Data
Systems, Inc., et al. v. NetManage, Inc., et al., No. CV764945, was filed in the
Superior Court of California, Santa Clara County, against the Company and
certain of its directors and officers. On June 19, 1997, one of the plaintiffs
in that action filed a securities class action complaint, Molinari v. NetManage,
Inc., et al., No. C-97-20544-JW-PVT, in the United States District Court for the
Northern District of California against the same defendants. Both complaints
allege that, between April 18, 1996 and July 18, 1996, the defendants made false
or misleading statements of material fact about the Company's prospects. The
state court complaint asserts claims under California state law; the federal
complaint asserts claims under the federal securities laws. Both complaints seek
an unspecified amount of damages. On February 26, 1998, the state court entered
judgement in favor of the Company in the state case. The plaintiffs have filed a
notice of appeal from this judgement and are expected to file an amended
complaint as to the individual defendants. The Company believes there is no
merit to either case and intends to defend both cases vigorously. There can be
no assurance that the Company will be able to prevail in the lawsuits, or that
the pendency of the lawsuits will not adversely affect the Company's operations.
As the outcome of this matter cannot be reasonably determined, the Company has
not accrued for any potential loss contingencies.
F-27
<PAGE> 172
NETMANAGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
On October 10, 1997, a verified derivative complaint was filed in the
United States District Court for the Northern District of California against
nine present and former officers and directors of the Company alleging that
these persons violated various duties to the Company. Sucher v. Alon et al., No.
C-97-20897 JW (EAI) (N.D. Cal.). The derivative complaint also names the Company
as a nominal defendant. The derivative complaint is predicated on the factual
allegations contained in the class action complaints discussed above. No demand
was previously made to the Company's Board of Directors concerning the
allegations of the derivative complaint, which seeks an unspecified amount of
damages.
On November 26, 1997, a complaint was filed against the Company in the
Superior Court of California, San Diego County, Shaw et al. v. NetManage, Inc.,
No. 716081. The plaintiffs, who held a significant ownership interest in AGE
before it was acquired by NetManage, bring causes of action alleging fraud,
negligent misrepresentations, negligence and breach of contract with respect to
the Company's acquisition of AGE. The complaint seeks an unspecified amount of
damages. The Company believes there is no merit to the case and intends to
defend the case vigorously. There can be no assurance that the Company will be
able to prevail in the lawsuit, or that the pendency of the lawsuit will not
adversely affect the Company's operations. As the outcome of this matter cannot
be reasonably determined, the Company has not accrued for any loss
contingencies.
The Company may be contingently liable with respect to certain asserted and
unasserted claims that arise during the normal course of business. In the
opinion of management, the outcome of all other such matters presently known to
management will not have a material adverse effect on the Company's business,
financial position or results of operations.
7. SUBSEQUENT EVENT
On June 15, 1998, the Company entered into an Agreement and Plan of
Reorganization with FTP Software, Inc. ("FTP") whereby a subsidiary of the
Company will be merged into FTP, and each outstanding share of the common stock
of FTP will be converted into 0.72767 of a share of the Company's common stock,
subject to adjustment. Outstanding FTP stock options will be converted into
options to purchase shares of the Company's common stock at the same conversion
rate, with appropriate changes to the exercise price. This merger, which is
intended to be accounted for as a pooling of interests, is conditioned on, among
other things, approval of the merger by FTP's stockholders and approval by the
Company's stockholders of the issuance of the shares of the Company's common
stock in the merger.
F-28
<PAGE> 173
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of FTP Software, Inc.:
We have audited the accompanying consolidated balance sheets of FTP
Software, Inc. as of December 31, 1996 and 1997, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of FTP Software,
Inc. as of December 31, 1996 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
January 27, 1998
F-29
<PAGE> 174
FTP SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 22,036 $ 37,569
Short-term investments.................................... 29,026 14,234
Accounts receivable, net of allowance for doubtful
accounts of $1,300 and $1,100 for 1996 and 1997,
respectively........................................... 16,586 8,282
Prepaid expenses and other current assets................. 4,430 2,580
Refundable income taxes................................... 3,826 3,165
Deferred income taxes..................................... 1,244 --
Net assets of discontinued operations..................... 5,263 --
-------- --------
Total current assets................................... 82,411 65,830
Property and equipment, net................................. 20,734 8,301
Purchased software, net..................................... 6,962 2,621
Investments................................................. 47,971 19,767
Other assets................................................ 830 956
-------- --------
Total assets...................................... $158,908 $ 97,475
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 12,700 $ 10,976
Income taxes payable...................................... 873 1,613
Accrued employee compensation and benefits................ 4,000 3,652
Deferred revenue.......................................... 10,058 5,715
-------- --------
Total current liabilities.............................. 27,631 21,956
-------- --------
Commitments and contingencies (Note J)
Stockholders' equity:
Preferred stock, $0.01 par value; authorized 5,000,000
shares; none issued and outstanding.................... -- --
Common stock, $0.01 par value; authorized 100,000,000
shares; issued and outstanding 33,646,203 and
33,973,140 shares in 1996 and 1997, respectively....... 336 339
Additional paid-in capital................................ 136,151 136,792
Accumulated deficit....................................... (5,447) (62,046)
Equity adjustments........................................ 237 434
-------- --------
Total stockholders' equity............................. 131,277 75,519
-------- --------
Total liabilities and stockholders' equity........ $158,908 $ 97,475
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE> 175
FTP SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Product revenue.......................................... $115,715 $ 84,579 $ 50,639
Service revenue.......................................... 13,100 16,512 17,095
-------- -------- --------
Total revenue.................................... 128,815 101,091 67,734
-------- -------- --------
Cost of revenue:
Product cost............................................. 6,725 6,995 11,624
Service cost............................................. 9,127 9,801 9,505
-------- -------- --------
Total cost of revenue............................ 15,852 16,796 21,129
-------- -------- --------
Gross margin............................................... 112,963 84,295 46,605
-------- -------- --------
Operating expenses:
Sales and marketing...................................... 36,593 46,896 45,196
Product development...................................... 22,298 64,652 27,044
General and administrative............................... 12,699 19,782 16,289
Restructuring charges.................................... -- -- 18,330
-------- -------- --------
Total operating expenses......................... 71,590 131,330 106,859
-------- -------- --------
Operating income (loss).................................... 41,373 (47,035) (60,254)
Investment income.......................................... 6,156 4,284 3,646
-------- -------- --------
Income (loss) from continuing operations before income
taxes.................................................... 47,529 (42,751) (56,608)
Provision for income taxes................................. 17,587 1,027 1,208
-------- -------- --------
Income (loss) from continuing operations................... 29,942 (43,778) (57,816)
Discontinued operations, net of income tax benefits:
Operating loss........................................... (5,308) (29,039) --
Gain on (provision for) disposition...................... -- (4,760) 1,217
-------- -------- --------
Net income (loss).......................................... $ 24,634 $(77,577) $(56,599)
======== ======== ========
Basic income (loss) per share:
Continuing operations.................................... $ 1.19 $ (1.46) $ (1.71)
Discontinued operations.................................. (0.21) (1.13) 0.04
-------- -------- --------
$ .98 $ (2.59) $ (1.67)
======== ======== ========
Weighted average number of basic common and common
equivalent shares outstanding............................ 25,158 29,896 33,842
Diluted income (loss) per share:
Continuing operations.................................... $ 1.06 $ (1.46) $ (1.71)
Discontinued operations.................................. (0.19) (1.13) 0.04
-------- -------- --------
$ 0.87 $ (2.59) $ (1.67)
======== ======== ========
Weighted average number of diluted common and common
equivalent shares outstanding............................ 28,245 29,896 33,842
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE> 176
FTP SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NET
RETAINED FOREIGN UNREALIZED
COMMON STOCK ADDITIONAL EARNINGS EXCHANGE INVESTMENT TOTAL
------------------- PAID-IN (ACCUMULATED TRANSLATION GAINS STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT) ADJUSTMENTS (LOSSES) EQUITY
---------- ------ ---------- ------------ ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995.... 23,344,122 $233 $ 64,955 $ 47,496 $ -- $ -- $112,684
Issuance of common stock...... 3,162,607 32 8,852 -- -- -- 8,884
Tax benefit of stock option
activity.................... -- -- 18,800 -- -- -- 18,800
Net income.................... -- -- -- 24,634 -- -- 24,634
Foreign exchange translation
adjustments................. -- -- -- -- 14 -- 14
Net unrealized investment
losses...................... -- -- -- -- -- (208) (208)
---------- ---- -------- -------- ----- ----- --------
Balance at December 31,
1995........................ 26,506,729 $265 $ 92,607 $ 72,130 $ 14 $(208) $164,808
Issuance of common stock...... 7,139,474 71 43,544 -- -- -- 43,615
Net loss...................... -- -- -- (77,577) -- -- (77,577)
Foreign exchange translation
adjustments................. -- -- -- -- (425) -- (425)
Net unrealized investment
gains....................... -- -- -- -- -- 856 856
---------- ---- -------- -------- ----- ----- --------
Balance at December 31,
1996........................ 33,646,203 $336 $136,151 $ (5,447) $(411) $ 648 $131,277
Issuance of common stock...... 326,937 3 641 -- -- -- 644
Net loss...................... -- -- -- (56,599) -- -- (56,599)
Foreign exchange translation
adjustments................. -- -- -- -- 814 -- 814
Net unrealized investment
losses...................... -- -- -- -- -- (617) (617)
---------- ---- -------- -------- ----- ----- --------
Balance at December 31,
1997........................ 33,973,140 $339 $136,792 $(62,046) $ 403 $ 31 $ 75,519
========== ==== ======== ======== ===== ===== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE> 177
FTP SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Income (loss) from continuing operations.................. $ 29,942 $(43,778) $(57,816)
Adjustments to reconcile income (loss) from continuing
operations to net cash provided by (used for) operating
activities:
Depreciation and amortization.......................... 6,137 9,260 12,064
Loss on disposition of property and equipment.......... 255 422 693
Noncash write-offs in restructuring charges............ -- -- 7,772
Provision for doubtful accounts........................ 600 (300) 200
Purchase of in-process technology...................... -- 37,852 --
Amortization of discounts and premiums on
investments........................................... (1,407) 29 66
Deferred income taxes.................................. (1,324) 1,221 1,244
Tax benefit of stock option activity................... 18,800 -- --
Changes in operating assets and liabilities, net of
effects from acquisition of business:
Accounts receivable.................................. (14,741) 17,184 8,105
Prepaid expenses and other current assets............ (2,405) 895 1,850
Refundable income taxes.............................. (7,775) 1,521 661
Other assets......................................... -- (376) (126)
Accounts payable and accrued expenses................ 4,688 (84) (1,728)
Income taxes payable................................. (2,044) 873 740
Accrued employee compensation and benefits........... 568 (1,989) (348)
Deferred revenue..................................... 3,837 740 (4,343)
-------- -------- --------
Net cash provided by (used for) continuing
operations...................................... 35,131 23,470 (30,966)
Net cash provided by (used for) discontinued
operations...................................... (1,834) (4,920) 6,382
-------- -------- --------
Net cash provided by (used for) operating
activities................................... 33,297 18,550 (24,584)
-------- -------- --------
Cash flows from investing activities:
Capital expenditures...................................... (11,905) (9,072) (3,530)
Maturities (purchase) of investments...................... (7,454) 18,900 42,930
Acquisition of business, net of cash acquired............. -- (3,776) --
Other investing activities, net........................... 15 (97) --
-------- -------- --------
Net cash provided by (used for) continuing
operations.......................................... (19,344) 5,955 39,400
Net cash used for discontinued operations............ (2,365) (32,809) --
-------- -------- --------
Net cash provided by (used for) investing
activities................................... (21,709) (26,854) 39,400
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock.................... 8,884 1,536 644
Principal payments on long-term obligations............... (1,142) (1,589) --
-------- -------- --------
Net cash provided by (used for) financing
activities................................... 7,742 (53) 644
-------- -------- --------
Effect of exchange rate changes on cash..................... 11 156 73
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 19,341 (8,201) 15,533
Cash and cash equivalents, beginning of year................ 10,896 30,237 22,036
-------- -------- --------
Cash and cash equivalents, end of year...................... $ 30,237 $ 22,036 $ 37,569
======== ======== ========
Supplemental disclosure of cash flow information:
Income taxes paid......................................... $ 1,952 $ -- $ 527
======== ======== ========
Noncash financing activities:
Acquisition of business for stock...................... $ -- $ 42,079 $ --
Financed purchased software............................ $ 1,000 $ -- $ --
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE> 178
FTP SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. DESCRIPTION OF BUSINESS:
FTP Software, Inc. (the "Company") is engaged in the design, development,
marketing and support of connectivity software applications that enable users to
connect to information across TCP/IP networks, including data residing on
mainframes, minicomputers and servers. These applications include terminal
emulation, NFS file sharing and printing, file transfer and legacy host access.
B. SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated.
Revenue Recognition
Revenue is generally recognized from the license of software upon shipment
when collection of the resulting receivable is deemed probable. At the time the
Company recognizes revenue from licensed software products, no significant
vendor or post-contract support obligations remain. Service revenue includes
revenue from support, training and consulting. Payments received in advance for
support contracts are initially recorded as deferred revenue and are recognized
ratably over the term of the contract, typically one year. Revenue from training
and consulting is recognized as the services are performed.
Cash Equivalents
Cash equivalents consist of money market funds, commercial paper and
government obligations with original maturities of three months or less and are
carried at amortized cost, which approximates market value. The Company places
its temporary cash investments in money market investments with high credit
quality financial institutions.
Investments
The Company has established guidelines for credit ratings, diversification
and maturities for its investment portfolio that are intended to maintain safety
and liquidity. The Company's investments are widely diversified, consisting
primarily of investment grade debt securities classified as available-for-sale.
Accordingly, investments are reported at market value with unrealized holding
gains and losses reflected net as a separate component of stockholders' equity
until realized. The cost of short-term investments and long-term investments is
determined on the specific identification method and the market value is based
on quoted market prices.
Property and Equipment
Property and equipment are stated at cost and depreciated using the
straight-line method over their estimated useful lives, ranging from three to
seven years. Leasehold improvements are amortized over the shorter of their
estimated useful lives or the remaining term of the lease. Expenditures for
maintenance and repairs are expensed as incurred. Upon retirement or other
disposition of assets, the cost and related accumulated depreciation are
eliminated from the accounts and the resulting gain or loss is included in net
income (loss).
Purchased Software
Purchased software includes acquired technology being amortized, using the
straight-line method, over the assets' estimated remaining useful lives. The
Company evaluates the possible impairment of such long-
F-34
<PAGE> 179
FTP SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
lived assets whenever events or circumstances indicate that the carrying value
of the assets may not be recoverable.
Foreign Currency Translation
The functional currency of the Company's foreign subsidiaries is the local
currency. Accordingly, assets and liabilities of these operations are translated
at exchange rates in effect at year-end. Income and expense items are translated
at average rates of exchange for the period. Resulting translation adjustments
are accumulated in a separate component of stockholders' equity. Gains and
losses from foreign currency transactions, which are not material, are included
in net income (loss).
Product Development Costs
Costs related to research, design and development of computer software are
charged to product development expense as incurred. The Company capitalizes
eligible software costs incurred after technological feasibility of the product
has been established, which is generally demonstrated by the initial beta
release. The capitalizable costs of internally developed software to date have
not been material. Purchased software of approximately $2.0 million, $5.6
million and $0.8 million was acquired in 1995, 1996 and 1997, respectively.
These assets are being amortized over a one- to four-year period based on the
expected useful lives of the products. Related amortization charges, reflected
in cost of revenue, were approximately $2.2 million, $2.7 million and $5.2
million in 1995, 1996 and 1997, respectively. Accumulated amortization related
to these assets amounted to $4,890 and $9,996 in 1996 and 1997, respectively.
Income Taxes
Deferred income tax assets and liabilities arise from temporary differences
between the tax basis of assets and liabilities and their reported amounts in
the financial statements that are expected to result in taxable or deductible
amounts in future years. The Company periodically evaluates the realizability of
its deferred tax assets. A valuation allowance against net deferred tax assets
is established if, based on the available evidence, it is more likely than not
that some or all of the deferred tax assets will not be realized.
Net Income (Loss) Per Share
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share," for the year ended December 31, 1997. This
statement requires the presentation of basic and diluted net income per share.
Basic net income per common share is computed using the weighted average number
of common shares outstanding during the period. The Company has restated all
prior period per share amounts presented as required by SFAS No. 128. Diluted
net income per share is computed using the weighted average number of common and
dilutive common equivalent shares outstanding during the period. Dilutive common
equivalent shares consist of stock options. During periods that the Company has
recorded a net loss, dilutive common shares are not included in the computation
as the effect would be anti-dilutive.
Risks and Uncertainties
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 dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
The Company's future results of operations involve a number of risks and
uncertainties. Factors that could affect the Company's future operating results
and cause actual results to vary materially from
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FTP SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
expectations include, but are not limited to, competition, competitive pricing
pressures, technological and other market changes, the effects of the Company's
1997 restructurings, dependence on new products, distribution risks and changes
in personnel.
The Company sells its products outside the United States primarily through
a network of resellers in North and South America, Europe, the Middle East,
Canada, Russia and Asia Pacific. In the United States, the Company distributes
its products through multiple channels, including direct sales, value-added
resellers, systems integrators, OEMs and distributors. The Company performs
ongoing credit evaluations of its customers and maintains reserves for potential
credit risk as determined by management. The Company generally requires no
collateral. Accounts receivable are from customers that are geographically and
industry dispersed. No one customer accounted for more than 10% of consolidated
revenue for any period presented.
Accounting for Stock-Based Compensation
The Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," during 1996. This Statement defines a fair value based method of
accounting for stock-based employee compensation and requires that companies
either recognize compensation expense for grants of stock, stock options and
other equity instruments or provide pro forma disclosure of net income (loss)
and net income (loss) per share in the notes to the financial statements as if
such expense had been recognized. The Company has elected to continue measuring
compensation costs for those plans using the intrinsic value based method of
accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations and has disclosed
pro forma net loss and net loss per share for 1996 and 1997 as if the fair value
based method of accounting had been applied. As such, adoption of this Statement
had no effect on the Company's results of operations for 1996 and 1997.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosure about Segments
of an Enterprise." SFAS No. 130 establishes standards for reporting and display
of comprehensive income and its components (revenue, expenses, gains and losses)
in a full set of general-purpose financial statements. The Company will adopt
the provisions of SFAS No. 130 for its fiscal year ending December 31, 1998;
however, management has not yet evaluated the effects of this change on its
reporting of comprehensive income. SFAS No. 131 changes the way public companies
report information about operating segments. SFAS No. 131, which is based on the
management approach to segment reporting, establishes requirements to report
selected segment information quarterly and to report entity-wide disclosures
about products and services, major customers and the material countries in which
the entity holds assets and reports revenue. The Company intends to adopt SFAS
No. 131 for its fiscal year ending December 31, 1998. Management does not expect
such adoption to have any material impact on the way it reports information.
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 97-2, "Software Revenue Recognition," which
provides guidance on applying generally accepted accounting principles in
recognizing revenue on software transactions and supersedes SOP 91-1, "Software
Revenue Recognition." The Company will adopt SOP 97-2 for its fiscal year ending
December 31, 1998 and does not expect such adoption to have any material impact
on its revenue recognition policies.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
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FTP SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
C. RESTRUCTURE CHARGES:
In July 1997, the Company reorganized its operations into business units
and effected a worldwide workforce reduction in order to lower the Company's
overall cost structure and create greater focus on specific strategic business
opportunities. This restructuring resulted in a charge of approximately $17.1
million ($0.50 per share) in the third quarter of 1997. This charge included
severance related payments, excess facilities costs, the write-off of fixed
assets and other restructuring-related items such as losses related to cancelled
contracts; such costs were all substantially completed in 1997.
In late December 1997, following a review of the financial results of its
business units for the second half of 1997, the Company decided to further
streamline its operations and to recombine its business units into one worldwide
organization. This restructuring resulted in a charge of approximately $1.3
million ($0.04 per share) in the fourth quarter of 1997. This charge included
costs similar to those incurred in connection with the third quarter
restructuring; management expects these costs to be substantially completed in
the first quarter of 1998.
The following summarizes the 1997 restructuring charges, the related
write-offs and cash paid in connection with the restructurings (dollars in
thousands):
<TABLE>
<CAPTION>
SEVERANCE EXCESS EXCESS
PAYMENTS FACILITIES FIXED ASSETS OTHER TOTAL
--------- ---------- ------------ ----- -------
<S> <C> <C> <C> <C> <C>
1997 restructuring charges.............. $ 7,391 $ 3,087 $ 6,871 $ 981 $18,330
Noncash write-offs...................... -- -- (7,779) -- (7,779)
Cash paid............................... (6,168) (1,553) -- (86) (7,807)
Reclassifications....................... (457) 176 908 (627) 0
------- ------- ------- ----- -------
Accrued restructuring charges at
December 31, 1997..................... $ 766 $ 1,710 $ 0 $ 268 $ 2,744
======= ======= ======= ===== =======
</TABLE>
Amounts related to severance with respect to the July 1997 workforce
reduction involved approximately 300 employees, primarily in sales and
marketing, product development and general and administrative functions at the
Company's domestic and European locations. Amounts related to facilities reflect
the cost of the lease of the excess space arising primarily from the
consolidation of the Company's Massachusetts headquarters and manufacturing
facilities into the Company's North Andover, Massachusetts development offices.
Amounts related to severance with respect to the December 1997 workforce
reduction involved approximately 21 employees, primarily in development, at the
Company's European locations. Amounts related to facilities reflect the cost of
the lease of excess space at the Company's U.K. facility.
D. ACQUISITIONS AND DISCONTINUED OPERATIONS:
During 1997, the Company completed the disposition of its collaborative
lines of business and selected product lines which were identified in 1996 as
not specifically related to the Company's continuing network connectivity
business. The accompanying consolidated financial statements have been restated
to report separately in all periods presented the net assets and operating
results of the discontinued operations. Prior year operating results and all
footnote disclosures have been restated to reflect continuing operations. Net
assets of discontinued operations consisted primarily of purchased software and
fixed assets less accounts payable and accrued expenses. In 1996, the Company
recorded a charge of approximately $4.8 million to write down the related assets
to estimated net realizable values.
In the third quarter of 1997, the Company recorded an additional $2.0
million charge in connection with the termination of a long-term agreement
associated with one of the discontinued lines of business. In the
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FTP SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
fourth quarter of 1997, the Company recorded a gain of approximately $3.2
million upon the completion of the disposition of all related assets.
Summary operating results for the discontinued operations (which include
charges of approximately $1.1 million and $21.8 million in 1995 and 1996,
respectively, for certain acquired in-process technology) are as follows (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1995 1996
-------- ---------
<S> <C> <C>
Revenue............................................. $ 7,561 $ 9,907
Gross margin........................................ 5,569 5,255
Operating loss before income taxes.................. (8,427) (31,441)
Net loss............................................ $(5,308) $(33,799)
</TABLE>
During 1995 and 1996, the Company made the following acquisitions: in 1995,
the Company acquired substantially all of the assets of Keyword Office
Technologies Ltd., a developer of document viewer and conversion software
products, for approximately $2.4 million; and in 1996, the Company acquired the
following for a net cash purchase price of approximately $28.7 million: the
Mariner Internet software product line of Networking Computing Devices, Inc.;
substantially all of the assets of HyperDesk Corporation, including its
collaborative GroupWorks product; and all of the outstanding stock of Campbell
Services, Inc., the developer of OnTime, a scheduling software product. All of
these acquisitions were accounted for as purchases, with the majority of the
purchase price recorded as in-process technology, and are reflected in
discontinued operations.
In July 1996, the Company acquired Firefox Communications Inc. ("Firefox"),
a supplier of server-centric departmental and LAN-based IP solutions and
services, for a net purchase price of approximately $61.0 million, through the
merger of a wholly-owned subsidiary of the Company into Firefox (the "Firefox
Merger"). Pursuant to the Firefox Merger, all of the outstanding shares of the
common stock of Firefox were converted into a total of approximately 6.4 million
shares of the Company's common stock, $0.01 par value per share ("Common
Stock"), valued at approximately $40.6 million and approximately $9.1 million in
cash. In addition, outstanding employee stock options to purchase Firefox common
stock were converted into options to purchase approximately 336,000 shares of
Common Stock, valued at approximately $1.5 million. The Company also incurred
acquisition-related costs of approximately $3.7 million and liabilities treated
as assumed totaling approximately $6.1 million which are included in the net
purchase price. The transaction was accounted for as a purchase. Based upon a
valuation of the assets acquired, approximately $2.6 million was allocated to
completed technology, which was included in purchased software and was fully
amortized as of December 31, 1997; approximately $37.9 million was allocated to
in-process technology and charged to product development expense in 1996; and
approximately $20.5 million was allocated to the remaining assets of Firefox,
primarily short-term investments and accounts receivable. Results of operations
include activity from Firefox since the date of the acquisition.
The unaudited pro forma consolidated results of continuing operations would
have been as follows if the Firefox Merger had occurred on January 1, 1995 (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1995 1996
-------- --------
<S> <C> <C>
Revenue............................................ $148,583 $109,396
Net income (loss).................................. 29,787 (9,243)
Basic net income (loss) per share.................. $ 1.18 $ (0.31)
Diluted net income (loss) per share................ 1.05 (0.31)
</TABLE>
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<PAGE> 183
FTP SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
These unaudited pro forma results are presented for informational purposes
only and include certain adjustments such as additional amortization expense as
a result of purchased software. They do not include the approximately $37.9
million charge to product development expense for acquired in-process technology
and do not purport to be indicative of the Company's actual results of
operations had the Firefox Merger occurred on January 1, 1995, nor are they
indicative of the Company's results of operations for any future period.
The Company allocates the purchase price of acquired technologies to
completed technology and in-process technology based upon their respective fair
values. Completed technology that has reached technological feasibility is
valued using a risk adjusted cash flow model under which future cash flows are
discounted, taking into account risks related to existing and future markets and
assessments of the life expectancy of completed technology. In-process
technology that has not reached technological feasibility and that has no
alternative future use is valued using the same method. Expected future cash
flows associated with in-process technology are discounted considering risks and
uncertainties related to the viability of and to potential changes in the future
target markets and to the completion of the products expected to be ultimately
marketed by the Company. Amounts charged to product development expense for
in-process technology are either not fully deductible in the same period or are
non-deductible for tax purposes.
E. INVESTMENTS:
Investments consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997
------------------- -------------------
MARKET AMORTIZED MARKET AMORTIZED
VALUE COST VALUE COST
------- --------- ------- ---------
<S> <C> <C> <C> <C>
U.S. government obligations...................... $42,127 $42,707 $19,502 $19,453
Corporate obligations............................ 18,727 18,822 14,499 14,517
Municipal obligations............................ 9,171 9,153 -- --
Equity securities................................ 6,972 5,224 -- --
------- ------- ------- -------
$76,997 $75,906 $34,001 $33,970
======= ======= ======= =======
</TABLE>
At December 31, 1996 and 1997, gross unrealized investment gains amounted
to approximately $1.9 million and $0.1 million, respectively, and gross
unrealized investment losses amounted to approximately $0.8 million and $0.1
million, respectively. Proceeds from dispositions of available for sale
securities were approximately $3.0 million and $28.1 million in 1996 and 1997,
respectively. These dispositions resulted in gross gains of approximately $0.1
million and gross losses of approximately $0.3 million in 1997. Gross gains and
gross losses from such dispositions were not significant in 1996.
The Company's investments, at market value based on quoted market prices,
mature as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
YEARS TO MATURITY 1996 1997
----------------- ------- -------
<S> <C> <C>
0 - 1.................................................... $29,026 $14,234
1 - 5.................................................... 41,258 19,767
5 - 10................................................... 258 --
Over 10.................................................. 6,455 --
------- -------
$76,997 $34,001
======= =======
</TABLE>
Included in the above table as having 0 - 1 years to maturity are equity
securities of approximately $7.0 million at December 31, 1996.
F-39
<PAGE> 184
FTP SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
F. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Development equipment.................................. $ 7,266 4,453
Equipment.............................................. 21,164 9,259
Furniture and leasehold improvements................... 8,784 4,756
-------- --------
37,214 18,468
Less accumulated depreciation and amortization......... (16,480) (10,167)
-------- --------
$ 20,734 $ 8,301
======== ========
</TABLE>
G. PROFIT SHARING RETIREMENT PLAN:
The Company sponsors a profit sharing retirement plan for eligible
employees established under the provisions of Section 401(k) of the Internal
Revenue Code (the "401(k) Plan"), under which participants may defer a portion
of their annual compensation on a pre-tax basis. Contributions by the Company to
the 401(k) Plan are at the discretion of the Company's Board of Directors (the
"Board of Directors") and amounted to approximately $1.0 million, $1.2 million
and $1.0 million for the years ended December 31, 1995, 1996 and 1997,
respectively.
While the Company expects to continue the 401(k) Plan indefinitely, it has
reserved the right to modify, amend or terminate the plan. In the event of
termination, the entire amount contributed under the 401(k) Plan, at the time of
termination, must be applied to the payment of benefits to the participants or
their beneficiaries.
The Company does not currently offer post-retirement or post-employment
benefits.
H. INCOME TAXES:
The income from continuing operations before income taxes for the year
ended December 31, 1995 for domestic operations was approximately $46.6 million
and for foreign operations was approximately $1.0 million. The loss from
continuing operations before income taxes for the years ended December 31, 1996
and 1997 for domestic operations was approximately $40.2 million and $55.9
million, respectively, and for foreign operations was approximately $2.6 million
and $0.7 million, respectively.
F-40
<PAGE> 185
FTP SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Current (benefit) provision:
Federal..................................... $15,657 $(3,252) $(1,210)
State....................................... 2,859 210 650
Foreign..................................... 395 2,848 523
------- ------- -------
18,911 (194) (37)
------- ------- -------
Deferred (benefit) provision:
Federal..................................... (1,024) 982 1,210
State....................................... (300) 239 35
------- ------- -------
(1,324) 1,221 1,245
------- ------- -------
$17,587 $ 1,027 $ 1,208
======= ======= =======
</TABLE>
The losses from discontinued operations resulted in tax benefits of
approximately $3.1 million and $2.5 million in 1995 and 1996, respectively.
There was no tax benefit from discontinued operations in 1997.
The provision for income taxes differs from the amount computed by applying
the statutory federal income tax rate to income (loss) from continuing
operations before income taxes as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1996 1997
---- ----- -----
<S> <C> <C> <C>
Tax (benefit) at U.S. statutory rate............. 35.0% (35.0)% (35.0)%
Non-deductible merger-related costs.............. -- 31.1 1.0
Foreign tax...................................... -- 4.7 --
Operating loss with no current tax benefit....... -- 1.7 34.2
State income taxes net of federal tax benefit.... 4.3 0.6 0.7
Other............................................ (2.3) (0.7) 1.2
---- ----- -----
37.0% 2.4% 2.1%
==== ===== =====
</TABLE>
The current federal and state provisions for income taxes do not reflect
tax savings resulting from deductions associated with the Company's various
stock plans of approximately $18.8 million in 1995, which was credited to
stockholders' equity. There were no tax savings resulting from deductions
associated with these stock plans in 1996 or 1997.
F-41
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FTP SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The components of deferred income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
------- --------
<S> <C> <C>
Federal tax benefit of net operating loss carryforward
and credits........................................... $ -- $ 19,456
State tax benefit of net operating loss carryforward and
credits............................................... 1,616 5,499
Depreciation and amortization expense................... 1,551 5,041
Accounts receivable reserve............................. 1,259 1,092
Employee compensation and benefits accruals............. 1,063 1,607
Foreign tax benefit of net operating loss
carryforward.......................................... 513 608
Other................................................... 283 634
------- --------
6,285 33,937
Valuation allowance for deferred tax assets............. (2,676) (33,483)
------- --------
3,609 454
------- --------
Deferred tax liabilities:
Depreciation and amortization expense................. (1,085) (454)
Purchased technology.................................. (1,008) --
Other reserves and liabilities........................ (272) --
------- --------
(2,365) (454)
------- --------
Current deferred income tax assets...................... $ 1,244 $ 0
======= ========
</TABLE>
The realization of these deferred tax assets is dependent upon future
earnings in specific tax jurisdictions. Due to the uncertainty as to when the
deferred tax assets may be realized, the Company has recorded a valuation
allowance for all tax assets in excess of amounts available to be recovered
pursuant to tax loss carrybacks for the year ended December 31, 1997. The
Company periodically reviews the need for the valuation allowance and if the
valuation allowance is reduced, the tax benefit will be recorded as a reduction
of the Company's income tax expense except for approximately $1.3 million which
is attributable to stock options and will be credited to additional paid-in
capital when realized.
At December 31, 1997, the Company had a net operating loss carryforward for
federal income tax purposes of approximately $46.3 million expiring at various
dates beginning in 2008 through 2012 and tax credit carryforwards of
approximately $3.7 million which expire in various years beginning in 1998
through 2011. At December 31, 1997, the Company had net operating loss
carryforwards of approximately $53.0 million available to offset future taxable
income in several state jurisdictions expiring at various dates beginning in
2000 through 2012. Similarly, research and experimentation credit carryforwards
for state tax purposes of approximately $0.6 million and investment tax credits
of approximately $0.1 million were available at December 31, 1997, expiring in
2010. In addition, the Company had a net operating loss of approximately $1.8
million available to offset future taxable income in a foreign jurisdiction with
no expiration.
I. STOCKHOLDERS' EQUITY:
Preferred Stock
The Board of Directors is authorized, subject to any limitations prescribed
by law, to issue up to an aggregate of 5,000,000 shares of the Company's
preferred stock, $0.01 par value per share ("Preferred Stock"), with such
powers, designations, preferences and relative, participating, optional or other
special rights and such qualifications, limitations or restrictions thereof, as
shall be determined by the Board of Directors in a resolution or resolutions
providing for the issuance of such Preferred Stock.
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<PAGE> 187
FTP SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On December 1, 1995, pursuant to the shareholder rights plan described
below, the Board of Directors designated 500,000 shares of Preferred Stock as
Junior Preferred Stock, $0.01 par value per share ("Junior Preferred Stock").
Dividends accrue on the Junior Preferred Stock at a quarterly rate equal to the
greater of $1.00 or, subject to adjustment, 100 times the aggregate per share
amount of all dividends paid during the quarter on the Common Stock. The Junior
Preferred Stock carries a liquidation preference of $100 per share, is
redeemable, and entitles the holder to 100 votes per share on all matters
submitted to a vote of the Company's stockholders. The Company has not issued
any shares of Junior Preferred Stock.
Shareholder Rights Plan
On December 1, 1995, the Company adopted a shareholder rights plan (the
"Rights Plan") whereby each share of Common Stock issued after December 8, 1995
will have an attached right which, when exercisable, will entitle the holder to
purchase 1/100 of a share of Junior Preferred Stock at a price of $150 (the
"Rights"). Additionally, the Board of Directors declared a dividend of one Right
for each share of Common Stock outstanding on December 8, 1995.
The Rights become exercisable if a person acquires or announces a tender or
exchange offer for 15% or more of the outstanding Common Stock. The Rights Plan
also provides that if a person (an "Acquiring Person") acquires or obtains the
right to acquire 15% or more of the outstanding Common Stock (other than
pursuant to certain approved offers), each of the Rights (other than the Rights
held by the Acquiring Person) will entitle the holder to purchase shares of
Common Stock having a market value of twice the exercise price of the Rights. In
addition, if the Company is involved in a merger or other business combination
with another person in which it is not the surviving corporation or in
connection with which the Common Stock is changed or converted into securities
of any other person or other property, or if the Company sells or transfers 25%
or more of its assets or earning power to another person, each Right that has
not previously been exercised will entitle its holder to purchase shares of the
common stock of such other person having a market value of twice the exercise
price of the Right.
In November 1996, the Company amended the Rights Plan to permit Kopp
Investment Advisors, Inc. and certain of its affiliates (but not any of their
transferees) to acquire up to 6,722,400 shares of Common Stock (approximately
19.9% of the outstanding shares of Common Stock as of the date of such
amendment) without triggering the exercisability of the Rights.
The Board of Directors may redeem the Rights at any time prior to their
expiration on December 1, 2005 at a redemption price of $0.01 for each of the
Rights. The Company has reserved 500,000 shares of Junior Preferred Stock for
issuance upon exercise of the Rights.
Stock Option Plans
In January 1987, the Company adopted the FTP Software, Inc. Stock Option
Plan (the "1987 Option Plan"). Under the 1987 Option Plan, as amended, the
Company had the right to grant to certain employees either incentive or
non-qualified stock options to purchase up to 26,400,000 shares of Common Stock
vesting over four years. The exercise price of each option could not be less
than the fair market value of the Common Stock on the date of grant, as
determined by the Board of Directors, and the term of each option could not
exceed 10 years. This plan terminated in January 1997; as a result, no
additional grants may be made under this plan.
In January 1997, the Company adopted the FTP Software, Inc. 1997 Employee
Equity Incentive Plan. Under this plan, the Company has the right to grant to
certain employees non-qualified stock options, stock appreciation rights,
restricted stock and unrestricted stock. The aggregate maximum number of shares
of Common Stock that may be delivered under this plan is 2,780,000 plus the
number of shares subject to options granted under the 1987 Option Plan that
terminate unexercised after January 20, 1997. As of
F-43
<PAGE> 188
FTP SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, the maximum number of shares of Common Stock deliverable
under this plan was 5,812,740. The exercise price of the options may not be less
than the fair market value of the Common Stock on the date of grant, as
determined by the Board of Directors, and the term of each option may not exceed
10 years. Options are exercisable to the extent vested. Vesting generally occurs
within three years from the date of the grant.
In August 1996, the Company adopted the FTP Software, Inc. 1996 Executive
Equity Incentive Plan, which enables the Company to grant either incentive or
non-qualified stock options, stock appreciation rights, restricted stock and
unrestricted stock to its executive officers. The aggregate maximum number of
shares of Common Stock that may be delivered under this plan is 1,500,000. The
exercise price of the options may not be less than the fair market value of the
Common Stock on the date of the grant, as determined by the Board of Directors,
and the term of each option may not exceed 10 years. The options vest over
various dates within three to four years from the date of the grant.
During 1996, the Company offered its employees (other than executive
officers) the opportunity to exchange each stock option granted during 1994,
1995 and 1996 for a new option covering 50% of the number of shares of Common
Stock covered by the original option, having a new exercise price fixed at the
date of exchange and otherwise having the same or similar terms as the original
option. During the option exchange offer period, options to purchase
approximately 2,130,000 shares of Common Stock at exercise prices ranging from
$9.50 to $31.75 per share were exchanged for options to purchase approximately
1,065,000 shares of Common Stock at exercise prices ranging from $7.25 to $9.063
per share.
In September 1993, the Company adopted the 1993 Non-Employee Directors'
Stock Option Plan, which provides for the automatic grant of options upon the
election or re-election of each non-employee director and for discretionary
option grants to such directors. A maximum of 500,000 shares of Common Stock may
be issued under this plan. The exercise price of each option may not be less
than the fair market value of the Common Stock on the date of the grant, as
determined by the Board of Directors, and the term of each option may not exceed
10 years. The original automatic grant provisions generally provided for the
grant of an option to purchase 30,000 shares of Common Stock upon the election
or re-election of such a director, vesting over three years. As amended in
December 1997, this plan now generally provides for the automatic grant of an
option to purchase 20,000 shares upon the election or re-election of a
non-employee director, vesting over three years, and the automatic grant of an
additional option to purchase 10,000 shares of Common Stock on each of the first
and second anniversaries of such election or re-election, provided such director
is still serving as such, vesting in full upon grant.
Prior to the Company's acquisition of Firefox, Firefox granted options to
certain of its employees under the Firefox 1994 Share Option Scheme, prior to
Firefox's initial public offering. Options granted under that plan were
generally scheduled to vest over three years and were required to be exercised
no later than seven years from the date of grant. Pursuant to the Firefox
Merger, each option outstanding under this plan was converted into an option to
purchase shares of Common Stock at a new exercise price determined in accordance
with the merger agreement. In addition, each optionholder had the right to have
the Company assume the holder's converted options, in which case the converted
options would otherwise continue on the same terms and conditions that applied
prior to the conversion of the options. If a holder chose not to have the
Company assume a converted option, the converted option became exercisable in
full for a period of six months beginning on July 22, 1996 (the closing date of
the Firefox Merger) and ending on January 22, 1997.
Prior to the Company's acquisition of Firefox, Firefox also maintained the
Firefox 1995 Stock Option Plan. This plan provided for the grant of incentive
stock options and non-qualified stock options at an exercise price not less than
100% and 85%, respectively, of the fair market value of Firefox's common stock
at the date of grant. Options granted under this plan were generally scheduled
to vest over four years and were required to be exercised no later than 10 years
from the date of grant. Pursuant to the Firefox Merger, each option outstanding
under this plan was automatically assumed by the Company and converted into an
option to
F-44
<PAGE> 189
FTP SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
purchase shares of Common Stock at a new exercise price determined in accordance
with the merger agreement, but otherwise continued on the same terms and
conditions that applied prior to the conversion of the options. Holders of
options granted under this plan had the opportunity to participate in the option
exchange offer described above.
Stock option activity under the Company's various stock option plans is
summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Outstanding, January 1, 1995.................... 7,445,029 $ 7.21
Granted....................................... 1,754,286 30.59
Exercised..................................... (3,137,635) 2.71
Canceled...................................... (1,795,361) 6.25
----------
Outstanding, December 31, 1995.................. 4,266,319 20.54
Granted....................................... 5,414,978 9.60
Converted Firefox options..................... 336,424 5.44
Exercised..................................... (703,332) 1.80
Canceled...................................... (3,759,520) 22.29
----------
Outstanding, December 31, 1996.................. 5,554,869 10.16
Granted....................................... 5,328,003 4.06
Exercised..................................... (297,270) 1.76
Canceled...................................... (3,933,873) 10.13
----------
Outstanding, December 31, 1997.................. 6,651,729 $ 5.67
==========
</TABLE>
Information about stock options outstanding at December 31, 1997 is
summarized as follows:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
- ------------------------------------------------------------------------------ -------------------
WEIGHTED-
AVERAGE WEIGHTED-
REMAINING WEIGHTED- AVERAGE
CONTRACTUAL LIFE AVERAGE EXERCISE
RANGE OF EXERCISE PRICES SHARES (IN YEARS) EXERCISE PRICE SHARES PRICE
------------------------ --------- ---------------- -------------- ------- ---------
<S> <C> <C> <C> <C> <C>
$ 0.14 - $ 0.14................ 977 3.54 $ 0.14 977 $ 0.14
1.74 - 1.97................ 589,500 9.19 1.82 55,500 1.74
2.81 - 4.13................ 2,939,700 9.25 3.79 20,000 3.00
4.42 - 6.50................ 1,037,340 9.00 5.43 73,500 6.25
6.88 - 9.88................ 1,759,436 7.99 8.20 546,451 8.33
12.50 - 13.63................ 237,068 8.12 12.55 84,021 12.53
25.75 - 31.75................ 87,708 6.84 28.16 83,599 28.02
--------- -------
$ 0.14 - $31.75................ 6,651,729 8.80 $ 5.67 864,048 $ 9.91
========= =======
</TABLE>
The weighted-average grant-date fair value of options granted during 1995,
1996 and 1997 was $17.80, $6.34 and $3.55 per share, respectively.
Employee Stock Purchase Plans
Effective January 1, 1994, the Company adopted the FTP Software, Inc.
Employee Stock Purchase Plan. This plan provides a maximum of 1,000,000 shares
of Common Stock for purchase by eligible employees at 85% of the fair market
value of Common Stock on the first or last trading day of each six-month
purchase period under the plan, whichever is lower. During 1995, 1996 and 1997,
12,580, 31,301 and 24,897 shares of
F-45
<PAGE> 190
FTP SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Common Stock, respectively, were issued under this plan at a weighted-average
purchase price of $25.07, $6.11 and $3.41 per share, respectively, and a fair
value of $29.49, $7.18 and $4.01 per share, respectively.
In October 1995, the Company adopted the FTP Software, Inc. Non-Qualified
Stock Purchase Plan for Employees of Certain Subsidiaries. This plan is for the
benefit of non-U.S. employees employed outside of the United States by
subsidiaries of the Company approved for participation in the plan by the
Compensation Committee of the Board of Directors. This plan provides a maximum
of 100,000 shares of Common Stock for purchase by eligible employees at 85% of
the fair market value of the Common Stock on the first or last trading day of
each six-month purchase period under the plan, whichever is lower. The first
purchase period under the plan began on January 1, 1996. Accordingly, no shares
of Common Stock were issued under this plan during 1995. During 1996 and 1997,
3,564 and 2,423 shares of Common Stock were issued under this plan at a
weighted-average purchase price of $6.20 and $4.15 per share, respectively, and
a fair value of $7.30 and $4.88 per share, respectively.
Stock-Based Compensation
The Company has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," issued in October 1995. In accordance with SFAS No. 123, the
Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its option plans, and accordingly does not
record compensation costs. If compensation cost for the Company's stock-based
compensation plans had been determined based on the fair value at the grant
dates as calculated in accordance with SFAS No. 123, the cost would have
amounted to $5,326, $6,655 and $3,538 for the years ended December 31, 1995,
1996 and 1997, respectively. The Company's net income (loss) and net income
(loss) per share for the years ended December 31, 1995, 1996 and 1997 would have
been reported as the pro forma amounts indicated below (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
Net income (loss) as reported............... $24,634 $(77,577) $(56,599)
Pro forma net income (loss)................. 19,308 (84,232) (60,137)
Basic net income (loss) per share as
reported.................................. $ 0.98 $ (2.59) $ (1.67)
Pro forma basic net income (loss) per
share..................................... 0.77 (2.81) (1.78)
Diluted net income (loss) per share as
reported.................................. $ 0.87 $ (2.59) $ (1.67)
Pro forma diluted net income (loss) per
share..................................... 0.68 (2.81) (1.78)
</TABLE>
The pro forma amounts include the effects of all activity under the
Company's stock-based compensation plans since January 1, 1996. The Company
anticipates that it will have additional activity under these plans in the
future.
For the purpose of providing pro forma disclosures, the fair value of each
stock option granted was estimated using the Black-Scholes option-pricing model
with the following weighted-average assumptions: an expected life of 4.8 years
as of 1995 and 1996 and 5.0 years as of 1997; expected volatility of 64.4%,
83.4% and 80.0% in 1995, 1996 and 1997, respectively; no expected dividends; and
a risk-free interest rate of 5.5%, 6.1% and 6.13% in 1995, 1996 and 1997,
respectively.
At December 31, 1995 and 1996, the number of shares of Common Stock for
which options were exercisable totaled 1,159,729 and 864,048, respectively, at a
weighted-average exercise price of $9.87 and $9.91 per share, respectively. At
December 31, 1997, the number of shares of Common Stock available for future
stock option grants amounted to 2,934,309.
F-46
<PAGE> 191
FTP SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Earnings Per Share
The earnings per share ("EPS") amounts have been computed in accordance
with SFAS No. 128, "Earnings per Share." A reconciliation of the income (loss)
and share information used in the basic and diluted per share computation for
1995, 1996 and 1997 is as follows (in thousands, except per share amounts):
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
BASIC EPS
Income from continuing operations.... $ 29,942 25,158 $ 1.19
======
Effect of dilutive securities:
Options........................... -- 3,087
-------- -------
DILUTED EPS
Income from continuing operations.... $ 29,942 28,245 $ 1.06
======== ======= ======
</TABLE>
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
BASIC EPS
Loss from continuing operations...... $(43,778) 29,896 $(1.46)
------- ======
Effect of dilutive securities........ -- --
-------- -------
DILUTED EPS
Loss from continuing operations...... $(43,778) 29,896 $(1.46)
======== ======= ======
</TABLE>
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
BASIC EPS
Loss from continuing operations...... $(57,816) 33,842 $(1.71)
======
Effect of dilutive securities........ -- --
-------- -------
DILUTED EPS
Loss from continuing operations...... $(57,816) 33,842 $(1.71)
======== ======= ======
</TABLE>
For 1996 and 1997, the diluted EPS computations did not include
approximately 5,555 and 6,652 additional shares at a weighted-average exercise
price of $10.16 and $5.67, respectively, because these shares are attributable
to outstanding options where the effect would have been anti-dilutive.
J. COMMITMENTS AND CONTINGENCIES:
Lease Commitments
The Company leases its corporate and administrative office facilities under
long-term non-cancelable operating lease agreements expiring at various dates
through 2011. The agreements generally require the payment of utilities, real
estate taxes, insurance and repairs. Total rent expense for the years ended
December 31, 1995, 1996 and 1997 amounted to approximately $3.0 million, $4.8
million and $4.4 million, respectively.
F-47
<PAGE> 192
FTP SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1997, future minimum annual rental payments, net of
sublease rental payments of approximately $10.4 million, required under the
operating lease agreements are as follows (in thousands):
<TABLE>
<S> <C>
1998............................................... $ 3,884
1999............................................... 3,703
2000............................................... 3,586
2001............................................... 3,004
2002............................................... 1,782
Thereafter......................................... 3,091
-------
$19,050
=======
</TABLE>
Litigation
In March 1996, a class action lawsuit was filed in the United States
District Court for the District of Massachusetts, naming the Company and certain
of its current and former officers as defendants. The lawsuit, captioned
Lawrence M. Greebel v. FTP Software, Inc., et al., Civil Action No. 96-10544,
alleges that the defendants publicly issued false and misleading statements and
omitted to disclose material facts necessary to make such statements not false
and misleading, which the plaintiffs contend caused an artificial inflation in
the price of the Company's Common Stock. Specifically, the original complaint
alleged that the defendants knowingly concealed adverse facts and made false or
misleading forward and non-forward looking statements concerning the operating
results and financial condition of the Company, the effects of the Company's
July 1995 corporate restructuring and changing competitive factors in the
Company's industry. The lawsuit, which is purportedly brought on behalf of a
class of purchasers of the Company's Common Stock during the period from July
14, 1995 to January 3, 1996, alleges violations of Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule
10b-5 thereunder and seeks relief in the form of unspecified compensatory
damages, costs and expenses and such other relief as the court deems proper and
just. In August 1996, plaintiffs filed an amended complaint adding allegations
concerning what plaintiffs claim were wrongful sales and accounting practices by
the Company during the class period, but asserting the same causes of action as
the original complaint. In October 1996, the Company filed a motion to dismiss
the complaint on the grounds that the plaintiffs had not met the pleading
requirements of the Private Securities Litigation Reform Act of 1995. The motion
was denied by the court on February 13, 1997. On February 13, 1998, the Company
filed a motion for partial summary judgment and renewed motion to dismiss;
plaintiffs filed their response on March 20, 1998. The Company intends to
request the court to permit it to file a reply memorandum in further support of
such motion. If permitted to do so, the Company will file its reply memorandum
by April 10, 1998, after which time the motion will be before the court for
resolution.
The Company has reviewed the allegations in the lawsuit, believes them to
be without merit, and intends to defend itself and its officers vigorously. In
order to support an adequate defense, the Company has spent and expects to
continue to spend substantial sums for legal and expert fees and costs. The cost
of defending the litigation and the outcome of the litigation are uncertain and
cannot be estimated. If the lawsuit were determined adversely to the Company,
the Company could be required to pay a substantial judgment, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
In February 1996, a class action lawsuit, captioned Richard Zeid and Siom
Misrah, et al. v. John Kimberley, Frank M. Richardson, Mark A. Rowlinson and
Firefox Communications, Inc., Case No. C96 20136, was filed in the United States
District Court for the Northern District of California, San Francisco Division
(transferred to the San Jose Division), naming Firefox and certain of its
current and former officers and former directors as defendants. The original
complaint alleged that the defendants misrepresented or failed to disclose
material facts about Firefox's operations and financial results, which the
plaintiffs contended resulted in an artificial inflation in the price of
Firefox's common stock. The suit was
F-48
<PAGE> 193
FTP SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
purportedly brought on behalf of a class of purchasers of Firefox's common stock
during the period from August 3, 1995 to January 2, 1996. The complaint alleged
claims for violations of Sections 10(b) and 20(a) of the Exchange Act and Rule
10b-5 thereunder and sought relief in the form of unspecified compensatory
damages, pre- and post-judgment interest, attorneys' and expert witness fees and
such extraordinary, equitable and/or injunctive relief as permitted by law,
equity and the federal statutory provisions under which the suit was brought. In
June 1996, the District Court entered an order dismissing plaintiffs' complaint.
In the order, the court dismissed with prejudice certain of plaintiffs' claims
that warnings and disclosures in Firefox's Form 10-Qs were false and misleading,
while granting plaintiffs permission to amend their complaint as it concerned
certain of plaintiffs' claims that Firefox was responsible for false and
misleading analysts reports, Firefox statements and financial statements.
In July 1996, plaintiffs filed their amended complaint. The amended
complaint alleged that defendants misrepresented or failed to disclose material
facts about Firefox's operations and financial results which the plaintiffs
contended resulted in an artificial inflation of the price of Firefox's common
stock. The amended complaint was purportedly brought on behalf of a class of
purchasers of Firefox's common stock during the period from July 20, 1995 to
January 2, 1996. The amended complaint again alleged claims for violations of
Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 thereunder and
sought relief in the form described above. Specifically, the amended complaint
alleged that defendants knew allegedly material adverse non-public information
about Firefox's financial results and business conditions which allegedly was
not disclosed, that they improperly directed that certain sales and revenues be
recognized and failed to keep adequate reserves and that they participated in
drafting, reviewing and/or approving allegedly misleading statements, releases,
analysts reports and other public representations, including disclaimers and
warnings of and about Firefox. The amended complaint also alleged that John A.
Kimberley, then an officer and director of Firefox, and Frank Richardson, a
former officer and director of Firefox, were liable as "controlling persons" of
Firefox. In September 1996, Firefox filed a motion to dismiss the amended
complaint on the grounds that the plaintiffs had not met the pleading
requirements of the Private Securities Litigation Reform Act of 1995. On May 8,
1997, the court dismissed the amended complaint on such grounds, without leave
to amend. Plaintiffs have appealed the dismissal to the Ninth Circuit Court of
Appeals. The appeal is fully briefed; the court has not yet set a date for oral
argument.
Firefox has reviewed the allegations in the lawsuit, believes them to be
without merit, and intends to defend itself and its officers and directors
vigorously. In order to support an adequate defense, Firefox has spent and
expects to continue to spend substantial sums for legal and expert fees and
costs. The cost of defending the litigation and the outcome of the litigation
are uncertain and cannot be estimated. If the lawsuit were determined adversely
to Firefox, Firefox could be required to pay a substantial judgment, which could
have a material adverse effect on Firefox's business, financial condition and
results of operations.
K. SEGMENT INFORMATION:
The Company is active in only one business segment: designing, developing,
marketing and supporting connectivity and other software products.
F-49
<PAGE> 194
FTP SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company's export sales can be grouped into the following geographic
areas (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Geographic area:
North and South America (other than U.S.)... $ 9,789 $ 6,142 $ 1,852
Asia Pacific................................ 9,601 8,965 3,792
Europe...................................... 38,075 27,282 21,861
Other....................................... 1,693 170 354
------- ------- -------
Total............................... $59,158 $42,559 $27,859
======= ======= =======
</TABLE>
Sales, marketing and development operations outside the United States are
conducted through subsidiaries and branches located principally in Europe. The
Company's United States operations accounted for greater than 90% of the
Company's revenue, income (loss) from operations and identifiable assets for
each of the years ended December 31, 1995 and 1996. For the year ended December
31, 1997, the Company's foreign operations reported management fee income of
approximately $22.0 million, of which approximately $17.5 million is
attributable to the United Kingdom. The management fee income is primarily based
upon revenue generated from the geographic area. In addition, the loss from
foreign operations amounted to approximately $0.7 million and identifiable
assets associated with foreign operations amounted to approximately $3.1
million.
F-50
<PAGE> 195
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of FTP Software, Inc.:
Our report on the consolidated financial statements of FTP Software, Inc.
as of December 31, 1996 and 1997 and for each of the three years in the period
ended December 31, 1997 has been included in this joint proxy
statement/prospectus. In connection with our audits of such financial
statements, we have also audited the related financial statement schedule
included on page F-52 of this joint proxy statement/prospectus.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
January 27, 1998
F-51
<PAGE> 196
FTP SOFTWARE, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ------------ ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995
Allowance for doubtful
accounts........................ $1,000,000 $666,182 $-- $ (66,182) $1,600,000
Year ended December 31, 1996
Allowance for doubtful
accounts........................ $1,600,000 $702,708 $-- $(1,002,708) $1,300,000
Year ended December 31, 1997
Allowance for doubtful
accounts........................ $1,300,000 $(76,183) $-- $ (123,817) $1,100,000
</TABLE>
F-52
<PAGE> 197
FTP SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $37,569 $36,969
Short-term investments.................................... 14,234 12,100
Accounts receivable, net of allowance for doubtful
accounts of $1,100 and $1,250 for 1997 and 1998,
respectively........................................... 8,282 7,759
Prepaid expenses and other current assets................. 2,580 3,108
Refundable income taxes................................... 3,165 3,165
------- -------
Total current assets................................... 65,830 63,101
Property and equipment, net................................. 8,301 7,268
Purchased software, net..................................... 2,621 2,166
Investments................................................. 19,767 16,381
Other assets................................................ 956 1,148
------- -------
Total assets...................................... $97,475 $90,064
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $10,976 $ 9,242
Income taxes payable...................................... 1,613 1,818
Accrued employee compensation and benefits................ 3,652 2,039
Deferred revenue.......................................... 5,715 5,691
------- -------
Total current liabilities.............................. 21,956 18,790
------- -------
Stockholders' equity:
Preferred stock, $0.01 par value; authorized 5,000,000
shares; none issued and outstanding.................... -- --
Common stock, $0.01 par value; authorized 100,000,000
shares; issued and outstanding 33,801,769 and
33,973,140 in 1997 and 1998, respectively.............. 339 340
Additional paid-in capital................................ 136,792 136,808
Accumulated deficit....................................... (62,046) (65,863)
Equity adjustments........................................ 434 (11)
------- -------
Total stockholders' equity............................. 75,519 71,274
------- -------
Total liabilities and stockholders' equity........ $97,475 $90,064
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-53
<PAGE> 198
FTP SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1997 1998
-------- -------
<S> <C> <C>
Revenue:
Product revenue........................................... $ 16,826 $ 7,699
Service revenue........................................... 4,529 3,229
-------- -------
Total revenue..................................... 21,355 10,928
-------- -------
Cost of revenue:
Product cost.............................................. 2,987 1,180
Service cost.............................................. 2,894 1,365
-------- -------
Total cost of revenue............................. 5,881 2,545
-------- -------
Gross margin................................................ 15,474 8,383
-------- -------
Operating expenses:
Sales and marketing....................................... 14,281 6,160
Product development....................................... 7,857 3,609
General and administrative................................ 4,335 3,341
-------- -------
Total operating expenses.......................... 26,473 13,110
-------- -------
Loss from operations........................................ (10,999) (4,727)
Investment and other income, net............................ 635 1,010
-------- -------
Loss from operations before income taxes.................... (10,364) (3,717)
Provision for income taxes.................................. 650 100
-------- -------
Net loss.................................................... $(11,014) $(3,817)
======== =======
Basic and diluted net loss per share........................ $ (0.33) $ (0.11)
======== =======
Weighted average common and common equivalent shares
outstanding............................................... 33,688 33,973
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-54
<PAGE> 199
FTP SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1997 1998
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss from continuing operations....................... $(11,014) $(3,817)
Adjustments to reconcile net loss from continuing
operations to net cash provided by (used for) operating
activities:
Depreciation and amortization.......................... 2,945 1,568
Loss on disposition of property and equipment.......... 593 15
Amortization of discounts and premiums on
investments........................................... (31) 10
Changes in operating assets and liabilities:
Accounts receivable.................................. 2,083 523
Prepaid expenses and other current assets............ (568) (528)
Income taxes......................................... 240 --
Other assets......................................... 113 (239)
Accounts payable and accrued expenses................ 1,337 (1,528)
Accrued employee compensation and benefits........... 1,081 (1,613)
Deferred revenue..................................... (375) (24)
-------- -------
Net cash used for continuing operations........... (3,596) (5,633)
Net cash provided by discontinued operations...... 41 --
-------- -------
Net cash used for operating activities....... (3,555) (5,633)
-------- -------
Cash flows from investing activities:
Capital expenditures...................................... (1,223) (51)
Purchase of investments................................... (15,167) --
Maturities of investments................................. 13,580 5,552
-------- -------
Net cash provided by (used for) investing
activities.................................. (2,810) 5,501
-------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock................. 277 16
Principal payments on long-term obligations............ (240) --
-------- -------
Net cash provided by financing activities.... 37 16
-------- -------
Effect of exchange rate changes on cash..................... 17 (484)
-------- -------
Net decrease in cash and cash equivalents................... (6,311) (600)
Cash and cash equivalents, beginning of period.............. 22,036 37,569
-------- -------
Cash and cash equivalents, end of period.................... $ 15,725 $36,969
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-55
<PAGE> 200
FTP SOFTWARE, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. INTERIM FINANCIAL DATA
The accompanying unaudited consolidated financial statements have been
prepared by FTP Software, Inc. (the "Company") in accordance with generally
accepted accounting principles. In the opinion of management, the accompanying
unaudited consolidated financial statements contain all adjustments, consisting
only of those of a normal recurring nature, necessary for a fair presentation of
the Company's financial position, results of operations and cash flows at the
dates and for the periods indicated. While the Company believes that the
disclosures presented are adequate to make the information not misleading, these
financial statements should be read in conjunction with the audited consolidated
financial statements and notes related thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
The results of the three-month period ended March 31, 1998 are not
necessarily indicative of the results to be expected for the full fiscal year.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. RESTRUCTURE CHARGES
In July 1997, the Company reorganized its operations into business units
and effected a worldwide workforce reduction in order to lower the Company's
overall cost structure and create greater focus on specific strategic business
opportunities. This restructuring resulted in a charge of approximately $17.1
million ($0.50 per share) in the third quarter of 1997. This charge included
severance related payments, excess facilities costs, the write-off of fixed
assets and other restructuring-related items such as losses related to cancelled
contracts; such costs were substantially completed in 1997.
In late December 1997, following a review of the financial results of its
business units for the second half of 1997, the Company decided to further
streamline its operations and to recombine its business units into one worldwide
organization. This restructuring resulted in a charge of approximately $1.3
million ($0.04 per share) in the fourth quarter of 1997. This charge included
costs similar to those incurred in connection with the third quarter
restructuring; these costs were substantially completed in the first quarter of
1998.
The following summarizes the 1997 restructuring charges, the related
write-offs and cash paid in connection with the restructurings for the three
months ended March 31, 1998 (dollars in thousands, unaudited):
<TABLE>
<CAPTION>
SEVERANCE EXCESS
PAYMENTS FACILITIES OTHER TOTAL
--------- ---------- ----- -------
<S> <C> <C> <C> <C>
Accrued restructuring charge at December 31,
1997........................................ $ 766 $1,710 $268 $ 2,744
Cash paid..................................... (900) (774) (25) (1,699)
Reclassifications............................. 134 (134) -- --
----- ------ ---- -------
Accrued restructuring charge at March 31,
1998........................................ $ 0 $ 802 $243 $ 1,045
===== ====== ==== =======
</TABLE>
Amounts related to severance with respect to the July 1997 workforce
reduction involved approximately 300 employees, primarily in sales and
marketing, product development and general and administrative functions at the
Company's domestic and European locations. Amounts related to facilities reflect
the cost of the lease of excess space arising primarily from the consolidation
of the Company's Massachusetts headquarters and manufacturing facilities into
the Company's North Andover, Massachusetts development offices.
F-56
<PAGE> 201
FTP SOFTWARE, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Amounts related to severance with respect to the December 1997 workforce
reduction involved approximately 21 employees, primarily in development, at the
Company's European locations. Amounts related to facilities reflect the cost of
the lease of excess space at the Company's U.K. facility.
3. LEGAL PROCEEDINGS
In March 1996, a class action lawsuit was filed in the United States
District Court for the District of Massachusetts, naming the Company and certain
of its current and former officers as defendants. The lawsuit, captioned
Lawrence M. Greebel v. FTP Software, Inc., et al., Civil Action No. 96-10544,
alleges that the defendants publicly issued false and misleading statements and
omitted to disclose material facts necessary to make such statements not false
and misleading, which the plaintiffs contend caused an artificial inflation in
the price of the Company's common stock. Specifically, the original complaint
alleged that the defendants knowingly concealed adverse facts and made false or
misleading forward and non-forward looking statements concerning the operating
results and financial condition of the Company, the effects of the Company's
July 1995 corporate restructuring and changing competitive factors in the
Company's industry. The lawsuit, which is purportedly brought on behalf of a
class of purchasers of the Company's common stock during the period from July
14, 1995 to January 3, 1996, alleges violations of Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule
10b-5 thereunder and seeks relief in the form of unspecified compensatory
damages, costs and expenses and such other relief as the court deems proper and
just. In August 1996, plaintiffs filed an amended complaint adding allegations
concerning what plaintiffs claim were wrongful sales and accounting practices by
the Company during the class period, but asserting the same causes of action as
the original complaint. In October 1996, the Company filed a motion to dismiss
the complaint on the grounds that the plaintiffs had not met the pleading
requirements of the Private Securities Litigation Reform Act of 1995. The motion
was denied by the court on February 13, 1997. On February 13, 1998, the Company
filed a motion for partial summary judgment and renewed motion to dismiss;
plaintiffs filed their response on March 20, 1998. The court has not yet set a
date for a hearing on these motions.
The Company has reviewed the allegations in the lawsuit, believes them to
be without merit, and intends to defend itself and its officers vigorously. In
order to support an adequate defense, the Company has spent and expects to
continue to spend substantial sums for legal and expert fees and costs. The cost
of defending the litigation and the outcome of the litigation are uncertain and
cannot be estimated. If the lawsuit were determined adversely to the Company,
the Company could be required to pay a substantial judgment, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
In February 1996, a class action lawsuit, captioned Richard Zeid and Siom
Misrah, et al. v. John Kimberley, Frank M. Richardson, Mark A. Rowlinson and
Firefox Communications, Inc., Case No. C96 20136, was filed in the United States
District Court for the Northern District of California, San Francisco Division
(transferred to the San Jose Division), naming Firefox Communications Inc.,
which the Company acquired in July 1996 ("Firefox"), and certain of its current
and former officers and former directors as defendants. The original complaint
alleged that the defendants misrepresented or failed to disclose material facts
about Firefox's operations and financial results, which the plaintiffs contended
resulted in an artificial inflation in the price of Firefox's common stock. The
suit was purportedly brought on behalf of a class of purchasers of Firefox's
common stock during the period from August 3, 1995 to January 2, 1996. The
complaint alleged claims for violations of Sections 10(b) and 20(a) of the
Exchange Act and Rule 10b-5 thereunder and sought relief in the form of
unspecified compensatory damages, pre- and post-judgment interest, attorneys'
and expert witness fees and such extraordinary, equitable and/or injunctive
relief as permitted by law, equity and the federal statutory provisions under
which the suit was brought. In June 1996, the District Court entered an order
dismissing plaintiffs' complaint. In the order, the court dismissed with
prejudice certain of plaintiffs' claims that warnings and disclosures in
Firefox's Form 10-Qs were false and misleading, while granting plaintiffs
permission to amend their complaint as it concerned certain of plaintiffs'
F-57
<PAGE> 202
FTP SOFTWARE, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
claims that Firefox was responsible for false and misleading analysts reports,
Firefox statements and financial statements.
In July 1996, plaintiffs filed their amended complaint. The amended
complaint alleged that defendants misrepresented or failed to disclose material
facts about Firefox's operations and financial results which the plaintiffs
contended resulted in an artificial inflation of the price of Firefox's common
stock. The amended complaint was purportedly brought on behalf of a class of
purchasers of Firefox's common stock during the period from July 20, 1995 to
January 2, 1996. The amended complaint again alleged claims for violations of
Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 thereunder and
sought relief in the form described above. Specifically, the amended complaint
alleged that defendants knew allegedly material adverse non-public information
about Firefox's financial results and business conditions which allegedly was
not disclosed, that they improperly directed that certain sales and revenues be
recognized and failed to keep adequate reserves and that they participated in
drafting, reviewing and/or approving allegedly misleading statements, releases,
analysts reports and other public representations, including disclaimers and
warnings of and about Firefox. The amended complaint also alleged that John A.
Kimberley, then an officer and director of Firefox, and Frank Richardson, a
former officer and director of Firefox, were liable as "controlling persons" of
Firefox. In September 1996, Firefox filed a motion to dismiss the amended
complaint on the grounds that the plaintiffs had not met the pleading
requirements of the Private Securities Litigation Reform Act of 1995. On May 8,
1997, the court dismissed the amended complaint on such grounds, without leave
to amend. Plaintiffs have appealed the dismissal to the Ninth Circuit Court of
Appeals. The appeal is fully briefed; the court has not yet set a date for oral
argument.
Firefox has reviewed the allegations in the lawsuit, believes them to be
without merit, and intends to defend itself and its officers and directors
vigorously. In order to support an adequate defense, Firefox has spent and
expects to continue to spend substantial sums for legal and expert fees and
costs. The cost of defending the litigation and the outcome of the litigation
are uncertain and cannot be estimated. If the lawsuit were determined adversely
to Firefox, Firefox could be required to pay a substantial judgment, which could
have a material adverse effect on Firefox's business, financial condition and
results of operations.
4. EARNINGS PER SHARE
The earnings per share ("EPS") amounts have been computed in accordance
with SFAS No. 128, "Earnings per Share," which requires the presentation of
basic and diluted EPS. This Statement requires restatement of all prior period
EPS amounts presented after the effective date. Adoption of the provisions of
SFAS No. 128 had no impact on reported EPS for the three-month periods ended
March 31, 1997 and 1998, as the effect of common stock equivalents would have
been anti-dilutive during such periods. A reconciliation
F-58
<PAGE> 203
FTP SOFTWARE, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
of the loss and share information used in the basic and diluted per share
computation for the first quarter of 1997 and 1998 is as follows (in thousands,
except per share amounts, unaudited):
QUARTER ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
BASIC EPS
Net loss............................. $(11,014) 33,688 $(0.33)
======
Effect of dilutive securities........ -- --
======== ======
DILUTED EPS
Net loss from continuing
operations........................ $(11,014) 33,688 $(0.33)
======== ====== ======
</TABLE>
QUARTER ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
BASIC EPS
Net loss............................. $(3,817) 33,973 $(0.11)
======
Effect of dilutive securities........ -- --
======= ======
DILUTED EPS
Net loss............................. $(3,817) 33,973 $(0.11)
======= ====== ======
</TABLE>
For the first quarter of 1997 and 1998, the diluted EPS computations did
not include approximately 5,453 and 6,197 additional shares at a
weighted-average exercise price of $10.20 and $5.47, respectively, because these
shares are attributable to outstanding options where the effect would have been
anti-dilutive.
5. COMPREHENSIVE INCOME (LOSS):
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components (revenue,
expenses, gains and losses) in a full set of general-purpose financial
statements. This statement also requires that an entity classify items of other
comprehensive earnings by their nature in a financial statement. For example,
other comprehensive earnings may include foreign currency translation
adjustments and unrealized gains and losses on marketable securities classified
as available-for-sale. The Company adopted the provisions of SFAS No. 130
effective January 1, 1998. The Company's total
F-59
<PAGE> 204
FTP SOFTWARE, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
comprehensive losses for the three months ended March 31, 1997 and 1998 were as
follows (in thousands, unaudited):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1997 1998
-------- -------
<S> <C> <C>
Net loss................................................ $(11,014) $(3,817)
Other comprehensive income (loss)
Foreign currency translation adjustments.............. 235 (484)
Unrealized gain (loss) on securities.................. (1,899) 37
Add: reclassification adjustment for losses included
in net income.................................... -- 36
-------- -------
Other comprehensive loss................................ $ (1,664) $ (411)
-------- -------
Comprehensive loss...................................... $(12,678) $(4,228)
======== =======
</TABLE>
6. OTHER RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure about Segments of an Enterprise." SFAS No. 131 changes the way
public companies report information about operating segments. SFAS No. 131,
which is based on the management approach to segment reporting, establishes
requirements to report selected segment information quarterly and to report
entity-wide disclosures about products and services, major customers and the
material countries in which the entity holds assets and reports revenue. The
Company intends to adopt SFAS No. 131 for its fiscal year ending December 31,
1998. Management does not expect such adoption to have any material impact on
the way it reports information.
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 97-2, "Software Revenue Recognition," which
provides guidance on applying generally accepted accounting principles in
recognizing revenue on software transactions and supersedes SOP 91-1, "Software
Revenue Recognition." The Company adopted SOP 97-2 effective January 1, 1998;
such adoption did not have a material impact on revenue recognition.
7. SUBSEQUENT EVENTS
On June 15, 1998, the Company entered into an Agreement and Plan of
Reorganization with NetManage, Inc. ("NetManage") whereby a subsidiary of
NetManage will be merged into the Company, which will survive the merger as a
wholly-owned subsidiary of NetManage, and each outstanding share of the common
stock of the Company will be converted into 0.72767 of a share of NetManage
common stock, subject to adjustment. Outstanding Company stock options will be
converted into options to purchase shares of NetManage common stock at the same
conversion rate, with appropriate changes to the exercise price. This merger,
which is intended to be accounted for as a pooling of interests, is conditioned
on, among other things, approval of the merger by the Company's stockholders and
approval by NetManage's stockholders of the issuance of the shares of NetManage
common stock in the merger.
F-60
<PAGE> 205
COMPOSITE AGREEMENT AND PLAN OF REORGANIZATION ANNEX A
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
NETMANAGE, INC.
AMANDA ACQUISITION CORP.
AND
FTP SOFTWARE, INC.
DATED AS OF JUNE 15, 1998
AS AMENDED
AS OF
JUNE 30, 1998
AND
JULY 14, 1998
A-1
<PAGE> 206
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I THE MERGER.................................................. A-5
1.1 The Merger.................................................. A-5
1.2 Effective Time; Closing..................................... A-5
1.3 Effect of the Merger........................................ A-6
1.4 Articles of Organization; Bylaws............................ A-6
1.5 Directors and Officers...................................... A-6
1.6 Effect on Capital Stock..................................... A-6
1.7 Dissenting Shares........................................... A-8
1.8 Surrender of Certificates................................... A-8
1.9 No Further Ownership Rights in Company Common Stock......... A-9
1.10 Lost, Stolen or Destroyed Certificates...................... A-9
1.11 Tax Consequences and Accounting............................. A-9
1.12 Taking of Necessary Action; Further Action.................. A-10
ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY................... A-10
2.1 Organization of Company..................................... A-10
2.2 Company Capital Structure................................... A-10
2.3 Obligations With Respect to Capital Stock................... A-11
2.4 Authority................................................... A-11
2.5 SEC Filings; Company Financial Statements................... A-12
2.6 Absence of Certain Changes or Events........................ A-13
2.7 Taxes....................................................... A-13
2.8 Title to Properties; Absence of Liens and Encumbrances...... A-15
2.9 Intellectual Property....................................... A-15
2.10 Compliance; Permits; Restrictions........................... A-17
2.11 Litigation.................................................. A-17
2.12 GSA Audit................................................... A-18
2.13 Brokers' and Finders' Fees.................................. A-18
2.14 Employee Benefit Plans...................................... A-18
2.15 Environmental Matters....................................... A-21
2.16 Agreements, Contracts and Commitments....................... A-22
2.17 Statements; Proxy Statement/Prospectus...................... A-22
2.18 Board Approval.............................................. A-23
2.19 Fairness Opinion............................................ A-23
2.20 Certain Transactions and Agreements......................... A-23
2.21 Non-Applicability of Massachusetts Antitakeover Law......... A-23
2.22 Customs; Export Controls.................................... A-23
2.23 Pooling of Interests........................................ A-23
2.24 Company Common Stockholder Approval......................... A-24
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND
MERGER SUB.................................................. A-24
3.1 Organization of Parent and Merger Sub....................... A-24
3.2 Parent and Merger Sub Capital Structure..................... A-24
3.3 Obligations With Respect to Capital Stock................... A-24
3.4 Authority................................................... A-25
3.5 SEC Filings; Parent Financial Statements.................... A-25
3.6 Absence of Certain Changes or Events........................ A-26
</TABLE>
A-2
<PAGE> 207
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
3.7 Statements; Proxy Statement/Prospectus...................... A-26
3.8 Valid Issuance.............................................. A-26
3.9 Board Approval.............................................. A-27
3.10 Merger Sub.................................................. A-27
3.11 Litigation.................................................. A-27
3.12 Brokers' and Finders' Fees.................................. A-27
3.13 Reservation of Shares....................................... A-27
3.14 Intellectual Property....................................... A-27
3.15 Compliance.................................................. A-27
3.16 Parent Common Stockholder Approval.......................... A-28
3.17 Company Stock Ownership..................................... A-28
3.18 Pooling of Interests........................................ A-28
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME......................... A-28
4.1 Conduct of Business by the Company.......................... A-28
4.2 Conduct of Business by Parent............................... A-30
ARTICLE V ADDITIONAL AGREEMENTS....................................... A-31
5.1 Proxy Statement/Prospectus; Registration Statement; Other
Filings; Board Recommendations.............................. A-31
5.2 Meetings of Parent and Company Stockholders................. A-31
5.3 Confidentiality; Access to Information...................... A-33
5.4 No Solicitation............................................. A-33
5.5 Public Disclosure........................................... A-34
5.6 Reasonable Efforts; Notification............................ A-35
5.7 Third Party Consents........................................ A-35
5.8 Stock Options and Employee Benefits......................... A-36
5.9 Form S-8.................................................... A-36
5.10 Indemnification............................................. A-36
5.11 Nasdaq Listing.............................................. A-37
5.12 Regulatory Filings; Reasonable Efforts...................... A-37
5.13 Affiliate Agreements........................................ A-37
5.14 Rights Agreement Amendment.................................. A-37
5.15 Reorganization Treatment.................................... A-37
5.16 Monthly Financial Statements................................ A-37
ARTICLE VI CONDITIONS TO THE MERGER.................................... A-38
6.1 Conditions to Obligations of Each Party to Effect the
Merger...................................................... A-38
6.2 Additional Conditions to Obligations of the Company......... A-38
6.3 Additional Conditions to the Obligations of Parent and
Merger Sub.................................................. A-39
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER........................... A-40
7.1 Termination................................................. A-40
7.2 Notice of Termination; Effect of Termination................ A-41
7.3 Fees and Expenses........................................... A-41
7.4 Amendment................................................... A-42
7.5 Extension; Waiver........................................... A-42
ARTICLE VIII GENERAL PROVISIONS.......................................... A-42
8.1 Non-Survival of Representations and Warranties.............. A-42
8.2 Notices..................................................... A-42
8.3 Interpretation.............................................. A-43
8.4 Counterparts................................................ A-44
</TABLE>
A-3
<PAGE> 208
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
8.5 Entire Agreement; Third Party Beneficiaries................. A-44
8.6 Severability................................................ A-44
8.7 Other Remedies.............................................. A-44
8.8 Governing Law............................................... A-44
8.9 Rules of Construction....................................... A-45
8.10 Assignment.................................................. A-45
8.11 Waiver of Jury Trial........................................ A-45
</TABLE>
A-4
<PAGE> 209
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION is made and entered into as of
June 15, 1998, among NetManage, Inc., a Delaware corporation ("PARENT"), Amanda
Acquisition Corp., a Massachusetts corporation and a wholly-owned subsidiary of
Parent ("MERGER SUB"), and FTP Software, Inc., a Massachusetts corporation
("COMPANY") and as amended on June 30, 1998 and July 14, 1998.
RECITALS
A. Upon the terms and subject to the conditions of this Agreement (as
defined in Section 1.2 below) and in accordance with the Massachusetts Business
Corporation Law (the "MBCL"), Parent and Company intend to enter into a business
combination transaction.
B. The Board of Directors of the Company (i) has determined that the
Merger (as defined in Section 1.1) is fair to, and in the best interests of, the
Company and its stockholders, (ii) has approved this Agreement, the Merger and
the other transactions contemplated by this Agreement and (iii) has determined
to recommend that the stockholders of the Company adopt and approve this
Agreement and approve the Merger.
C. The Board of Directors of Parent (i) has determined that the issuance
of shares of Common Stock of the Parent in the Merger is fair to, and in the
best interests of, Parent and its stockholders, (ii) has approved this
Agreement, the Merger and the other transactions contemplated by this Agreement,
(iii) has approved an amendment of the Parent's Certificate of Incorporation to
increase the number of authorized shares of Common Stock of Parent from
75,000,000 to 125,000,000 (the "PARENT CERTIFICATE AMENDMENT") and (iv) has
determined to recommend that the stockholders of Parent adopt and approve the
issuance of shares of Common Stock of the Parent in the Merger and the Parent
Certificate Amendment.
D. The Board of Directors and sole stockholder of Merger Sub have approved
the Merger.
E. Concurrently with the execution of this Agreement, and as a condition
and inducement to Parent's willingness to enter into this Agreement, certain
employees of the Company have entered into Employment or Termination Agreements
in substantially the forms attached hereto as Exhibit A-1, A-2 and A-3.
F. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "CODE").
G. It is also intended by the parties hereto that the Merger shall qualify
for accounting treatment as a pooling of interests.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the MBCL, Merger Sub shall be merged with and into the
Company (the "MERGER"), the separate corporate existence of Merger Sub shall
cease and the Company shall continue as the surviving corporation. The Company
as the surviving corporation after the Merger is hereinafter sometimes referred
to as the "SURVIVING CORPORATION."
1.2 Effective Time; Closing. Subject to the provisions of this Agreement,
the parties hereto shall cause the Merger to be consummated by filing Articles
of Merger with the Secretary of State of the Commonwealth of Massachusetts in
accordance with the relevant provisions of the MBCL (the "ARTICLES OF MERGER")
(the time of such filing (or such later time as may be agreed in writing by the
Company and Parent and specified in the Articles of Merger) being the "EFFECTIVE
TIME") as soon as practicable after the satisfaction or waiver of
A-5
<PAGE> 210
the conditions set forth in Article VI. Unless the context otherwise requires,
the term "AGREEMENT" as used herein refers collectively to this Agreement and
Plan of Reorganization and the Articles of Merger. The closing of the Merger
(the "CLOSING") shall take place at the offices of Wilson Sonsini Goodrich &
Rosati, Professional Corporation, at a time and date to be specified by the
parties, which shall be no later than the second business day after the
satisfaction or waiver of the conditions set forth in Article VI, or at such
other time, date and location as the parties hereto agree in writing (the
"CLOSING DATE").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement and the applicable provisions of the
MBCL. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time all of the estate, property, rights, privileges, powers and
franchises of the Company and Merger Sub and all of their property, real,
personal and mixed, and all the debts on whatever account to any of them, as
well as stock subscriptions and other choses in action belonging to any of them,
shall be transferred to and vested in the Surviving Corporation without further
act or deed, and all debts, liabilities and duties of the Company and Merger Sub
shall become the debts, liabilities and duties of the Surviving Corporation.
1.4 Articles of Organization; Bylaws.
(a) The Articles of Organization of the Surviving Corporation shall be
amended and restated at and as of the Effective Time to read as did the
Articles of Organization of Merger Sub immediately prior to the Effective
Time (except that the name of the Surviving Corporation will remain
unchanged). The purposes of the Surviving Corporation, the total number of
shares and the par value of each class of stock which the Surviving
Corporation is authorized to issue and the preferences, voting powers,
qualifications and special or relative rights or privileges of each class
or series of stock which the Surviving Corporation is authorized to issue
shall be as set forth in the Articles of Organization of Merger Sub as in
effect immediately prior to the Effective Time.
(b) The Bylaws of the Surviving Corporation shall be amended and
restated at and as of the Effective Time to read as did the Bylaws of
Merger Sub immediately prior to the Effective Time (except that the name of
the Surviving Corporation will remain unchanged).
1.5 Directors and Officers. The initial directors of the Surviving
Corporation shall be the directors of Merger Sub immediately prior to the
Effective Time, until their respective successors are duly elected or appointed
and qualified. The initial officers of the Surviving Corporation shall be the
officers of Merger Sub immediately prior to the Effective Time, until their
respective successors are duly appointed.
1.6 Effect on Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of Merger Sub, the Company or the
holders of any of the following securities:
(a) Conversion of Company Common Stock. Each (i) share of Common
Stock, $0.01 par value per share, of the Company (the "COMPANY COMMON
STOCK") issued and outstanding immediately prior to the Effective Time
(other than any shares of Company Common Stock to be canceled pursuant to
Section 1.6(c) and any Dissenting Shares (as defined in and to the extent
provided in Section 1.7(a)) and (ii) stock purchase right granted under the
Rights Agreement (as defined in Section 2.3 herein) outstanding immediately
prior to the Effective Time (other than those attached to any shares of
Common Stock to be canceled pursuant to Section 1.6(c) and to any
Dissenting Shares), will be canceled and extinguished and automatically
converted (subject to Sections 1.6(f) and (g)) into the right to receive
0.72767 shares of the Common Stock, $0.01 par value per share, of Parent
(the "PARENT COMMON STOCK") (subject to adjustment as provided in Section
1.6(b), the "EXCHANGE RATIO") upon surrender of the certificate
representing such share of Company Common Stock in the manner provided in
Section 1.8 (or in the case of a lost, stolen or destroyed certificate,
upon delivery of an affidavit (and bond, if required) in the manner
provided in Section 1.10).
(b) Adjustment to Exchange Ratio. In the event that (i) the net
revenues of the Company determined in accordance with GAAP ("NET
REVENUES"), (A) for the fiscal quarter ending June 30, 1998 ("COMPANY
SECOND QUARTER REVENUES") are less than $9,000,000 and/or (B) for the two
months ending August 31, 1998 ("COMPANY THIRD QUARTER REVENUES") are less
than $4,900,000 if the Closing
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occurs on or after August 31, 1998 (or, if the Closing occurs prior to
August 31, 1998, Net Revenues for the month ending July 31, 1998 are less
than $2,450,000) and/or (ii) the cash, cash equivalents and short- and
long-term cash investments of the Company on June 30, 1998 determined in
accordance with GAAP are less than $60,000,000, less any amounts paid as a
result of Company employee terminations to which Parent consents pursuant
to Section 4.1(t) ("PERMITTED SEVERANCES"), the Exchange Ratio shall be
reduced to the amount obtained by dividing the number of Adjusted Merger
Shares (as defined below) by 34,024,336. "ADJUSTED MERGER SHARES" shall
mean a number of shares of Parent Common Stock equal to 24,758,452 minus a
number of shares of Parent Common Stock obtained by dividing (A) (x) the
amount by which Company Second Quarter Revenues plus the excess, if any, of
Company Third Quarter Revenues over $4,900,000 if the Closing occurs on or
after August 31, 1998 (or, if the Closing occurs prior to August 31, 1998,
the excess, if any of Net Revenues for the month ending July 31, 1998 over
$2,450,000) are less than $9,000,000, plus (y) the amount by which Company
Third Quarter Revenues are less than $4,900,000 if the Closing occurs on or
after August 31, 1998 (or, if the Closing occurs prior to August 31, 1998,
the amount by which Net Revenues for the month ending July 31, 1998 are
less than $2,450,000), plus (z) the amount by which the cash, cash
equivalents and short- and long-term investments of the Company on June 30,
1998 determined in accordance with GAAP are less than $60,000,000 less any
amounts paid as a result of Permitted Severances, by (B) the average of the
closing prices for the Parent Common Stock as reported on the Nasdaq
National Market for the twenty trading days ending on the third trading day
prior to the Closing Date.
(c) Cancellation of Parent-Owned Stock. Each share of Company Common
Stock held by the Company, Merger Sub or Parent immediately prior to the
Effective Time shall be canceled and extinguished without any conversion
thereof.
(d) Stock Options; Employee Stock Purchase Plans. At the Effective
Time, all options to purchase Company Common Stock then outstanding (i)
under the Company's (A) 1987 Stock Option Plan, (B) 1997 Employee Equity
Incentive Plan and (C) 1996 Executive Equity Incentive Plan, and (ii) as a
result of the Company's assumption of options originally granted under the
Firefox 1994 Share Option Scheme ("SCHEME OPTIONS") (the plans referred to
in subsections (i) and (ii) above are collectively referred to herein as
the "COMPANY STOCK OPTION PLANS") shall be deemed assumed by Parent in
accordance with Section 5.8 hereof. Rights outstanding under the Company's
1994 Employee Stock Purchase Plan and Non-Qualified Stock Purchase Plan for
Employees of Certain Subsidiaries (the "ESPPS") shall be treated as set
forth in Section 5.8.
(e) Capital Stock of Merger Sub. Each share of Common Stock, $0.01 par
value per share, of Merger Sub (the "MERGER SUB COMMON STOCK") issued and
outstanding immediately prior to the Effective Time shall be converted into
one validly issued, fully paid and nonassessable share of Common Stock,
$0.01 par value per share, of the Surviving Corporation. Each certificate
evidencing ownership of shares of Merger Sub Common Stock shall evidence
ownership of such shares of capital stock of the Surviving Corporation.
(f) Other Adjustments to Exchange Ratio. The Exchange Ratio shall be
adjusted to fully reflect appropriately the effect of any stock split,
reverse stock split, stock dividend (including any dividend or distribution
of securities convertible into Parent Common Stock or Company Common
Stock), reorganization, recapitalization, reclassification or other like
change with respect to Parent Common Stock or Company Common Stock
occurring on or after the date hereof and prior to the Effective Time.
(g) Fractional Shares. No fraction of a share of Parent Common Stock
will be issued by virtue of the Merger, but in lieu thereof each holder of
shares of Company Common Stock who would otherwise be entitled to a
fraction of a share of Parent Common Stock (after aggregating all
fractional shares of Parent Common Stock that otherwise would be received
by such holder) shall receive from Parent an amount of cash (rounded up to
the nearest whole cent) equal to the product of (i) such fraction,
multiplied by (ii) the average closing price of one share of Parent Common
Stock for the five (5) most recent days that Parent Common Stock has traded
ending on the trading day immediately prior to the Effective Time, as
reported on The Nasdaq National Market ("NASDAQ").
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1.7 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary,
the shares of any holder of Company Common Stock who has demanded and
perfected appraisal rights for such shares in accordance with the MBCL and
who, as of the Effective Time, has not effectively withdrawn or lost such
appraisal rights ("DISSENTING SHARES"), shall not be converted into or
represent a right to receive Parent Common Stock pursuant to Section 1.6,
but the holder thereof shall only be entitled to such rights as are granted
by the MBCL.
(b) Notwithstanding the provisions of subsection (a), if any holder of
shares of Company Common Stock who demands appraisal of such shares under
the MBCL shall effectively withdraw the right to appraisal pursuant to the
MBCL, then, as of the later of the Effective Time and the occurrence of
such event, such holder's shares shall automatically be converted into and
represent only the right to receive Parent Common Stock (and cash in lieu
of fractional shares) pursuant to Section 1.6, without interest thereon,
upon surrender of the certificate representing such shares.
(c) The Company shall give Parent (i) prompt notice of any written
demands for appraisal of any shares of Company Common Stock, withdrawals of
such demands, and any other instruments served pursuant to the MBCL and
received by the Company which relate to any such demand for appraisal and
(ii) the opportunity to participate in all negotiations and proceedings
which take place prior to the Effective Time with respect to demands for
appraisal under the MBCL. The Company shall not, except with the prior
written consent of Parent, voluntarily make any payment with respect to any
demands for appraisal of Company Common Stock or offer to settle or settle
any such demands.
1.8 Surrender of Certificates.
(a) Exchange Agent. Parent shall select a bank or trust company
reasonably acceptable to Company to act as the exchange agent (the
"EXCHANGE AGENT") in the Merger.
(b) Parent to Provide Common Stock. Promptly after the Effective Time,
Parent shall supply to the Exchange Agent for exchange in accordance with
this Article I, certificates evidencing the shares of Parent Common Stock
issuable pursuant to Section 1.6 in exchange for outstanding shares of
Company Common Stock, and cash in an amount sufficient for payment in lieu
of fractional shares pursuant to Section 1.6(f) and any dividends or
distributions to which holders of shares of Company Common Stock may be
entitled pursuant to Section 1.8(d).
(c) Exchange Procedures. Promptly after the Effective Time, Parent
shall cause the Exchange Agent to mail to each holder of record (as of the
Effective Time) of a certificate or certificates (the "CERTIFICATES") which
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock whose shares were converted into shares of Parent
Common Stock pursuant to Section 1.6, cash in lieu of any fractional shares
pursuant to Section 1.6(g) and any dividends or other distributions
pursuant to Section 1.8(d), (i) a letter of transmittal in customary form
(which shall specify that delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall contain 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 shares of Parent Common Stock, cash in lieu of any fractional
shares pursuant to Section 1.6(g) and any dividends or other distributions
pursuant to Section 1.8(d). Upon surrender of Certificates for cancellation
to the Exchange Agent, together with such letter of transmittal, duly
completed and validly executed in accordance with the instructions thereto,
the holders of such Certificates shall be entitled to receive in exchange
therefor certificates representing the number of whole shares of Parent
Common Stock into which their shares of Company Common Stock were converted
at the Effective Time, payment in lieu of fractional shares which such
holders have the right to receive pursuant to Section 1.6(g) and any
dividends or distributions payable pursuant to Section 1.8(d), and the
Certificates so surrendered shall forthwith be canceled. Until so
surrendered, outstanding Certificates will be deemed from and after the
Effective Time, for all corporate purposes, subject to Section 1.8(d) as to
the payment of dividends, to evidence only the ownership of the number of
full shares of Parent Common
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Stock into which such shares of Company Common Stock shall have been so
converted and the right to receive an amount in cash in lieu of the
issuance of any fractional shares in accordance with Section 1.6(g) and any
dividends or distributions payable pursuant to Section 1.8(d).
(d) Distributions With Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the date of this Agreement with
respect to Parent Common Stock with a record date after the Effective Time
will be paid to the holders of any unsurrendered Certificates with respect
to the shares of Parent Common Stock represented thereby until the holders
of record of such Certificates shall surrender such Certificates. Subject
to applicable law, following surrender of any such Certificates, the
Exchange Agent shall deliver to the record holders thereof, without
interest, certificates representing whole shares of Parent Common Stock
issued in exchange therefor along with payment in lieu of fractional shares
pursuant to Section 1.6(g) hereof and the amount of any such dividends or
other distributions with a record date after the Effective Time payable
with respect to such whole shares of Parent Common Stock.
(e) Transfers of Ownership. If certificates representing shares of
Parent Common Stock are to be issued in a name other than that in which the
Certificates surrendered in exchange therefor are registered, it will be a
condition of the issuance thereof that the Certificates so surrendered will
be properly endorsed and otherwise in proper form for transfer and that the
persons requesting such exchange will have paid to Parent or any agent
designated by it any transfer or other taxes required by reason of the
issuance of certificates representing shares of Parent Common Stock in any
name other than that of the registered holder of the Certificates
surrendered, or established to the satisfaction of Parent or any agent
designated by it that such tax has been paid or is not payable.
(f) No Liability. Notwithstanding anything to the contrary in this
Section 1.8, neither the Exchange Agent, Parent, the Surviving Corporation
nor any party hereto shall be liable to a holder of shares of Parent Common
Stock or Company Common Stock for any amount properly paid to a public
official pursuant to any applicable abandoned property, escheat or similar
law.
1.9 No Further Ownership Rights in Company Common Stock. All shares of
Parent Common Stock issued in accordance with the terms hereof (including any
cash paid in respect thereof pursuant to Sections 1.6(g) and 1.8(d)) shall be
deemed to have been issued in full satisfaction of all rights pertaining to the
shares of Company Common Stock converted into shares of Parent Common Stock
pursuant to Section 1.6(a), and after the Effective Time, there shall be no
further registration of transfers on the records of the Surviving Corporation of
shares of Company Common Stock which were outstanding immediately prior to the
Effective Time. If after the Effective Time Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Article I.
1.10 Lost, Stolen or Destroyed Certificates. In the event that any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, certificates
representing the shares of Parent Common Stock into which the shares of Company
Common Stock represented by such Certificates were converted pursuant to Section
1.6, cash for fractional shares, if any, as may be required pursuant to Section
1.6(g) and any dividends or distributions payable pursuant to Section 1.8(d);
provided, however, that Parent may, in its discretion and as a condition
precedent to the issuance of such certificates representing shares of Parent
Common Stock, cash and other distributions, require the owner of such lost,
stolen or destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against
Parent, the Surviving Corporation or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
1.11 Tax Consequences and Accounting.
(a) It is intended by the parties hereto that the Merger shall
constitute a reorganization within the meaning of Section 368 of the Code.
The parties hereto adopt this Agreement as a "plan of reorganization"
within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United
States Income Tax Regulations.
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(b) It is intended by the parties hereto that the Merger shall qualify
for accounting treatment as a pooling of interests.
1.12 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub, the officers and directors of the
Company and Merger Sub will take all such lawful and necessary action. Parent
shall cause Merger Sub to perform all of its obligations under or relating to
this Agreement and the transactions contemplated hereby.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
The Company represents and warrants to Parent and Merger Sub, subject to
the exceptions specifically disclosed in writing in the disclosure letter and
referencing a specific Section of this Article II supplied by the Company to
Parent dated as of the date hereof and certified by a duly authorized officer of
the Company (the "COMPANY SCHEDULES"), as follows:
2.1 Organization of Company.
(a) The Company and each of its subsidiaries: (i) is a corporation or
other legal entity duly organized, validly existing and in good standing
under the laws of the jurisdiction in which it is organized; (ii) has the
corporate or other power and authority to own, lease and operate its assets
and property and to carry on its business as now being conducted; and (iii)
except as would not be material to the Company, is duly qualified or
licensed to do business in each jurisdiction where the character of the
properties owned, leased or operated by it or the nature of its activities
makes such qualification or licensing necessary.
(b) The Company has delivered to Parent a true and complete list of
all of the Company's subsidiaries as of the date of this Agreement,
indicating the jurisdiction of organization of each subsidiary and the
Company's equity interest therein.
(c) The Company has delivered or made available to Parent a true and
correct copy of the Amended and Restated Articles of Organization, as
amended, and Amended and Restated Bylaws of the Company and similar
governing instruments of each of its subsidiaries, each as amended to date,
and each such instrument is in full force and effect. Neither the Company
nor any of its subsidiaries is in violation of any of the provisions of its
Articles of Organization or bylaws or equivalent governing instruments.
2.2 Company Capital Structure. The authorized capital stock of the Company
consists of 100,000,000 shares of Common Stock, $0.01 par value per share, of
which there were 34,024,336 shares issued and outstanding as of the date of this
Agreement (excluding shares held in treasury of which there are none), and
5,000,000 shares of Preferred Stock, $0.01 par value per share, 500,000 shares
of which have been designated as Junior Preferred Stock, of which no shares are
issued or outstanding. All outstanding shares of Company Common Stock are duly
authorized, validly issued, fully paid and nonassessable, except as set forth in
the Company Schedules, and are not subject to preemptive rights created by
statute, the Articles of Organization or bylaws of the Company or any agreement
or document to which the Company is a party or by which it is bound. The Company
or a wholly-owned subsidiary of the Company owns all of the outstanding shares
of capital stock of each of its subsidiaries. As of the date of this Agreement,
Company had reserved an aggregate of 10,576,885 shares of Company Common Stock,
net of exercises, for issuance pursuant to the Company Stock Option Plans and
the ESPPs. As of the date of this Agreement, there were options outstanding to
purchase an aggregate of 6,146,598 shares of Company Common Stock pursuant to
the Company Stock Option Plans. All shares of Company Common Stock subject to
issuance as aforesaid, upon issuance on the terms and conditions specified in
the instruments pursuant to which they are issuable, would be duly authorized,
validly issued, fully paid and nonassessable. Section 2.2 of the Company
Schedules contains a list
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for each person who held options to acquire shares of Company Common Stock as of
the date of this Agreement, the name of the holder of such option, the exercise
price of such option, the number of shares as to which such option had vested at
such date, the vesting schedule for such option and whether the exercisability
of such option will be accelerated in any way by the transactions contemplated
by this Agreement and indicates the extent of acceleration, if any.
2.3 Obligations With Respect to Capital Stock. Except as set forth in
Section 2.2 of this Agreement or Section 2.2 of the Company Schedules, there are
no equity securities, partnership interests or similar ownership interests of
any class of the Company's equity security, or any securities exchangeable or
convertible into or exercisable for such equity securities, partnership
interests or similar ownership interests, issued, reserved for issuance or
outstanding. Except for securities the Company owns free and clear of all claims
and encumbrances, directly or indirectly through one or more subsidiaries, as of
the date of this Agreement, there are no equity securities, partnership
interests or similar ownership interests of any class of equity security of any
subsidiary of the Company, or any security exchangeable or convertible into or
exercisable for such equity securities, partnership interests or similar
ownership interests, issued, reserved for issuance or outstanding. Except as set
forth in Section 2.2 of this Agreement, pursuant to the Rights Agreement (as
defined below) or as set forth in Section 2.2 of the Company Schedules, there
are no subscriptions, options, warrants, equity securities, partnership
interests or similar ownership interests, calls, rights (including preemptive
rights), commitments or agreements of any character to which the Company or any
of its subsidiaries is a party or by which it is bound obligating the Company or
any of its subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, or repurchase, redeem or otherwise acquire, or cause the
repurchase, redemption or acquisition of, any shares of capital stock,
partnership interests or similar ownership interests of the Company or any of
its subsidiaries or obligating the Company or any of its subsidiaries to grant,
extend, accelerate the vesting of or enter into any such subscription, option,
warrant, equity security, call, right, commitment or agreement. As of the date
of this Agreement, except as contemplated by this Agreement or the Rights
Agreement or the Company Schedules, there are no registration rights and there
is no voting trust, proxy, rights plan or other agreement or understanding to
which the Company is a party or by which it is bound with respect to any equity
security of any class of the Company or with respect to any equity security,
partnership interest or similar ownership interest of any class of any of its
subsidiaries. The Company has taken all necessary action so that no rights
authorized or granted under the Rights Agreement dated as of December 1, 1995
between the Company and State Street Bank and Trust Company, as Rights Agent, as
amended as of November 7, 1996 and February 27, 1998 and June 15, 1998 (the
"RIGHTS AGREEMENT") shall become exercisable as a result of the execution of
this Agreement, the Merger or any other transactions contemplated hereby.
2.4 Authority.
(a) The Company has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby and the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Company,
subject in each case only to the approval and adoption of this Agreement
and the approval of the Merger by the Company's stockholders and the filing
of the Articles of Merger pursuant to the MBCL. This Agreement has been
duly executed and delivered by the Company and, assuming due authorization,
execution and delivery by Parent and Merger Sub, constitutes a valid and
binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as enforceability may be limited by
bankruptcy and other similar laws and general principles of equity. The
execution and delivery of this Agreement by the Company does not, and the
performance of this Agreement by the Company will not, (i) conflict with or
violate the Articles of Organization or bylaws of the Company or the
equivalent organizational documents of any of its subsidiaries, (ii)
subject to obtaining the approval and adoption of this Agreement and the
approval of the Merger by the Company's stockholders as contemplated in
Section 5.2 and compliance with the requirements set forth in Section
2.4(b) below, conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to the Company or any of its subsidiaries or
by which the Company or any of its subsidiaries or any of their respective
properties is bound or affected, or (iii) except as set forth in
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Section 2.4 of the Company Schedules, result in any material breach of or
constitute a material default (or an event that with notice or lapse of
time or both would become a material default) under, or impair the
Company's rights or alter the rights or obligations of any third party
under, or give to others any rights of termination, amendment, acceleration
or cancellation of, or result in the creation of a material lien or
encumbrance on any of the material properties or assets of the Company or
any of its subsidiaries pursuant to, any material note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise,
concession, or other instrument or obligation to which the Company or any
of its subsidiaries is a party or by which the Company or any of its
subsidiaries or its or any of their respective assets are bound or
affected. The Company Schedules list each consent, waiver and approval
under any of the Company's or any of its subsidiaries' agreements,
contracts, licenses or leases required to be obtained in connection with
the consummation of the transactions contemplated hereby, which, if
individually or in the aggregate not obtained, would result in a material
loss of benefits to the Company or the Surviving Corporation as a result of
the Merger.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission
or other governmental authority or instrumentality, foreign or domestic
("GOVERNMENTAL ENTITY"), is required to be obtained or made by the Company
or any of its subsidiaries in connection with the execution and delivery of
this Agreement or the consummation of the Merger, except for (i) the filing
of the Articles of Merger with the Secretary of State of the Commonwealth
of Massachusetts, (ii) the filing of the Proxy Statement/Prospectus (as
defined in Section 2.17) with the Securities and Exchange Commission (the
"SEC") in accordance with, and other applicable requirements of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), (iii)
such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal,
foreign and state securities (or related) laws and the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), and the
securities or antitrust laws of any foreign country, and (iv) such other
governmental consents, authorizations, filings, approvals and registrations
which if not obtained or made would not be material to the Company and its
subsidiaries, taken as a whole, or the Surviving Corporation or have a
material adverse effect on the ability of the parties hereto to consummate
the Merger.
2.5 SEC Filings; Company Financial Statements.
(a) The Company has filed all forms, reports and documents required to
be filed by Company with the SEC since December 31, 1995 and has made
available to Parent such forms, reports and documents in the form filed
with the SEC. All such required forms, reports and documents (including
those that the Company may file subsequent to the date hereof) are referred
to herein as the "COMPANY SEC REPORTS." As of their respective dates, the
Company SEC Reports (i) were prepared in all material respects in
accordance with the requirements of the Securities Act of 1933, as amended
(the "SECURITIES ACT"), or the Exchange Act, as the case may be, and the
rules and regulations of the SEC thereunder applicable to such Company SEC
Reports and (ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the
date of such filing) contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. None of the Company's
subsidiaries is required to file any forms, reports or other documents with
the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Company SEC Reports (the
"COMPANY FINANCIALS"), including each Company SEC Report filed after the
date hereof until the Closing, (i) complied as to form in all material
respects with the published rules and regulations of the SEC with respect
thereto, (ii) was prepared in accordance with United States generally
accepted accounting principles ("GAAP") applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto or, in the case of unaudited interim financial statements, as may
be permitted by the SEC on Form 10-Q under the Exchange Act) and (iii)
fairly presented the consolidated financial position of the Company and its
subsidiaries as at the respective dates thereof and the consolidated
results of operations and cash flows of
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the Company and its subsidiaries for the periods indicated, except that the
unaudited interim financial statements may not contain footnotes and were
or are subject to normal and recurring year-end adjustments. The balance
sheet of the Company contained in Company SEC Reports as of March 31, 1998
is hereinafter referred to as the "COMPANY BALANCE SHEET." Except as
disclosed in the Company Financials or Section 2.5(b) the Company
Schedules, since the date of the Company Balance Sheet neither the Company
nor any of its subsidiaries has incurred any liabilities required under
GAAP to be set forth on a balance sheet (absolute, accrued, contingent or
otherwise) which are, individually or in the aggregate, material to the
business, results of operations or financial condition of the Company and
its subsidiaries taken as a whole, except for liabilities incurred since
the date of the Company Balance Sheet in the ordinary course of business or
consistent with past practices or in connection with this Agreement.
(c) The Company has heretofore furnished to Parent a complete and
correct copy of any amendments or modifications, which have not yet been
filed with the SEC but which are required to be so filed, to agreements,
documents or other instruments which previously had been filed by the
Company with the SEC pursuant to the Securities Act or the Exchange Act.
2.6 Absence of Certain Changes or Events. Since the date of the Company
Balance Sheet, except as set forth in the Company Schedules, there has not
been: (i) any change in the financial condition, properties, assets,
liabilities, business or operations of the Company or any of its subsidiaries
which change by itself or in conjunction with all other such changes, whether or
not arising in the ordinary course of business, is inconsistent with past trends
and has had, or can reasonably be expected to have a Material Adverse Effect (as
defined in Section 8.3(b)) on the Company; (ii) any material contingent
liability incurred by the Company or any of its subsidiaries as guarantor or
surety with respect to the obligations of others; (iii) any material obligation
or liability incurred by the Company or any of its subsidiaries other than in
the ordinary course of business; (iv) any purchase or sale or other disposition,
or any agreement or other arrangement for the purchase, sale or other
disposition, of any of the properties or assets of the Company or any of its
subsidiaries other than inventory in the ordinary course of business or in
amounts that are not material to the Company and its subsidiaries or their
businesses considered as a whole; (v) any declaration, setting aside or payment
of any dividend on, or other distribution (whether in cash, stock or property)
in respect of, any of the Company's or any of its non-wholly owned subsidiaries'
capital stock, or any purchase, redemption or other acquisition by the Company
of any of the Company's capital stock or any other securities of the Company or
its non-wholly owned subsidiaries or any options, warrants, calls or rights to
acquire any such shares or other securities; (vi) any split, combination or
reclassification of any of the Company's or any of its subsidiaries' capital
stock; (vii) any granting by the Company or any of its subsidiaries of any
increase in compensation or fringe benefits, any payment by the Company or any
of its subsidiaries of any bonus, or any granting by the Company or any of its
subsidiaries of any increase in severance or termination pay or any entry by the
Company or any of its subsidiaries into any currently effective employment,
severance, termination or indemnification agreement or any agreement with any
employee of the Company or any of its subsidiaries the benefits of which are
contingent or the terms of which are materially altered upon the occurrence of a
transaction involving the Company of the nature contemplated hereby; (viii)
entry by the Company or any of its subsidiaries into any licensing or other
agreement with regard to the acquisition or disposition of any Intellectual
Property (as defined in Section 2.9), other than licenses in the ordinary course
of business, or any amendment or consent with respect to any licensing agreement
filed or required to be filed by the Company with the SEC; (ix) any material
change by the Company in its accounting methods, principles or practices, except
as required by concurrent changes in GAAP; or (x) any revaluation by the Company
of any of its assets, including, without limitation, writing down the value of
capitalized inventory or writing off notes or accounts receivable other than in
the ordinary course of business.
2.7 Taxes.
(a) For the purposes of this Agreement, "TAX" or "TAXES" refers to any
and all federal, state, local and foreign taxes, assessments and other
similar governmental charges, duties, impositions and liabilities relating
to taxes, including taxes based upon or measured by gross receipts, income,
profits, sales, use and occupation, and value added, ad valorem, transfer,
franchise, withholding, payroll, recapture, employ-
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ment, excise and property taxes, together with all interest, penalties and
additions imposed with respect to such amounts.
(b) All material federal, state, local and foreign returns, estimates,
information statements and reports ("RETURNS") relating to Taxes required
to be filed with any tax authority by or on behalf of the Company and each
of its subsidiaries with respect to any taxable period ending on or before
the Closing Date if due on or before the Closing Date (i) have been or will
be filed on or before the applicable due date (including any extensions of
such due date if properly obtained), and (ii) have been, or will be when
filed, prepared in all material respects in compliance with all applicable
legal requirements. All amounts shown on the Tax Returns to be due on or
before the Closing Date have been or will be paid on or before the Closing
Date.
(c) The accruals and reserves for Taxes reflected in the Company
Balance Sheet are adequate to cover all Taxes required to be accrued
through the date thereof in accordance with GAAP. Each of the Company's
subsidiaries will establish, in the ordinary course of business and
consistent with its past practices, reserves adequate for the payment of
all Taxes for the period from the date of this Agreement through the
Closing Date.
(d) Except as set forth in Section 2.7 of the Company Schedules, (i)
since January 1, 1995, no Tax Return of the Company or any of its
subsidiaries has been examined or audited by any applicable tax authority
and (ii) no extension or waiver (other than the normal extension occurring
by reason of an extension of time to file a Return) of the limitation
period applicable to any such Returns has been granted (by the Company or
any other person), and no such extension or waiver has been requested from
the Company or any of its subsidiaries.
(e) Except as set forth in Section 2.7 of the Company Schedules, no
claim or legal proceeding is pending or, to the knowledge of the Company,
has been threatened against or with respect to the Company or any of its
subsidiaries in respect of any material Tax, and there are no unsatisfied
liabilities for material Taxes (including liabilities for interest,
additions to tax and penalties thereon and related expenses) with respect
to any notice of deficiency or similar document received by the Company or
any of its subsidiaries with respect to any material Tax (other than
liabilities for Taxes asserted under any such notice of deficiency or
similar document which are being contested in good faith by the Company or
any of its subsidiaries and with respect to which adequate reserves for
payment have been established). There are no liens for material Taxes upon
any of the assets of the Company or any of its subsidiaries except liens
for current Taxes not yet due and payable. None of the Company or any of
its subsidiaries has entered into or become bound by any agreement or
consent pursuant to Section 341(f) of the Code. None of Company or any of
its subsidiaries has been, and none of Company or any of its subsidiaries
will be, required to include any adjustment in taxable income for any tax
period (or any portion thereof) pursuant to Section 481 or 263A of the Code
or any comparable provision under state or foreign Tax laws as the same are
in effect as of the date of this Agreement as a result of transactions or
events occurring, or accounting methods employed, prior to the Closing.
(f) Except as set forth in Section 2.7 of the Company Schedules, there
is no agreement, plan, arrangement or other contract covering any employee
or independent contractor or former employee or independent contractor of
the Company or any of its subsidiaries that, considered individually or
considered collectively with any other such agreement, will, or could
reasonably be expected to, give rise directly or indirectly to the payment
of any amount that would not be deductible pursuant to Section 280G or
Section 162 of the Code as a result of the transactions contemplated by
this Agreement. Except as set forth in Section 2.7 of the Company
Schedules, none of Company or any of its subsidiaries is a party to or
bound by any tax indemnity agreement, tax sharing agreement or tax
allocation agreement.
(g) No person owns an interest in the Company with respect to which
withholding is required because Treasury Regulation Section 1.1445-2(c)(2)
is not applicable to the acquisition of such interest under Treasury
Regulation Section 1.897-1(c)(2)(iii)(B) (relating to substantial amounts
of non-publicly traded interests in publicly traded corporations).
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2.8 Title to Properties; Absence of Liens and Encumbrances.
(a) Neither the Company nor any of its subsidiaries owns any real
property. The Company Schedules list all material real property leases to
which the Company or its subsidiaries are party and each amendment thereto.
All such current leases are, to the knowledge of the Company, in full force
and effect.
(b) Each of the Company and its subsidiaries has good title to, or, in
the case of leased properties and assets, valid leasehold interests in, all
of their tangible properties and assets, real, personal and mixed, used or
held for use in their business, free and clear of any liens, pledges,
charges, claims, security interests or other similar encumbrances
("LIENS"), except as reflected in the Company Financials and except for
liens for Taxes not yet due and payable and such Liens or other
imperfections of title and encumbrances, if any, which are not material in
character, amount or extent, and which do not materially detract from the
value, or materially interfere with the present use, of the property
subject thereto or affected thereby.
2.9 Intellectual Property. For the purposes of this Agreement, the
following terms have the following definitions:
"INTELLECTUAL PROPERTY" shall mean any or all of the following and all
rights in, arising out of, or associated with: (i) all United States,
international and foreign patents and applications therefor and all
reissues, divisions, renewals, extensions, provisionals, continuations
and continuations-in-part thereof; (ii) all inventions (whether
patentable or not), invention disclosures, improvements, trade secrets,
proprietary information, know how, technology, technical data and
customer lists, and all documentation relating to any of the foregoing;
(iii) all copyrights, copyright registrations and applications therefor,
and all other rights corresponding thereto throughout the world; (iv)
all industrial designs and any registrations and applications therefor
throughout the world; (v) all trade names, logos, common law trademarks
and service marks, trademark and service mark registrations and
applications therefor throughout the world; (vi) all databases and data
collections and all rights therein throughout the world; (vii) all moral
and economic rights of authors and inventors, however denominated,
throughout the world; (viii) all computer software including all source
code, object code, firmware, development tools, files, records and data,
all media on which any of the foregoing is recorded, all Web addresses,
sites and domain names; (ix) all documentation related to any of the
foregoing; and (x) any similar or equivalent rights to any of the
foregoing anywhere in the world.
"COMPANY INTELLECTUAL PROPERTY" shall mean any Intellectual Property
that is owned by, or exclusively licensed to, the Company or any of its
wholly-owned subsidiaries.
"REGISTERED INTELLECTUAL PROPERTY" means all United States,
international and foreign: (i) patents and patent applications
(including provisional applications); (ii) registered trademarks,
applications to register trademarks, intent-to-use applications, or
other registrations or applications related to trademarks; (iii)
registered copyrights and applications for copyright registration; and
(iv) any other Intellectual Property that is the subject of an
application, certificate, filing, registration or other document issued,
filed with, or recorded by any state, government or other public legal
authority.
(a) Section 2.9 of the Company Schedules lists all of the Registered
Intellectual Property owned by, or filed in the name of, the Company and
any of its subsidiaries (the "COMPANY REGISTERED INTELLECTUAL PROPERTY").
(b) Except as set forth in the Company Schedules, each material item
of Company Registered Intellectual Property is valid and subsisting, all
necessary registration, maintenance and renewal fees currently due in
connection with such Registered Intellectual Property have been made and
all necessary documents, recordations and certificates in connection with
such Registered Intellectual Property have been filed with the relevant
patent, copyright, trademark or other authorities in the United States or
foreign jurisdictions, as the case may be, for the purposes of maintaining
such Registered Intellectual Property.
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(c) Except as set forth in the Company Schedules, the Company and its
subsidiaries own and have good and exclusive title (sufficient for the
conduct of their business as currently conducted) to, each material item of
Company Intellectual Property free and clear of any Lien, and the Company
or its subsidiaries are the exclusive owner of all trademarks and trade
names used in connection with the operation or conduct of the business of
the Company and its subsidiaries, including the sale of any products or the
provision of any services by the Company or any of its subsidiaries.
(d) The Company or its subsidiaries own exclusively, and have good
title to, all copyrighted works that the Company expressly purports to own.
(e) To the extent that any material Intellectual Property has been
developed or created by a third party for the Company or any of its
subsidiaries that the Company purports to own, the Company and its
subsidiaries have a written agreement with such third party with respect
thereto and Company and its subsidiaries thereby either (i) have obtained
ownership of, and are the exclusive owner of, or (ii) have obtained a
license (sufficient for the conduct of their business as currently
conducted) to all such third party's Intellectual Property in such work,
material or invention by operation of law or by valid assignment to the
fullest extent it is legally possible to do so.
(f) Except as set forth in the Company Schedules, neither the Company
nor any of its subsidiaries has transferred ownership of, or granted any
exclusive license with respect to, any Intellectual Property that is
material Company Intellectual Property, to any third party.
(g) Section 2.9 of the Company Schedules lists all material contracts,
licenses and agreements to which the Company or its subsidiaries are a
party (i) with respect to the Company Intellectual Property licensed or
transferred to any third party or (ii) pursuant to which a third party has
licensed or transferred any Intellectual Property to the Company or any of
its subsidiaries, except in each case for (A) any nonexclusive software
license granted by the Company or any of its subsidiaries to end-user
customers where the form of the license, excluding standard immaterial
deviations, has been provided to Parent's counsel or for standard
"shrink-wrap" or "click-wrap" licenses or similar widely available
commercial end-user licenses for software products and (B) non-exclusive
reseller, distributor and OEM agreements entered into in the ordinary
course of business where the form of such agreement, excluding standard
immaterial deviations, has been provided to Parent's counsel. Section 2.9
of the Company Schedules lists any material agreements pursuant to which
the Company or any of its subsidiaries have licensed Company Intellectual
Property or products to any third party that differs in any material
respect from its standard forms. Except as set forth in the Company
Schedules, no person who has licensed Intellectual Property to the Company
or any of its subsidiaries has ownership rights or license rights to
improvements made by the Company or any of its subsidiaries in such
Intellectual Property.
(h) The contracts, licenses and agreements listed on Section 2.9 of
the Company Schedules are, to the knowledge of the Company, in full force
and effect. The consummation of the transactions contemplated by this
Agreement will neither materially violate nor result in a material breach,
modification, cancellation, termination, or suspension of such contracts,
licenses and agreements. The Company and its subsidiaries are in material
compliance with, and have not materially breached any term of such
contracts, licenses and agreement and, to the knowledge of the Company, all
other parties to such contracts, licenses and agreements are in material
compliance with, and have not materially breached any term of, such
contracts, licenses and agreements. Except as set forth in the Company
Schedules, following the Closing Date, the Company will be permitted to
exercise all of the Company's rights under the contracts, licenses and
agreements listed on Section 2.9 of the Company Schedules to the same
extent the Company and its subsidiaries would have been able to had the
transactions contemplated by this Agreement not occurred and without the
payment of any additional amounts or consideration other than ongoing fees,
royalties or payments which the Company or its subsidiaries would otherwise
be required to pay.
(i) To the Company's knowledge, the operation of the business of the
Company as such business currently is conducted, including the Company's
design, development, manufacture, marketing and sale of the products or
services of the Company (including with respect to products currently under
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development) has not and does not infringe or misappropriate the
Intellectual Property of any third party or, to its knowledge, constitute
unfair competition or trade practices under the laws of any jurisdiction.
(j) The Company has not received notice from any third party that the
operation of the business of Company or its subsidiaries or any act,
product or service of the Company or its subsidiaries, infringes or
misappropriates the Intellectual Property of any third party or constitutes
unfair competition or trade practices under the laws of any jurisdiction.
(k) To the knowledge of the Company, no person has or is infringing or
misappropriating any Company Intellectual Property.
(l) The Company has taken reasonable steps to protect the Company's
rights in the Company's confidential information and trade secrets or any
trade secrets or confidential information of third parties provided to the
Company, and, without limiting the foregoing, the Company has and uses all
reasonable efforts to enforce a policy requiring each employee and
contractor to execute a proprietary information/confidentiality agreement
substantially in the forms provided to Parent and all current employees and
all current and former contractors of the Company have executed such an
agreement.
(m) Except as set forth in the Company Schedules, all of the Company's
products (including products currently under development) will record,
store, process, calculate and present calendar dates jointly and severally,
falling on and after (and if applicable, spans of time including) January
1, 2000, and will calculate any information dependent on or relating to
such dates in the same manner, and with the same functionality, data
integrity and performance, as the products record, store, process,
calculate and present calendar dates on or before December 31, 1999, or
calculate any information dependent on or relating to such dates
(collectively, "Year 2000 Compliant"). Except as set forth in the Company
Schedules, the Company's internal computer and technology products and
systems are Year 2000 Compliant.
2.10 Compliance; Permits; Restrictions.
(a) Neither the Company nor any of its subsidiaries is, in any
material respect, in conflict with, or in default or in violation of (i)
any law, rule, regulation, order, judgment or decree applicable to the
Company or any of its subsidiaries or by which the Company or any of its
subsidiaries or any of their respective properties is bound or affected, or
(ii) any material note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to
which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries or its or any of their respective
properties is bound or affected, except for conflicts, violations and
defaults that (individually or in the aggregate) would not cause the
Company to lose any material benefit or incur any material liability.
Except as set forth in Section 2.10 of the Company Schedules, no
investigation or review by any Governmental Entity is pending or, to the
Company's knowledge, has been threatened in a writing delivered to the
Company against the Company or any of its subsidiaries, nor, to the
Company's knowledge, has any Governmental Entity indicated an intention to
conduct an investigation of the Company or any of its subsidiaries. There
is no material agreement, judgment, injunction, order or decree binding
upon the Company or any of its subsidiaries which has or would reasonably
be expected to have the effect of prohibiting or materially impairing any
business practice of the Company or any of its subsidiaries, any
acquisition of material property by the Company or any of its subsidiaries
or the conduct of business by the Company as currently conducted.
(b) The Company and its subsidiaries hold, to the extent legally
required, all permits, licenses, variances, exemptions, orders and
approvals from governmental authorities that are material to and required
for the operation of the business of the Company as currently conducted
(collectively, the "COMPANY PERMITS"). The Company and its subsidiaries are
in compliance in all material respects with the terms of the Company
Permits.
2.11 Litigation. Except as disclosed in the Company Schedules, there are
no claims, suits, actions or proceedings pending or, to the knowledge of the
Company, threatened against, relating to or affecting the Company or any of its
subsidiaries, before any court, governmental department, commission, agency,
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instrumentality or authority, or any arbitrator that seeks to restrain or enjoin
the consummation of the transactions contemplated by this Agreement or which
would reasonably be expected, either singularly or in the aggregate with all
such claims, actions or proceedings, to have a material effect on the Company.
No Governmental Entity has at any time challenged or questioned in a writing
delivered to the Company the legal right of the Company to design, manufacture,
offer or sell any of its products in the present manner or style thereof.
2.12 GSA Audit. Except as disclosed in the Company Schedules, the Company
has never been subject to an audit, compliance review, investigation or like
contract review by the GSA office of the Inspector General or other Governmental
Entity or agent thereof in connection with any government contract (a
"GOVERNMENT AUDIT"), to the Company's knowledge no Government Audit is
threatened and in the event of such Government Audit, to the knowledge of the
Company no basis exists for a finding of noncompliance with any material
provision of any government contract or a refund of any material amounts paid or
owed by any Governmental Entity pursuant to such government contract.
2.13 Brokers' and Finders' Fees. Except for fees payable to Cowen &
Company pursuant to an engagement letter dated January 12, 1998, a copy of which
has been provided to Parent, the Company has not incurred, nor will it incur,
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
2.14 Employee Benefit Plans.
(a) Definitions. With the exception of the definition of "AFFILIATE"
set forth in Section 2.14(a)(i) below (which definition shall apply only to
this Section 2.14), for purposes of this Agreement, the following terms
shall have the meanings set forth below:
(i) "AFFILIATE" shall mean any other person or entity under common
control with the Company within the meaning of Section 414(b), (c), (m)
or (o) of the Code and the regulations issued thereunder;
(ii) "COMPANY EMPLOYEE PLAN" shall mean any plan, program, policy,
practice, contract, agreement or other arrangement as to which the
Company or any affiliate of the Company may have any liability providing
for compensation, severance, retention termination pay, performance
awards, stock or stock-related awards, material fringe benefits or other
material employee benefits or remuneration of any kind, whether written
or unwritten, funded or unfunded, including without limitation, each
"EMPLOYEE BENEFIT PLAN," within the meaning of Section 3(3) of ERISA
which is or has been in the past six years maintained, contributed to,
or required to be contributed to, by the Company or any Affiliate for
the benefit of any Employee, other than the International Employee
Plans;
(iii) "COBRA" shall mean the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended;
(iv) "DOL" shall mean the Department of Labor;
(v) "EMPLOYEE" shall mean any current, former, or retired employee,
officer, or director of the Company or any Affiliate;
(vi) "EMPLOYEE AGREEMENT" shall mean each management, employment,
severance, consulting, relocation, repatriation, expatriation, visa,
work permit or similar agreement or contract between the Company or any
Affiliate and any Employee or consultant;
(vii) "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended;
(viii) "FMLA" shall mean the Family Medical Leave Act of 1993, as
amended;
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(ix) "HIPAA" shall mean the Health Insurance Portability and
Accountability Act of 1996, as amended;
(x) "INTERNATIONAL EMPLOYEE PLAN" shall mean each Company Employee
Plan that has been adopted or maintained by the Company, whether
informally or formally, for the benefit of Employees outside the United
States;
(xi) "IRS" shall mean the Internal Revenue Service; and
(xii) "PBGC" shall mean the Pension Benefit Guaranty Corporation.
(b) Schedule. Section 2.14 of the Company Schedules contains an
accurate and complete list of each Company Employee Plan, International
Employee Plan and each Employee Agreement involving payments by the Company
or any of its subsidiaries of $50,000 or more per year (including all
Employee Agreements with officers, directors and key employees of the
Company). The Company does not have any plan or commitment to establish any
new Company Employee Plan, to modify any Company Employee Plan or Employee
Agreement (except to the extent required by law or to conform any such
Company Employee Plan or Employee Agreement to the requirements of any
applicable law, in each case as previously disclosed to Parent in writing,
or as required by this Agreement), or to enter into any Company Employee
Plan or material Employee Agreement, nor does it have any commitment to do
any of the foregoing.
(c) Documents. The Company has provided or made available to Parent:
(i) correct and complete copies of all documents embodying each
International Employee Plan, Company Employee Plan and each Employee
Agreement including all amendments thereto and written interpretations
thereto; (ii) the three (3) most recent annual reports (Form Series 5500
and all schedules and financial statements attached thereto), if any,
required under ERISA or the Code in connection with each Company Employee
Plan or related trust; (iii) if the International Employee Plan or Company
Employee Plan is funded, the most recent annual and periodic accounting of
the International Employee Plan or Company Employee Plan assets; (iv) the
most recent summary plan description together with the summary of material
modifications thereto, if any, required under ERISA with respect to each
Company Employee Plan; (v) the most recent IRS determination, opinion,
notification or advisory letter, and rulings relating to each Company
Employee Plan, if any and copies of all applications and correspondence to
or from the IRS or the DOL with respect to any Company Employee Plan; (vi)
all material written agreements and contracts relating to each
International Employee Plan and Company Employee Plan, if any including,
but not limited to, administrative service agreements, group annuity
contracts and group insurance contracts; (vii) all communications material
to any Employee or Employees relating to any Company Employee Plan and any
proposed Company Employee Plans, in each case, relating to any amendments,
terminations, establishments, increases or decreases in benefits,
acceleration of payments or vesting schedules or other events which would
result in any material liability to the Company; (viii) all COBRA and HIPAA
forms and related notices; and (ix) all registration statements and
prospectuses prepared in connection with each Company Employee Plan.
(d) Employee Plan Compliance. (i) The Company has performed in all
material respects all obligations required to be performed by it under, is
not in material default or violation of, and has no knowledge of any
material default or violation by any other party with respect to any
Company Employee Plan and International Employee Plan, and each Company
Employee Plan and International Employee Plan has been established and
maintained in all material respects in accordance with its terms and in
material compliance with all applicable laws, statutes, orders, rules and
regulations, including but not limited to ERISA or the Code; (ii) each
Company Employee Plan intended to qualify under Section 401(a) of the Code
and each trust intended to qualify under Section 501(a) of the Code has
either received a favorable determination letter from the IRS with respect
to each such Plan as to its qualified status under the Code, including all
amendments to the Code effected by the Tax Reform Act of 1986 and
subsequent legislation, or has remaining a period of time under applicable
Treasury regulations or IRS pronouncements in which to apply for such a
determination letter and make any amendments necessary to obtain a
favorable determination; (iii) to the Company's knowledge, no "PROHIBITED
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TRANSACTION," within the meaning of Section 4975 of the Code or Sections
406 and 407 of ERISA, and not otherwise exempt under Section 408 of ERISA,
has occurred with respect to any Company Employee Plan; (iv) there are no
actions, suits or claims pending, or, to the knowledge of Company,
threatened (other than routine claims for benefits) against any Company
Employee Plan or against the assets of any Company Employee Plan; (v) each
Company Employee Plan can be amended, terminated or otherwise discontinued
after the Effective Time in accordance with its terms, without liability to
Parent, the Company or any of its Affiliates (other than ordinary
administration expenses typically incurred in a termination event); (vi)
there are no audits, inquiries or proceedings pending or, to the knowledge
of the Company, threatened by the IRS or DOL with respect to any Company
Employee Plan; and (vii) neither the Company nor any Affiliate is subject
to any material penalty or tax with respect to any Company Employee Plan
under Section 402(i) of ERISA or Sections 4975 through 4980 of the Code.
(e) Pension Plans. Neither the Company nor any of its subsidiaries
now, nor have any of them ever, maintained, established, sponsored,
participated in, or contributed to, any employee pension benefit plan
(within the meaning of Section 3(2) of ERISA which is subject to Title IV
of ERISA) or Section 412 of the Code.
(f) Multiemployer Plans. At no time has the Company contributed to or
been requested to contribute to any plan which is a multiemployer plan as
defined in Section 3(37) of ERISA.
(g) No Post-Employment Obligations. Except as set forth in the Company
Schedules, no Company Employee Plan or International Employee Plan
provides, or has any liability to provide, retiree life insurance, retiree
health or other retiree employee welfare benefits to any person for any
reason, except as may be required by COBRA or other applicable law, and the
Company has never represented, promised or contracted (whether in oral or
written form) to any Employee (either individually or to Employees as a
group) or any other person that such Employee(s) or other person would be
provided with retiree life insurance, retiree health or other retiree
employee welfare benefit, except to the extent required by law.
(h) Neither the Company nor any Affiliate has, prior to the Effective
Time, and in any material respect, violated any of the health care
continuation requirements of COBRA, the requirements of FMLA, HIPAA or any
similar provisions of state, federal or foreign law applicable to its
Employees.
(i) Effect of Transaction. Except as set forth in the Company
Schedules, the execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or upon the
occurrence of any additional or subsequent events) constitute an event
under any Company Employee Plan, Employee Agreement, trust or loan that
will or may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase
in benefits or obligation to fund benefits with respect to any Employee.
(j) Employment Matters. The Company: (i) is in compliance in all
material respects with all applicable foreign, federal, state and local
laws, rules and regulations respecting employment, employment practices,
terms and conditions of employment and wages and hours, in each case, with
respect to Employees; (ii) has withheld all material amounts required by
law or by agreement to be withheld from the wages, salaries and other
payments to Employees; (iii) except as set forth in the Company Schedules,
is not liable for any material arrears of wages or any material taxes or
penalty for failure to comply with any of the foregoing; and (iv) is not
liable for any material payment to any trust or other fund or to any
governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
Employees (other than routine payments to be made in the normal course of
business and consistent with past practice). Except as set forth in Section
2.14 of the Company Schedules, there are no pending or, to the knowledge of
the Company, threatened claims or actions against the Company under any
worker's compensation policy or long-term disability policy. To the
Company's knowledge, no employee of the Company has violated any employment
contract, nondisclosure agreement or noncompetition agreement by which such
employee is bound due to such employee being employed by the Company and
disclosing to the Company or using trade secrets or proprietary information
of any other person or entity.
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(k) Labor. No work stoppage or labor strike against the Company is
pending or, to the knowledge of the Company, threatened. The Company does
not know of any activities or proceedings of any labor union to organize
any Employees. Except as set forth in Section 2.14 of the Company
Schedules, there are no actions, suits, claims, labor disputes or
grievances pending, or, to the knowledge of the Company, threatened
relating to any labor, safety or discrimination matters involving any
Employee, including, without limitation, charges of unfair labor practices
or discrimination complaints, which, if adversely determined, would,
individually or in the aggregate, result in any material liability to the
Company. Neither the Company nor any of its subsidiaries has engaged in any
unfair labor practices within the meaning of the National Labor Relations
Act. The Company is not presently, nor has it been in the past, a party to,
or bound by, any collective bargaining agreement or union contract with
respect to Employees and no collective bargaining agreement is being
negotiated by the Company.
(l) International Employee Plan. Each International Employee Plan has
been established, maintained and administered in material compliance with
its terms and conditions and with the requirements prescribed by any and
all statutory or regulatory laws that are applicable to such International
Employee Plan. Furthermore, no International Employee Plan has unfunded
liabilities, that as of the Effective Time, will not be offset by insurance
or fully accrued. Except as required by law, no condition exists that would
prevent the Company or Parent from terminating or amending any
International Employee Plan at any time for any reason.
(m) Change of Control Payments. Section 2.14(m) of the Company
Schedules sets forth each plan or agreement pursuant to which any amounts
may become payable (whether currently or in the future) to current or
former officers and directors of the Company as a result of or in
connection with the Merger.
(n) Employee Notices. Except as set forth in Section 2.14 of the
Company Schedules, the Company has not sent any notices or other
communications (written or oral) to current employees of the Company that
purport to require minimum notice or severance payments in the event of
termination of employment without cause.
2.15 Environmental Matters.
(a) Hazardous Material. Except as would not result in material
liability to the Company (in any individual case or in the aggregate), no
underground storage tanks and no amount of any substance that has been
designated by any Governmental Entity or by applicable federal, state or
local law to be radioactive, toxic, hazardous or otherwise a danger to
health or the environment, including, without limitation, PCBs, asbestos,
petroleum, urea-formaldehyde and all substances listed as hazardous
substances pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, or defined as a
hazardous waste pursuant to the United States Resource Conservation and
Recovery Act of 1976, as amended, and the regulations promulgated pursuant
to said laws, but excluding office and janitorial supplies (a "HAZARDOUS
MATERIAL"), are present, as a result of the actions of the Company or any
of its subsidiaries or any affiliate of the Company, or, to the Company's
knowledge, as a result of any actions of any third party or otherwise, in,
on or under any property, including the land and the improvements, ground
water and surface water thereof, that the Company or any of its
subsidiaries has at any time owned, operated, occupied or leased.
(b) Hazardous Materials Activities. Except as would not result in a
material liability to the Company (in any individual case or in the
aggregate), (i) neither the Company nor any of its subsidiaries has
transported, stored, used, manufactured, disposed of, released or exposed
its employees or others to Hazardous Materials in violation of any law in
effect on or before the Closing Date, and (ii) neither the Company nor any
of its subsidiaries has disposed of, transported, sold, used, released,
exposed its employees or others to or manufactured any product containing a
Hazardous Material (collectively "HAZARDOUS MATERIALS ACTIVITIES") in
violation of any rule, regulation, treaty or statute promulgated by any
Governmental Entity in effect prior to or as of the date hereof to
prohibit, regulate or control Hazardous Materials or any Hazardous Material
Activity.
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(c) Permits. The Company and its subsidiaries currently hold all
environmental approvals, permits, licenses, clearances and consents (the
"COMPANY ENVIRONMENTAL PERMITS") necessary for the conduct of the Company's
and its subsidiaries' Hazardous Material Activities and other businesses of
the Company and its subsidiaries as such activities and businesses are
currently being conducted.
(d) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ or injunction is pending or, to the
Company's knowledge, threatened by any Governmental Entity against the
Company or any of its subsidiaries concerning any the Company Environmental
Permit, Hazardous Material or any Hazardous Materials Activity of the
Company or any of its subsidiaries. The Company is not aware of any fact or
circumstance which could involve the Company or any of its subsidiaries in
any environmental litigation or impose upon the Company any material
environmental liability.
2.16 Agreements, Contracts and Commitments.
(a) Except as otherwise set forth in Section 2.9 or 2.16 of the
Company Schedules, neither the Company nor any of its subsidiaries is a
party to or is bound by:
(i) any agreement of indemnification or any guaranty other than any
agreement of indemnification entered into in connection with the sale or
license of software products or technology in the ordinary course of
business;
(ii) any agreement, contract or commitment containing any covenant
limiting in any respect the right of the Company or any of its
subsidiaries to engage in any line of business or to compete with any
person or granting any exclusive distribution rights;
(iii) any agreement, contract or commitment relating to the
disposition or acquisition by the Company or any of its subsidiaries
after the date of this Agreement of a material amount of assets not in
the ordinary course of business or pursuant to which the Company has any
material ownership interest in any corporation, partnership, joint
venture or other business enterprise other than the Company's
subsidiaries;
(iv) any agreement, contract or commitment to provide source code
to any third party for any product or technology that is material to the
Company and its subsidiaries taken as a whole;
(v) any agreement, contract or commitment to license any third
party to manufacture or reproduce any the Company product, service or
technology except as a non-exclusive distributor, OEM or reseller (in
the standard forms previously provided to counsel for Parent) entered
into in the normal course of business;
(vi) any lease of personal property having a value in excess of
US$50,000 individually or US$100,000 in the aggregate;
(vii) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the
borrowing of money or extension of credit in excess of US$50,000
individually or US$100,000 in the aggregate;
(viii) any dealer, distribution, joint marketing or development
agreement under which agreement payments have been made to or by the
Company since January 1, 1997 totaling at least $50,000 individually or
(in the case of multiple agreements with one party) in the aggregate; or
(ix) any joint venture contract or arrangement or any other
agreement that involves a sharing of profits with other persons.
2.17 Statements; Proxy Statement/Prospectus. The information supplied by
the Company for inclusion in the Registration Statement (as defined in Section
3.4(b)) shall not at the time the Registration Statement is filed with the SEC
and at the time it becomes effective under the Securities Act contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not
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misleading. The information supplied by the Company for inclusion in the joint
proxy statement/prospectus to be sent to (a) the stockholders of Parent in
connection with the meeting of Parent's stockholders to consider the approval of
the issuance of the shares of Parent Common Stock in the Merger and the Parent
Certificate Amendment (the "PARENT STOCKHOLDERS' MEETING") and (b) the
stockholders of the Company in connection with the meeting of the Company's
stockholders to consider the approval and adoption of this Agreement and the
approval of the Merger (the "COMPANY STOCKHOLDERS' MEETING") (such proxy
statement/prospectus as amended or supplemented is referred to herein as the
"PROXY STATEMENT/PROSPECTUS") shall not, on the date the Proxy
Statement/Prospectus is first mailed to Parent's stockholders and the Company's
stockholders or at the time of the Parent Stockholders' Meeting or the Company
Stockholders' Meeting, as the case may be, 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 false or misleading; or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Parent
Stockholders' Meeting and the Company Stockholders' Meeting which has become
false or misleading. The Proxy Statement/ Prospectus will comply as to form in
all material respects with the provisions of the Securities Act, the Exchange
Act and the rules and regulations of the SEC thereunder. If at any time prior to
the Effective Time any event relating to the Company or any of its affiliates,
officers or directors should be discovered by the Company which is required to
be set forth in an amendment to the Registration Statement or a supplement to
the Proxy Statement/Prospectus, the Company shall promptly inform Parent.
Notwithstanding the foregoing, the Company makes no representation or warranty
with respect to any information supplied by Parent or Merger Sub which is
contained in any of the foregoing documents.
2.18 Board Approval. The Board of Directors of the Company has, as of the
date of this Agreement, (i) determined that the Merger is fair to, and in the
best interests of the Company and its stockholders, (ii) approved and adopted
this Agreement and the transactions contemplated hereby, and (iii) resolved to
recommend that the stockholders of the Company approve and adopt this Agreement
and approve the Merger.
2.19 Fairness Opinion. The Company's Board of Directors has received a
written opinion from Cowen & Company dated as of the date hereof, to the effect
that as of the date hereof, the Exchange Ratio is fair to the Company's
stockholders from a financial point of view and has delivered to Parent a copy
of such opinion.
2.20 Certain Transactions and Agreements. Except as set forth in the
Company SEC Reports, since December 31, 1997, no event has occurred that would
be required to be reported by the Company as a Certain Relationship or Related
Transaction pursuant to Item 404 of Regulation S-K promulgated by the SEC.
2.21 Non-Applicability of Massachusetts Antitakeover Law. The Board of
Directors of the Company has taken all actions so that any restrictions
contained in the Massachusetts General Laws purporting to restrict transactions
such as those contemplated by this Agreement, including Chapters 110C, 110D,
110E and 110F, will not be applicable to the Merger or the other transactions
contemplated hereby.
2.22 Customs; Export Controls. The Company has acted with reasonable care
to properly value and classify, in accordance with applicable tariff laws, rules
and regulations, all goods that the Company or any of its subsidiaries import
into the United States or into any other country (the "IMPORTED GOODS"). To the
Company's knowledge, there are currently no material claims pending against the
Company by the U.S. Customs Service (or other foreign customs authorities)
relating to the valuation, classification or marking of the Imported Goods. The
Company has complied in all material respects with the requirements of all U.S.
government export controls in the sale of its products.
2.23 Pooling of Interests. To its knowledge, based on consultation with its
independent accountants, neither the Company nor any of its directors, officers
or stockholders has taken any action which would interfere with (i) Parent's
ability to account for the Merger as a pooling of interests or (ii) Parent's,
Surviving Corporation's or the Company's ability to continue to account for as a
pooling of interests any past acquisition by the Company currently accounted for
as a pooling of interests.
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2.24 Company Common Stockholder Approval. Adoption and approval of this
Agreement and approval of the Merger requires the affirmative vote of a majority
of the outstanding shares of Company Common Stock.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company, jointly and
severally, subject to the exceptions specifically disclosed in writing in the
disclosure letter and referencing a specific representation supplied by Parent
to the Company dated as of the date hereof and certified by a duly authorized
officer of Parent (the "PARENT SCHEDULES"), as follows:
3.1 Organization of Parent and Merger Sub.
(a) Each of Parent and Merger Sub: (i) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized; (ii) has the corporate or other
power and authority to own, lease and operate its assets and property and
to carry on its business as now being conducted; and (iii) except as would
not be material to Parent, is duly qualified or licensed to do business in
each jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its activities makes such qualification or
licensing necessary.
(b) Parent has delivered or made available to the Company a true and
correct copy of the Certificate of Incorporation and Bylaws of each of
Parent and Merger Sub, each as amended to date, and each such instrument is
in full force and effect. Neither Parent nor any of its subsidiaries is in
violation of any of the provisions of its Certificate of Incorporation or
Bylaws or equivalent governing instruments.
3.2 Parent and Merger Sub Capital Structure. The authorized capital stock
of Parent consists of 75,000,000 shares of Common Stock, of which there were
44,206,595 shares issued and outstanding as of the date of this Agreement. The
authorized capital stock of Merger Sub consists of 1,000 shares of Common Stock,
$0.01 par value, all of which, as of the date hereof, are issued and outstanding
and are held by Parent. All outstanding shares of Parent Common Stock and shares
of Common Stock of Merger Sub are duly authorized, validly issued, fully paid
and nonassessable and are not subject to preemptive rights created by statute,
the charter documents or Bylaws of Parent or Merger Sub or any agreement or
document to which Parent or Merger Sub is a party or by which either of them is
bound.
3.3 Obligations With Respect to Capital Stock. Except as set forth in
Section 3.2 or in the Parent Schedules, there are no equity securities,
partnership interests or similar ownership interests of any class of Parent's
equity security, or any securities exchangeable or convertible into or
exercisable for such equity securities, partnership interests or similar
ownership interests, issued, reserved for issuance or outstanding. Except for
securities Parent owns free and clear of all claims and encumbrances, directly
or indirectly through one or more subsidiaries, as of the date of this
Agreement, there are no equity securities, partnership interests or similar
ownership interests of any class of equity security of any subsidiary of Parent
or any security exchangeable or convertible into or exercisable for such equity
securities, partnership interests or similar ownership interests, issued,
reserved for issuance or outstanding. Except as set forth in Section 3.2 or in
the Parent Schedules, there are no subscriptions, options, warrants, equity
securities, partnership interests or similar ownership interests, calls, rights
(including preemptive rights), commitments or agreements of any character to
which Parent or any of its subsidiaries is a party or by which it is bound
obligating Parent or any of its subsidiaries to issue, deliver or sell, or cause
to be issued, delivered or sold, or repurchase, redeem or otherwise acquire, or
cause the repurchase, redemption or acquisition of, any shares of capital stock,
partnership interests or similar ownership interests of the Parent or any of its
subsidiaries or obligating the Parent or any of its subsidiaries to grant,
extend, accelerate the vesting of or enter into any such subscription, option,
warrant, equity security, call, right, commitment or agreement. As of the date
of this Agreement, except as contemplated by this Agreement, there are no
registration rights and there is no voting trust, proxy, rights plan, or other
agreement or understanding to which the Parent is a party or by which it is
bound with
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respect to any equity security of any class of the Parent or with respect to any
equity security, partnership interest or similar ownership interest of any class
of any of its subsidiaries.
3.4 Authority.
(a) Each of Parent and Merger Sub has all requisite corporate power
and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of
Parent and Merger Sub, subject only to approval of the issuance of shares
of Parent Common Stock in the Merger and the Parent Certificate Amendment
by Parent's stockholders and the filing of the Articles of Merger pursuant
to the MBCL. This Agreement has been duly executed and delivered by each of
Parent and Merger Sub and, assuming the due authorization, execution and
delivery by the Company, constitutes the valid and binding obligation of
Parent and Merger Sub, enforceable against Parent and Merger Sub in
accordance with its terms, except as enforceability may be limited by
bankruptcy and other similar laws and general principles of equity. The
execution and delivery of this Agreement by each of Parent and Merger Sub
does not, and the performance of this Agreement by each of Parent and
Merger Sub will not, (i) conflict with or violate the charter documents or
Bylaws of Parent or Merger Sub, (ii) subject to obtaining the approval of
the issuance of shares of Parent Common Stock in the Merger by Parent's
stockholders as contemplated in Section 5.2 and compliance with the
requirements set forth in Section 3.4(b) below, conflict with or violate
any law, rule, regulation, order, judgment or decree applicable to Parent,
any of its material subsidiaries as defined in the Parent SEC Reports or
Merger Sub or by which any of their respective properties is bound or
affected or (iii) result in any material breach of or constitute a material
default (or an event that with notice or lapse of time or both would become
a material default) under, or impair Parent's rights or alter the rights or
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a material lien or encumbrance on any of the material
properties or assets of Parent, any of its material subsidiaries as defined
in the Parent SEC Reports or Merger Sub pursuant to, any material note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise, concession or other instrument or obligation to which Parent,
any of its material subsidiaries as defined in the Parent SEC Reports or
Merger Sub is a party or by which Parent, any of its material subsidiaries
as defined in the Parent SEC Reports or Merger Sub or any of their
respective properties are bound or affected.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required to be
obtained or made by Parent or any of its subsidiaries in connection with
the execution and delivery of this Agreement or the consummation of the
Merger, except for (i) the filing of a Form S-4 (or any similar successor
form thereto) Registration Statement (the "REGISTRATION STATEMENT"),
including the Proxy Statement/Prospectus, with the SEC in accordance with
the Securities Act and the Exchange Act, (ii) the filing of the Articles of
Merger with the Secretary of State of the Commonwealth of Massachusetts,
(iii) such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal,
foreign and state securities (or related) laws and the HSR Act and the
securities or antitrust laws of any foreign country, and (iv) such other
consents, authorizations, filings, approvals and registrations which if not
obtained or made would not be material to Parent or the Company or have a
material adverse effect on the ability of the parties hereto to consummate
the Merger.
3.5 SEC Filings; Parent Financial Statements.
(a) Parent has filed all forms, reports and documents required to be
filed by Parent with the SEC since December 31, 1995, and has made
available to the Company such forms, reports and documents in the form
filed with the SEC. All such required forms, reports and documents
(including those that Parent may file subsequent to the date hereof) are
referred to herein as the "PARENT SEC REPORTS." As of their respective
dates, the Parent SEC Reports (i) were prepared in accordance with the
requirements of the Securities Act or the Exchange Act, as the case may be,
and the rules and regulations of the SEC thereunder applicable to such
Parent SEC Reports, and (ii) did not at the time they were filed (or if
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amended or superseded by a filing prior to the date of this Agreement, then
on the date of such filing) contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. None of Parent's subsidiaries
is required to file any forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Parent SEC Reports (the
"PARENT FINANCIALS"), including any Parent SEC Reports filed after the date
hereof until the Closing, (i) complied as to form in all material respects
with the published rules and regulations of the SEC with respect thereto,
(ii) was prepared in accordance with GAAP applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto or, in the case of unaudited interim financial statements, as may
be permitted by the SEC on Form 10-Q under the Exchange Act) and (iii)
fairly presented the consolidated financial position of Parent and its
subsidiaries as at the respective dates thereof and the consolidated
results of Parent's operations and cash flows for the periods indicated,
except that the unaudited interim financial statements may not contain
footnotes and were or are subject to normal and recurring year-end
adjustments. The balance sheet of Parent contained in Parent SEC Reports as
of March 31, 1998, is hereinafter referred to as the "PARENT BALANCE
SHEET."
3.6 Absence of Certain Changes or Events. Since the date of the Parent
Balance Sheet there has not been: (i) any Material Adverse Effect on Parent;
(ii) material change by Parent in its accounting methods, principles or
practices, except as required by concurrent changes in GAAP; (iii) any
revaluation by Parent of any of its assets, including, without limitation,
writing down the value of capitalized inventory or writing off notes or accounts
receivable other than in the ordinary course of business; (iv) any declaration,
setting aside or payment of any dividend on, or other distribution (whether in
cash, stock or property) in respect of, any of Parent's or any of its
subsidiaries' capital stock; (v) any purchase, redemption or other acquisition
by Parent of any of Parent's capital stock or any other securities of Parent or
its subsidiaries or any options, warrants, calls or rights to acquire any such
shares or other securities except for repurchases from employees following their
termination pursuant to the terms of the pre-existing stock option or purchase
agreements; or (vi) any split, combination or reclassification of any of
Parent's or any of its subsidiaries' capital stock.
3.7 Statements; Proxy Statement/Prospectus. The information supplied by
Parent for inclusion in the Registration Statement, including the Proxy
Statement/Prospectus, shall not at the time the Registration Statement is filed
with the SEC and at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The information supplied by Parent for inclusion in the Proxy
Statement/Prospectus shall not, on the date the Proxy Statement/Prospectus is
first mailed to Parent's stockholders and the Company's stockholders or at the
time of the Parent Stockholders' Meeting or the Company Stockholders' Meeting,
as the case may be, 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 false or misleading; or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the Parent Stockholders' Meeting and the Company
Stockholders' Meeting which has become false or misleading. The Proxy
Statement/Prospectus will comply as to form in all material respects with the
provisions of the Securities Act, the Exchange Act and the rules and regulations
of the SEC thereunder. If at any time prior to the Effective Time, any event
relating to Parent or any of its affiliates, officers or directors should be
discovered by Parent which is required to be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement/Prospectus, Parent
shall promptly inform the Company. Notwithstanding the foregoing, Parent makes
no representation or warranty with respect to any information supplied by the
Company which is contained in any of the foregoing documents.
3.8 Valid Issuance. The Parent Common Stock to be issued in the Merger,
when issued in accordance with the provisions of this Agreement: (a) will be
validly issued, fully paid and non assessable; and (b) will not be subject to
any restrictions on resale under the Securities Act, other than restrictions
imposed by
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Rule 145 promulgated under the Securities Act and restrictions imposed under the
Affiliate Agreement signed by certain stockholders of the Company.
3.9 Board Approval. The Board of Directors of Parent has, as of the date
of this Agreement, unanimously determined (i) that the issuance of shares of
Parent Common Stock in the Merger is fair to, and in the best interests of
Parent and its stockholders, (ii) to approve this Agreement, the Merger and the
Parent Certificate Amendment and the other transactions contemplated by this
Agreement, and (iii) to recommend that the stockholders of Parent approve the
issuance of shares of Parent Common Stock in the Merger and the Parent
Certificate Amendment. The Board of Directors of Merger Sub and the sole
stockholder of Merger Sub have approved the Merger.
3.10 Merger Sub. Merger Sub was formed solely for the purpose of engaging
in the transactions contemplated by this Agreement. As of the date hereof and
the Effective Time, except for obligations or liabilities incurred in connection
with its incorporation and the transactions contemplated by this Agreement,
Merger Sub has not and will not have incurred, directly or indirectly, any
obligations or liabilities or engaged in any business activities of any kind or
entered into any agreements or arrangements with any person.
3.11 Litigation. Except as disclosed in the Parent Schedules, there are no
claims, suits, actions or proceedings pending or, to the knowledge of Parent,
threatened against, relating to or affecting Parent or any of its subsidiaries,
before any court, governmental department, commission, agency, instrumentality
or authority, or any arbitrator that seeks to restrain or enjoin the
consummation of the transactions contemplated by this Agreement or which would
reasonably be expected, either singularly or in the aggregate with all such
claims, actions or proceedings to have a material effect on Parent. No
Governmental Entity has at any time challenged or questioned in a writing
delivered to Parent the legal right of Parent to design, manufacture, offer or
sell any of its products in the present manner or style thereof.
3.12 Brokers' and Finders' Fees. Except for fees payable to CIBC
Oppenheimer & Co. pursuant to an engagement letter dated May 8, 1998, a copy of
which has been provided to the Company, Parent has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby.
3.13 Reservation of Shares. Parent has reserved a sufficient number of
shares of Parent Common Stock for issuance in the Merger and upon exercise of
all options granted under the Company Stock Option Plans.
3.14 Intellectual Property.
(a) To Parent's knowledge, the operation of the business of Parent as
such business currently is conducted, including Parent's design,
development, manufacture, marketing and sale of the products or services of
Parent (including with respect to products currently under development) has
not and does not infringe or misappropriate the Intellectual Property of
any third party or, to its knowledge, constitute unfair competition or
trade practices under the laws of any jurisdiction.
(b) Parent has not received notice from any third party that the
operation of the business of Parent or its subsidiaries or any act, product
or service of Parent or its subsidiaries, infringes or misappropriates the
Intellectual Property of any third party or constitutes unfair competition
or trade practices under the laws of any jurisdiction.
(c) To the knowledge of Parent, no person has or is infringing or
misappropriating any Parent Intellectual Property.
3.15 Compliance. Neither Parent nor any of its subsidiaries is, in any
material respect, in conflict with, or in default or in violation of (i) any
law, rule, regulation, order, judgment or decree applicable to Parent or any of
its subsidiaries or by which Parent or any of its subsidiaries or any of their
respective properties is bound or affected, or (ii) any material note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Parent or any of its subsidiaries is a
party or by which Parent or any of its subsidiaries or its or any of their
respective properties is bound or affected, except for
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conflicts, violations and defaults that (individually or in the aggregate) would
not cause Parent to lose any material benefit or incur any material liability.
Except as set forth in Section 3.14 of the Parent Schedules, no investigation or
review by any Governmental Entity is pending or, to Parent's knowledge, has been
threatened in a writing delivered to Parent against Parent or any of its
subsidiaries, nor, to Parent's knowledge, has any Governmental Entity indicated
an intention to conduct an investigation of Parent or any of its subsidiaries.
There is no material agreement, judgment, injunction, order or decree binding
upon Parent or any of its subsidiaries which has or would reasonably be expected
to have the effect of prohibiting or materially impairing the transactions
contemplated by this Agreement.
3.16 Parent Common Stockholder Approval. Approval of the issuance of
shares of Parent Common Stock in the Merger requires the affirmative vote of a
majority of the outstanding shares of Parent Common Stock present in person or
represented by proxy at the Parent Stockholders Meeting and the approval of the
Parent Certificate Amendment (as defined in Section 5.2) requires the
affirmative vote of a majority of the outstanding shares of Parent Common Stock.
3.17 Company Stock Ownership. Neither Parent nor any of its wholly-owned
subsidiaries nor to Parent's knowledge any officer or director of the Company or
any of its wholly-owned subsidiaries is the record or beneficial holder of any
shares of Company Common Stock.
3.18 Pooling of Interests. To its knowledge, based on consultation with
its independent accountants, neither Parent nor any of its directors, officers
or stockholders has taken any action which would interfere with Parent's ability
to account for the Merger as a pooling of interests.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business by the Company. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, the Company and each of
its subsidiaries shall, except to the extent that Parent shall otherwise consent
in writing (which consent shall not be unreasonably withheld), carry on its
business in the usual, regular and ordinary course, in substantially the same
manner as heretofore conducted and in material compliance with all applicable
laws and regulations, pay its debts and taxes when due subject to good faith
disputes over such debts or taxes, pay or perform other material obligations
when due, and use its commercially reasonable efforts consistent with past
practices and policies to (i) preserve substantially intact its present business
organization, (ii) keep available the services of its present officers and
employees, (iii) preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others with which it has significant
business dealings and (iv) make reasonable efforts to retain and preserve the
value of all office equipment, fixtures, and other assets (other than inventory
held for sale) used in the conduct of the Company's business, except as
otherwise permitted by subsection (j) of this Section. In addition, the Company
will promptly notify Parent of any material event involving its business or
operations.
In addition, except as permitted or required by the terms of this
Agreement, and except as provided in Section 4.1 of the Company Schedules,
without the prior written consent of Parent (which consent shall not be
unreasonably withheld), during the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement pursuant to
its terms or the Effective Time, the Company shall not do any of the following
and shall not permit its subsidiaries to do any of the following:
(a) Waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or restricted stock, or reprice options
granted under any employee, consultant, director or other stock plans or
authorize cash payments in exchange for any options granted under any of
such plans;
(b) Grant any severance or termination pay to any officer or employee
except pursuant to written agreements outstanding, or policies existing, on
the date hereof and as previously disclosed in writing or made available to
Parent, or adopt any new severance plan;
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(c) Sell or otherwise transfer any Company Intellectual Property,
enter into any license agreement with respect to the Company Intellectual
Property with any third party other than the Company's standard forms of
non-exclusive licenses, reseller, distribution or OEM agreements for the
sale of the Company's products or otherwise in the ordinary course of
business, or extend, amend or modify in any material adverse respect any
rights to any Company Intellectual Property or other proprietary rights, or
enter into grants to future patent rights;
(d) Buy any Intellectual Property of a third party or enter into any
license agreement with respect to the Intellectual Property of any third
party for an acquisition or licence, the price for which exceeds $50,000
individually or in the aggregate, other than "shrink wrap", "click wrap"
and similar widely available commercial end-user licenses;
(e) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in
respect of any capital stock or split, combine or reclassify any capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for any capital stock, except that a
wholly owned subsidiary of the Company may declare and pay a dividend to
its parent;
(f) Purchase, redeem or otherwise acquire, directly or indirectly, any
shares of capital stock of the Company or its subsidiaries;
(g) Issue, deliver, sell, authorize, pledge or otherwise encumber or
propose any of the foregoing of, any shares of capital stock or any
securities convertible into shares of capital stock, or subscriptions,
rights, warrants or options to acquire any shares of capital stock or any
securities convertible into shares of capital stock, or enter into other
agreements or commitments of any character obligating it to issue any such
shares or convertible securities, other than the issuance, delivery and/or
sale of (i) shares of the Company Common Stock pursuant to the exercise of
stock options therefor outstanding as of the date of this Agreement, and
(ii) shares of the Company Common Stock issuable to participants in the
ESPPs consistent with the terms thereof;
(h) Cause, permit or propose any amendments to its Articles of
Organization, Bylaws or other charter documents (or similar governing
instruments of any of its subsidiaries);
(i) Acquire or agree to acquire by merging or consolidating with, or
by purchasing any equity interest in or a portion of the assets of, or by
any other manner, any business or any corporation, partnership, association
or other business organization or division thereof, or otherwise acquire or
agree to acquire any assets which are material, individually or in the
aggregate, to the business of the Company or enter into any material joint
ventures, strategic partnerships or alliances;
(j) Sell, lease, license, encumber or otherwise dispose of any
properties or assets, except as permitted by Section 4.1(c) and except
sales in the ordinary course of business;
(k) Incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
options, warrants, calls or other rights to acquire any debt securities of
the Company, enter into any agreement to maintain any financial statement
condition or enter into any arrangement having the economic effect of any
of the foregoing;
(l) Adopt or amend any employee benefit plan or employee stock
purchase or employee stock option plan, or enter into any employment
contract or collective bargaining agreement (other than offer letters and
letter agreements entered into in the ordinary course of business with
employees who are terminable "at will"), pay any special bonus or special
remuneration to any director or employee in excess of $150,000 in the
aggregate to persons and in amounts proposed by the Company and reasonably
agreed to by Parent (it being understood that the Company shall have the
right to pay such amount), or increase the salaries or wage rates or fringe
benefits (including rights to severance or indemnification) of its
directors, officers, employees or consultants;
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(m) Pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise) other
than the payment, discharge or satisfaction in the ordinary course of
business or in accordance with applicable contractual requirements;
(n) Except in the ordinary course of business, modify, amend or
terminate any material contract or agreement to which the Company or any
subsidiary thereof is a party or waive, release or assign any material
rights or claims thereunder;
(o) Enter into any contracts, agreements, or obligations relating to
the distribution, sale, license or marketing by third parties of the
Company's products or products licensed by the Company other than
non-exclusive agreements in the ordinary course of business;
(p) Materially revalue any of its assets or, except as required by
GAAP, make any change in accounting methods, principles or practices;
(q) Make or change any material election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent
to any extension or waiver of the limitation period applicable to any claim
or assessment in respect of Taxes in an amount in excess of $50,000 in the
aggregate;
(r) Commence any litigation or settle any litigation for an amount in
excess of the greater of $50,000 in the aggregate or the amount reserved in
respect thereof in the Company Balance Sheet, as set forth in Section
4.1(r) of the Company Schedules;
(s) Take any action that would be reasonably likely to interfere with
Parent's ability to account for the Merger as a pooling of interests
whether or not otherwise permitted by the provisions of this Article IV;
(t) Terminate the employment of any employee of the Company other than
for cause; or
(u) Agree in writing or otherwise to take any of the actions described
in Section 4.1(a) through (t) above.
4.2 Conduct of Business by Parent. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time, except as permitted by the terms of
this Agreement and except as provided in Section 4.2 of the Parent Schedules,
without the prior written consent of the Company (which consent shall not be
unreasonably withheld), Parent shall not, and shall not permit any of its
subsidiaries to, do any of the following:
(a) take any action that would be reasonably likely to interfere with
Parent's ability to account for the Merger as a pooling of interests;
(b) declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in
respect of any capital stock or split, combine or reclassify any capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for any capital stock, except that a
wholly owned subsidiary of Parent may declare and pay a dividend to Parent
except for the Parent Certificate Amendment;
(c) purchase, redeem or otherwise acquire, directly or indirectly, any
shares of capital stock of Parent or its subsidiaries, except repurchases
of unvested shares at cost in connection with termination of the employment
relationship with any employee pursuant to stock option or purchase
agreements in effect on the date hereof;
(d) materially revalue any of its assets or, except as required by
GAAP, make any change in accounting methods, principles or practices; or
(e) agree in writing or otherwise to take any of the actions described
in Section 4.2(a) through (d) above.
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ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Proxy Statement/Prospectus; Registration Statement; Other Filings;
Board Recommendations.
(a) As promptly as practicable after the execution of this Agreement,
Parent and the Company will prepare, and file with the SEC, the Proxy
Statement/Prospectus and Parent will prepare and file with the SEC the
Registration Statement in which the Proxy Statement/Prospectus will be
included as a prospectus. Each of Parent and the Company will respond to
any comments of the SEC, will use their respective commercially reasonable
efforts to have the Registration Statement declared effective under the
Securities Act as promptly as practicable after such filing and each of
Parent and the Company will cause the Proxy Statement/Prospectus to be
mailed to their respective stockholders at the earliest practicable time
after the Registration Statement is declared effective by the SEC. As
promptly as practicable after the date of this Agreement, each of Parent
and the Company will prepare and file any other filings required to be
filed by it under the Exchange Act, the Securities Act or any other
Federal, foreign or Blue Sky or related laws relating to the Merger and the
transactions contemplated by this Agreement (the "OTHER FILINGS"). Each of
Parent and the Company will notify the other promptly upon the receipt of
any comments from the SEC or its staff or any other government officials
and of any request by the SEC or its staff or any other government
officials for amendments or supplements to the Registration Statement, the
Proxy Statement/Prospectus or any Other Filing or for additional
information and will supply the other with copies of all correspondence
between such party or any of its representatives, on the one hand, and the
SEC, or its staff or any other government officials, on the other hand,
with respect to the Registration Statement, the Proxy Statement/Prospectus,
the Merger or any Other Filing. Each of Parent and the Company will cause
all documents that it is responsible for filing with the SEC or other
regulatory authorities under this Section 5.1(a) to comply in all material
respects with all applicable requirements of law and the rules and
regulations promulgated thereunder. Whenever any event occurs which is
required to be set forth in an amendment or supplement to the Proxy
Statement/Prospectus, the Registration Statement or any Other Filing,
Parent or the Company, as the case may be, will promptly inform the other
of such occurrence and cooperate in filing with the SEC or its staff or any
other government officials, and/or mailing to stockholders of Parent and
the Company, as the case may be, such amendment or supplement.
(b) The Proxy Statement/Prospectus will include the recommendation of
the Board of Directors of Parent in favor of approval of the issuance of
shares of Parent Common Stock in the Merger, the Parent Certificate
Amendment and, subject to Section 5.2(c), the recommendation of the Board
of Directors of the Company in favor of adoption and approval of this
Agreement and approval of the Merger.
5.2 Meetings of Parent and Company Stockholders.
(a) Promptly after the date hereof, Parent and the Company will take
all action necessary in accordance with the laws of the respective states
in which they are organized and their respective charter documents and
Bylaws to convene the Parent Stockholders' Meeting and the Company
Stockholders' Meeting to be held as promptly as practicable, and in any
event (to the extent permissible under applicable law) within 45 days after
the declaration of effectiveness of the Registration Statement, for the
purpose of voting on the issuance of shares of Parent Common Stock in the
Merger and approving the Parent Certificate Amendment and voting upon this
Agreement and the Merger, respectively. Parent and the Company shall use
their respective reasonable best efforts to hold their respective
stockholders' meeting on the same day and the same time. Parent and the
Company, subject to Section 5.2(c), will use their commercially reasonable
efforts to solicit from their respective stockholders proxies in favor of
approval of the issuance of shares of Parent Common Stock in the Merger and
the Parent Certificate Amendment and adoption and approval of this
Agreement and the approval of the Merger, respectively, and will take all
other action necessary or advisable to secure the vote or consent of their
respective stockholders required by the rules of Nasdaq, their respective
charter documents and Bylaws or the laws of the respective states in which
they are organized to obtain such approvals. Notwithstanding anything to
the contrary contained in this Agreement, Parent and the Company may
adjourn or postpone the Parent
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Stockholders' Meeting and the Company Stockholders' Meeting, as the case
may be, to the extent necessary to ensure that any necessary supplement or
amendment to the Prospectus/Proxy Statement is provided to Parent's
stockholders and the Company's stockholders in advance of a vote on the
issuance of shares of Parent Common Stock in the Merger and the Parent
Certificate Amendment and the Merger and this Agreement, respectively, or,
if as of the time for which the Parent Stockholders' Meeting and the
Company Stockholders' Meeting is originally scheduled (as set forth in the
Prospectus/Proxy Statement) there are insufficient shares of Parent Common
Stock or the Company Common Stock, as the case may be, represented (either
in person or by proxy) to constitute a quorum necessary to conduct the
business at the Parent Stockholders' Meeting or the Company Stockholders'
Meeting. Parent and the Company shall ensure that the Parent Stockholders'
Meeting and the Company Stockholders' Meeting, respectively, are duly
called, noticed, convened, held and conducted, and subject to Section
5.2(c) that all proxies solicited by the Parent and the Company in
connection with the Parent Stockholders' Meeting and the Company
Stockholders' Meeting, respectively, are solicited, in compliance with the
laws of the respective states in which Parent and the Company are
organized, their respective charter documents and Bylaws, the rules of
Nasdaq and all other applicable legal requirements. The Company's
obligation to call, give notice of, convene and hold the Company
Stockholders' Meeting in accordance with this Section 5.2(a) shall not be
limited to or otherwise affected by the commencement, disclosure,
announcement or submission to the Company of any Acquisition Proposal, or
by any withdrawal, amendment or modification of the recommendation of the
Board of Directors of the Company with respect to the Merger.
(b) Subject to Section 5.2(c): (i) the Board of Directors of the
Company shall unanimously recommend that the Company's stockholders vote in
favor of and adopt and approve this Agreement and the Merger at the Company
Stockholders' Meeting; (ii) the Prospectus/Proxy Statement shall include a
statement to the effect that the Board of Directors of the Company has
unanimously recommended that the Company's stockholders vote in favor of
and adopt and approve this Agreement and the Merger at the Company
Stockholders' Meeting; and (iii) neither the Board of Directors of the
Company nor any committee thereof shall withdraw, amend or modify, or
propose or resolve to withdraw, amend or modify in a manner adverse to
Parent, the unanimous recommendation of the Board of Directors of the
Company that the Company's stockholders vote in favor of and adopt and
approve this Agreement and the Merger. For purposes of this Agreement, said
recommendation of the Board of Directors shall be deemed to have been
modified in a manner adverse to Parent if said recommendation shall no
longer be unanimous.
(c) Nothing in this Agreement shall prevent the Board of Directors of
the Company from withholding, withdrawing, amending or modifying its
unanimous recommendation in favor of the Merger if (i) a Superior Offer (as
defined below) is made to the Company and is not withdrawn, (ii) neither
the Company nor any of its representatives shall have violated any of the
restrictions set forth in Section 5.4, and (iii) the Board of Directors of
the Company or any committee thereof concludes in good faith, after
consultation with its outside counsel, that, in light of such Superior
Offer, the withholding, withdrawal, amendment or modification of such
recommendation is required in order for the Board of Directors of the
Company or any committee thereof to comply with its fiduciary obligations
to the Company's stockholders under applicable law. Subject to applicable
laws, nothing contained in this Section 5.2 shall limit the Company's
obligation to hold and convene the Company Stockholders' Meeting
(regardless of whether the unanimous recommendation of the Board of
Directors of the Company shall have been withdrawn, amended or modified).
For purposes of this Agreement "SUPERIOR OFFER" shall mean an unsolicited,
bona fide written offer made by a third party to consummate any of the
following transactions: (i) a merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving
the Company pursuant to which the stockholders of the Company immediately
preceding such transaction hold less than 50% of the equity interest in the
surviving or resulting entity of such transaction; (ii) a sale or other
disposition by the Company of assets (excluding inventory and used
equipment sold in the ordinary course of business) representing in excess
of 50% of the fair market value of the Company's business immediately prior
to such sale; or (iii) the acquisition by any person or group (including by
way of a tender offer or an exchange offer or issuance by the Company),
directly or indirectly, of beneficial ownership or a right to acquire
beneficial ownership of
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shares representing in excess of 50% of the voting power of the then
outstanding shares of capital stock of the Company, on terms that the Board
of Directors of the Company determines, in its reasonable judgment, after
consultation with its financial advisor, to be more favorable to the
Company stockholders than the terms of the Merger; provided, however, that
any such offer shall not be deemed to be a "SUPERIOR OFFER" if any
financing required to consummate the transaction contemplated by such offer
is not committed.
(d) (i) The Board of Directors of Parent shall unanimously recommend
that Parent's stockholders vote in favor of the issuance of Parent Common
Stock in the Merger and the Parent Certificate Amendment (ii) the
Prospectus/Proxy Statement shall include a statement to the effect that the
Board of Directors of Parent has unanimously recommended that Parent's
stockholders vote in favor of the issuance of Parent Common Stock in the
Merger and the Parent Certificate Amendment; and (iii) neither the Board of
Directors of Parent nor any committee thereof shall withdraw, amend or
modify, or propose or resolve to withdraw, amend or modify, in a manner
adverse to the Company, the unanimous recommendation of the Board of
Directors of Parent that Parent's stockholders vote in favor of the
issuance of Parent Common Stock in the Merger and the Parent Certificate
Amendment. For purposes of this Agreement, said recommendation of Parent's
Board of Directors shall be deemed to have been modified in a manner
adverse to the Company if said recommendation shall no longer be unanimous.
5.3 Confidentiality; Access to Information.
(a) The parties acknowledge that the Company and Parent have
previously executed a Confidentiality Agreement, dated as of April 17, 1998
(the "CONFIDENTIALITY AGREEMENT"), which Confidentiality Agreement will
continue in full force and effect in accordance with its terms.
(b) Access to Information. Each of Parent and the Company will afford
the other and the other's accountants, counsel and other representatives
reasonable access during normal business hours to its properties, books,
records and personnel during the period prior to the Effective Time to
obtain all information concerning the business, including the status of
product development efforts, properties, results of operations and
personnel, as the other may reasonably request. No information or knowledge
obtained by Parent or the Company in any investigation pursuant to this
Section 5.3 will affect or be deemed to modify any representation or
warranty contained herein or the conditions to the obligations of the
parties to consummate the Merger.
5.4 No Solicitation.
(a) From and after the date of this Agreement until the Effective Time
or termination of this Agreement pursuant to Article VII, the Company and
its subsidiaries will not, nor will they authorize or permit any of their
respective officers, directors, affiliates or employees or any investment
banker, attorney or other advisor or representative retained by any of them
to, directly or indirectly, (i) solicit, initiate, encourage or induce the
making, submission or announcement of any Acquisition Proposal (as
hereinafter defined), (ii) participate in any discussions or negotiations
regarding, or furnish to any person any non-public information with respect
to, or take any other action to facilitate any inquiries or the making of
any proposal that constitutes or could reasonably be expected to lead to,
any Acquisition Proposal, (iii) engage in discussions with any person with
respect to any Acquisition Proposal, except as to the existence of these
provisions, (iv) subject to Section 5.2(c), approve, endorse or recommend
any Acquisition Proposal or (v) enter into any letter of intent or similar
document or any contract, agreement or commitment contemplating or
otherwise relating to any Acquisition Transaction; provided, however, that
prior to the approval of this Agreement by the required vote of the
Company's stockholders, this Section 5.4(a) shall not prohibit the Company
from furnishing nonpublic information, regarding the Company and its
subsidiaries to, entering into a confidentiality agreement with or entering
into discussions or negotiations with, any person or group in response to a
Superior Offer submitted by such person or group (and not withdrawn) if (1)
neither the Company nor any representative of the Company and its
subsidiaries shall have violated any of the restrictions set forth in this
Section 5.4, (2) the Board of Directors of the Company concludes in good
faith, after consultation with its outside legal counsel, that
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such action is required in order for the Board of Directors of the Company
to comply with its fiduciary obligations to the Company's stockholders
under applicable law, (3) prior to furnishing any such nonpublic
information to, or entering into discussions or negotiations with, such
person or group, the Company gives Parent written notice of the identity of
such person or group and of the Company's intention to furnish nonpublic
information to, or enter into discussions with, such person or group and
the Company receives from such person or group an executed confidentiality
agreement containing customary limitations on the use and disclosure of all
nonpublic written and oral information furnished to such person or group by
or on behalf of the Company, and (4) contemporaneously with furnishing any
such nonpublic information to such person or group, the Company furnishes
such nonpublic information to Parent (to the extent such nonpublic
information has not been previously furnished by the Company to Parent).
The Company and its subsidiaries will immediately cease any and all
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any Acquisition Proposal. Without limiting the
foregoing, it is understood that any violation of the restrictions set
forth in the preceding two sentences by any officer, director or employee
of the Company or any of its subsidiaries or any investment banker,
attorney or other advisor or representative of the Company or any of its
subsidiaries shall be deemed to be a breach of this Section 5.4 by the
Company. In addition to the foregoing, the Company shall (i) provide Parent
with at least 24 hours prior notice of any meeting of the Company's Board
of Directors at which the Company's Board of Directors is reasonably
expected to consider a Superior Offer and (ii) provide Parent with at least
two (2) days prior written notice of a meeting of the Company's Board of
Directors at which the Company's Board of Directors is reasonably expected
to recommend a Superior Offer to its stockholders and together with such
notice a copy of the definitive documentation relating to such Superior
Offer.
For purposes of this Agreement, "ACQUISITION PROPOSAL" shall mean any
offer or proposal (other than an offer or proposal by Parent) relating to
any Acquisition Transaction. For the purposes of this Agreement,
"ACQUISITION TRANSACTION" shall mean any transaction or series of related
transactions other than the transactions contemplated by this Agreement
involving: (A) any acquisition or purchase from the Company by any person
or "GROUP" (as defined under Section 13(d) of the Exchange Act and the
rules and regulations thereunder) of more than a 15% interest in the total
outstanding voting securities of the Company or any of its subsidiaries or
any tender offer or exchange offer that if consummated would result in any
person or "GROUP" (as defined under Section 13(d) of the Exchange Act and
the rules and regulations thereunder) beneficially owning 15% or more of
the total outstanding voting securities of the Company or any of its
subsidiaries or any merger, consolidation, business combination or similar
transaction involving the Company pursuant to which the stockholders of the
Company immediately preceding such transaction hold less than 85% of the
equity interests in the surviving or resulting entity of such transaction;
(B) any sale, lease (other than in the ordinary course of business),
exchange, transfer, license (other than in the ordinary course of
business), acquisition or disposition of more than 25% of the assets of the
Company; or (C) any liquidation or dissolution of the Company.
(b) In addition to the obligations of the Company set forth in
paragraph (a) of this Section 5.4, the Company as promptly as practicable
shall advise Parent orally and in writing of any request for non-public
information which the Company reasonably believes would lead to an
Acquisition Proposal or of any Acquisition Proposal, or any inquiry with
respect to or which the Company reasonably believes would lead to any
Acquisition Proposal, the material terms and conditions of such request,
Acquisition Proposal or inquiry, and the identity of the person or group
making any such request, Acquisition Proposal or inquiry. The Company will
keep Parent informed in all material respects of the status and details
(including material amendments or proposed amendments) of any such request,
Acquisition Proposal or inquiry.
5.5 Public Disclosure. Parent and the Company will consult with each
other, and to the extent practicable, agree, before issuing any press release or
otherwise making any public statement with respect to the Merger, this Agreement
or (except as otherwise required by law) an Acquisition Proposal and, except as
may be required by law or any listing agreement with a national securities
exchange, will not issue any such
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press release or make any such public statement prior to such consultation. The
parties have agreed to the text of the joint press release announcing the
signing of this Agreement.
5.6 Reasonable Efforts; Notification.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use all reasonable efforts to
take, or cause to be taken, all actions, and to do, or cause to be done,
and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the
most expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement, including using reasonable efforts to
accomplish the following: (i) the taking of all commercially reasonable
acts necessary to cause the conditions precedent set forth in Article VI to
be satisfied, (ii) the obtaining of all necessary actions or nonactions,
waivers, consents, approvals, orders and authorizations from Governmental
Entities and the making of all necessary registrations, declarations and
filings (including registrations, declarations and filings with
Governmental Entities, if any) and the taking of all reasonable steps as
may be necessary to avoid any suit, claim, action, investigation or
proceeding by any Governmental Entity, (iii) the obtaining of all necessary
consents, approvals or waivers from third parties, (iv) the defending of
any suits, claims, actions, investigations or proceedings, whether judicial
or administrative, challenging this Agreement or the consummation of the
transactions contemplated hereby, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental
Entity vacated or reversed and (v) the execution or delivery of any
additional instruments necessary to consummate the transactions
contemplated by, and to fully carry out the purposes of, this Agreement. In
connection with and without limiting the foregoing, the Company and its
Board of Directors shall, if any state takeover statute or similar statute
or regulation is or becomes applicable to the Merger, this Agreement or any
of the transactions contemplated by this Agreement, use all reasonable
efforts to ensure that the Merger and the other transactions contemplated
by this Agreement may be consummated as promptly as practicable on the
terms contemplated by this Agreement and otherwise to minimize the effect
of such statute or regulation on the Merger, this Agreement and the
transactions contemplated hereby. Notwithstanding anything herein to the
contrary, nothing in this Agreement shall be deemed to require Parent or
the Company or any subsidiary or affiliate thereof to agree to any
divestiture by itself or any of its affiliates of shares of capital stock
or of any business, assets or property, or the imposition of any material
limitation on the ability of any of them to conduct their businesses or to
own or exercise control of such assets, properties and stock.
(b) The Company shall give prompt notice to Parent of any
representation or warranty made by it contained in this Agreement becoming
untrue or inaccurate, or any failure of the Company to comply with or
satisfy any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement, in each case, such that the
conditions set forth in Section 6.3(a) or 6.3(b) would not be satisfied,
provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
(c) Parent shall give prompt notice to the Company of any
representation or warranty made by it or Merger Sub contained in this
Agreement becoming untrue or inaccurate, or any failure of Parent or Merger
Sub to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement, in each case, such
that the conditions set forth in Section 6.2(a) or 6.2(b) would not be
satisfied, provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
5.7 Third Party Consents. As soon as practicable following the date
hereof, Parent and the Company will each use its commercially reasonable efforts
to obtain any consents, waivers and approvals under any of its or its
subsidiaries' respective agreements, contracts, licenses or leases required to
be obtained in connection with the consummation of the transactions contemplated
hereby.
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5.8 Stock Options and Employee Benefits.
(a) Except as set forth in subsection (d) below, at the Effective
Time, each outstanding option to purchase shares of the Company Common
Stock (each a "THE COMPANY STOCK OPTION") under the Company Stock Option
Plans, whether or not exercisable, will be assumed by Parent. Each Company
Stock Option so assumed by Parent under this Agreement will continue to
have, and be subject to, the same terms and conditions set forth in the
applicable Company Stock Option Plan and option certificate immediately
prior to the Effective Time (including, without limitation, any repurchase
rights or vesting provisions), subject to the provisions of subsection (b)
below in the case of Scheme Options except that (i) each Company Stock
Option will be exercisable (or will become exercisable in accordance with
its terms) for that number of whole shares of Parent Common Stock equal to
the product of the number of shares of the Company Common Stock that were
issuable upon exercise of such Company Stock Option immediately prior to
the Effective Time multiplied by the Exchange Ratio, rounded down to the
nearest whole number of shares of Parent Common Stock and (ii) the per
share exercise price for the shares of Parent Common Stock issuable upon
exercise of such assumed Company Stock Option will be equal to the quotient
determined by dividing the exercise price per share of Company Common Stock
at which such Company Stock Option was exercisable immediately prior to the
Effective Time by the Exchange Ratio, rounded up to the nearest whole cent.
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 options assumed by Parent pursuant to this Section. As soon as
practicable after the Effective Time, Parent shall deliver to each holder
of a Company Stock Option an appropriate notice setting forth such holder's
rights pursuant thereto.
(b) Any such assumption and conversion of a Scheme Option shall be
subject to the written agreement of each holder of such Scheme Option to
such assumption. In the event that holder does not consent to such written
agreement, Scheme Options will become exercisable in full for a six-month
period beginning at the Effective Time for the same number of shares of
Parent Common Stock as calculated pursuant to subsection (a) above, at the
same exercise price as calculated pursuant to subsection (a) above. At the
end of such six-month period, any Scheme Options which have not been so
converted and assumed or exercised will terminate.
(c) It is intended that the Company Stock Options assumed by Parent
shall qualify following the Effective Time as incentive stock options as
defined in Section 422 of the Code to the extent the Company Stock Options
qualified as incentive stock options immediately prior to the Effective
Time and the provisions of this Section 5.8 shall be applied consistent
with such intent.
(d) Rights outstanding under the ESPPs shall be treated in a manner
reasonably acceptable to Parent and the Company.
5.9 Form S-8. Parent agrees to file a registration statement on Form S-8
for the shares of Parent Common Stock issuable with respect to assumed Company
Stock Options within 5 days after the Effective Time and shall use its
reasonable efforts to maintain the effectiveness of such registration statement
thereafter for so long as any of such options or other rights remain
outstanding.
5.10 Indemnification.
(a) From and after the Effective Time, Parent will cause the Surviving
Corporation to fulfill and honor in all respects the obligations of the
Company pursuant to any indemnification agreements between the Company and
the Indemnified Parties (as defined below) and any indemnification
provisions under the Company's Articles of Organization or Bylaws as in
effect on the date hereof. The Articles of Organization and Bylaws of the
Surviving Corporation and its subsidiaries will contain provisions with
respect to exculpation and indemnification that are at least as favorable
to the Indemnified Parties as those contained in the Articles of
Organization and Bylaws of the Company and its subsidiaries as in effect on
the date hereof, which provisions will not be amended, repealed or
otherwise modified for a period of four years from the Effective Time in
any manner that would adversely affect the rights
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thereunder of individuals who, immediately prior to the Effective Time,
were directors, officers, employees or agents of the Company and its
subsidiaries, unless such modification is required by law.
(b) For a period of four years after the Effective Time, Parent will
cause the Surviving Corporation to maintain in effect, if available,
directors' and officers' liability insurance covering those persons who are
currently covered by the Company's directors' and officers' liability
insurance policy (the "Indemnified Parties") on terms comparable to those
applicable as of the date of this Agreement to the current directors and
officers of the Company; provided, however, that in no event will Parent or
the Surviving Corporation be required to expend in excess of 125% of the
annual premium currently paid by the Company for such coverage (or such
coverage as is available for 125% of such annual premium); provided
further, that if the premium for such coverage exceeds such amount, Parent
or the Surviving Corporation shall purchase a policy with the coverage
available for such amount.
(c) This Section shall survive the consummation of the Merger at the
Effective Time, is intended to benefit the Company, the Surviving
Corporation and the Indemnified Parties, shall be binding on all successors
and assigns of the Surviving Corporation and shall be enforceable by the
Indemnified Parties. In the event that Parent or Surviving Corporation or
any of their successors or assigns (i) consolidates or merges into any
other person or entity 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 and assets to any person or entity,
then and in such case, proper provisions shall be made so that the
successors and assigns of Parent or the Surviving Corporation (as the case
may be) assume the obligations of Parent and the Surviving Corporation set
forth in this Section.
5.11 Nasdaq Listing. Parent agrees to authorize for listing on Nasdaq the
shares of Parent Common Stock issuable, and those required to be reserved for
issuance, in connection with the Merger and the assumption of the Company Stock
Options, upon official notice of issuance.
5.12 Regulatory Filings; Reasonable Efforts. As soon as is reasonably
practicable, the Company and Parent each shall file with the United States
Federal Trade Commission (the "FTC") and the Antitrust Division of the United
States Department of Justice ("DOJ") Notification and Report Forms relating to
the transactions contemplated herein as required by the HSR Act, as well as
comparable pre-merger notification forms required by the merger notification or
control laws and regulations of any applicable jurisdiction, as agreed to by the
parties. The Company and Parent each shall promptly (a) supply the other with
any information which may be required in order to effectuate such filings and
(b) supply any additional information which reasonably may be required by the
FTC, the DOJ or the competition or merger control authorities of any other
jurisdiction and which the parties may reasonably deem appropriate.
5.13 Affiliate Agreements. The Company shall use all reasonable efforts to
obtain and deliver to Parent at the Closing the Affiliate Agreements in the form
of Exhibit B-2, executed by the individuals identified on Exhibit B-1 and Parent
shall use all reasonable efforts to obtain the Affiliate Agreement in the form
of Exhibit C, executed by persons who are in Parent's reasonable judgment
"affiliates" of Parent.
5.14 Rights Agreement Amendment. The Company shall use all reasonable
efforts to amend the Rights Agreement to prevent the execution of this
Agreement, the Merger or any transactions contemplated hereby from triggering
the exercisability of the rights authorized or granted thereunder.
5.15 Reorganization Treatment. None of Parent, Merger Sub or the Company
shall take any action which could reasonably be expected to cause the Merger to
fail to qualify prevent the Merger from qualifying, as a reorganization under
Section 368(a) of the Code.
5.16 Monthly Financial Statements. Parent and the Company shall supply
each other with a monthly unaudited consolidated statement of operations and
balance sheet within 15 days of the end of each calendar month.
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ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:
(a) Parent and the Company Stockholder Approval. The issuance of
shares of Parent Common Stock in the Merger and the Parent Certificate
Amendment shall have been duly approved by the requisite vote under
applicable law and rules of the National Association of Securities Dealers,
Inc. by the stockholders of Parent and this Agreement shall have been
approved and adopted and the Merger shall have been duly approved by the
requisite vote under applicable law by the stockholders of the Company.
(b) Registration Statement Effective; Proxy Statement/Prospectus. The
SEC shall have declared the Registration Statement effective. No stop order
suspending the effectiveness of the Registration Statement or any part
thereof shall have been issued and no proceeding for that purpose, and no
similar proceeding in respect of the Proxy Statement/Prospectus, shall have
been initiated or threatened by the SEC.
(c) No Order; HSR Act. No Governmental Entity shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which has the effect of
making the Merger illegal or otherwise prohibiting consummation of the
Merger. All waiting periods under the HSR Act relating to the transactions
contemplated hereby will have expired or terminated early and all material
foreign antitrust approvals required to be obtained prior to the Merger in
connection with the transactions contemplated hereby shall have been
obtained.
(d) Tax Opinions. Parent and the Company shall each have received
written opinions from their respective tax counsel (Wilson Sonsini Goodrich
& Rosati, Professional Corporation, and Ropes & Gray, respectively), in
form and substance reasonably satisfactory to each of them, to the effect
that the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code and such opinions shall not have been withdrawn.
The parties to this Agreement agree to make such reasonable representations
as requested by such counsel for the purpose of rendering such opinions.
(e) Listing of Shares of Parent Common Stock. The shares of Parent
Common Stock to be issued in the Merger shall have been approved, upon
official notice of issuance, for quotation on the Nasdaq National Market.
6.2 Additional Conditions to Obligations of the Company. The obligation of
the Company to consummate and effect the Merger shall be subject to the
satisfaction at or prior to the Closing Date of each of the following
conditions, any of which may be waived, in writing, exclusively by the Company:
(a) Representations and Warranties. Each representation and warranty
of Parent and Merger Sub contained in this Agreement (i) shall have been
true and correct in all material respects as of the date of this Agreement
and (ii) shall be true and correct in all material respects on and as of
the Closing Date with the same force and effect as if made on the Closing
Date, except (A) for changes contemplated by this Agreement, (B) for those
representations and warranties which address matters only as of a
particular date (which representations shall have been true and correct in
all material respects as of such particular date) or (C) where the failure
to be true and correct would not have a Material Adverse Effect (it being
understood that, for purposes of determining the accuracy of such
representations and warranties (x) all qualifications based on the word
"material" or similar phrases contained in such representations and
warranties shall be disregarded, and (y) any update of or modification to
the Parent Schedules made or purported to have been made after the date of
this Agreement shall be disregarded). The Company shall have received a
certificate with respect to the foregoing signed on behalf of Parent by the
Chief Executive Officer and Chief Financial Officer of Parent.
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(b) Agreements and Covenants. Parent and Merger Sub shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by
them on or prior to the Closing Date, and the Company shall have received a
certificate to such effect signed on behalf of Parent by the Chief
Executive Officer and Chief Financial Officer of Parent.
(c) Material Adverse Effect. No Material Adverse Effect with respect
to Parent shall have occurred since the date of this Agreement.
6.3 Additional Conditions to the Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to consummate and effect the Merger shall
be subject to the satisfaction at or prior to the Closing Date of each of the
following conditions, any of which may be waived, in writing, exclusively by
Parent:
(a) Representations and Warranties. Each representation and warranty
of the Company contained in this Agreement (i) shall have been true and
correct in all material respects as of the date of this Agreement and (ii)
shall be true and correct on in all material respects and as of the Closing
Date with the same force and effect as if made on and as of the Closing
Date except (A) for changes contemplated by this Agreement, (B) for those
representations and warranties which address matters only as of a
particular date (which representations shall have been true and correct in
all material respects as of such particular date) or (C) where the failure
to be true and correct would not have a Material Adverse Effect (it being
understood that, for purposes of determining the accuracy of such
representations and warranties (x) all qualifications based on the word
"material" or similar phrases contained in such representations and
warranties shall be disregarded, and (y) any update of or modification to
the Company Schedules made or purported to have been made after the date of
this Agreement shall be disregarded). Parent shall have received a
certificate with respect to the foregoing signed on behalf of the Company
by the Chief Executive Officer and Chief Financial Officer of the Company.
(b) Agreements and Covenants. The Company shall have performed or
complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it at or
prior to the Closing Date, and Parent shall have received a certificate to
such effect signed on behalf of the Company by the Chief Executive Officer
and the Chief Financial Officer of the Company.
(c) Material Adverse Effect. No Material Adverse Effect with respect
to the Company shall have occurred since the date of this Agreement.
(d) Employment and Noncompetition Agreements. The persons set forth on
Exhibit C-1 hereto shall have entered into Employment and Noncompetition
Agreements substantially in the form attached hereto as Exhibit C-2 and
such agreements shall be in full force and effect.
(e) Consents. The Company shall have obtained all consents, waivers
and approvals required in connection with the consummation of the
transactions contemplated hereby in connection with the agreements,
contracts, licenses or leases set forth on Schedule 6.3(e).
(f) Affiliate Agreements. The persons set forth on Exhibit B-1 hereto
shall have entered into Company Affiliate Agreements substantially in the
form attached hereto as Exhibit B-2 and such agreements shall be in full
force and effect.
(g) Dissenting Shares. Fewer than 2% of the outstanding shares of
Company Common Stock shall be Dissenting Shares.
(h) Amendment of Rights Agreement. The Rights Agreement shall have
been effectively amended by the parties thereto in order to prevent the
execution of this Agreement, the Merger or any other transactions
contemplated hereby from triggering the exercisability of the rights
granted or authorized thereunder.
(i) Opinion of Accountants. Parent shall have received letters from
each of Arthur Andersen LLP and Coopers & Lybrand L.L.P., respectively,
dated within two (2) business days prior to the effective date of the Proxy
Statement/Prospectus and dated as of the Closing Date, regarding that
firm's
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concurrence with Parent's management's and Company's management's
conclusions as to the appropriateness of pooling of interest accounting for
the Merger under Accounting Principles Board Opinion No. 16, if the Merger
is consummated in accordance with this Agreement.
(j) Opinion of Counsel. Parent, Coopers & Lybrand LLP and Arthur
Anderson LLP shall have received a reasoned opinion of counsel to the
Company with respect to the affiliate status of certain Company
stockholders.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or, except as specified below, after the
requisite approvals of the stockholders of the Company or Parent:
(a) by mutual written consent duly authorized by the Boards of
Directors of Parent and the Company;
(b) by either Parent or the Company if the Merger shall not have been
consummated by October 31, 1998 for any reason; provided, however, that the
right to terminate this Agreement under this Section 7.1(b) shall not be
available to any party whose action or failure to act has been a principal
cause of or resulted in the failure of the Merger to occur on or before
such date and such action or failure to act constitutes a breach of this
Agreement;
(c) by either Parent or the Company if a Governmental Entity shall
have issued an order, decree or ruling or taken any other action, in any
case having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger, which order, decree, ruling or other action is
final and nonappealable;
(d) by either Parent or the Company if the required approval of the
stockholders of the Company contemplated by this Agreement shall not have
been obtained by reason of the failure to obtain the required vote at the
Company Stockholders' Meeting or at any adjournment thereof (provided that
the right to terminate this Agreement under this Section 7.1(d) shall not
be available to the Company where the failure to obtain the Company
stockholder approval shall have been caused by the action or failure to act
of the Company and such action or failure to act constitutes a breach by
the Company of this Agreement);
(e) by either Parent or the Company if the required approval of the
stockholders of Parent contemplated by this Agreement shall not have been
obtained by reason of the failure to obtain the required vote at the Parent
Stockholders' Meeting or at any adjournment thereof (provided that the
right to terminate this Agreement under this Section 7.1(e) shall not be
available to Parent where the failure to obtain Parent stockholder approval
shall have been caused by the action or failure to act of Parent and such
action or failure to act constitutes a breach by Parent of this Agreement);
(f) by Parent or the Company (at any time prior to the adoption and
approval of this Agreement and the Merger by the required vote of the
stockholders of Parent and the Company) if a Triggering Event (as defined
below) shall have occurred; provided that the right of the Company under
this Section 7.1(f) shall not be exercisable until the date that is one
hundred twenty (120) days after the date of this Agreement.
(g) by the Company, upon a breach of any representation, warranty,
covenant or agreement on the part of Parent or Merger Sub set forth in this
Agreement, or if any representation or warranty of Parent or Merger Sub
shall have become untrue, in either case such that the conditions set forth
in Section 6.2(a) or Section 6.2(b) would not be satisfied as of the time
of such breach or as of the time such representation or warranty shall have
become untrue, provided that if such inaccuracy in Parent's representations
and warranties or breach by Parent is curable by Parent through the
exercise of its commercially reasonable efforts, then the Company may not
terminate this Agreement under this Section 7.1(g) for fifteen days after
delivery of written notice from the Company to Parent of such
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breach, provided Parent continues to exercise commercially reasonable
efforts to cure such breach throughout such fifteen day period (it being
understood that the Company may not terminate this Agreement pursuant to
this paragraph (g) if it shall have materially breached this Agreement or
if such breach by Parent is cured during such fifteen day period); or
(h) by Parent, upon a breach of any representation, warranty, covenant
or agreement on the part of the Company set forth in this Agreement, or if
any representation or warranty of the Company shall have become untrue, in
either case such that the conditions set forth in Section 6.3(a) or Section
6.3(b) would not be satisfied as of the time of such breach or as of the
time such representation or warranty shall have become untrue, provided,
that if such inaccuracy in the Company's representations and warranties or
breach by the Company is curable by the Company through the exercise of its
commercially reasonable efforts, then Parent may not terminate this
Agreement under this Section 7.1(h) for fifteen days after delivery of
written notice from Parent to the Company of such breach, provided the
Company continues to exercise commercially reasonable efforts to cure such
breach throughout such fifteen day period (it being understood that Parent
may not terminate this Agreement pursuant to this paragraph (h) if it shall
have materially breached this Agreement or if such breach by the Company is
cured during such fifteen day period).
For the purposes of this Agreement, a "TRIGGERING EVENT" shall be deemed to
have occurred if: (i) the Board of Directors of the Company or any committee
thereof shall for any reason have withdrawn or shall have amended or modified in
a manner adverse to Parent its unanimous recommendation in favor of the adoption
and approval of this Agreement or the approval of the Merger; (ii) the Company
shall have failed to include in the Proxy Statement/Prospectus the unanimous
recommendation of the Board of Directors of the Company in favor of the adoption
and approval of this Agreement and the approval of the Merger; (iii) the Board
of Directors of the Company fails to reaffirm its unanimous recommendation in
favor of the adoption and approval of this Agreement and the approval of the
Merger within five (5) business days after Parent requests in writing that such
recommendation be reaffirmed at any time following the public announcement of an
Acquisition Proposal; (iv) the Board of Directors of the Company or any
committee thereof shall have approved or publicly recommended any Acquisition
Proposal; (v) the Company shall have entered into any letter of intent or
similar document or any agreement, contract or commitment accepting any
Acquisition Proposal; or (vi) a tender or exchange offer relating to securities
of the Company shall have been commenced by a Person unaffiliated with Parent
and the Company shall not have sent to its securityholders pursuant to Rule
14e-2 promulgated under the Securities Act, within ten (10) business days after
such tender or exchange offer is first published, sent or given, a statement
disclosing that the Company recommends rejection of such tender or exchange
offer.
7.2 Notice of Termination; Effect of Termination. Any termination of this
Agreement under Section 7.1 above will be effective immediately upon the
delivery of written notice of the terminating party to the other parties hereto.
In the event of the termination of this Agreement as provided in Section 7.1,
this Agreement shall be of no further force or effect, except (i) as set forth
in this Section 7.2, Section 7.3 and Article 8 (General Provisions), each of
which shall survive the termination of this Agreement, and (ii) nothing herein
shall relieve any party from liability for any willful breach of this Agreement.
No termination of this Agreement shall affect the obligations of the parties
contained in the Confidentiality Agreement, all of which obligations shall
survive termination of this Agreement in accordance with its terms.
7.3 Fees and Expenses.
(a) General. Except as set forth in this Section 7.3, all fees and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses
whether or not the Merger is consummated; provided, however, that Parent
and the Company shall share equally all fees and expenses, other than
attorneys' and accountants fees and expenses, incurred in relation to the
printing and filing (with the SEC) of the Proxy Statement/Prospectus
(including any preliminary materials related thereto) and the Registration
Statement (including financial statements and exhibits) and any amendments
or supplements thereto.
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(b) Payments. In the event that this Agreement is terminated by Parent
pursuant to Section 7.1(d) or (f) or by the Company pursuant to Section
7.1(e), the Company or the Parent, as the case may be shall promptly, but
in no event later than two business days after the date of such
termination, pay the other party a fee equal to $3,100,000 in immediately
available funds (the "TERMINATION FEE"). The parties acknowledge that the
agreements contained in this Section 7.3(b) are an integral part of the
transactions contemplated by this Agreement, and that, without these
agreements, the parties would not enter into this Agreement; accordingly,
if Parent or the Company, as the case may be, fails promptly to pay the
amounts due pursuant to this Section 7.3(b), and, in order to obtain such
payment, the other party commences a suit which results in a judgment
against the non-paying party for the amounts set forth in this Section
7.3(b), the non-paying party shall pay to the other party its reasonable
costs and expenses (including attorneys' fees and expenses) in connection
with such suit, together with interest on the amounts set forth in this
Section 7.3(b) at the prime rate of The Chase Manhattan Bank in effect on
the date such payment was required to be made.
(c) Payment of the amounts described in Section 7.3(b) shall not be in
lieu of damages incurred in the event of breach of this Agreement.
7.4 Amendment. Subject to applicable law, this Agreement may be amended by
the parties hereto at any time by execution of an instrument in writing signed
on behalf of each of Parent, Merger Sub and the Company.
7.5 Extension; Waiver. At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. Delay in exercising any right under this
Agreement shall not constitute a waiver of such right.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival of Representations and Warranties. The representations
and warranties of the Company, Parent and Merger Sub contained in this Agreement
shall terminate at the Effective Time, and only the covenants that by their
terms survive termination of this Agreement or the Effective Time shall so
survive.
8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by nationally
recognized overnight commercial delivery service, or sent via telecopy (receipt
confirmed) to the parties at the following addresses or telecopy numbers (or at
such other address or telecopy numbers for a party as shall be specified by like
notice by such party):
(a) if to Parent or Merger Sub, to:
NetManage, Inc.
10725 North DeAnza Boulevard
Cupertino, California 95014
Attention: Zvi Alon, President
Telephone No.: (408) 973-7171
Telecopy No.: (408) 257-6405
with a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
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Palo Alto, California 94304-1050
Attention: David J. Segre, Esq.
Daniel R. Mitz, Esq.
Telephone No.: (650) 493-9300
Telecopy No.: (650) 493-6811
(b) if to the Company, to:
FTP Software, Inc.
2 High Street
North Andover, Massachusetts 01845
Attention: Glenn C. Hazard, President and
Chief Executive Officer
Telephone No.: (978) 685-4000
Telecopy No.: (978) 684-6116
with a copy to:
Ropes & Gray
One International Place
Boston, MA 02110
Attention: David B. Walek, Esq.
Telephone No.: (617) 951-7388
Telecopy No.: (617) 951-7050
8.3 Interpretation.
(a) When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise
indicated. When a reference is made in this Agreement to Sections, such
reference shall be to a Section of this Agreement unless otherwise
indicated. The words "INCLUDE," "INCLUDES" and "INCLUDING" when used herein
shall be deemed in each case to be followed by the words "WITHOUT
LIMITATION." The table of contents and headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement. When reference is made herein to "THE
BUSINESS OF" an entity, such reference shall be deemed to include the
business of all direct and indirect subsidiaries of such entity. Reference
to the subsidiaries of an entity shall be deemed to include all direct and
indirect subsidiaries of such entity.
(b) For purposes of this Agreement, the term "MATERIAL ADVERSE EFFECT"
when used in connection with an entity means any change, event, violation,
inaccuracy, circumstance or effect that is materially adverse to the
business, assets (including intangible assets), capitalization, financial
condition or results of operations of such entity and its subsidiaries
taken as a whole. A Material Adverse Effect shall be deemed to have
occurred with respect to the Company if, among other things: (i) Company
Second Quarter Revenues (together with the excess, if any, of (A) Company
Third Quarter Revenues over $3,500,000 (if the Closing occurs on or after
August 31, 1998) or (B) Net Revenues of the Company for the month ending
July 31, 1998 over $1,750,000 (if the Closing occurs prior to August 31,
1998)) are less than $7,500,000 or (ii) Company Third Quarter Revenues are
less than $3,500,000 (if the Closing occurs on or after August 31, 1998)
(or, if the Closing occurs prior to August 31, 1998, Net Revenues of the
Company for the month ending July 31, 1998 are less than $1,750,000) (each
of (i) and (ii) a "COMPANY NET REVENUE THRESHOLD"). A Material Adverse
Effect shall be deemed to have occurred with respect to Parent if, among
other things, (A) Net Revenues of Parent for the fiscal quarter ending June
30, 1998 (together with the excess, if any, of (1) Net Revenues of Parent
for the two months ending August 31, 1998 ("PARENT THIRD QUARTER REVENUES")
over $5,500,000 (if the Closing occurs on or after August 31, 1998) or (2)
Net Revenues of Parent for the month ending July 31, 1998 over $2,750,000
(if the Closing occurs prior to August 31, 1998)) are less than $11,250,000
or (B) Parent Third Quarter Revenues are less than $5,500,000 (if the
Closing occurs on or after August 31, 1998) (or, if the Closing
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occurs prior to August 31, 1998, Net Revenues of Parent for the month
ending July 31, 1998 are less than $2,750,000) (each of (A) and (B), a
"PARENT NET REVENUE THRESHOLD"). For purposes of this Agreement, the
determination of whether a Material Adverse Effect with respect to the
Company or Parent shall have occurred, in the event that each of the
Company Net Revenue Thresholds or Parent Net Revenue Thresholds, as the
case may be, are satisfied, shall not take into account the Net Revenues of
the Company or the Net Revenues of Parent, as the case may be, for such
periods. However, for avoidance of doubt, if the Company or Parent achieves
the Company Net Revenue Thresholds or Parent Net Revenue Threshold, as the
case may be, a Material Adverse Effect may occur if changes, events,
violations, inaccuracies, circumstances or effects other than a failure to
meet each Company Net Revenue Threshold or Parent Net Revenue Threshold, as
the case may be, shall exist. In addition, for purposes of this Agreement,
if each of the Company Net Revenue Thresholds or Parent Net Revenue
Thresholds, as the case may be, are satisfied, a Material Adverse Effect
with respect to the Company or Parent, as the case may be, shall not be
deemed to have occurred if such change, event, violation, inaccuracy,
circumstance or effect is directly attributable and consistent with trends
affecting such party's business, results of operations and financial
condition on and as of March 31, 1998; provided, however, that in any
dispute, the party asserting that any of the foregoing is "directly
attributable" to trends affecting the Company's or Parent's business,
results of operations or financial condition on and as of March 31, 1998
shall have the burden of proof of such assertion by a preponderance of the
evidence.
(c) For purposes of this Agreement, the term "PERSON" shall mean any
individual, corporation (including any non-profit corporation), general
partnership, limited partnership, limited liability partnership, joint
venture, estate, trust, company (including any limited liability company or
joint stock company), firm or other enterprise, association, organization,
entity or Governmental Entity.
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
8.5 Entire Agreement; Third Party Beneficiaries. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Company Schedules and the
Parent Schedules: (a) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, it being understood that the Confidentiality Agreement
shall continue in full force and effect until the Closing and shall survive any
termination of this Agreement; and (b) are not intended to confer upon any other
person any rights or remedies hereunder, except as specifically provided in
Section 5.10 (which is intended to be for the Indemnified Parties and may be
enforced by each such person).
8.6 Severability. In the event that any provision of this Agreement, or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
8.7 Other Remedies. 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, upon such party, and the
exercise by a party of any one remedy will not preclude the exercise of any
other remedy.
8.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof;
provided that issues involving the corporate governance of any of the parties
hereto shall be governed by their respective jurisdictions of incorporation.
Each of the parties hereto irrevocably
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consents to the exclusive jurisdiction of any state or federal court within the
Northern District of California, in connection with any matter based upon or
arising out of this Agreement or the matters contemplated herein, other than
issues involving the corporate governance of any of the parties hereto, agrees
that process may be served upon them in any manner authorized by the laws of the
State of California for such persons and waives and covenants not to assert or
plead any objection which they might otherwise have to such jurisdiction and
such process.
8.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
8.10 Assignment. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other parties. Subject to the preceding sentence, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
8.11 Waiver of Jury Trial. EACH OF PARENT, THE COMPANY AND MERGER SUB
HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT, THE COMPANY OR MERGER SUB
IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized respective officers as of the date first
written above.
<TABLE>
<S> <C> <C>
NETMANAGE, INC.
By: /s/ ZVI ALON
-------------------------------------------
Title: President
FTP SOFTWARE, INC., a Massachusetts corporation
[Seal] By: /s/ GLENN C. HAZARD
-------------------------------------------
President
By: /s/ JAMES A. THOLEN
-------------------------------------------
Assistant Treasurer
AMANDA ACQUISITION CORP., a Massachusetts
corporation
[Seal] By: /s/ ZVI ALON
-------------------------------------------
President
By: /s/ GARY R. ANDERSON
-------------------------------------------
Treasurer
</TABLE>
* * * * REORGANIZATION AGREEMENT * * * *
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<PAGE> 251
ANNEX B-1
LOGO
CIBC OPPENHEIMER
CORP.
2420 Sand Hill Road
Suite 300
Menlo Park,
California 94025
Tel: 650-234-2400
Tel: 888-234-9001
A CIBC WORLD MARKETS COMPANY
June 12, 1998
The Board of Directors
NetManage, Inc.
10725 North De Anza Boulevard
Cupertino, CA 95014
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the existing holders of common stock of NetManage, Inc. ("NetManage"),
of the consideration to be paid by NetManage pursuant to the terms of the
Agreement and Plan of Reorganization, dated June 15, 1998 among NetManage, a
Delaware corporation ('Parent"), FTP Acquisition Corp., a Massachusetts
corporation and a wholly-owned subsidiary of Parent ("Merger Sub"), and FTP
Software, Inc. ("FTP"), a Massachusetts corporation (the "Agreement"). Pursuant
to the Agreement the Merger Sub shall be merged with and into FTP (the "Merger")
such that the separate corporate existence of Merger Sub shall cease and FTP
shall continue as the surviving corporation. In the Merger, each share of Common
Stock, $0.01 par value per share, of FTP will be converted into the right to
receive 0.72767 shares, subject to certain adjustments as described in the
Agreement, of the Common Stock, $0.01 par value per share, of NetManage.
In arriving at our opinion, we reviewed the Agreement and held discussions with
certain senior officers, directors, and other representatives and advisors of
FTP and of NetManage concerning the business, operations and prospects of FTP
and NetManage. We visited certain facilities operated by NetManage. We examined
certain business and financial information relating to FTP and NetManage as well
as certain financial forecasts and other data, including information relating to
certain strategic implications and operational benefits anticipated to result
from the Merger, which were provided to us by the senior managements of FTP and
NetManage. We reviewed the financial terms set forth in the Agreement in
relation to, among other things, current and historical market prices and
trading volumes of the NetManage and FTP common stock, and FTP's and NetManage's
historical and projected earnings. We reviewed, to the extent publicly
available, the financial terms of certain other transactions recently completed
that may be considered generally comparable to the transaction set forth in the
Agreement. We also analyzed certain financial, stock market and other publicly
available information relating to the businesses of other companies whose
operations may be considered generally comparable to those of FTP and NetManage.
We also evaluated the potential pro forma impact of the Merger on NetManage. In
addition to the foregoing, we conducted such other analyses and examinations and
considered such other financial, economic and market criteria as we deemed
necessary to arrive at our opinion.
In rendering our opinion, we have assumed and relied upon, without independent
verification or investigation, the accuracy and completeness of all financial
and other information furnished to us or otherwise discussed with us by the
managements of FTP and NetManage, in addition to public information otherwise
available to us. With respect to financial forecasts and other information so
provided or otherwise discussed with us, we assumed, at the direction of FTP and
NetManage, without independent investigation or verification, that such
forecasts and other information were reasonably prepared on bases reflecting the
best currently available information, estimates and judgments of the managements
of FTP and NetManage as to the expected future financial performance of FTP and
NetManage. We have not made or been provided with an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of FTP or
NetManage nor have we made physical inspection of all of the properties or
assets of FTP or NetManage. Our opinion is necessarily
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based on the information available to us and general economic, financial and
stock market conditions and circumstances as they exist and can be evaluated by
us on the date thereof. It should be understood that although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm the opinion.
CIBC Oppenheimer Corp. ("CIBC Oppenheimer") was engaged to render financial
advisory services to NetManage in connection with the activities leading up to
the Merger set forth in the Agreement. CIBC Oppenheimer will receive a fee for
its services that includes the delivery of this opinion. CIBC Oppenheimer has
performed investment banking services for NetManage in the past and has been
compensated for such services. In the ordinary course of business, CIBC
Oppenheimer and its affiliates may actively trade the securities of NetManage
and FTP for their own account or for the accounts of customers and, accordingly,
may at any time hold a long or short position in such securities.
Our advisory services and the opinion expressed herein are rendered exclusively
for the Board of Directors of NetManage for use in its evaluation of the
proposed Agreement. They do not constitute a recommendation to any stockholder
of NetManage and may not be relied upon by any other person, entity or affiliate
of NetManage. Further, our opinion may not be published or otherwise used or
referred to, in whole or in part, nor shall any public reference to CIBC
Oppenheimer be made without our prior written consent; provided that this
opinion may be included in its entirety in the Form S-4 Registration Statement
that will be filed by NetManage with the Securities and Exchange Commission with
respect to the Merger contemplated by the Agreement and the transactions related
thereto.
As part of our investment banking business, we are regularly engaged in
valuations of business and securities in connection with acquisitions and
mergers, underwritings, secondary distributions of securities, private
placements and valuations for other purposes.
Based upon and subject to the foregoing, and other factors we deemed relevant,
we are of the opinion that, as of the date hereof, the Exchange Ratio, pursuant
to the Agreement, is fair, from a financial point of view, to the existing
holders of NetManage Common Stock.
Very truly yours,
/s/ CIBC OPPENHEIMER CORP.
- --------------------------------------
CIBC Oppenheimer Corp.
B-1-2
<PAGE> 253
ANNEX B-2
[LETTERHEAD OF COWEN & COMPANY]
June 12, 1998
Board of Directors
FTP Software, Inc.
Two High Street
North Andover, MA 01845
Ladies and Gentlemen:
You have requested our opinion as investment bankers as to the fairness, from a
financial point of view, to the holders of the outstanding shares of common
stock, par value $.01 per share ("Company Common Stock") of FTP Software, Inc.
(the "Company"), of the terms of the Transaction (as hereinafter defined) with
NetManage, Inc. (the "Purchaser"). For the purposes of this opinion, the
"Transaction" means the transaction described below pursuant to that certain
draft Agreement and Plan of Reorganization among the Company, the Purchaser and
Amanda Acquisition Corp., a wholly owned subsidiary of the Purchaser
("Acquisition Corp."), dated June 9, 1998 (the "Agreement").
As more specifically set forth in the Agreement, and subject to certain terms
and conditions thereof, the Purchaser has agreed to acquire the Company through
a merger of Acquisition Corp. with and into the Company, with the surviving
corporation to be a wholly owned subsidiary of the Purchaser (the "Merger"). In
the Merger each then outstanding share of Company Common Stock will be converted
into 0.72767 shares (the "Exchange Ratio") of common stock, $.01 par value, of
the Purchaser ("Purchaser Common Stock") subject to certain adjustments as set
forth in the Agreement. In addition, each outstanding option to purchase shares
of Company Common Stock will be exercisable, if and when vested, on equivalent
terms to purchase shares of Purchaser Common Stock based on the Exchange Ratio.
Consummation of the Merger on the foregoing terms will be subject to the
approval of both the holders of shares of Company Common Stock and the holders
of shares of Purchaser Common Stock. In the ordinary course of its services,
Cowen & Company ("Cowen") is regularly engaged in the valuation and pricing of
businesses and their securities and in advising corporate securities issuers on
related matters.
In arriving at our opinion, Cowen has, among other things:
(1) reviewed the Agreement;
(2) reviewed the Company's consolidated financial statements for the
quarter ended March 31, 1998 and the fiscal years ended December
31, 1997, 1996, and 1995, certain publicly available filings with
the Securities and Exchange Commission and certain other relevant
financial and operating data of the Company;
(3) reviewed the Purchaser's consolidated financial statements for the
quarter ended March 31, 1998 and fiscal years ended December 31,
1997, 1996, and 1995, certain publicly available filings with the
Securities and Exchange Commission and certain other relevant
financial and operating data of the Purchaser;
(4) held meetings and discussions with management and senior personnel
of the Company and the Purchaser to discuss the business,
operations, historical financial results and future prospects of
the Company, the Purchaser and the pro forma combined company
following the Transaction (the "Combined Company");
(5) reviewed certain financial projections of the Company furnished to
us by the management of the Company;
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(6) reviewed certain financial projections of the Purchaser furnished
to us by the management of the Purchaser;
(7) reviewed certain financial projections of the Combined Company
furnished to us by management of the Company and the Purchaser;
(8) reviewed the historical market prices and trading activity of the
Company Common Stock during the past 6 months and compared those
trading histories with those of the Purchaser and the Nasdaq
Composite;
(9) reviewed the valuation of the Company implied by the Transaction
in comparison to the market multiples of other publicly traded
companies we deemed relevant;
(10) compared the valuation of the Company implied by the Transaction
with the financial multiples used in selected acquisitions of
other companies we deemed relevant;
(11) reviewed the per share premium implied by the Transaction to the
Company's historical stock prices and to premiums of stock prices
paid in comparable transactions we deemed relevant;
(12) performed a discounted cash flow analysis of the Company based on
financial projections provided by management of the Company;
(13) compared the Company's contribution to revenues of the Combined
Company relative to the pro forma ownership percentage of the
shareholders of the Company in the Combined Company;
(14) analyzed the potential pro forma financial effects of the
Transaction for fiscal years 1998 and 1999; and
(15) conducted such other studies, analysis, inquiries and
investigations we deemed appropriate.
At the request of the Company, Cowen solicited third party indications of
interest in acquiring the Company.
On June 9, 1998, the closing price of the Company Common Stock in the last
transaction reported by Nasdaq was $2.19 per share.
In rendering our opinion, we relied upon the Company's management and the
Purchaser's management with respect to the accuracy and completeness of the
financial and other information furnished to us as described above. We assumed,
with your permission, that financial forecasts, projections and estimates of
operating efficiencies and potential synergies reflected the best currently
available estimates and judgments of the Company's management and the
Purchaser's management as to the expected future financial performance of their
respective entities and of the Combined Company. We have not assumed any
responsibility for independent verification of such information, including
financial information, nor have we made an independent evaluation or appraisal
of any of the properties or assets of the Company. With respect to all legal
matters relating to the Company and the Purchaser, we have relied on the advice
of legal counsel to the Company. We express no opinion with respect to such
legal matters.
Our opinion is necessarily based on general economic, market financial and other
conditions as they exist on, and can be evaluated as of, the date hereof, as
well as the information currently available to us. It should be understood that,
although subsequent developments may affect our opinion, we do not have any
obligation to update, revise or reaffirm our opinion. Our opinion does not
constitute a recommendation to any stockholder as to how such stockholder should
vote on the proposed Transaction. Our opinion does not imply any conclusion as
to the likely trading range for the Purchaser Common Stock following
consummation of the Transaction or otherwise, which may vary depending on
numerous factors that generally influence the price of securities. Our opinion
is limited to the fairness, from a financial point of view, of the terms of the
Transaction. We express no opinion with respect to any other reasons, legal,
business or otherwise, that may support the decision of the Board of Directors
of the Company to approve, or the Company's decision to consummate, the
Transaction.
For purposes of rendering our opinion we have assumed in all respects material
to our analysis that the representations and warranties of each party contained
in the Agreement are true and correct, that each party
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<PAGE> 255
will perform all of the covenants and agreements required to be performed by it
under the Agreement and that all conditions to the consummation of the
Transaction will be satisfied without waiver thereof. We have also assumed that
all governmental, regulatory or other consents and approvals contemplated by the
Agreement will be obtained and that in the course of obtaining any of those
consents no restrictions will be imposed or waivers made that would have an
adverse effect on the contemplated benefits of the Transaction. In addition, we
have also assumed that the Transaction will be treated for accounting purposes
as a pooling of interests, and as a tax free reorganization under Section 368 of
the Internal Revenue Code of 1986, as amended.
We have acted as financial advisor to the Board of Directors of the Company in
connection with the Transaction and will receive a fee for our services, a
significant portion of which is contingent upon the consummation of the
Transaction. We will also receive a fee for rendering this opinion, which fee is
not contingent upon the consummation of the Transaction. In the past, Cowen and
its affiliates have provided financing services for the Company and have
received fees for the rendering of these services. In addition, in the ordinary
course of its business, Cowen trades the equity securities of the Company for
its own account and for the accounts of its customers, and, accordingly, it may
at any time hold a long or short position in such securities.
On the basis of our review and analysis, as described above, it is our opinion
as investment bankers that, as of the date hereof, the financial terms of the
Transaction are fair, from a financial point of view, to the stockholders of the
Company.
Very truly yours,
/s/ ADELE MORRISETTE
Cowen & Company
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<PAGE> 256
ANNEX C
SECTIONS 85 - 98 OF THE MASSACHUSETTS BUSINESS CORPORATION LAW
SEC. 85. DISSENTING STOCKHOLDER; RIGHT TO DEMAND PAYMENT FOR STOCK; EXCEPTION
A stockholder in any corporation organized under the laws of Massachusetts
which shall have duly voted to consolidate or merge with another corporation or
corporations under the provisions of sections seventy-eight or seventy-nine who
objects to such consolidation or merger may demand payment for his stock from
the resulting or surviving corporation and an appraisal in accordance with the
provisions of sections eighty-six to ninety-eight, inclusive, and such
stockholder and the resulting or surviving corporation shall have the rights and
duties and follow the procedure set forth in those sections. This section shall
not apply to the holders of any shares of stock of a constituent corporation
surviving a merger if, as permitted by subsection (c) of section seventy-eight,
the merger did not require for its approval a vote of the stockholders of the
surviving corporation.
SEC. 86. SECTIONS APPLICABLE TO APPRAISAL; PREREQUISITES
If a corporation proposes to take a corporate action as to which any
section of this chapter provides that a stockholder who objects to such action
shall have the right to demand payment for his shares and an appraisal thereof,
sections eighty-seven to ninety-eight, inclusive, shall apply except as
otherwise specifically provided in any section of this chapter. Except as
provided in sections eighty-two and eighty-three, no stockholder shall have such
right unless (1) he files with the corporation before the taking of the vote of
the shareholders on such corporate action, written objection to the proposed
action stating that he intends to demand payment for his shares if the action is
taken and (2) his shares are not voted in favor of the proposed action.
SEC. 87. STATEMENT OF RIGHTS OF OBJECTING STOCKHOLDERS IN NOTICE OF MEETING;
FORM
The notice of the meeting of stockholders at which the approval of such
proposed action is to be considered shall contain a statement of the rights of
objecting stockholders. The giving of such notice shall not be deemed to create
any rights in any stockholder receiving the same to demand payment for his
stock, and the directors may authorize the inclusion in any such notice of a
statement of opinion by the management as to the existence or non-existence of
the right of the stockholders to demand payment for their stock on account of
the proposed corporate action. The notice may be in such form as the directors
or officers calling the meeting deem advisable, but the following form of notice
shall be sufficient to comply with this section:
"If the action proposed is approved by the stockholders at the meeting and
effected by the corporation, any stockholder (1) who files with the corporation
before the taking of the vote on the approval of such action, written objection
to the proposed action stating that he intends to demand payment for his shares
if the action is taken and (2) whose shares are not voted in favor of such
action has or may have the right to demand in writing from the corporation (or,
in the case of a consolidation or merger, the name of the resulting or surviving
corporation shall be inserted), within twenty days after the date of mailing to
him of notice in writing that the corporate action has become effective, payment
for his shares and an appraisal of the value thereof. Such corporation and any
such stockholder shall in such cases have the rights and duties and shall follow
the procedure set forth in sections 88 to 98, inclusive, of chapter 156B of the
General Laws of Massachusetts."
SEC. 88. NOTICE OF EFFECTIVENESS OF ACTION OBJECTED TO
The corporation taking such action, or in the case of a merger or
consolidation the surviving or resulting corporation, shall, within ten days
after the date on which such corporate action became effective, notify each
stockholder who filed a written objection meeting the requirements of section
eighty-six and whose shares were not voted in favor of the approval of such
action, that the action approved at the meeting of the corporation of which he
is a stockholder has become effective. The giving of such notice shall not be
deemed to create any rights in any stockholder receiving the same to demand
payment for his stock. The notice shall
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be sent by registered or certified mail, addressed to the stockholder at his
last known address as it appears in the records of the corporation.
SEC. 89. DEMAND FOR PAYMENT; TIME FOR PAYMENT
If within twenty days after the date of mailing of a notice under
subsection (e) of section eighty-two, subsection (f) of section eighty-three, or
section eighty-eight, any stockholder to whom the corporation was required to
give such notice shall demand in writing from the corporation taking such
action, or in the case of a consolidation or merger from the resulting or
surviving corporation, payment for his stock, the corporation upon which such
demand is made shall pay to him the fair value of his stock within thirty days
after the expiration of the period during which such demand may be made.
SEC. 90. DEMAND FOR DETERMINATION OF VALUE; BILL IN EQUITY; VENUE
If during the period of thirty days provided for in section eighty-nine the
corporation upon which such demand is made and any such objecting stockholder
fail to agree as to the value of such stock, such corporation or any such
stockholder may within four months after the expiration of such thirty-day
period demand a determination of the value of the stock of all such objecting
stockholders by a bill in equity filed in the superior court in the county where
the corporation in which such objecting stockholder held stock had or has its
principal office in the commonwealth.
SEC. 91. PARTIES TO SUIT TO DETERMINE VALUE; SERVICE
If the bill is filed by the corporation, it shall name as parties
respondent all stockholders who have demanded payment for their shares and with
whom the corporation has not reached agreement as to the value thereof. If the
bill is filed by a stockholder, he shall bring the bill in his own behalf and in
behalf of all other stockholders who have demanded payment for their shares and
with whom the corporation has not reached agreement as to the value thereof, and
service of the bill shall be made upon the corporation by subpoena with a copy
of the bill annexed. The corporation shall file with its answer a duly verified
list of all such other stockholders, and such stockholders shall thereupon be
deemed to have been added as parties to the bill. The corporation shall give
notice in such form and returnable on such date as the court shall order to each
stockholder party to the bill by registered or certified mail, addressed to the
last known address of such stockholder as shown in the records of the
corporation, and the court may order such additional notice by publication or
otherwise as it deems advisable. Each stockholder who makes demand as provided
in section eighty-nine shall be deemed to have consented to the provisions of
this section relating to notice, and the giving of notice by the corporation to
any such stockholder in compliance with the order of the court shall be a
sufficient service of process on him. Failure to give notice to any stockholder
making demand shall not invalidate the proceedings as to other stockholders to
whom notice was properly given, and the court may at any time before the entry
of a final decree make supplementary orders of notice.
SEC. 92. DECREE DETERMINING VALUE AND ORDERING PAYMENT; VALUATION DATE
After hearing the court shall enter a decree determining the fair value of
the stock of those stockholders who have become entitled to the valuation of and
payment for their shares, and shall order the corporation to make payment of
such value, together with interest, if any, as hereinafter provided, to the
stockholders entitled thereto upon the transfer by them to the corporation of
the certificates representing such stock if certificated or, if uncertificated,
upon receipt of an instruction transferring such stock to the corporation. For
this purpose, the value of the shares shall be determined as of the day
preceding the date of the vote approving the proposed corporate action and shall
be exclusive of any element of value arising from the expectation or
accomplishment of the proposed corporate action.
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SEC. 93. REFERENCE TO SPECIAL MASTER
The court in its discretion may refer the bill or any question arising
thereunder to a special master to hear the parties, make findings and report the
same to the court, all in accordance with the usual practice in suits in equity
in the superior court.
SEC. 94. NOTATION ON STOCK CERTIFICATES OF PENDENCY OF BILL
On motion the court may order stockholder parties to the bill to submit
their certificates of stock to the corporation for the notation thereon of the
pendency of the bill and may order the corporation to note such pendency in its
records with respect to any uncertificated shares held by such stockholder
parties, and may on motion dismiss the bill as to any stockholder who fails to
comply with such order.
SEC. 95. COSTS; INTEREST
The costs of the bill, including the reasonable compensation and expenses
of any master appointed by the court, but exclusive of fees of counsel or of
experts retained by any party, shall be determined by the court and taxed upon
the parties to the bill, or any of them, in such manner as appears to be
equitable, except that all costs of giving notice to stockholders as provided in
this chapter shall be paid by the corporation. Interest shall be paid upon any
award from the date of the vote approving the proposed corporate action, and the
court may on application of any interested party determine the amount of
interest to be paid in the case of any stockholder.
SEC. 96. DIVIDENDS AND VOTING RIGHTS AFTER DEMAND FOR PAYMENT
Any stockholder who has demanded payment for his stock as provided in this
chapter shall not thereafter be entitled to notice of any meeting of
stockholders or to vote such stock for any purpose and shall not be entitled to
the payment of dividends or other distribution on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the date of the vote approving the proposed corporate action) unless:
(1) A bill shall not be filed within the time provided in section
ninety;
(2) A bill, if filed, shall be dismissed as to such stockholder; or
(3) Such stockholder shall with the written approval of the
corporation, or in the case of a consolidation or merger, the resulting or
surviving corporation, deliver to it a written withdrawal of his objections
to and an acceptance of such corporate action.
Notwithstanding the provisions of clauses (1) to (3), inclusive, said
stockholder shall have only the rights of a stockholder who did not so demand
payment for his stock as provided in this chapter.
SEC. 97. STATUS OF SHARES PAID FOR
The shares of the corporation paid for by the corporation pursuant to the
provisions of this chapter shall have the status of treasury stock, or in the
case of a consolidation or merger the shares or the securities of the resulting
or surviving corporation into which the shares of such objecting stockholder
would have been converted had he not objected to such consolidation or merger
shall have the status of treasury stock or securities.
SEC. 98. EXCLUSIVE REMEDY; EXCEPTION
The enforcement by a stockholder of his right to receive payment for his
shares in the manner provided in this chapter shall be an exclusive remedy
except that this chapter shall not exclude the right of such stockholder to
bring or maintain an appropriate proceeding to obtain relief on the ground that
such corporate action will be or is illegal or fraudulent as to him.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by Section 145 of the Delaware General Corporation Law, the
Registrant's Certificate of Incorporation, as amended, includes a provision that
eliminates the personal liability of its directors for monetary damages for
breach or alleged breach of their duty of care. The Registrant also maintains a
limited amount of director and officer insurance. In addition, as permitted by
Section 145 of the Delaware General Corporation Law, the Bylaws, as amended, of
the Registrant (the "Bylaws") provide that: (i) the Registrant is required to
indemnify its directors, officers and employees, and persons serving in such
capacities in other business enterprises (including, for example, subsidiaries
of the Registrant) at the Registrant's request, to the fullest extent permitted
by Delaware law, including those circumstances in which indemnification would
otherwise be discretionary; (ii) the Registrant is required to advance expenses,
as incurred, to such directors, officers and employees in connection with
defending a proceeding (except that it is not required to advance expenses to a
person against whom the Registrant brings a claim for breach of the duty of
loyalty, failure to act in good faith, intentional misconduct, knowing violation
of law or deriving an improper personal benefit); (iii) the rights conferred in
the Bylaws are not exclusive and the Registrant is authorized to enter into
indemnification agreements with such directors, officers and employees; (iv) the
Registrant is required to maintain director and officer liability insurance to
the extent reasonably available; and (v) the Registrant may not retroactively
amend such Bylaw provisions in a way that is adverse to such directors, officers
and employees.
The Registrant's policy is to enter into indemnity agreements with each of
its executive officers and directors that provide the maximum indemnity allowed
to officers and directors by Section 145 of the Delaware General Corporation Law
and the Bylaws as well as certain additional procedural protections. In
addition, the indemnity agreements provide that officers and directors will be
indemnified to the fullest possible extent not prohibited by law against all
expenses (including attorney's fees) and settlement amounts paid or incurred by
them in any action or proceeding, including any derivative action by or in the
right of the Registrant, on account of their services as directors or officers
of the Registrant or as directors or officers of any other company or enterprise
when they are serving in such capacities at the request of the Registrant. No
indemnity will be provided, however, to any director or officer on account of
conduct that is adjudicated to be knowingly fraudulent, deliberately dishonest
or willful misconduct. The indemnity agreements also provide that no
indemnification will be available if a final court adjudication determines that
such indemnification is not lawful, or in respect of any accounting of profits
made from the purchase or sale of securities of the Registrant in violation of
Section 16(b) of the Securities Exchange Act of 1934, as amended.
The indemnification provisions in the Bylaws and the indemnity agreements
entered into between the Registrant and its officers or directors, may be
sufficiently broad to permit indemnification of the Registrant's officers and
directors for liability arising under the Securities Act of 1933, as amended.
Pursuant to the Reorganization Agreement, the Registrant has agreed that,
from and after the effective time of the Merger, it will, and it will cause FTP
as the surviving corporation in the Merger to, fulfill and honor in all respects
the obligations of FTP pursuant to each indemnification agreement in effect at
the Effective Time between FTP and each person who is or was a director or
officer of FTP at or prior to the Effective Time and indemnification provisions
under FTP's articles of organization, as amended, or Bylaws as each is in effect
on the date of the Reorganization Agreement (the persons to be indemnified
pursuant to the agreements or provisions referred to in the foregoing clauses
shall be referred to as the "FTP Indemnified Parties"). The Articles of
Organization and Bylaws of FTP as the surviving corporation will contain
provisions with respect to indemnification and exculpation from liability at
least as favorable to the FTP Indemnified Parties as those contained in FTP's
Articles of Organization and Bylaws on the date of the Reorganization Agreement,
which provisions will not be modified, repealed or amended for a period of four
years after the effective time in any manner that would adversely affect the
rights of any FTP Indemnified Party, unless required by applicable law.
II-1
<PAGE> 260
Moreover, subject to certain limitations, the Registrant has agreed to
cause FTP as the surviving corporation to maintain in effect, during the four
year period commencing as of the effective time, a policy of directors' and
officers' liability insurance for the benefit of each of the FTP Indemnified
Parties providing coverage and containing terms no less advantageous to the FTP
Indemnified Parties than the coverage and terms of FTP's existing policy of
directors' and officers' liability insurance as of the date of the
Reorganization Agreement, provided, however, that the Registrant shall not be
required to expend in excess of 125% of the annual premium currently paid by FTP
for such coverage.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
------- --------
<S> <C>
2.1 Composite Agreement and Plan of Reorganization dated as of
June 15, 1998, among the Registrant, FTP Software, Inc.
("FTP") and Amanda Acquisition Corp., as amended on June 30,
1998 and July 14, 1998 (Reference is made to Annex A to the
Joint Proxy Statement/Prospectus, which is included in this
Registration Statement).
3.1 Composite Certificate of Incorporation of the Registrant.
3.2 Form of Certificate of Amendment of Certificate of
Incorporation of the Registrant.
3.3 Bylaws of the Registrant.(1)
4.1 Amended Stock Rights Agreement, among the Registrant and the
parties named therein, dated as of March 12, 1993.(1)
4.2 Form of Common Stock certificate of the Registrant.(1)
5.1 Legal opinion of Wilson, Sonsini, Goodrich & Rosati,
Professional Corporation regarding legality of the
securities being registered.
8.1 Tax opinion of Wilson, Sonsini, Goodrich & Rosati,
Professional Corporation.
8.2 Tax opinion of Ropes & Gray.
10.1 Form of Indemnity Agreement entered into among the
Registrant and its directors and officers.(1)
10.2* Registrant's 1992 Stock Option Plan, as amended, including
forms of option agreements.(1)
10.3* Registrant's 1993 Non-Employee Directors Stock Option Plan,
including forms of option agreements.(1)
10.4* Registrant's 1993 Employee Stock Purchase Plan, including
form of offering document.(1)
10.5 Lease between the Registrant and Stevens Creek Office Center
Associates, dated as of November 30, 1992.(1)
10.6 Lease between the Registrant and Beim & James Properties
III, dated January 3, 1994.(2)
10.7 Lease between the Registrant and Cupertino Industrial
Associates, dated September 30, 1994.(3)
10.8 Lease between the Registrant and the Flatley Company, dated
January 30, 1995.(4)
10.9 Lease between the Registrant and Cupertino Brown Investment,
dated April 28, 1995.(5)
10.10 Agreement between NetManage, Ltd., Elron Electronic
Industries, Ltd., and NetVision, Ltd., dated July 1,
1995.(5)
21.1 Subsidiaries of the Registrant(6)
23.1 Consent of Independent Public Accountants (Arthur Andersen
LLP).
23.2 Consent of PriceWaterhouseCoopers LLP.
23.3 Consent of CIBC Oppenheimer Corp.
23.4 Consent of Cowen & Company.
</TABLE>
II-2
<PAGE> 261
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
------- --------
<S> <C>
23.5 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibits 5.1 and 8.1).
23.6 Consent of Ropes & Gray (included in Exhibit 8.2).
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
99.1 Form of proxy card for the Registrant's Special Meeting of
Stockholders.
99.2 Form of proxy card for FTP's Special Meeting of
Stockholders.
</TABLE>
- ---------------
(1) Incorporated by reference to the Exhibits filed with the Registrant's
Registration Statement on Form S-1 (No. 33-66460) dated July 24, 1993, as
amended, which became effective September 20, 1993.
(2) Incorporated by reference to the Exhibits filed with the Registrant's
Registration Statement on Form S-1 (No. 33-74364) dated January 24, 1994, as
amended, which became effective February 10, 1994.
(3) Incorporated by reference to the Exhibits filed with the Registrant's Form
10-Q for the quarter ended September 30, 1994.
(4) Incorporated by reference to the Exhibits filed with the Registrant's Form
10-Q for the quarter ended March 31, 1995.
(5) Incorporated by reference to the Exhibits filed with the Registrant's Form
10-K for the year ended December 31, 1995.
(6) Incorporated by reference to exhibit filed with Form 10-K for the year ended
December 31, 1997.
* Employee Benefit Plan in which executive officers or directors of the
Registrant participate.
(b) FINANCIAL STATEMENT SCHEDULES
See Index to Financial Statements at page F-1
(c) ITEM 4(B) REPORTS
See Annexes B-1 and B-2 to the Joint Proxy Statement/Prospectus, which is
included in this Registration Statement.
ITEM 22. UNDERTAKINGS.
(a) (1) The undersigned Registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (a)(1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Securities Act of 1933, as
amended (the "Act") and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Act, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising under the Act, may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the Certificate of Incorporation, as amended, and the Bylaws, as
amended, of the Registrant and the Delaware General Corporation Law, or
otherwise the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such
II-3
<PAGE> 262
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in a
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
question has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) The Registrant hereby undertakes to respond to requests for information
that is incorporated by reference into the Joint Proxy Statement/Prospectus
pursuant to Items 4, 10(b), 11 or 13 of Form S-4, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the Registration Statement
through the date of responding to the request.
(c) The Registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
Registration Statement when it became effective.
II-4
<PAGE> 263
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
NetManage, Inc. has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Cupertino,
County of Santa Clara, State of California, on the 14th day of July 1998.
NETMANAGE, INC.
By: /s/ ZVI ALON
------------------------------------
Zvi Alon
Chairman of the Board, President
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Zvi Alon and Gary R. Anderson, and each
or either of them, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitutes or substitute, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ZVI ALON Chairman of the Board, July 14, 1998
- ----------------------------------------------------- President and Chief Executive
Zvi Alon Officer (Principal Executive
Officer)
/s/ GARY R. ANDERSON Chief Financial Officer, Senior July 14, 1998
- ----------------------------------------------------- Vice President, Finance and
Gary R. Anderson Secretary (Principal Financial
and Accounting Officer)
/s/ JOHN BOSCH Director July 14, 1998
- -----------------------------------------------------
John Bosch
/s/ UZIA GALIL Director July 14, 1998
- -----------------------------------------------------
Uzia Galil
/s/ SHELLEY HARRISON, PH.D. Director July 14, 1998
- -----------------------------------------------------
Shelley Harrison, Ph.D.
/s/ DARRELL MILLER Director July 14, 1998
- -----------------------------------------------------
Darrell Miller
/s/ ABRAHAM OSTROVSKY Director July 14, 1998
- -----------------------------------------------------
Abraham Ostrovsky
</TABLE>
II-5
<PAGE> 264
EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ------- ------------------------------------------------------------ ------------
<C> <S> <C>
2.1 Composite Agreement and Plan of Reorganization dated as of
June 15, 1998, among the Registrant, FTP Software, Inc.
("FTP") and Amanda Acquisition Corp., as amended on June 30,
1998 and July 14, 1998 (Reference is made to Annex A to the
Joint Proxy Statement/Prospectus, which is included in this
Registration Statement).
3.1 Composite Certificate of Incorporation of the Registrant.
3.2 Form of Certificate of Amendment of Certificate of
Incorporation of the Registrant.
3.3 Bylaws of the Registrant.(1)
4.1 Amended Stock Rights Agreement, among the Registrant and the
parties named therein, dated as of March 12, 1993.(1)
4.2 Form of Common Stock certificate of the Registrant.(1)
5.1 Legal opinion of Wilson, Sonsini, Goodrich & Rosati,
Professional Corporation regarding legality of the
securities being registered.
8.1 Tax opinion of Wilson, Sonsini, Goodrich & Rosati,
Professional Corporation.
8.2 Tax opinion of Ropes & Gray.
10.1 Form of Indemnity Agreement entered into among the
Registrant and its directors and officers.(1)
10.2* Registrant's 1992 Stock Option Plan, as amended, including
forms of option agreements.(1)
10.3* Registrant's 1993 Non-Employee Directors Stock Option Plan,
including forms of option agreements.(1)
10.4* Registrant's 1993 Employee Stock Purchase Plan, including
form of offering document.(1)
10.5 Lease between the Registrant and Stevens Creek Office Center
Associates, dated as of November 30, 1992.(1)
10.6 Lease between the Registrant and Beim & James Properties
III, dated January 3, 1994.(2)
10.7 Lease between the Registrant and Cupertino Industrial
Associates, dated September 30, 1994.(3)
10.8 Lease between the Registrant and the Flatley Company, dated
January 30, 1995.(4)
10.9 Lease between the Registrant and Cupertino Brown Investment,
dated April 28, 1995.(5)
10.10 Agreement between NetManage, Ltd., Elron Electronic
Industries, Ltd., and NetVision, Ltd., dated July 1,
1995.(5)
21.1 Subsidiaries of Registrant(6)
23.1 Consent of Independent Public Accountants (Arthur Andersen
LLP).
23.2 Consent of PriceWaterhouseCoopers LLP.
23.3 Consent of CIBC Oppenheimer Corp.
23.4 Consent of Cowen & Company.
</TABLE>
<PAGE> 265
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ------- ------------------------------------------------------------ ------------
<C> <S> <C>
23.5 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibits 5.1 and 8.1).
23.6 Consent of Ropes & Gray (included in Exhibit 8.2).
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
99.1 Form of proxy card for the Registrant's Special Meeting of
Stockholders.
99.2 Form of proxy card for FTP's Special Meeting of
Stockholders.
</TABLE>
- ---------------
(1) Incorporated by reference to the Exhibits filed with the Registrant's
Registration Statement on Form S-1 (No. 33-66460) dated July 24, 1993, as
amended, which became effective September 20, 1993.
(2) Incorporated by reference to the Exhibits filed with the Registrant's
Registration Statement on Form S-1 (No. 33-74364) dated January 24, 1994, as
amended, which became effective February 10, 1994.
(3) Incorporated by reference to the Exhibits filed with the Registrant's Form
10-Q for the quarter ended September 30, 1994.
(4) Incorporated by reference to the Exhibits filed with the Registrant's Form
10-Q for the quarter ended March 31, 1995.
(5) Incorporated by reference to the Exhibits filed with the Registrant's Form
10-K for the year ended December 31, 1995.
(6) Incorporated by reference to Exhibits filed with Registrant's Form 10-K for
the year ended December 31, 1997.
* Employee Benefit Plan in which executive officers or directors of the
Registrant participate.
<PAGE> 1
EXHIBIT 3.1
COMPOSITE CERTIFICATE OF INCORPORATION
OF
NETMANAGE (DELAWARE), INC.
I.
The name of this corporation is NetManage (Delaware), Inc.
II.
The address of the registered office of the corporation in the State of
Delaware is 32 Loockerman Square, Suite L-100, City of Dover, County of Kent,
and the name of the registered agent of the corporation in the State of Delaware
at such address is The Prentice-Hill Corporation System, Inc.
III.
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
IV.
A. This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock". The total
number of shares the corporation is authorized to issue is eighty million
(80,000,000) shares. Seventy-five (75,000,000) million shares shall be Common
Stock, each having a par value of One Cent ($.01), and five million (5,000,000)
shares shall be Preferred Stock, each having par value of One Cent ($.01).
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation
Law, to fix or alter from time to time the designation, powers, preferences and
rights of the shares of each such series and the qualifications, limitations or
restrictions of any wholly unissued series of Preferred Stock, and to establish
from time to time the number of shares constituting any such series or any of
them; and to increase or decrease the number of shares of any series subsequent
to the issuance of shares of that series, but not below the number of shares of
such series then outstanding. In case the number of shares of any series shall
be decreased in accordance with the foregoing sentence, the shares constituting
such decrease shall resume the status that they had prior to the adoption of
the resolution originally fixing the number of shares of such series.
1
<PAGE> 2
V.
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any
class thereof, as the case may be, it is further provided that:
A. Board of Directors.
(1) The management of the business and the conduct of the affairs of
the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted by the Board of Directors.
(2) Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, following
the closing of the initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "1933
Act"), covering the offer and sale of Common Stock to the public (the "Initial
Public Offering"), the directors shall be divided into three classes designated
as Class I, Class II and Class III, respectively. Directors shall be assigned
to each class in accordance with a resolution or resolutions adopted by the
Board of Directors. At the first annual meeting of stockholders following the
closing of the Initial Public Offering, the term of office of the Class I
directors shall expire and Class I directors shall be elected for a full term
of three years. At the second annual meeting of stockholders following the
Closing of the Initial Public Offering, the term of office of the Class II
directors shall expire and Class II directors shall be elected for a full term
of three years. At the third annual meeting of stockholders following the
Closing of the Initial Public offering, the term of office of the Class III
directors shall expire and Class III directors shall be elected for a full term
of three years. At each succeeding annual meeting of stockholders, directors
shall be elected for a full term of three years to succeed the directors of the
class whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each
director shall serve until his successor is duly elected and qualified or until
his death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
(3) Subject to any limitations imposed by law, the Board of
Directors or any individual director may be removed from office at any time (A)
with cause by the affirmative vote of the holders of at least a majority of the
voting power of all the then-outstanding shares of voting stock of the
corporation, entitled to vote at an election of directors (the "Voting Stock"),
or (B) without cause by the affirmative vote of the holders of at least
two-thirds of the voting power of all then-outstanding shares of Voting Stock.
(4) Subject to the rights of the holders of any series of Preferred
Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors,shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
2
<PAGE> 3
B. General.
(1) Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws
may be altered or amended or new Bylaws adopted by the affirmative vote of at
least two-thirds of the voting power of all of the then-outstanding shares of
the Voting Stock. The Board of Directors shall also have the power to adopt,
amend, or repeal Bylaws.
(2) The directors of the corporation need not be elected by written
ballot unless the Bylaws so provide.
(3) No action shall be taken by the stockholders of the corporation
except at an annual or special meeting of stockholders called in accordance
with the Bylaws, and after the Initial Public Offering, no action shall be
taken by the stockholders by written consent.
(4) Special meetings of the stockholders of the corporation may be
called for any purpose or purposes by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to the
Board of Directors for adoption), and shall be held at such place, on such
date, and at such time as the Board of Directors shall fix.
(5) Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation shall be given in the manner provided in
the Bylaws of the corporation.
VI.
A. The liability of the directors of the corporation for monetary
damages shall be eliminated to the fullest extent permissible under Delaware
law.
B. A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit. If the Delaware General Corporation Law is amended
after approval by the stockholders of this Article to authorize corporate
action further eliminating or limiting the personal liability of directors, then
the liability of a director shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended.
C. Any repeal or modification of this Article VI shall be prospective
and shall not affect the rights under this Article VI in effect at the time of
the alleged occurrence of any act or omission to act giving rise to liability
or indemnification.
3
<PAGE> 4
VII.
A. The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, except as provided in paragraph B. of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least two-thirds of the voting power of all of the
then-outstanding shares of the Voting Stock, voting together as a single class,
shall be required to alter, amend or repeal Articles V, VI, and VII.
VIII.
The name and the mailing address of the Sole Incorporator is as follows:
NAME MAILING ADDRESS
Laura A. Berezin Cooley Godward Castro
Huddleson & Tatum
5 Palo Alto Square, Fourth Floor
Palo Alto, California 94306
4
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
NETMANAGE, INC.
A DELAWARE CORPORATION
NetManage, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"corporation"), does hereby certify as follows:
FIRST: The name of the corporation is NetManage, Inc.
SECOND: The original Certificate of Incorporation of the corporation was
filed with the Secretary of State of Delaware on July 23, 1993, as amended May
20, 1994.
THIRD: The Board of Directors of the corporation, acting in accordance
with the provisions of Sections 141 and 242 of the General Corporation Law of
the State of Delaware, adopted resolutions amending its Amended Certificate of
Incorporation as follows:
ARTICLE IV shall be amended and restated to read in its entirety as
follows:
"A. This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The
total number of shares which the corporation is authorized to issue is
One Hundred Thirty Million (130,000,000) shares. One Hundred Twenty-Five
Million (125,000,000) shares shall be Common Stock, each having a par
value of One Cent ($.01), and Five Million (5,000,000) shares shall be
Preferred Stock, each having a par value of One Cent ($.01).
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a
certificate (a "Preferred Stock Designation") pursuant to the Delaware
General Corporation Law, to fix or alter from time to time the
designation, powers, preferences and rights of the shares of each such
series and the qualifications, limitations or restrictions of any wholly
unissued series of Preferred Stock, and to establish from time to time
the number of shares constituting any such series or any of them; and to
increase or decrease the number of shares of any series subsequent to
the issuance of shares of that series, but not below the number of
shares
<PAGE> 2
of such series then outstanding. In case the number of shares of any
series shall be decreased in accordance with the foregoing sentence, the
shares constituting such decrease shall resume the status that they had
prior to the adoption of the resolution originally fixing the number of
shares of such series."
FOURTH: Thereafter, pursuant to a resolution of the Board of Directors,
this Certificate of Amendment was submitted to the stockholders of the
Corporation for their approval, and was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the undersigned, Zvi Alon and Gary Anderson, have
signed this Certificate of Amendment as President and Secretary, respectively,
of the corporation, this ___ day of August, 1998.
-----------------------------------------
Zvi Alon, President
-----------------------------------------
Gary Anderson, Secretary
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD OF WILSON SONSINI GOODRICH & ROSATI]
July 14, 1998
NetManage, Inc.
10725 North De Anza Boulevard
Cupertino, California 95014
RE: Registration Statement on Form S-4
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-4 filed by you
with the Securities Exchange Commission (the "Commission") on or about this date
(the "Registration Statement"), in connection with the registration under the
Securities Act of 1933, as amended, of shares of your Common Stock, par value
$0.01 per share issuable pursuant to the Agreement and Plan of Reorganization
among you, FTP Software, Inc. and Amanda Acquisition Corp. dated June 15, 1998,
as amended, (the "Shares"). As your counsel in connection with this transaction,
we have examined the proceedings proposed to be taken by you in connection with
the sale and issuance of the Shares.
It is our opinion that upon conclusion of the proceedings being
taken or contemplated by us, as your counsel, to be taken prior to the issuance
of the Shares, the Shares, when issued and sold in the manner described in the
Registration Statement, will be legally and validly issued, fully paid and
non-assessable.
We consent to the use of this Opinion as an exhibit to the
Registration Statement, and further consent to the use of our name wherever
appearing in the Registration Statement, including the Joint Proxy
Statement/Prospectus constituting a part thereof, and any amendment thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ WILSON SONSINI GOODRICH & ROSATI
<PAGE> 1
EXHIBIT 8.1
[LETTERHEAD OF WILSON SONSINI GOODRICH & ROSATI]
July 15, 1998
NetManage, Inc.
10725 North DeAnza Boulevard
Cupertino, California 95014
Ladies and Gentlemen:
This opinion is being delivered to you pursuant to Section 6.1(d) of
the Agreement and Plan of Reorganization dated as of June 15, 1998 (the
"Reorganization Agreement"), among NetManage, Inc., a Delaware corporation
("NetManage"), Amanda Acquisition Corp., a Massachusetts corporation and a
wholly-owned subsidiary of NetManage ("Merger Sub"), and FTP Software, Inc., a
Massachusetts corporation ("FTP"), and as amended on June 30, 1998, and on
July 14, 1998.
Except as otherwise provided, capitalized terms used but not defined
herein shall have the meanings set forth in the Reorganization Agreement. All
section references, unless otherwise indicated, are to the Internal Revenue Code
of 1986, as amended (the "Code").
We have acted as counsel to NetManage and Merger Sub in connection with
the Merger. As such, and for the purpose of rendering this opinion, we have
examined, and are relying upon (without any independent investigation or review
thereof) the truth and accuracy, at all relevant times, of the statements,
covenants, representations and warranties contained in the following documents
(including all exhibits and schedules attached thereto):
1. the Reorganization Agreement;
2. those certain tax representation letters delivered to us by
NetManage, Merger Sub and FTP containing certain
representations of NetManage, Merger Sub and FTP (the "Tax
Representation Letters"); and
3. such other instruments and documents related to the formation,
organization and operation of NetManage, Merger Sub and FTP
and related to the consummation of the Merger and the other
transactions contemplated by the Reorganization Agreement as
we have deemed necessary or appropriate.
<PAGE> 2
NetManage, Inc.
July 15, 1998
Page 2
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof) that:
a. Original documents submitted to us (including signatures
thereto) are authentic, documents submitted to us as copies
conform to the original documents, and that all such documents
have been (or will be by the Effective Time) duly and validly
executed and delivered where due execution and delivery are a
prerequisite to the effectiveness thereof;
b. All representations, warranties and statements made or agreed
to by NetManage, Merger Sub and FTP, their managements,
employees, officers, directors and shareholders in connection
with the Merger, including, but not limited to, those set
forth in the Reorganization Agreement (including the exhibits
thereto) and the Tax Representation Letters are true and
accurate at all relevant times;
c. All covenants contained in the Reorganization Agreement
(including exhibits thereto) and the Tax Representation
Letters are performed without waiver or breach of any material
provision thereof;
d. The Merger will be reported by NetManage and FTP on their
respective federal income tax returns in a manner consistent
with the opinion set forth below; and
e. Any representation or statement made "to the best of
knowledge" or similarly qualified is correct without such
qualification.
Based on our examination of the foregoing items and subject to the
limitations, qualifications, assumptions and caveats set forth herein, we are of
the opinion that, if the Merger is consummated in accordance with the
Reorganization Agreement (and without any waiver, breach or amendment of any of
the provisions thereof) and the statements set forth in the Tax Representation
Letters are true and correct as of the Effective Time, then for federal income
tax purposes, the Merger will be a reorganization within the meaning of Section
368(a) of the Code.
This opinion does not address the various state, local or foreign tax
consequences that may result from the Merger or the other transactions
contemplated by the Reorganization Agreement. In addition, no opinion is
expressed as to any federal income tax consequence of the Merger or the other
transactions contemplated by the Reorganization Agreement except as specifically
set forth herein, and this opinion may not be relied upon except with respect to
the consequences specifically discussed herein.
<PAGE> 3
NetManage, Inc.
July 15, 1998
Page 3
No opinion is expressed as to any transaction other than the Merger as
described in the Reorganization Agreement, or as to any other transaction
whatsoever, including the Merger, if all of the transactions described in the
Reorganization Agreement are not consummated in accordance with the terms of the
Reorganization Agreement and without waiver of any material provision thereof.
To the extent that any of the representations, warranties, statements and
assumptions material to our opinion and upon which we have relied are not
accurate and complete in all material respects at all relevant times, our
opinion would be adversely affected and should not be relied upon.
This opinion only represents our best judgment as to the federal income
tax consequences of the Merger and is not binding on the Internal Revenue
Service or any court of law, tribunal, administrative agency or other
governmental body. The conclusions are based on the Code, existing judicial
decisions, administrative regulations and published rulings. No assurance can be
given that future legislative, judicial or administrative changes or
interpretations would not adversely affect the accuracy of the conclusions
stated herein. Nevertheless, by rendering this opinion, we undertake no
responsibility to advise you of any new developments in the application or
interpretation of the federal income tax laws.
This opinion is intended for the benefit of NetManage and Merger Sub
and may not be relied upon or utilized for any other purpose or by any other
person and may not be made available to any other person without our prior
written consent. We hereby consent to the filing of this opinion as an exhibit
to the registration statement on Form S-4 which includes the joint proxy
statement and prospectus relating to the Reorganization Agreement.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
WILSON SONSINI GOODRICH & ROSATI
<PAGE> 1
EXHIBIT 8.2
[LETTERHEAD OF ROPES & GRAY]
July 14, 1998
FTP Software, Inc.
2 High Street
North Andover, MA 01845
Ladies and Gentlemen:
We have acted as counsel to FTP Software, Inc. ("FTP"), a Massachusetts
corporation, in connection with the planned transaction (the "Merger")
contemplated by the Agreement and Plan of Reorganization, dated as of June 15,
1998 and amended as of June 30, 1998 and as of July 14, 1998, by and among
NetManage, Inc., a Delaware corporation ("NetManage"), Amanda Acquisition Corp.,
a Massachusetts corporation and a wholly-owned subsidiary of NetManage ("Merger
Sub"), and FTP (the "Reorganization Agreement"), pursuant to which Merger Sub
will merge with and into FTP. All capitalized terms used but not defined herein
have the meanings ascribed to them in the Reorganization Agreement.
For purposes of the opinion set forth below, we have reviewed and relied
upon (i) the Reorganization Agreement, (ii) the Joint Proxy Statement and
Prospectus filed by NetManage and FTP with the Securities and Exchange
Commission on July 1, 1998, (iii) the tax representation letters delivered by
NetManage, FTP and Merger Sub to us in connection with this opinion, and (iv)
such other documents, records and instruments as we have deemed necessary or
appropriate as a basis for our opinion. We have assumed without investigation or
verification that all statements contained in the foregoing documents are true,
correct, and complete as of the date hereof and will remain true, correct and
complete as of the Effective Time unless we are otherwise notified in writing;
that no actions inconsistent with such statements have occurred or will occur;
that all such statements made "to the best of the knowledge of" any persons or
parties, or similarly qualified, are true, correct and complete as if made
without such qualification; and, as to all matters in which a person or entity
making a representation has represented that such person or entity either is not
a party to, does not have, or is not aware of, any plan or intention,
understanding or agreement, we have assumed that there is in fact no such plan,
intention, understanding or agreement.
We also have assumed that (i) the Merger will be consummated in
accordance with the Reorganization Agreement (including satisfaction of all
covenants and conditions to the
<PAGE> 2
FTP Software, Inc. -2- July 14, 1998
obligations of the parties without amendment or waiver thereof); (ii) all
representations and warranties contained in the Reorganization Agreement are
true, correct, and complete in all respects; (iii) the Merger will be effective
as a merger under the applicable laws of Massachusetts; and (iv) each of
NetManage, FTP and Merger Sub will comply with all reporting obligations with
respect to the Merger required under the Internal Revenue Code (the "Code") and
the Treasury regulations promulgated thereunder.
Any inaccuracy in, or breach of, any of the aforementioned statements,
representations and assumptions and any change in applicable law after the date
hereof could adversely affect our opinion. No ruling has been sought from the
Internal Revenue Service by NetManage, FTP or Merger Sub as to the federal
income tax consequences of any aspect of the Merger, and the Internal Revenue
Service is not bound by our opinion herein.
Based upon and subject to the foregoing as well as to the qualifications
and limitations set forth below, it is our opinion that the Merger will be
treated for United States federal income tax purposes as a reorganization within
the meaning of Section 368(a) of the Code.
No opinion is expressed as to any matter not specifically addressed
above, including the tax consequences of any of the transactions under any
foreign, state, or local tax law or the tax consequences of any other
transactions contemplated or entered into by NetManage, FTP or Merger Sub in
connection with the transactions described above. Our opinion is based on
current federal income tax law and we do not undertake to advise you as to any
changes in federal income tax law after the date hereof that may affect our
opinion.
This opinion has been delivered to you as contemplated by the
Reorganization Agreement. It is solely for your benefit, shall not inure to the
benefit of any other person, including without limitation any successor or
assign of FTP, whether by operation of law or otherwise, and is not to be used,
circulated, quoted or otherwise referred to for any purpose without our express
written permission.
We hereby consent to the filing with the Securities and Exchange
Commission of this opinion as an exhibit to the Registration Statement on Form
S-4 filed by NetManage in connection with the Merger.
Very truly yours,
/s/ Ropes & Gray
----------------
Ropes & Gray
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our firm) included in or made a part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
San Jose, California
July 14, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement of NetManage, Inc.
on Form S-4 of our reports dated January 27, 1998, on our audits of the
financial statements and financial statement schedule of FTP Software, Inc. We
also consent to the reference to our firm under the captions "Experts" and
"Selected Financial Data."
/s/ PRICEWATERHOUSECOOPERS LLP
------------------------------
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
July 14, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF CIBC OPPENHEIMER CORP.
We hereby consent to the use of our opinion letter dated June 12, 1998 (the
"Opinion") to the Board of Directors of NetManage, Inc. ("NetManage") contained
in Annex B-1 to the Joint Proxy Statement/Prospectus constituting a part of this
registration statement on Form S-4 relating to the proposed merger of a wholly
owned subsidiary of NetManage with and into FTP Software, Inc. and to the
references to such opinion in the Joint Proxy Statement/Prospectus. In giving
such consent, we do not thereby admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933
or the rules and regulations adopted by the Securities and Exchange Commission
thereunder nor do we admit that we are experts with respect to any part of such
Registration Statement within the meaning of the term "experts" as used in the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
July 14, 1998 CIBC OPPENHEIMER CORP.
By: /s/ CIBC OPPENHEIMER CORP.
---------------------------------
Authorized Signatory
<PAGE> 1
EXHIBIT 23.4
CONSENT OF SG COWEN SECURITIES CORPORATION
We hereby consent to the use of our opinion letter dated June 12, 1998 (the
"Opinion") to the Board of Directors of FTP Software, Inc. ("FTP") contained in
Annex B-2 to the Joint Proxy Statement/Prospectus constituting a part of the
registration statement on Form S-4 relating to the merger of a wholly owned
subsidiary of NetManage, Inc. with and into FTP and to the references to the SG
Cowen Securities Corporation name in the Joint Proxy Statement/Prospectus in
connection with references to the Opinion. In giving such consent, we do not
thereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933 or the rules and
regulations adopted by the Securities and Exchange Commission thereunder nor do
we admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "experts" as used in the Securities Act
of 1933, as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
July 14, 1998 SG COWEN SECURITIES CORPORATION
By: /s/ DANIEL SMALL
---------------------------------
Name: Daniel Small
Title: Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 12,706
<SECURITIES> 36,845
<RECEIVABLES> 14,783
<ALLOWANCES> 1,375
<INVENTORY> 0
<CURRENT-ASSETS> 78,685
<PP&E> 19,830
<DEPRECIATION> 10,999
<TOTAL-ASSETS> 119,593
<CURRENT-LIABILITIES> 23,143
<BONDS> 0
0
0
<COMMON> 438
<OTHER-SE> 95,649
<TOTAL-LIABILITY-AND-EQUITY> 119,593
<SALES> 61,524
<TOTAL-REVENUES> 61,524
<CGS> 4,093
<TOTAL-COSTS> 4,093
<OTHER-EXPENSES> 47,622
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (34,215)
<INCOME-TAX> (460)
<INCOME-CONTINUING> (33,755)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (33,755)
<EPS-PRIMARY> (0.78)
<EPS-DILUTED> (0.78)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
PROXY
NETMANAGE, INC.
PROXY SOLICITED BY BOARD OF DIRECTORS
FOR SPECIAL MEETING AUGUST 26, 1998
Zvi Alon and Gary Anderson, or either of them, each with the power of
substitution, hereby are authorized to represent and vote as designated on the
reverse side the shares of the undersigned at the Special Meeting of
Stockholders of NetManage, Inc. to be held on August 26, 1998, at 9:00 a.m.,
local time, at the Company's offices located at 10725 North De Anza Boulevard,
Cupertino, California, or at any adjournment or postponement of the Special
Meeting.
Shares represented by this proxy will be voted as directed by the
stockholder. If no such directions are indicated, the proxies will have
authority to vote FOR Item 1 and FOR Item 2.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
SEE REVERSE SIDE SEE REVERSE SIDE
PLEASE MARK
[X] VOTES AS IN
THIS EXAMPLE
The Board of Directors recommends a vote FOR Item 1 and FOR Item 2.
1. PROPOSAL TO APPROVE THE ISSUANCE OF SHARES OF NETMANAGE COMMON STOCK IN
CONNECTION WITH THE AGREEMENT AND PLAN OF REORGANIZATION DATED AS OF JUNE 15,
1998 OF AND AMONG NETMANAGE, INC., AMANDA ACQUISITION CORP. AND FTP SOFTWARE,
INC., AS AMENDED
<TABLE>
<S> <C> <C>
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
</TABLE>
2. PROPOSAL TO APPROVE AN AMENDMENT TO THE NETMANAGE CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES FROM 75,000,000 TO
125,000,000
<TABLE>
<S> <C> <C>
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
</TABLE>
3. Upon any other matters which may properly come before the meeting.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
PLEASE MARK, DATE, SIGN AND RETURN
Please sign exactly as your name appears on this proxy. If signing for
estates, trusts or corporations, title or capacity should be stated. If shares
are held jointly, each holder should sign.
<TABLE>
<S> <C> <C> <C>
Signature: Date:
------------------------------------- -------------------------------------
Signature: Date:
------------------------------------- -------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 99.2
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
- --------------------------
FTP SOFTWARE, INC.
- --------------------------
THE BOARD OF DIRECTORS RECOMMENDS VOTES FOR.
-
-
RECORD DATE SHARES:
Please be sure to sign and date this Proxy. Date
- ------------------------------
<TABLE>
<S> <C>
Stockholder sign here: Co-owner sign here:
- -------------------------------------------- --------------------------------------------
</TABLE>
Mark box at right if an address change has been noted on the reverse side of
this card [ ].
1. Proposal to approve the Agreement and Plan of Reorganization, dated as of
June 15, 1998, as amended, among NetManage, Inc., Amanda Acquisition Corp.
and FTP Software, Inc., and the Merger (as defined therein).
<TABLE>
<S> <C> <C>
For Against Abstain
[ ] [ ] [ ]
</TABLE>
The shares represented by this proxy, if properly executed, will be voted in
accordance with the instructions appearing herein. IN THE ABSENCE OF SPECIFIC
INSTRUCTIONS, THE SHARES REPRESENTED BY THIS PROXY, IF PROPERLY EXECUTED, WILL
BE VOTED "FOR" PROPOSAL 1 AND IN ACCORDANCE WITH THE DISCRETION OF THE PERSON
VOTING THE PROXY WITH RESPECT TO ANY OTHER BUSINESS PROPERLY BROUGHT BEFORE THE
MEETING.
Receipt of the Notice of Special Meeting of Stockholders and the Joint Proxy
Statement/Prospectus dated July 15, 1998 relating to the Meeting is hereby
acknowledged.
DETACH CARD DETACH CARD
FTP SOFTWARE, INC.
Dear Stockholder,
Please take note of the important information enclosed with this proxy card.
Your vote counts, and you are strongly encouraged to exercise your right to vote
your shares.
Please mark the boxes on this proxy card to indicate how your shares will be
voted. Then sign the card, detach and return it in the enclosed postage paid
envelope.
Your vote must be received prior to the Special Meeting of Stockholders, August
26, 1998. Whether or not you plan to be personally present at the meeting,
please complete, date and sign the enclosed proxy and return it promptly in the
enclosed envelope. If you later desire to revoke your proxy, you may do so at
any time before it is exercised by following the instructions in the
accompanying Joint Proxy Statement/Prospectus.
Thank you in advance for your prompt consideration.
Sincerely,
FTP Software, Inc.
<PAGE> 2
FTP SOFTWARE, INC. [FTP LOGO]
SPECIAL MEETING OF STOCKHOLDERS
OF FTP SOFTWARE, INC., AUGUST 26, 1998
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints John F. Geraghty, Glenn C.
Hazard and James A. Tholen, and each of them singly, with full power of
substitution, as proxies to vote and act at the FTP Software, Inc. Special
Meeting of Stockholders to be held on August 26, 1998 at 10:00 a.m., and at any
and all postponements and adjournments thereof (the "Meeting"), upon and with
respect to the number of shares of the common stock of FTP Software, Inc., $.01
par value per share ("Common Stock"), as to which the undersigned may be
entitled to vote or act. The undersigned instructs such proxies, or their
substitutes, to vote in such manner as they may determine on any matters which
may come before the Meeting, all as indicated in the accompanying Notice of
Special Meeting of Stockholders and Joint Proxy Statement/Prospectus, and to
vote on the proposal listed on the reverse side hereof as specified by the
undersigned on the reverse side. All proxies heretofore given by the undersigned
in respect of the Meeting are hereby revoked.
UNLESS OTHERWISE SPECIFIED IN THE BOXES PROVIDED ON THE REVERSE SIDE HEREOF,
THIS PROXY WILL BE VOTED IN FAVOR OF THE PROPOSAL TO APPROVE THE AGREEMENT AND
PLAN OF REORGANIZATION, DATED AS OF JUNE 15, 1998, AS AMENDED, AMONG NETMANAGE,
INC., AMANDA ACQUISITION CORP. AND FTP SOFTWARE, INC., AND THE MERGER (AS
DEFINED THEREIN), AS MORE PARTICULARLY DESCRIBED IN THE JOINT PROXY
STATEMENT/PROSPECTUS, AND IN THE DISCRETION OF THE NAMED PROXIES AS TO ANY OTHER
MATTER THAT MAY COME BEFORE THE MEETING.
------------------------
PLEASE VOTE, DATE AND SIGN ON THE REVERSE SIDE AND RETURN
PROMPTLY IN THE ENCLOSED ENVELOPE.
------------------------
Please sign exactly as name(s) appear(s) hereon. Joint owners should each sign.
If a corporation, sign in full corporate name by president or authorized
officer. If a partnership, sign in partnership name by authorized person. When
signing as attorney, executor, administrator, trustee or guardian, please give
your full title as such.
HAS YOUR ADDRESS CHANGED?
- --------------------------------------------------------------------------------
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