<PAGE>
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- -------------------------------------------------------------------------------
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 15, 1998
DEFINITIVE COPY
SCHEDULE 14A INFORMATION
DEFINITIVE PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the registrant [X]
Filed by a party other than the registrant [_]
Check the appropriate box:
[_]Preliminary proxy statement [_]Confidential, for Use of the
Commission Only (as
[X]Definitive proxy statement permitted by Rule 14a-
[_]Definitive additional materials 6(e)(2))
[_]Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
XCELLENET, INC.
(NAME OF REGISTRANT AS SPECIFIED IN CHARTER AND PERSON FILING PROXY STATEMENT)
Payment of filing fee (Check the appropriate box):
[_]No fee required
[_]Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[X]Fee paid previously with preliminary materials.
[_]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
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<PAGE>
LOGO
[Logo of XcelleNet, Inc. Appears Here]
XCELLENET, INC.
5 CONCOURSE PARKWAY, SUITE 850
ATLANTA, GEORGIA 30328
June 12, 1998
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders
(including any postponement or adjournment thereof, the "Special Meeting") of
XcelleNet, Inc. ("XcelleNet") to be held on Tuesday, July 21, 1998, commencing
at 8:00 a.m., Eastern time, at The Westin Atlanta North at Perimeter Hotel, 7
Concourse Parkway, Atlanta, Georgia.
As described in the accompanying Proxy Statement/Prospectus, at the Special
Meeting you will be asked to consider and vote upon a proposal to approve an
Agreement and Plan of Merger, dated as of April 16, 1998 (the "Merger
Agreement"), by and among Sterling Commerce, Inc. ("Sterling Commerce"),
Sterling Commerce (Southern), Inc. ("Commerce Southern") and XcelleNet
pursuant to which XcelleNet will be merged with and into Commerce Southern
(the "Merger"), with Commerce Southern as the surviving corporation and
remaining a wholly owned subsidiary of Sterling Commerce.
Pursuant to the Merger Agreement, each outstanding share of Common Stock,
par value $0.01 per share, of XcelleNet ("XcelleNet Stock") will be converted
into a right to receive $8.80 in cash and 0.2885 of a share of Common Stock,
$0.01 par value per share, of Sterling Commerce ("Commerce Stock"), with the
ratio of cash and shares of Commerce Stock to be adjusted, if necessary, as
provided in the Merger Agreement.
Your Board of Directors has carefully reviewed and considered the terms and
conditions of the Merger Agreement, and has determined that the Merger
Agreement and the Merger are fair to, and in the best interests of, XcelleNet
and its shareholders, and has approved the Merger Agreement. In addition,
XcelleNet's financial advisor, BancAmerica Robertson Stephens, has delivered
its opinion dated April 16, 1998 to the effect that, as of the date of such
opinion and based upon and subject to the matters set forth therein, the
consideration to be received by holders of XcelleNet Stock in the Merger is
fair to such holders from a financial point of view. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
As fellow shareholders, we are excited about the opportunities created by
the Merger. We believe that as a result of the Merger, XcelleNet will be part
of a larger, more diverse company with increased earnings and cash flow
stability that will be well-positioned to capitalize on strategic and other
opportunities. We therefore urge you to return your proxy card promptly.
Sincerely,
LOGO
/s/ Dennis M. Crumpler
Dennis M. Crumpler
Chairman of the Board and
Chief Executive Officer
<PAGE>
XCELLENET, INC.
5 CONCOURSE PARKWAY, SUITE 850
ATLANTA, GEORGIA 30328
----------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 21, 1998
To the Shareholders:
Notice is hereby given that a Special Meeting of Shareholders of XcelleNet,
Inc., a Georgia corporation ("XcelleNet"), will be held on Tuesday, July 21,
1998, commencing at 8:00 a.m., Eastern time, at The Westin Atlanta North at
Perimeter Hotel, 7 Concourse Parkway, Atlanta, Georgia (including any
postponement or adjournment thereof, the "Special Meeting"), to consider and
vote upon a proposal to approve an Agreement and Plan of Merger, dated as of
April 16, 1998 (the "Merger Agreement"), by and among Sterling Commerce, Inc.,
a Delaware corporation ("Sterling Commerce"), Sterling Commerce (Southern),
Inc., a Delaware corporation and a wholly owned subsidiary of Sterling
Commerce ("Commerce Southern"), and XcelleNet, pursuant to which XcelleNet
will be merged with and into Commerce Southern (the "Merger"), with Commerce
Southern as the surviving corporation and remaining a wholly owned subsidiary
of Sterling Commerce.
The Merger Agreement and the Merger are described in detail in the
accompanying Proxy Statement/Prospectus.
The XcelleNet Board of Directors has set June 8, 1998 as the record date for
the determination of shareholders entitled to notice of and to vote at the
Special Meeting. Only holders of record of XcelleNet's Common Stock, par value
$0.01 per share ("XcelleNet Stock"), at the close of business on that date
will be entitled to notice of and to vote at the Special Meeting.
Holders of XcelleNet Stock who do not vote in favor of approval of the
Merger Agreement and who otherwise comply with the applicable statutory
procedures of Article 13 of the Georgia Business Corporation Code (the "GBCC")
will be entitled to dissenters' rights under Article 13 of the GBCC. A summary
of the provisions of Article 13 of the GBCC, including a summary of the
requirements that must be complied with by holders of XcelleNet Stock desiring
to assert dissenters' rights, is set forth in the accompanying Proxy
Statement/Prospectus under the heading "The Merger--Dissenters' Rights." The
text of Article 13 of the GBCC is attached as Appendix D to the Proxy
Statement/Prospectus.
The accompanying Proxy Statement/Prospectus describes the Merger Agreement,
the proposed Merger and certain actions to be taken in connection with the
Merger. Please read the Proxy Statement/Prospectus carefully. To ensure that
your vote will be counted, please complete, date and sign the enclosed proxy
card and return it promptly in the enclosed postage-paid envelope, whether or
not you plan to attend Special Meeting. You may revoke your proxy in the
manner described in the accompanying Proxy Statement/Prospectus at any time
before it is voted at the Special Meeting. Properly executed proxies with no
instructions indicated thereon will be voted "FOR" approval of the Merger
Agreement.
By Order of the Board of Directors,
LOGO
/s/ Jeanne N. Bateman
Jeanne N. Bateman
Secretary
Atlanta, Georgia
June 12, 1998
YOUR VOTE IS IMPORTANT. TO VOTE YOUR SHARES, PLEASE MARK, DATE, SIGN AND
RETURN THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE-
PREPAID ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING.
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES AT THIS TIME. IF THE MERGER IS
CONSUMMATED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER OF YOUR
CERTIFICATES.
<PAGE>
PROXY STATEMENT OF
XCELLENET, INC.
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 21, 1998
----------------
PROSPECTUS OF
STERLING COMMERCE, INC.
This Proxy Statement/Prospectus is furnished to holders of shares of Common
Stock, par value $0.01 per share ("XcelleNet Stock"), of XcelleNet, Inc., a
Georgia corporation ("XcelleNet"), in connection with the solicitation by and
on behalf of the Board of Directors of XcelleNet (the "XcelleNet Board") of
proxies for use at a Special Meeting of Shareholders of XcelleNet (including
any postponement or adjournment thereof, the "Special Meeting") to be held on
Tuesday, July 21, 1998 commencing at 8:00 a.m., Eastern time, at The Westin
Atlanta North at Perimeter Hotel, 7 Concourse Parkway, Atlanta, Georgia. This
Proxy Statement/Prospectus, the Notice of Special Meeting of Shareholders and
the accompanying proxy card are first being mailed to holders of XcelleNet
Stock on or about June 16, 1998.
At the Special Meeting, holders of record of XcelleNet Stock as of the close
of business on June 8, 1998 (the "Record Date") will consider and vote upon
approval of the Agreement and Plan of Merger, dated as of April 16, 1998 (the
"Merger Agreement"), by and among Sterling Commerce, Inc. ("Sterling
Commerce"), Sterling Commerce (Southern), Inc. ("Commerce Southern") and
XcelleNet pursuant to which XcelleNet will be merged with and into Commerce
Southern (the "Merger"), with Commerce Southern as the surviving corporation
(the "Surviving Corporation") and remaining a wholly owned subsidiary of
Sterling Commerce. See "The Merger" for a description of the Merger Agreement
and the Merger.
This Proxy Statement/Prospectus also constitutes the Prospectus of Sterling
Commerce included in a Registration Statement on Form S-4 (together with any
amendments thereto, the "Registration Statement") filed with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933,
as amended (the "Securities Act"), with respect to the issuance of shares of
Common Stock, par value $0.01 per share, of Sterling Commerce ("Commerce
Stock") in connection with the Merger. All information concerning Sterling
Commerce contained in this Proxy Statement/Prospectus has been furnished by
Sterling Commerce, and all information concerning XcelleNet contained in this
Proxy Statement/Prospectus has been furnished by XcelleNet.
At the effective time of the Merger, each then-outstanding share of
XcelleNet Stock (other than any shares held in the treasury of XcelleNet, held
by any of XcelleNet's subsidiaries or held directly or indirectly by Sterling
Commerce, which shares will be cancelled, and shares held by shareholders, if
any, who properly exercise their dissenters' rights under Georgia law) will be
converted into the right to receive (i) a cash payment in an amount equal to
$8.80 and (ii) 0.2885 of a fully paid and nonassessable share of Commerce
Stock, with the ratio of cash and shares of Commerce Stock to be adjusted, if
necessary, as provided in the Merger Agreement. See "The Merger--The Merger
Agreement--Consideration to be Paid in the Merger."
SEE "RISK FACTORS" BEGINNING ON PAGE 14 HEREOF FOR A DISCUSSION OF CERTAIN
RISKS OF OWNERSHIP OF COMMERCE STOCK AND OTHER MATTERS THAT XCELLENET'S
SHAREHOLDERS SHOULD CONSIDER IN DETERMINING HOW TO VOTE UPON THE PROPOSED
MERGER.
Terms used in this Proxy Statement/Prospectus with initial capital letters
are defined herein at the pages indicated in the "Index of Defined Terms."
----------------
THE SHARES OF COMMERCE STOCK OFFERED HEREBY HAVE NOT BEEN APPROVED OR DIS-
APPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURI-
TIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COM-
MISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------
The date of this Proxy Statement/Prospectus is June 12, 1998.
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS
IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF COMMERCE
STOCK MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY STERLING COMMERCE,
XCELLENET OR ANY OTHER PERSON. THIS PROXY STATEMENT/PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OR THE SOLICITATION OF A PROXY IN ANY JURISDICTION TO OR FROM ANY
PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF COMMERCE STOCK MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF STERLING
COMMERCE OR XCELLENET SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
AVAILABLE INFORMATION
Each of Sterling Commerce and XcelleNet is subject to the information and
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and in accordance therewith files periodic reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549; 7 World Trade Center, Suite 1300, New York,
New York 10048; and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. The Commission also maintains a website, located at
http://www.sec.gov, that contains reports, proxy statements, and other
information regarding registrants that file electronically with the
Commission. Copies of such reports, proxy statements and other information
also can be obtained by mail from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Such reports, proxy statements and other information relating to
Sterling Commerce may also be inspected at the offices of the New York Stock
Exchange ("NYSE") at 20 Broad Street, New York, New York 10005. Such reports,
proxy statements and other information relating to XcelleNet may also be
inspected at the offices of The Nasdaq Stock Market Inc., at 1735 K Street,
N.W., Washington, D.C. 20006.
As permitted under the Securities Act and the Exchange Act, this Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement. Such additional information can be inspected and
copied or obtained from the Commission in the manner described above.
Statements contained in this Proxy Statement/Prospectus as to the contents of
any other document referred to herein are not necessarily complete, and each
such statement is qualified in all respects by reference to the copy of such
other document filed as an exhibit to the Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by Sterling Commerce with the
Commission, are hereby incorporated by reference in this Proxy
Statement/Prospectus: (i) Annual Report on Form 10-K for the fiscal year ended
September 30, 1997; (ii) Quarterly Reports on Form 10-Q for the fiscal
quarters ended December 31, 1997 and March 31, 1998; and (iii) Current Reports
on Form 8-K, dated April 16, 1998 and June 10, 1998.
The following documents, which have been filed by XcelleNet with the
Commission, are hereby incorporated by reference in this Proxy
Statement/Prospectus: (i) Annual Report on Form 10-K for the year ended
December 31, 1997; (ii) Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998; and (iii) Current Report on Form 8-K, dated April 16, 1998.
All documents and reports filed by either Sterling Commerce or XcelleNet
pursuant to Section 13(a), 13(c), 14, or 15(d) of the Exchange Act after the
date of this Proxy Statement/Prospectus and prior to the date of the Special
Meeting are deemed to be incorporated by reference in this Proxy
Statement/Prospectus and to be a part
ii
<PAGE>
hereof from the date of filing of such documents or reports. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein is deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded will not be deemed, except as so
modified or superseded, to constitute a part of this Proxy
Statement/Prospectus.
Any person receiving a copy of this Proxy Statement/Prospectus may obtain,
without charge, upon written or oral request, a copy of any of the documents
incorporated by reference except for the exhibits to such documents (other
than the exhibits expressly incorporated in such documents by reference).
Requests should be directed to: in the case of Sterling Commerce, Sterling
Commerce, Inc., 4600 Lakehurst Court, Dublin, Ohio 43016, Attention: Investor
Relations (telephone number (614) 793-7000); and, in the case of XcelleNet,
XcelleNet, Inc., 5 Concourse Parkway, Suite 850, Atlanta, Georgia 30328,
Attention: Investor Relations (telephone number (770) 804-8100). In order to
ensure timely delivery of the documents, any request should be made by July
14, 1998.
FORWARD-LOOKING INFORMATION
THIS PROXY STATEMENT/PROSPECTUS (INCLUDING THE DOCUMENTS INCORPORATED OR
DEEMED INCORPORATED BY REFERENCE HEREIN) CONTAINS, OR MAY CONTAIN, CERTAIN
FORWARD-LOOKING STATEMENTS AND INFORMATION THAT ARE BASED ON THE BELIEFS OF,
AND INFORMATION CURRENTLY AVAILABLE TO, STERLING COMMERCE'S OR XCELLENET'S
MANAGEMENT, AS WELL AS ESTIMATES AND ASSUMPTIONS MADE BY THEIR RESPECTIVE
MANAGEMENTS. WHEN USED HEREIN, WORDS SUCH AS "ANTICIPATE," "BELIEVE,"
"ESTIMATE," "EXPECT," "FUTURE," "INTEND," "PLAN" AND SIMILAR EXPRESSIONS, AS
THEY RELATE TO STERLING COMMERCE OR XCELLENET OR THEIR RESPECTIVE MANAGEMENTS,
IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS REFLECT THE CURRENT VIEWS
OF STERLING COMMERCE OR XCELLENET WITH RESPECT TO FUTURE EVENTS AND ARE
SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS RELATING TO STERLING
COMMERCE'S OR XCELLENET'S OPERATIONS AND RESULTS OF OPERATIONS, COMPETITIVE
FACTORS AND PRICING PRESSURES, SHIFTS IN MARKET DEMAND, THE PERFORMANCE AND
NEEDS OF THE INDUSTRIES SERVED BY STERLING COMMERCE OR XCELLENET, THE COSTS OF
PRODUCT DEVELOPMENT AND OTHER RISKS AND UNCERTAINTIES, INCLUDING, IN ADDITION
TO ANY UNCERTAINTIES SPECIFICALLY IDENTIFIED IN THE TEXT SURROUNDING SUCH
STATEMENTS, UNCERTAINTIES WITH RESPECT TO CHANGES OR DEVELOPMENTS IN SOCIAL,
ECONOMIC, BUSINESS, INDUSTRY, MARKET, LEGAL AND REGULATORY CIRCUMSTANCES AND
CONDITIONS AND ACTIONS TAKEN OR OMITTED TO BE TAKEN BY THIRD PARTIES,
INCLUDING STERLING COMMERCE'S OR XCELLENET'S SHAREHOLDERS, CUSTOMERS,
SUPPLIERS, BUSINESS PARTNERS, COMPETITORS, AND LEGISLATIVE, REGULATORY,
JUDICIAL AND OTHER GOVERNMENTAL AUTHORITIES AND OFFICIALS. SHOULD ONE OR MORE
OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD THE UNDERLYING
ESTIMATES OR ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS OR OUTCOMES MAY VARY
SIGNIFICANTLY FROM THOSE ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED, INTENDED
OR PLANNED. THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS ALSO INCLUDE CERTAIN NON-PUBLIC PROJECTED FINANCIAL
INFORMATION OF XCELLENET PROVIDED TO STERLING COMMERCE AND ITS FINANCIAL
ADVISORS. THERE CAN BE NO ASSURANCE THAT THE RESULTS DESCRIBED IN THE
PROJECTED FINANCIAL INFORMATION WILL BE REALIZED AND ACTUAL RESULTS MAY VARY
MATERIALLY FROM THE PROJECTED FINANCIAL INFORMATION. IN ADDITION TO ANY RISKS
AND UNCERTAINTIES SPECIFICALLY IDENTIFIED IN THE TEXT SURROUNDING SUCH
FORWARD-LOOKING STATEMENTS, THE STATEMENTS IN "RISK FACTORS" BEGINNING ON PAGE
14 OF THIS PROXY STATEMENT/PROSPECTUS IDENTIFY FACTORS THAT COULD CAUSE ACTUAL
AMOUNTS, RESULTS, EVENTS AND CIRCUMSTANCES TO DIFFER MATERIALLY FROM THOSE
REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS.
----------------
Sterling Commerce and the COMMERCE, GENTRAN, CONNECT and VECTOR product and
service names used herein are registered or unregistered trademarks owned by
Sterling Commerce. XcelleNet, XcelleNet's logo, RemoteWare and RemoteWare
Express are registered or unregistered trademarks owned by XcelleNet.
iii
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION..................................................... ii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... ii
FORWARD-LOOKING INFORMATION............................................... iii
SUMMARY................................................................... 1
The Parties............................................................. 1
The Special Meeting..................................................... 1
Recommendation of the XcelleNet Board................................... 2
Opinion of XcelleNet's Financial Advisor................................ 2
The Merger.............................................................. 2
Selected Per Share Financial Information................................ 6
Market Price Information................................................ 7
Selected Financial Information.......................................... 9
Risk Factors............................................................ 13
RISK FACTORS.............................................................. 14
Merger Consideration.................................................... 14
Risk of Nonrealization of Synergies and Other Benefits; Integration
Strategy............................................................... 14
Interests of Management................................................. 15
Competition............................................................. 15
Factors Affecting Operating Results; Potential Fluctuations in Quarterly
Results................................................................ 15
Technological Change; Dependence on New Products and Related Risks...... 16
Year 2000 Compliance.................................................... 16
Growth Through Acquisitions............................................. 17
The Internet............................................................ 17
International Growth and Marketing...................................... 17
Ability to Attract Qualified Personnel.................................. 18
Dependence on Data Center............................................... 18
Limited Protection of Proprietary Rights; Risks of Infringement and Loss
of Licenses............................................................ 18
Government Regulatory and Industrial Policy Risks....................... 19
Certain Antitakeover Provisions......................................... 19
THE SPECIAL MEETING....................................................... 20
General................................................................. 20
Voting at the Special Meeting........................................... 20
Proxies; Revocation..................................................... 20
Adjournments............................................................ 21
THE PARTIES............................................................... 21
XcelleNet............................................................... 21
Sterling Commerce....................................................... 21
THE MERGER................................................................ 23
Background of the Merger................................................ 23
XcelleNet's Reasons for the Merger...................................... 26
Opinion of XcelleNet's Financial Advisor................................ 28
Sterling Commerce's Reasons for the Merger.............................. 32
Opinion of Sterling Commerce's Financial Advisor........................ 33
Certain Projected Financial Information of XcelleNet.................... 37
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
The Merger Agreement...................................................... 39
The Shareholder Agreement................................................. 47
Stock Exchange Listing.................................................... 47
Delisting and Deregistration of XcelleNet Stock........................... 47
Accounting Treatment...................................................... 47
Certain Federal Income Tax Consequences................................... 48
Amendment to XcelleNet Rights Agreement................................... 49
Regulatory Approvals...................................................... 49
Interests of Certain Persons in the Merger................................ 50
Dissenters' Rights........................................................ 52
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS................. 54
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS........ 58
DESCRIPTION OF STERLING COMMERCE CAPITAL STOCK.............................. 60
General................................................................... 60
Commerce Stock............................................................ 60
Commerce Preferred Stock.................................................. 60
Commerce Rights Plan...................................................... 60
Certain Corporate Governance Matters of Sterling Commerce................. 61
RESTRICTIONS ON RESALES OF COMMERCE STOCK BY AFFILIATES..................... 62
COMPARISON OF RIGHTS OF HOLDERS OF XCELLENET STOCK AND COMMERCE STOCK....... 63
General................................................................... 63
Authorized Capital Stock.................................................. 63
Amendment of Articles or Certificate of Incorporation and Bylaws.......... 63
Approval of Mergers, Dissolution and Asset Sales.......................... 64
Special Meetings.......................................................... 66
Action Without a Meeting.................................................. 66
Directors................................................................. 66
Limitation of Director Liability.......................................... 67
Indemnification of Officers and Directors................................. 67
Nomination of Directors; Proposal of Business............................. 70
Dividends and Distributions............................................... 70
Certain Dissenters' or Appraisal Rights................................... 70
Derivative Actions........................................................ 71
LEGAL MATTERS............................................................... 72
EXPERTS..................................................................... 72
SHAREHOLDER PROPOSALS....................................................... 72
OTHER MATTERS............................................................... 72
INDEX OF DEFINED TERMS...................................................... 73
APPENDIX A -- Agreement and Plan of Merger.................................. A-i
APPENDIX B -- Opinion of BancAmerica Robertson Stephens..................... B-1
APPENDIX C -- Opinion of Broadview Associates LLC........................... C-1
APPENDIX D -- Article 13 of the Georgia Business Corporation Code........... D-1
</TABLE>
v
<PAGE>
SUMMARY
The following is a summary of certain information contained in this Proxy
Statement/Prospectus. This summary is not intended to be complete and is
qualified in its entirety by the more detailed information contained elsewhere
in this Proxy Statement/Prospectus and the attached Appendices, all of which
should be reviewed carefully. As required by the context, references in this
Proxy Statement/Prospectus to "Sterling Commerce," "XcelleNet" or the
"Surviving Corporation" should be construed as references to Sterling Commerce,
XcelleNet or the Surviving Corporation, as the case may be, together with their
respective subsidiaries and predecessors. References to "fiscal" years are
references to fiscal years of Sterling Commerce (which end on September 30) or
to fiscal years of XcelleNet (which end on December 31), as the case may be.
THE PARTIES
XcelleNet. XcelleNet provides systems management solutions for remote users.
Its RemoteWare brand of products enables systems administrators to more
effectively manage remote PCs, thereby reducing total cost of ownership and
increasing end-user productivity. The mailing address of XcelleNet's principal
executive offices is 5 Concourse Parkway, Suite 850, Atlanta, Georgia 30328 and
its telephone number is (770) 804-8100. See "The Parties--XcelleNet."
Sterling Commerce. Sterling Commerce is a leading provider of electronic data
interchange and other electronic commerce products, services and solutions
worldwide. Sterling Commerce develops, markets and supports electronic commerce
software products, and provides electronic commerce services, that enable
businesses to engage in business-to-business electronic commerce. Sterling
Commere has been providing electronic commerce solutions for over 20 years and
has numerous customers in a broad range of industries, including banking,
healthcare, manufacturing, pharmaceuticals, retailing and transportation. The
mailing address of Sterling Commerce's principal executive offices is 300
Crescent Court, Suite 1200, Dallas, Texas 75201, and its telephone number is
(214) 981-1100. See "The Parties--Sterling Commerce."
THE SPECIAL MEETING
Time, Date, and Place. The Special Meeting will be held on Tuesday, July 21,
1998, commencing at 8:00 a.m., Eastern time, at The Westin Atlanta North at
Perimeter Hotel, 7 Concourse Parkway, Atlanta, Georgia.
Purpose. The purpose of the Special Meeting is for shareholders of XcelleNet
to consider and vote upon approval of the Merger Agreement, a copy of which is
attached hereto as Appendix A. See "The Special Meeting."
Record Date; Shares Entitled to Vote. At the Special Meeting, shareholders
will be entitled to one vote for each outstanding share of XcelleNet Stock held
of record as of the close of business on the Record Date. As of the Record
Date, there were 8,426,988 shares of XcelleNet Stock outstanding and entitled
to vote at the Special Meeting, and there were 208 holders of record of
XcelleNet Stock. See "The Special Meeting--Voting at the Special Meeting."
Required Vote. The affirmative vote of the holders of a majority of the
outstanding shares of XcelleNet Stock entitled to vote thereon is required for
the approval of the Merger Agreement. As of the Record Date, directors and
executive officers of XcelleNet and their affiliates owned beneficially, in the
aggregate, approximately 25% of the voting power of the outstanding shares of
XcelleNet Stock. As of the Record Date, Dennis M. Crumpler (Chairman and Chief
Executive Officer of XcelleNet), Maleah Crumpler and The Crumpler Investment
Limited Partnership (the "Crumpler Shareholders") owned beneficially, in the
aggregate, approximately 17% of the outstanding shares of XcelleNet Stock.
Pursuant to an agreement entered into among
1
<PAGE>
Sterling Commerce and the Crumpler Shareholders (the "Shareholder Agreement"),
each Crumpler Shareholder has agreed to vote its shares of XcelleNet Stock in
favor of the approval of the Merger Agreement and any other matters necessary
for the consummation of the transactions contemplated by the Merger Agreement.
See "The Special Meeting--Voting at the Special Meeting" and "The Merger--The
Shareholder Agreement."
Revocation of Proxies. Any proxy given pursuant to this solicitation may be
revoked by the person giving it at any time before the proxy is voted at the
Special Meeting. A proxy may be revoked by submitting to the Secretary of
XcelleNet prior to the voting of the proxy either a written instrument revoking
the proxy or an executed proxy bearing a later date, or by voting in person at
the Special Meeting. Attendance at the Special Meeting will not, in itself,
constitute the revocation of a proxy. See "The Special Meeting--Proxies;
Revocation."
RECOMMENDATION OF THE XCELLENET BOARD
The XcelleNet Board unanimously approved the Merger Agreement at a meeting
held on April 16, 1998. The XcelleNet Board believes that the Merger is in the
best interests of XcelleNet and its shareholders and recommends that XcelleNet
shareholders vote FOR approval of the Merger Agreement. See "The Merger--
XcelleNet's Reasons for the Merger."
OPINION OF XCELLENET'S FINANCIAL ADVISOR
BancAmerica Robertson Stephens ("Robertson Stephens") was retained by the
XcelleNet Board to act as its exclusive financial advisor with respect to an
evaluation of a variety of strategic and financial alternatives and the Merger.
At the request of the XcelleNet Board, on April 16, 1998, Robertson Stephens
delivered to the XcelleNet Board its written opinion (the "Robertson Stephens
Opinion") that, as of such date and based upon and subject to the matters set
forth therein, the Merger Consideration (as defined below) is fair to the
holders of XcelleNet Stock (other than holders of shares of XcelleNet Stock to
be cancelled in accordance with the Merger Agreement or holders that properly
exercise their dissenters' rights under the GBCC) from a financial point of
view. The full text of the opinion of Robertson Stephens is set forth as
Appendix B to this Proxy Statement/Prospectus. XcelleNet shareholders are urged
to read this opinion carefully and in its entirety. See "The Merger--Opinion of
XcelleNet's Financial Advisor."
THE MERGER
General. On the terms and subject to the conditions set forth in the Merger
Agreement, XcelleNet will be merged with and into Commerce Southern, with
Commerce Southern continuing as the Surviving Corporation. The Merger will
become effective immediately upon the later of the filing of a certificate of
merger (the "Georgia Certificate of Merger") complying with the Georgia
Business Corporation Code ("GBCC") and the filing of a certificate of merger
(the "Delaware Certificate of Merger") complying with the Delaware General
Corporation Law ("DGCL"), or at such later time as is specified in the Georgia
Certificate of Merger or the Delaware Certificate of Merger (the "Effective
Time").
Merger Consideration. At the Effective Time, each share of XcelleNet Stock
issued and outstanding immediately prior to the Effective Time (other than
those to be cancelled in accordance with the Merger Agreement and any other
share of XcelleNet Stock issued and outstanding immediately prior to the
Effective Time held by holders who properly exercise their dissenters' rights
under the GBCC), will be converted into the right to receive (i) a cash payment
in an amount equal to $8.80 (the "Cash Payment") and (ii) 0.2885 (the "Stock
Factor") of a fully paid and nonassessable share of Commerce Stock, with the
ratio of cash and shares of Commerce Stock to be adjusted, if necessary, as
described below (the "Merger Consideration").
Under the Merger Agreement, in the event that the aggregate amount of the
Cash Payments, plus the dollar value of all shares of XcelleNet Stock held by
persons who properly demand their dissenters' rights ("Dissenting Shares"),
exceeds the value of all shares of Commerce Stock to be issued pursuant to the
Merger Agreement (based upon the closing sales price of Commerce Stock on the
last trading day prior to the date on which the
2
<PAGE>
Merger is consummated (the "Closing Date"), the Merger Consideration will be
adjusted by reducing the Cash Payment and increasing the aggregate number of
shares of Commerce Stock to be issued pursuant to the Merger Agreement, in each
case to the minimum extent necessary, such that the dollar amount of the
aggregate Cash Payments plus the dollar value of all Dissenting Shares is equal
to the value of all shares of Commerce Stock to be issued (based upon the
closing sales price of Commerce Stock on the last trading day prior to the
Closing Date). In determining the adjustment pursuant to the previous sentence,
to the extent the Cash Payment is reduced, the number of shares of Commerce
Stock will be increased, dollar for dollar, valuing Commerce Stock as the
lesser of (i) the closing sales price of Commerce Stock on the last trading day
prior to the Closing Date, and (ii) the average of the closing sales prices of
Commerce Stock for the three trading days prior to the Closing Date. Solely for
the purposes of the foregoing adjustment, the value of each Dissenting Share
will be deemed to be an amount equal to $22.00. See "The Merger--The Merger
Agreement--Consideration to be Paid in the Merger."
Assuming there are no Dissenting Shares, the adjustment described in the
foregoing paragraph will not occur unless the closing sales price of Commerce
Stock on the last trading day prior to the Closing Date is less than $30.5625.
For a description of the principal differences between the rights of holders
of XcelleNet Stock and Commerce Stock, see "Comparison of Rights of Holders of
XcelleNet Stock and Commerce Stock."
Treatment of XcelleNet Options. At the Effective Time, each then-outstanding
option ("XcelleNet Option") to purchase shares of XcelleNet Stock will be
assumed by Sterling Commerce and will constitute an option (a "Substitute
Option") to acquire, on substantially the same terms and subject to
substantially the same conditions as were applicable under such XcelleNet
Option, the number of shares of Commerce Stock, rounded down to the nearest
whole share, determined by multiplying the number of shares of XcelleNet Stock
subject to such XcelleNet Option immediately prior to the Effective Time by
0.4809 (the "Option Conversion Factor") at an exercise price per share of
Commerce Stock (increased to the nearest whole cent) equal to the exercise
price per share of XcelleNet Stock subject to such XcelleNet Option divided by
the Option Conversion Factor; except that in the case of any XcelleNet Option
to which Section 421 of the Internal Revenue Code of 1986, as amended (the
"Code") applies by reason of its qualification as an incentive stock option
under Section 422 of the Code, the conversion formula will be adjusted if
necessary to comply with Section 424(a) of the Code. See "The Merger--The
Merger Agreement--Treatment of XcelleNet Stock Options."
Fractional Shares. No fractional shares of Commerce Stock will be issued
pursuant to the Merger. In lieu of any such fractional shares, each holder of
XcelleNet Stock who otherwise would be entitled to receive a fractional share
of Commerce Stock pursuant to the Merger will be paid an amount in cash
(without interest), rounded to the nearest cent, equal to the product of (i)
the fractional share of Commerce Stock to which such holder would otherwise be
entitled, and (ii) the closing sales price of Commerce Stock on the NYSE on the
Closing Date.
Effective Time of the Merger. The Merger will become effective immediately
upon the later of the filing of the Delaware Certificate of Merger with the
Secretary of State of the State of Delaware and the Georgia Certificate of
Merger with the Secretary of State of the State of Georgia, or at such later
time as is specified in the Delaware Certificate of Merger or the Georgia
Certificate of Merger. Subject to the provisions of the Merger Agreement, the
parties presently intend to file the Certificates of Merger as soon as
practicable following the date on which the requisite vote of the shareholders
of XcelleNet is obtained and the various other conditions set forth in the
Merger Agreement (other than those that by their nature are to be satisfied at
the closing) are satisfied or waived or on such other date as the parties may
agree.
Conditions to the Merger. The obligations of Sterling Commerce and XcelleNet
to consummate the Merger are conditioned upon, among other things, (i) approval
of the Merger Agreement by the holders of a
3
<PAGE>
majority of the outstanding shares of XcelleNet Stock; (ii) the absence of any
order or injunction that prohibits the consummation of the Merger; (iii) the
waiting period pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act") having expired or been terminated; (iv) the
Registration Statement having been declared effective by the Commission and not
being subject to any stop order or proceeding seeking the same; (v) the shares
of Commerce Stock to be issued in connection with the Merger having been
authorized for listing on the NYSE, subject to official notice of issuance; and
(vi) the receipt of opinions of counsel by each of XcelleNet and Sterling
Commerce to the effect that the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code,
and that no gain or loss will be recognized by the shareholders of XcelleNet
upon their exchange of shares of XcelleNet Stock for the Merger Consideration
under Section 354 of the Code (except to the extent that such shareholders
receive cash for their shares). See "The Merger--The Merger Agreement--
Conditions to the Merger."
Termination. The Merger Agreement may be terminated under certain
circumstances, including by mutual written consent of Sterling Commerce and
XcelleNet and by either Sterling Commerce or XcelleNet if the other party
commits certain breaches of its representations, warranties or covenants
contained in the Merger Agreement and such breach has had or could reasonably
be expected to have a material adverse effect on the other party, or if the
Merger is not consummated on or before October 31, 1998. If the Merger
Agreement is terminated by XcelleNet or Sterling Commerce if the holders of
Xcellenet Stock do not approve the Merger at the Special Meeting or under
specified circumstances involving a determination by the XcelleNet Board to
accept a proposal relating to an alternative transaction or following specified
actions of the XcelleNet Board relating to the withdrawal or adverse
modification of the approval or recommendation of the Merger Agreement or the
Merger by the XcelleNet Board or the endorsement or recommendation of a
proposal relating to an alternative transaction by the Xcellenet Board,
XcelleNet will be required to pay to Sterling Commerce a fee in the amount of
$2.2 million. In addition, if the Merger Agreement is terminated under
circumstances in which a proposal relating to an alternative transaction shall
have been commenced, publicly disclosed or publicly proposed prior to such
termination, and XcelleNet enters into a definitive agreement with respect to
any alternative transaction within one year of such termination, then XcelleNet
will be required to pay to Sterling Commerce an additional fee of $4.4 million.
See "The Merger--The Merger Agreement--Termination."
Governmental and Regulatory Matters. In connection with the transactions
contemplated by the Merger Agreement, Sterling Commerce, XcelleNet and Mr.
Crumpler made filings or applications with the Federal Trade Commission (the
"FTC") and the Antitrust Division of the Department of Justice (the "Antitrust
Division") pursuant to the HSR Act. Consummation of the Merger was conditioned
upon, among other things, the expiration or termination of the waiting period
under the HSR Act. Such waiting period was terminated by the FTC on June 1,
1998. See "The Merger--The Merger Agreement--Conditions to the Merger" and "--
Regulatory Approvals."
Dissenters' Rights. Holders of XcelleNet Stock who do not vote in favor of
approval of the Merger Agreement and who otherwise comply with the applicable
statutory procedures of Article 13 of the GBCC will be entitled to dissenters'
rights under Article 13 of the GBCC. A summary of the provisions of Article 13
of the GBCC, including a summary of the requirements that must be complied with
by holders of XcelleNet Stock desiring to assert dissenters' rights, is set
forth in this Proxy Statement/Prospectus under the heading "The Merger--
Dissenters' Rights." The text of Article 13 of the GBCC is attached as Appendix
D to this Proxy Statement/Prospectus.
Interests of Certain Persons in the Merger. Certain members of XcelleNet's
management and the XcelleNet Board may be deemed to have certain interests in
the Merger that are in addition to their interests as shareholders of XcelleNet
generally. Such interests relate to, among other things, the treatment of
outstanding XcelleNet Options, the payment of certain amounts under the Change
in Control Employment Agreements ("XcelleNet CIC Agreements") between XcelleNet
and 16 XcelleNet executives, the terms of employment of certain of XcelleNet's
executives with Sterling Commerce following the consummation of the Merger and
the indemnification of and provision of insurance coverage for the directors
and officers of XcelleNet. See "The Merger--Interests of Certain Persons in the
Merger."
4
<PAGE>
Certain Federal Income Tax Consequences. Consummation of the Merger is
conditioned upon the receipt of a legal opinion of Alston & Bird LLP,
XcelleNet's counsel, and a legal opinion of Jones, Day, Reavis & Pogue,
Sterling Commerce's counsel, to the effect that (i) the Merger will qualify as
a tax-free reorganization under Section 368(a) of the Code; (ii) each of
XcelleNet and Sterling Commerce will be a party to that reorganization within
the meaning of Section 368(b) of the Code; and (iii) no gain or loss will be
recognized by the shareholders of XcelleNet upon their exchange of shares of
XcelleNet Stock for the Merger Consideration under Section 354 of the Code
(except to the extent that such shareholders receive cash for their shares of
XcelleNet Stock). EACH SHAREHOLDER OF XCELLENET IS URGED TO CONSULT SUCH
SHAREHOLDER'S OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH
SHAREHOLDER OF THE MERGER UNDER U.S. FEDERAL, STATE, LOCAL OR ANY OTHER
APPLICABLE TAX LAWS. See "The Merger--Certain Federal Income Tax Consequences."
Accounting Treatment. The Merger will be accounted for as an acquisition of
XcelleNet by Sterling Commerce using the purchase method of accounting. Under
the purchase method of accounting, the purchase price paid by Sterling Commerce
for XcelleNet (including direct costs of the Merger) will be allocated to the
identifiable assets of XcelleNet based upon estimates of the fair value of
XcelleNet's identifiable assets and liabilities as of the Effective Time, with
the excess of the purchase price over the fair value of XcelleNet's net
identifiable assets being allocated to excess cost over net assets acquired. On
a pro forma basis, giving effect to the consummation of the Merger as if the
Merger had been consummated on March 31, 1998, the excess of the purchase price
over the fair value of XcelleNet's identifiable assets would have been
approximately $27.9 million. See Note 2 of "Notes to Unaudited Pro Forma
Combined Condensed Financial Statements."
5
<PAGE>
SELECTED PER SHARE FINANCIAL INFORMATION
The following table sets forth selected historical per share financial
information for each of Sterling Commerce and XcelleNet and unaudited pro forma
per share financial information for Sterling Commerce giving effect to the
consummation of the Merger, as if the Merger had been consummated as of March
31, 1998, in the case of book value information, and October 1, 1996, in the
case of earnings information. The information presented below is derived from
(i) the consolidated historical financial statements of Sterling Commerce and
XcelleNet, including the related notes thereto, incorporated by reference in
this Proxy Statement/Prospectus, and (ii) the unaudited pro forma combined
condensed financial information, including the notes thereto, contained
elsewhere in this Proxy Statement/Prospectus, and should be read in conjunction
therewith. See "Available Information" and "Unaudited Pro Forma Combined
Condensed Financial Statements." The pro forma per share information set forth
herein assumes the issuance of 2,430,978 shares of Commerce Stock in connection
with the Merger. See Note 1 of "Notes to Unaudited Pro Forma Combined Condensed
Financial Statements." The pro forma information set forth below is not
necessarily indicative of what Sterling Commerce's actual financial position or
results of operations would have been had the Merger been consummated as of the
above-referenced dates or of the financial position or results of operations
that may be reported by Sterling Commerce in the future.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS
SEPTEMBER 30, ENDED
----------------- MARCH 31,
1995 1996 1997 1998
----- ----- ----- ------------
<S> <C> <C> <C> <C>
Historical--Sterling Commerce
Net income per share:
Pro forma (1)............................. $0.59 -- -- --
Basic..................................... -- $0.79 $0.66 $0.57
Diluted................................... -- $0.77 $0.64 $0.55
Book value per share (2)................... $0.73 $1.84 $6.70 $7.60
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED
----------------- MARCH 31,
1995 1996 1997 1998
----- ----- ----- ------------
<S> <C> <C> <C> <C>
Historical--XcelleNet
Net income per share:
Basic..................................... $0.51 $0.00 $0.39 $0.15
Diluted................................... $0.45 $0.00 $0.36 $0.14
Book value per share (2)................... $4.24 $4.22 $5.57 $5.77
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS
ENDED ENDED
SEPTEMBER 30, MARCH 31,
1997 1998
------------- ----------
<S> <C> <C>
Pro forma combined net income per share (3):
Per share of Commerce Stock:
Basic.......................................... $0.58 $0.56
Diluted........................................ $0.56 $0.54
Equivalent per share of XcelleNet Stock:
Basic.......................................... $0.17 $0.16
Diluted........................................ $0.16 $0.16
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31,
1998
---------
<S> <C>
Pro forma combined book value per share (2)(3):
Per Sterling Commerce share..................................... $7.43
Equivalent per XcelleNet share.................................. $2.14
</TABLE>
- --------
(1) Assumes that the 73,200,000 shares of Commerce Stock outstanding as of
Sterling Commerce's March 13, 1996 initial public offering were outstanding
during the entire period.
(2) Historical book value per share is computed by dividing stockholders'
equity by the number of outstanding shares of XcelleNet Stock or Commerce
Stock, as the case may be, at the end of each period. Pro forma book value
per share is computed by dividing pro forma stockholders' equity by the pro
forma number of shares of Commerce Stock outstanding as of March 31, 1998,
assuming the issuance of 2,430,978 shares of Commerce Stock in the Merger.
(3) The unaudited equivalent XcelleNet pro forma per share amounts are
calculated by multiplying the Sterling Commerce combined pro forma per
share amounts by the Stock Factor.
6
<PAGE>
MARKET PRICE INFORMATION
XcelleNet Stock is designated for trading on the Nasdaq National Market
("Nasdaq"), and trades on Nasdaq under the symbol "XNET." The following table
sets forth the high and low sales prices per share of XcelleNet Stock as
reported on Nasdaq for each quarter in 1996 and 1997 and for the other periods
indicated.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
Quarter Ended:
March 31, 1996.......................................... $15 1/4 $ 8 3/4
June 30, 1996........................................... 15 1/2 9 1/2
September 30, 1996...................................... 14 1/2 8 3/4
December 31, 1996....................................... 20 13 1/2
Quarter Ended:
March 31, 1997.......................................... $23 1/4 $15 3/4
June 30, 1997........................................... 19 1/4 11 3/4
September 30, 1997...................................... 16 1/4 7 3/4
December 31, 1997....................................... 14 1/8 9 3/8
Quarter Ended:
March 31, 1998.......................................... $21 1/4 $12 1/4
June 30, 1998 (through June 11)......................... 22 3/8 17 5/8
</TABLE>
Commerce Stock trades on the NYSE under the symbol "SE." The following table
sets forth the high and low sales prices per share of Commerce Stock as
reported on the NYSE Composite Tape for each fiscal quarter in fiscal years
1996 and 1997 (commencing on March 8, 1996, the date Commerce Stock first began
trading on the NYSE on a when-issued basis) and for the other periods
indicated.
<TABLE>
<CAPTION>
HIGH LOW
-------- -------
<S> <C> <C>
Quarter Ended:
March 31, 1996......................................... $30 7/8 $28 3/4
June 30, 1996.......................................... 45 30 1/8
September 30, 1996..................................... 37 1/8 28
Quarter Ended:
December 31, 1996...................................... $35 3/4 $25 1/2
March 31, 1997......................................... 38 5/8 26 3/4
June 30, 1997.......................................... 34 7/8 24 1/8
September 30, 1997..................................... 40 5/16 29 1/2
Quarter Ended:
December 31, 1997...................................... $39 1/8 $31 1/2
March 31, 1998......................................... 50 1/4 33 1/2
June 30, 1998 (through June 11)........................ 47 5/8 37 1/2
</TABLE>
On April 16, 1998, the last date of a reported trade prior to the public
announcement by XcelleNet and Sterling Commerce of the execution of the Merger
Agreement, the closing price per share for XcelleNet Stock as reported on
Nasdaq was $20 3/4. On June 11, 1998, the last date of a reported trade of
XcelleNet Stock prior to the date of this Proxy Statement/Prospectus, the
closing price per share for XcelleNet Stock as reported on Nasdaq was $20 7/8.
On April 16, 1998, the last full trading day prior to the public announcement
by XcelleNet and Sterling
7
<PAGE>
Commerce of the execution of the Merger Agreement, the closing price per share
of Commerce Stock as reported on the NYSE Composite Tape was $45 13/16. On June
11, 1998, the last full trading day prior to the date of this Proxy
Statement/Prospectus, the closing price per share of Commerce Stock as reported
on the NYSE Composite Tape was $42 11/16.
No assurance can be given as to the market price of XcelleNet Stock or
Commerce Stock at the Effective Time or at any other time. The Stock Factor
will not be adjusted to compensate XcelleNet shareholders for decreases in the
market price of Commerce Stock which could occur before the Effective Time. In
the event that the market price of Commerce Stock increases or decreases prior
to the Effective Time, the value at the Effective Time of the Commerce Stock to
be received in the Merger in exchange for XcelleNet Stock would correspondingly
increase or decrease.
Neither XcelleNet nor Sterling Commerce has ever paid cash dividends on its
capital stock. Sterling Commerce currently intends to retain any earnings for
use in its business and does not anticipate paying any cash dividends in the
foreseeable future. Under the terms of Sterling Commerce's existing credit
agreement, Sterling Commerce is prohibited from making distributions in the
form of cash dividends on Commerce Stock.
XcelleNet shareholders are encouraged to obtain current market quotations for
both Commerce Stock and XcelleNet Stock.
8
<PAGE>
SELECTED FINANCIAL INFORMATION
The following selected historical financial information of XcelleNet and
Sterling Commerce has been derived from their respective historical financial
statements incorporated by reference in this Proxy Statement/Prospectus. The
selected pro forma financial information is derived from the unaudited pro
forma combined condensed financial statements included in this Proxy
Statement/Prospectus. 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
at the beginning of the periods indicated, nor is it necessarily indicative of
future operating results or financial position. The selected historical and
unaudited pro forma combined condensed financial information should be read in
conjunction with the historical financial statements and notes thereto of
XcelleNet and Sterling Commerce and the unaudited pro forma combined condensed
financial information and notes thereto included or incorporated by reference
in this Proxy Statement/Prospectus.
UNAUDITED SELECTED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
SIX
MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, MARCH 31,
1997 1998
------------- ---------
<S> <C> <C>
Pro forma combined statement of operations data:
Total revenue......................................... $401,884 $247,579
Income before other income and income taxes........... 65,231 69,711
Net income............................................ 50,268 51,974
Pro forma net income per share:
Basic................................................ $ 0.58 $ 0.56
Diluted.............................................. $ 0.56 $ 0.54
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31,
1998
---------
<S> <C>
Pro forma combined balance sheet data:
Working capital..................................................... $525,243
Total assets........................................................ 869,600
Total stockholders' equity.......................................... 693,981
</TABLE>
9
<PAGE>
XCELLENET SELECTED HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------- ---------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Historical consolidated
statement of operations
data:
Revenues.............. $17,413 $26,889 $34,099 $42,651 $53,579 $13,350 $14,213
Operating income
(loss)............... 2,929 5,182 4,768 (934) 4,087 1,777 1,595
Net income............ 1,942 3,555 3,802 0 3,145 1,129 1,260
Net income per share:
Basic............... $ 1.18 $ 0.55 $ 0.51 $ 0.00 $ 0.39 $ 0.15 $ 0.15
Diluted ............ $ 0.30 $ 0.45 $ 0.45 $ 0.00 $ 0.36 $ 0.14 $ 0.14
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
--------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
------- ------- ------- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Historical consolidated
balance sheet data:
Working capital......... $ 7,689 $28,815 $24,968 $23,198 $37,066 $39,662
Total assets............ 12,208 36,144 33,461 36,683 55,583 57,981
Total shareholders' eq-
uity................... 9,869 32,473 29,849 31,130 46,258 48,366
</TABLE>
10
<PAGE>
STERLING COMMERCE SELECTED HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED SEPTEMBER 30, ENDED MARCH 31,
-------------------------------------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- -------- --------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Historical consolidated
statement of income
data:
Total revenue......... $117,813 $155,916 $203,578 $267,773 $350,597 $154,303 $217,359
Income before other
income and income
taxes(1)............. 25,363 46,405 72,028 95,205 72,591 52,593 68,461
Net income(1)......... 15,194 27,753 42,930 58,392 55,444 34,877 51,178
Net income per share:
Pro forma(2)........ -- -- $ 0.59 -- -- -- --
Basic............... -- -- -- $ 0.79 $ 0.66 $ 0.45 $ 0.57
Diluted............. -- -- -- $ 0.77 $ 0.64 $ 0.44 $ 0.55
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF
----------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
------- ------- ------- ------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Historical consolidated
balance sheet data:
Working capital....... $(3,438) $ 2,198 $ 3,692 $77,159 $491,801 $567,912
Total assets.......... 87,271 100,638 128,978 241,680 748,566 842,646
Total stockholder's
net investment....... 37,498 43,051 53,187 -- -- --
Total stockholders'
equity............... -- -- -- 138,187 600,862 691,596
</TABLE>
- --------
(1) Net of $31,879 of purchased in-process research and development and $15,810
of reorganization costs charged to expense in 1997; and $3,638 of
restructuring costs charged to expense in 1993.
(2) Assumes that the 73,200 shares of Commerce Stock outstanding as of Sterling
Commerce's March 13, 1996 initial public offering were outstanding during
the entire period.
11
<PAGE>
XCELLENET, INC.
SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Year ending December 31, 1998:
Revenues.................................. $14,213 N/A N/A N/A
Operating income.......................... 1,595 N/A N/A N/A
Net income................................ 1,260 N/A N/A N/A
Net income per share:
Basic................................... $ 0.15 N/A N/A N/A
Diluted................................. $ 0.14 N/A N/A N/A
Year ended December 31, 1997:
Revenues.................................. $13,350 $12,039 $12,183 $16,007
Operating income (loss)................... 1,777 (306) (450) 3,066
Net income (loss)......................... 1,129 (32) (132) 2,180
Net income (loss) per share:
Basic................................... $ 0.15 $ 0.00 $ (0.02) $ 0.26
Diluted................................. $ 0.14 $ 0.00 $ (0.02) $ 0.25
Year ended December 31, 1996:
Revenues.................................. $ 9,450 $10,126 $ 9,360 $13,715
Operating income (loss)................... 1,044 321 (739) (1,560)
Net income (loss)......................... 866 363 (375) (854)
Net income (loss) per share:
Basic................................... $ 0.12 $ 0.05 $ (0.05) $ (0.12)
Diluted................................. $ 0.11 $ 0.05 $ (0.05) $ (0.12)
</TABLE>
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STERLING COMMERCE, INC.
SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Fiscal year ending September 30, 1998:
Total revenue............................ $106,283 $111,076 N/A N/A
Income before other income and income
taxes................................... 32,597 35,864 N/A N/A
Net income............................... 24,203 26,975 N/A N/A
Net income per share:
Basic.................................. $ 0.27 $ 0.30 N/A N/A
Diluted................................ $ 0.26 $ 0.29 N/A N/A
Fiscal year ended September 30, 1997(1):
Total revenue............................ $ 74,769 $ 79,534 $87,798 $108,496
Income (loss) before other income and
income taxes............................ 25,013 27,580 (17,595) 37,593
Net income (loss)........................ 16,060 18,817 (7,476) 28,043
Basic and diluted net income (loss) per
share................................... $ 0.21 $ 0.23 $ (0.08) $ 0.30
Fiscal year ended September 30, 1996:
Total revenue............................ $ 56,150 $ 62,076 $69,225 $ 80,322
Income before other income and income
taxes................................... 20,691 22,059 23,659 28,796
Net income............................... 12,289 13,235 14,750 18,118
Net income per share:
Pro forma(2)........................... $ 0.17 -- -- --
Basic and diluted ..................... -- $ 0.18 $ 0.19 $ 0.24
</TABLE>
- --------
(1)Net of $31,879 of purchased in-process research and development and $15,810
of reorganization costs charged to expenses in the third quarter of the
fiscal year ended September 30, 1997.
(2)Assumes that the 73,200 shares of Commerce Stock outstanding as of Sterling
Commerce's March 13, 1996 initial public offering were outstanding during
the entire period.
RISK FACTORS
See "Risk Factors" for a discussion of certain risks of ownership of Commerce
Stock and other matters that should be considered in determining how to vote
upon the proposal to approve the Merger.
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RISK FACTORS
Prior to voting on the proposal to approve the Merger, XcelleNet
shareholders should carefully consider the risk factors discussed below as
well as all of the information included or incorporated by reference in this
Proxy Statement/Prospectus, including the Appendices hereto. See also
"Forward-Looking Information." Any or all of the risk factors discussed below
could have a material adverse effect on the business, financial condition,
results of operations, and prospects of Sterling Commerce and its
subsidiaries, including, from and after the Effective Time, XcelleNet, and/or
on the price at which shares of Commerce Stock may trade.
MERGER CONSIDERATION
Pursuant to the terms of the Merger Agreement, upon consummation of the
Merger, shares of XcelleNet Stock issued and outstanding immediately prior to
the Effective Time will be converted into the right to receive the Merger
Consideration, consisting of cash and a fraction of a share of Commerce Stock.
The Merger Agreement does not contain any provisions for adjustment of the
Merger Consideration based upon fluctuations in the price of Commerce Stock or
XcelleNet Stock except in limited circumstances to preserve the intended tax
treatment of receipt of the Merger Consideration by XcelleNet's shareholders.
Accordingly, the value of the Commerce Stock consideration to be received by
holders of XcelleNet Stock upon the consummation of the Merger is not
presently ascertainable and will depend upon the market price of Commerce
Stock at the Effective Time. On April 16, 1998, the last trading day prior to
the public announcement of the execution of the Merger Agreement, the closing
price per share of XcelleNet Stock on Nasdaq was $20 3/4, and the closing
price per share of Commerce Stock on the NYSE Composite Tape was $45 13/16. On
June 11, 1998 (the latest practicable date preceding the mailing of this Proxy
Statement/Prospectus for which such price information was available), the
closing price per share of XcelleNet Stock on Nasdaq was $20 7/8, and the
closing price per share of Commerce Stock on the NYSE Composite Tape was $42
11/16. Holders of XcelleNet Stock are urged to obtain current market
quotations prior to making any decisions with respect to the Merger. The
Merger Agreement does not provide XcelleNet or Sterling Commerce the right to
terminate the Merger Agreement based upon fluctuations in the price of
Commerce Stock or XcelleNet Stock.
RISK OF NONREALIZATION OF SYNERGIES AND OTHER BENEFITS; INTEGRATION STRATEGY
The Merger involves the integration of two companies that have previously
operated independently. Among the factors separately considered by the Board
of Directors of Sterling Commerce (the "Commerce Board") and the XcelleNet
Board in connection with their respective approvals of the Merger Agreement
were the opportunities for operating cost savings and revenue growth that
could result from the Merger. There can be no assurances that Sterling
Commerce will not encounter difficulties in integrating the operations of
XcelleNet or that the benefits expected from such integration will be
realized. The incurrence of any unexpected costs or delays in connection with
such integration could have an adverse effect on the business, operating
results or financial condition of Sterling Commerce following the Effective
Time.
In addition, as commonly occurs with mergers of technology companies, during
the pre-merger and integration phases, aggressive competitors may undertake
formal initiatives to attract customers or employees from the acquired
business and, consequently, there may be some erosion of XcelleNet's customer
base or employee base as a result of the announcement of the Merger.
Furthermore, as a result of the Merger, certain existing or potential
customers of XcelleNet may prefer to purchase from another vendor not
associated with a larger organization, such as Sterling Commerce, having
multiple product and service offerings. Acquisitions, such as the Merger,
involve various other risks including difficulties in the assimilation of the
operations, technologies and products of the acquired companies, the diversion
of management's attention from other business concerns, uncertainties in
entering market segments with limited direct prior experience and where
competitors in such segments may have stronger market positions and the
potential loss of key employees to competitors. The successful combination of
companies in the high technology industry may be more difficult to accomplish
than in other industries. The combination of Sterling Commerce and XcelleNet
requires, among other things, the integration of the companies' respective
operations, coordination of their research and development
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<PAGE>
efforts and retention of employees and significant customers. There can be no
assurance that such combination and integration will be accomplished smoothly
or successfully.
INTERESTS OF MANAGEMENT
Certain members of XcelleNet's management have interests in the Merger that
are in addition to the interests of XcelleNet's shareholders generally. The
Merger will give rise to certain benefits pursuant to agreements that Sterling
Commerce and XcelleNet have entered into with certain members of XcelleNet's
management. In addition, upon consummation of the Merger, outstanding
XcelleNet Options (including those held by members of XcelleNet's management)
will be converted into options to purchase shares of Commerce Stock. See "The
Merger--Interests of Certain Persons in the Merger" and "The Merger--The
Merger Agreement--Treatment of XcelleNet Stock Options."
COMPETITION
The electronic commerce market, including the remote computing segment, is
very competitive. Numerous companies supply electronic commerce products and
services, and several competitors target specific customer requirements for
which Sterling Commerce presently is, or may become, a provider. Sterling
Commerce's competitors include, and following the Merger will include, both
large companies with substantially greater resources than Sterling Commerce
and small, specialized companies that may compete in one or more particular
market niches. Competitors that offer products and/or services that compete
with various Sterling Commerce products and services include, among others,
AT&T; Computer Associates International, Inc.; EDS; General Electric
Information Systems; Harbinger Corporation; IBM; MCI Communications
Corporation; and QuickResponse Services, Inc., as well as the internal
programming staffs of various businesses engaging in electronic commerce.
Sterling Commerce expects competition to increase in the future from both
existing competitors and other companies that may enter Sterling Commerce's
existing or future markets. Sterling Commerce believes that its ability to
compete successfully in the electronic commerce market depends on numerous
factors, some of which are outside its control, including product performance,
functionality and reliability, price and customer service and support. There
can be no assurance that new or established competitors will not offer
products and services that are superior to and/or lower in price than those of
Sterling Commerce. In addition, Sterling Commerce could face increased
competition as and to the extent the Internet gains further acceptance as a
method of conducting electronic commerce. See "--The Internet."
FACTORS AFFECTING OPERATING RESULTS; POTENTIAL FLUCTUATIONS IN QUARTERLY
RESULTS
Sterling Commerce's future quarterly operating results may vary and reduced
levels of earnings or losses could be experienced in one or more quarters.
Fluctuations in Sterling Commerce's quarterly operating results could result
from a variety of factors, including changes in the levels of revenues derived
from sales of software products and electronic commerce services, the timing
of new product and service announcements by Sterling Commerce or its
competitors, changes in pricing policies by Sterling Commerce or its
competitors, market acceptance of new and enhanced versions of the products
and services of Sterling Commerce or its competitors, the size and timing of
significant orders, changes in operating expenses, changes in Sterling
Commerce's strategy, the introduction of alternative technologies, the effect
of potential acquisitions and industry and general economic factors. Sterling
Commerce has limited or no control over many of these factors. In addition, a
somewhat greater portion of Sterling Commerce's revenues tends to be
recognized in the fourth fiscal quarter as a result of a number of factors,
including Sterling Commerce's incentive compensation structure for its sales
personnel (under which opportunities to earn higher commissions applicable to
sales in excess of annual quotas and to realize other benefits associated with
the achievement of such quotas are at their greatest during the fourth fiscal
quarter). Further, XcelleNet historically has experienced significant
fluctuations in quarterly operating results, and there can be no assurance
that such fluctuations will not impact the quarterly results of Sterling
Commerce following the consummation of the Merger.
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<PAGE>
Sterling Commerce operates with virtually no product order backlog because
its software products typically are shipped shortly after orders are received.
As a result, product revenues in any quarter are substantially dependent on
the quantity of such products licensed in that quarter. Sterling Commerce's
expense levels are based, in part, on its expectations as to future revenues.
If revenue levels are below expectations, Sterling Commerce's operating
results are likely to be adversely affected unless Sterling Commerce is
willing and able to reduce its expenses proportionately. As a result of the
foregoing factors, comparisons of results of operations between particular
periods are not necessarily meaningful and historical results of operations
are not necessarily indicative of future performance.
TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW PRODUCTS AND RELATED RISKS
The electronic commerce industry is characterized by rapid technological
change, frequent new product and service introductions and evolving industry
standards. Sterling Commerce's future success will depend in significant part
on its ability to anticipate industry standards, to continue to apply advances
in electronic commerce product and service technologies, to enhance existing
products and services and to introduce and acquire new products and services
on a timely basis to keep pace with technological developments. There can be
no assurance that Sterling Commerce will be successful in developing,
acquiring or marketing new or enhanced products or services that respond to
technological change or evolving industry standards, that Sterling Commerce
will not experience difficulties that could delay or prevent the successful
development, acquisition or marketing of such products or services or that its
new or enhanced products and services will adequately meet the requirements of
the marketplace or achieve market acceptance. Any delay or failure in the
introduction of new or enhanced products or services, or the failure of such
products or services to achieve market acceptance, could have a material
adverse effect on the business, results of operations and financial condition
of Sterling Commerce.
Software products as complex as those used in the electronic commerce
industry may contain undetected errors or failures when first introduced or
when new versions are released. If software errors are discovered after
introduction, Sterling Commerce could experience delays or lost revenues
during the period required to correct these errors. There can be no assurance
that, despite testing by Sterling Commerce and by current and potential
customers, errors will not be found in new products or releases after
commencement of commercial shipments, resulting in loss of, or delay in,
market acceptance, which could have a material adverse effect on the business,
results of operations and financial condition of Sterling Commerce.
YEAR 2000 COMPLIANCE
The Year 2000 issue is pervasive and presents both technical and business
risks that may affect much of Sterling Commerce's business and industry. The
Year 2000 issue refers to the various problems that may result from improper
processing of dates and date-sensitive functions by computers and other
equipment before, during or after January 1, 2000 with respect to the change
in century. In connection with its product and service offerings, Sterling
Commerce is proactively working with its customers and vendors, trade
associations and electronic commerce standards committees and is engaged in
extensive testing of its products and services and related systems with
respect to Year 2000 issues. Most of Sterling Commerce's supported software
products and services accommodate four character year dating required for the
Year 2000. For those software products or services that do not, Sterling
Commerce has established plans to upgrade them or to offer alternative
software products, services or solutions. These plans have been integrated
into Sterling Commerce's normal development cycles. Sterling Commerce uses
third-party hardware and software in providing certain services and Sterling
Commerce's software products operate on and in systems consisting of third-
party hardware and software. Some of such third-party hardware and software
may not be fully Year 2000 compliant by the time that computer processing of
post-1999 data becomes necessary and, whether or not Sterling Commerce's
offerings are Year 2000 compliant by then, there can be no assurance that
customers will not assert Year 2000 related claims against Sterling Commerce
or that Sterling Commerce would prevail in any resulting litigation.
Sterling Commerce strives to maintain its internal systems as necessary to
conduct its business efficiently and is addressing the potential impact of the
Year 2000 issue on these systems, including third-party software forming part
of these systems. Sterling Commerce believes it is well-positioned to address
Year 2000 issues
16
<PAGE>
related to its internal systems and further believes any additional costs
related to changes required to address these issues will not have a material
effect on its financial position or results of operations. However, there can
be no assurance that there will not be interruption of operations or other
limitations of systems functionality or that Sterling Commerce will not incur
substantial cost to avoid or as a result of such problems.
GROWTH THROUGH ACQUISITIONS
Sterling Commerce's growth has been, and is expected to continue to be,
enhanced through acquisitions of other businesses, products and licenses. The
inability of Sterling Commerce to make appropriate acquisitions on attractive
terms (whether for cash, Sterling Commerce securities or both) could make it
more difficult for Sterling Commerce to achieve growth levels consistent with
those historically achieved. Moreover, there can be no assurance as to
Sterling Commerce's ability to make appropriate acquisitions, the timing
thereof or the ultimate benefits therefrom to Sterling Commerce.
Furthermore, Sterling Commerce will not be eligible to account for any
acquisition as a pooling of interests prior to October 1998, the second
anniversary of the distribution of all shares of Commerce Stock then held by
Sterling Software, Inc. ("Sterling Software") to its stockholders. The use of
the purchase method of accounting for an acquisition may result in the
recording of excess cost over net assets acquired, which would be required to
be amortized by Sterling Commerce over a period of time. Such amortization
would reduce Sterling Commerce's reported earnings and, consequently, could
adversely affect the market price of Commerce Stock. See "The Merger--
Accounting Treatment" and Note 2 of "Notes to Unaudited Pro Forma Combined
Condensed Financial Statements" for a discussion of excess cost over net
assets acquired in connection with the Merger.
THE INTERNET
The Internet is an interconnected global network of computer systems linked
together through a common protocol. Sterling Commerce and certain of its
existing competitors have introduced products and services that are intended
to enable businesses to engage in electronic commerce over the Internet, and
other companies are expected to do so in the future. The use of the Internet
as a vehicle for electronic commerce raises numerous issues, including
reliability, data security and data integrity, and has not yet become widely
accepted. There can be no assurance that any such products and services
introduced by Sterling Commerce will adequately meet the requirements of the
marketplace or achieve market acceptance. Moreover, new competitors, which
could include media and telecommunications companies, may increasingly offer
products and services that utilize the Internet in competition with Sterling
Commerce's product and service offerings. To the extent that the Internet
gains further acceptance as a method of conducting electronic commerce,
Sterling Commerce believes that the Internet will provide Sterling Commerce
with expanded opportunities. However, there can be no assurance that Sterling
Commerce's efforts to exploit any such opportunities will be successful or
that any increased usage of the Internet for electronic commerce or increased
competition will not adversely affect the business, results of operations and
financial condition of Sterling Commerce.
INTERNATIONAL GROWTH AND MARKETING
Prior to June 1997, Sterling Software acted as the exclusive distributor of
certain of Sterling Commerce's products outside the United States and Canada
pursuant to an international distributor agreement between Sterling Commerce
and Sterling Software (the "International Distributor Agreement"). In June
1997, Sterling Commerce and Sterling Software terminated the International
Distributor Agreement. Concurrently therewith, Sterling Commerce acquired
certain assets and assumed certain liabilities associated with the
distribution of its products, and Sterling Commerce hired certain Sterling
Software employees, most of whom had been dedicated to the sales and marketing
of those products. Sterling Commerce's ability to maintain and expand this
business and its services business internationally will depend upon, among
other things, its ability to attract and retain both talented and qualified
managerial, technical and sales personnel and electronic commerce services
customers outside the United States and Canada and its ability to continue to
effectively manage its domestic operations while focusing on international
expansion. Moreover, Sterling Commerce's ability to successfully implement its
international strategy will require additional improvements to its
infrastructure and management information systems, and particularly to its
international customer support systems.
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<PAGE>
International operations are subject to certain inherent risks, including
unexpected changes in regulatory requirements and tariffs, longer payment
cycles, increased difficulties in collecting accounts receivable, changes in
foreign currency exchange rates and potentially adverse tax consequences. To
the extent international sales are denominated in foreign currencies,
fluctuations in the exchange rates between the U.S. dollar and applicable
international currencies may contribute to fluctuations in Sterling Commerce's
results of operations. Sterling Commerce has, on a limited basis, entered into
hedging arrangements for the purpose of reducing the risk of currency
fluctuations. In addition, sales in Europe and certain other parts of the
world typically are adversely affected in the third calendar quarter of each
year because many customers reduce their business activities in the summer
months.
ABILITY TO ATTRACT QUALIFIED PERSONNEL
Sterling Commerce's business is dependent upon its ability to attract and
retain highly qualified managerial, technical and sales personnel. Competition
for such personnel is intense. There can be no assurance that Sterling
Commerce can retain its key managerial, technical and sales personnel or that
it can attract, assimilate or retain such personnel in the future. The
inability of Sterling Commerce to attract and retain such personnel could have
a material adverse effect on the business, results of operations and financial
condition of Sterling Commerce. To attract and retain qualified employees,
Sterling Commerce strives to maintain excellent employee relations, attractive
office facilities and challenging working environments, and offers competitive
compensation and benefits packages.
DEPENDENCE ON DATA CENTER
The operations of Sterling Commerce's Commerce Services Group are dependent
upon Sterling Commerce's ability to protect its computer equipment and the
information stored in its data center against damage that may be caused by
fire, power loss, telecommunications failures, unauthorized intrusion,
computer viruses and disabling devices and other similar events. Sterling
Commerce is party to a disaster recovery agreement that provides alternative
off-site computer systems for use in such disastrous events, and Sterling
Commerce has taken precautions to protect itself and its customers from events
that could interrupt delivery of certain of Sterling Commerce's electronic
commerce services. These precautions include, among others, backup power
generation equipment, fire protection and physical security systems and an
early warning detection and fire extinguishing system. Notwithstanding such
precautions, there can be no assurance that a fire or other natural disaster,
including national, regional or local telecommunications disruptions, would
not result in a prolonged disruption of Sterling Commerce's electronic
commerce services. Sterling Commerce is currently covered under a business
interruption insurance policy. However, even if lost revenues or increased
costs experienced by Sterling Commerce during the pendency of any disruption
of its services business were substantially recovered under any such insurance
policy (as to which, depending upon the circumstances, there can be no
assurance), longer term revenue losses not recoverable under such policies
could result from possible losses of customers and, consequently, could have a
material adverse effect on the business, results of operations and financial
condition of Sterling Commerce.
LIMITED PROTECTION OF PROPRIETARY RIGHTS; RISKS OF INFRINGEMENT AND LOSS OF
LICENSES
Sterling Commerce relies primarily on a combination of copyright, patent and
trademark laws, confidentiality procedures and contractual provisions to
protect its intellectual property rights. Sterling Commerce routinely enters
into non-disclosure and confidentiality agreements with employees,
contractors, consultants, vendors and customers. Despite Sterling Commerce's
efforts to protect its proprietary rights, unauthorized parties may attempt to
copy aspects of Sterling Commerce's products or to obtain and use information
that Sterling Commerce regards as proprietary. There can be no assurance that
Sterling Commerce's means of protecting its proprietary rights will be
adequate or that Sterling Commerce's competitors will not independently
develop similar technology. In addition, the laws of some foreign countries do
not protect Sterling Commerce's proprietary rights to the same extent as the
laws of the United States. However, Sterling Commerce believes that, due to
the rapid pace of innovation within the electronic commerce industry, factors
such as the
18
<PAGE>
technological and creative skills of its personnel are more important in
establishing and maintaining a leadership position within this industry than
are the various legal protections afforded its proprietary rights. Sterling
Commerce does not believe that any of its products or services infringe the
valid proprietary rights of third parties in any material respect. However, a
large number of patents, trademarks and copyrights have been, and are being,
issued, registered or asserted in the software and electronic commerce
industries and there can be no assurance that Sterling Commerce is aware of
all such intellectual property rights that may pose a risk of infringement by
Sterling Commerce's products or services, especially with respect to United
States patents which can cover extremely broad concepts and the applications
for which are confidential until the patents are issued. Furthermore, Sterling
Commerce from time to time has received communications from third parties
alleging that Sterling Commerce is infringing intellectual property rights and
there can be no assurance that third parties will not assert infringement
claims in the future or that Sterling Commerce would prevail in any litigation
to enjoin Sterling Commerce from offering affected products or services or be
able to obtain a license with respect to such rights on terms acceptable to
Sterling Commerce, which could have a material adverse effect on the business,
results of operations and financial condition of Sterling Commerce.
Licenses for a number of third-party software products have been granted to
Sterling Commerce for its own use or for remarketing to its customers. In the
aggregate, these licenses are material to the business of Sterling Commerce.
Although management believes that the risk that Sterling Commerce will lose a
significant number of licenses is remote, such a loss could have a material
adverse effect on the business, results of operations and financial condition
of Sterling Commerce.
GOVERNMENT REGULATORY AND INDUSTRIAL POLICY RISKS
Current United States and Canadian regulations and laws governing the
telecommunications industry generally do not apply to providers of electronic
commerce services and products. Except for government regulations in certain
foreign countries (which may affect the provision of certain of Sterling
Commerce's services or use of certain of its products) and regulations
governing the ability of Sterling Commerce to disclose the contents of
communications by its customers, there are no government regulations
pertaining to the pricing, service characteristics or capabilities, geographic
distribution or quality control features of Sterling Commerce's electronic
commerce services or products. There exists, however, the risk that
governmental policies affecting the electronic commerce industry could be
implemented by executive order, legislation, administrative order or
otherwise. If such policies are adopted, they could have a material adverse
effect on the business, results of operations and financial condition of
Sterling Commerce.
Although Sterling Commerce does not believe that import and export control
regulations currently create significant impediments to Sterling Commerce's
international growth strategy, such regulations are applicable to certain of
Sterling Commerce's software products, and could interfere with such growth in
the future.
CERTAIN ANTITAKEOVER PROVISIONS
Sterling Commerce's existing Certificate of Incorporation (the "Commerce
Certificate") and Bylaws (the "Commerce Bylaws") and applicable law contain
provisions that may have the effect of delaying, deterring or preventing a
change in control of Sterling Commerce. In addition, the Commerce Certificate
authorizes the issuance of up to 150,000,000 shares of Commerce Stock and
50,000,000 shares of Preferred Stock, par value $0.01 per share, of Sterling
Commerce (the "Commerce Preferred Stock"). The Commerce Board will have the
power to determine the price and terms under which any such additional capital
stock may be issued and to fix the terms of such Commerce Preferred Stock, and
existing stockholders of Sterling Commerce will not have preemptive rights
with respect thereto. Sterling Commerce has also adopted the Commerce Rights
Plan, which is intended to deter certain takeover practices or takeover bids.
See "Description of Sterling Commerce Capital Stock."
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THE SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished by XcelleNet to its
shareholders in connection with the solicitation of proxies, by and on behalf
of the XcelleNet Board, for use at the Special Meeting. The Special Meeting
will be held on Tuesday, July 21, 1998, commencing at 8:00 a.m., Eastern time,
at The Westin Atlanta North at Perimeter Hotel, 7 Concourse Parkway, Atlanta,
Georgia. The purpose of the Special Meeting is for XcelleNet shareholders to
consider and vote upon the approval of the Merger Agreement.
THE XCELLENET BOARD BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS OF
XCELLENET AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT XCELLENET
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
VOTING AT THE SPECIAL MEETING
The holders of record of shares of XcelleNet Stock as of the close of
business on June 8, 1998, the Record Date, are entitled to receive notice of,
and to vote at, the Special Meeting. As of the Record Date, there were
8,426,988 shares of XcelleNet Stock outstanding and there were 208 holders of
record of XcelleNet Stock. Each outstanding share of XcelleNet Stock is
entitled to one vote at the Special Meeting. Shares of XcelleNet Stock held in
the treasury of XcelleNet or by any of its subsidiaries are not considered to
be outstanding.
For the purposes of the Special Meeting, a quorum will consist of the
presence, in person or by proxy, of a majority of the outstanding shares of
XcelleNet Stock entitled to vote at the Special Meeting. Once a share is
represented for any purpose at the Special Meeting, other than solely to
object to holding the Special Meeting or to transact business at the Special
Meeting, it will be deemed present for quorum purposes for the remainder of
the Special Meeting and for any adjournment of the Special Meeting unless a
new record date is set or must be set for the adjourned meeting pursuant to
the XcelleNet's Amended and Restated Bylaws, as amended (the "XcelleNet
Bylaws").
Pursuant to the Merger Agreement, the consummation of the Merger is
conditioned upon, among other things, the approval of the Merger Agreement by
the affirmative vote of the holders of a majority of shares of XcelleNet
Stock. Consequently, abstentions on such proposal will have the same effect as
a vote against such proposal. Broker non-votes, which occur when brokers who
are the record holders of shares do not have discretionary voting authority
with respect to those beneficial owners who have not provided voting
instructions, will also have the same effect as a vote against such proposal.
As of the Record Date, directors and executive officers of XcelleNet and
their affiliates owned beneficially, in the aggregate, approximately 25% of
the outstanding shares of XcelleNet Stock. As of the Record Date, the Crumpler
Shareholders owned, in the aggregate, approximately 17% of the outstanding
shares of XcelleNet Stock. Pursuant to the Shareholder Agreement, each of the
Crumpler Shareholders has agreed to vote its shares of XcelleNet Stock in
favor of the approval of the Merger Agreement and any other matters necessary
for the consummation of the transactions contemplated by the Merger Agreement.
See "The Merger--The Shareholder Agreement."
PROXIES; REVOCATION
All shares of XcelleNet Stock represented at the Special Meeting by properly
executed proxies received prior to or at the Special Meeting, unless such
proxies shall have been revoked, will be voted at the Special Meeting in
accordance with the instructions on the proxies. If no instructions are
indicated, such proxies will be voted "FOR" approval of the Merger Agreement.
A proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before the proxy is voted at the Special Meeting. A
proxy may be revoked by submitting to the Secretary of XcelleNet, prior to the
voting of the proxy, either a written instrument revoking the proxy or an
executed proxy bearing a later date, or by voting in person at the Special
Meeting. Attendance at the Special Meeting will not, in itself, constitute the
revocation of a proxy.
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Sterling Commerce and XcelleNet will share the cost of the preparation of
this Proxy Statement/Prospectus and XcelleNet will pay the cost associated
with the solicitation of proxies in connection with the Special Meeting.
XcelleNet may solicit proxies otherwise than by the use of the mails, in that
certain officers and employees of XcelleNet, without additional compensation,
may use their personal efforts, by telephone or otherwise, to obtain proxies.
XcelleNet will also request persons and entities holding shares in their
names, or in the names of their nominees, that are beneficially owned by
others, to send proxy materials to and obtain proxies from such beneficial
owners and will reimburse such holders for their reasonable expenses in so
doing. XcelleNet has retained D.F. King & Co., Inc. to assist it in the
solicitation of proxies using the means referred to above, at an anticipated
cost of $5,000 plus reimbursement of out-of-pocket expenses.
ADJOURNMENTS
Adjournments may be made for the purpose of, among other things, soliciting
additional proxies. Any adjournment may be made from time to time by approval
of the holders of a majority of the shares of XcelleNet Stock present in
person or by proxy at the Special Meeting (whether or not a quorum exists)
without further notice other than by an announcement made at the Special
Meeting. XcelleNet does not currently intend to seek an adjournment of the
Special Meeting. Any adjournment of the Special Meeting for the purpose of
soliciting additional proxies will allow XcelleNet's shareholders who have
already tendered their proxies to revoke such proxies at any time prior to the
use of the related proxies.
THE PARTIES
XCELLENET
XcelleNet provides systems management solutions for remote users. Its
RemoteWare brand of products enables system administrators to more effectively
manage remote PCs, thereby reducing total cost of ownership and increasing
end-user productivity. XcelleNet's systems management tools address five key
areas: software distribution, asset and configuration management, diagnostics
and recovery, event and alarm management and content and applications
management. XcelleNet's products, based on a unique client/agent/server
architecture, are specifically designed to overcome the challenges inherent in
managing remote systems that are intermittently connected to the enterprise
and complement the solutions of enterprise systems management vendors who are
primarily focused on the management of LAN/WAN-attached systems.
In 1989, XcelleNet introduced its flagship RemoteWare product family, which
is targeted to companies with large numbers of remote or mobile users and was
originally based on the IBM(R) OS/2(R) server platform. In 1996, XcelleNet
introduced a version of RemoteWare based on the Microsoft(R) Windows NT(R)
server platform, which was significantly enhanced with the release of the
RemoteWare Managed Client in December 1997. Also in 1997, XcelleNet released
RemoteWare Express, which is designed for web-based systems management. As of
March 1998, XcelleNet had licensed RemoteWare directly or through its Solution
Provider Resellers to approximately 1,800 organizations and approximately
675,000 users. XcelleNet's products have been licensed to companies with large
numbers of sales and field force personnel, branch offices or store locations
in a variety of industries, including financial services, healthcare,
insurance, manufacturing, pharmaceuticals and retailing.
For additional information concerning the business of XcelleNet, see
"Available Information."
STERLING COMMERCE
Sterling Commerce is a leading provider of electronic data interchange and
other electronic commerce products, services and solutions worldwide. Sterling
Commerce develops, markets and supports electronic commerce software products,
and provides electronic commerce services, that enable businesses to engage in
business-to-business electronic commerce. Sterling Commerce has been providing
electronic commerce solutions for over 20 years and has numerous customers in
a broad range of industries, including banking, healthcare, manufacturing,
pharmaceuticals, retailing and transportation.
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Sterling Commerce offers a comprehensive range of electronic commerce
business solutions for the business-to-business electronic commerce market.
Sterling Commerce continually strives to understand the business requirements
of the global electronic commerce market; to address these requirements with
flexible, reliable and secure electronic commerce solutions; and to deliver
these solutions in an effective and efficient manner. Sterling Commerce
believes that many of today's business organizations operate as extended
enterprises that include an entity's divisions, plant sites and sales offices,
and also involve close partnering relationships with customers, suppliers,
banks and other trading partners. This extension of the enterprise is often
referred to as a supply chain. Sterling Commerce's electronic commerce
solutions help to automate this supply chain by linking disparate systems
(such as various computing platforms, protocols and business document
formats), and assist in building and managing trading community relationships
and effecting the electronic transfer of funds among corporations and banks.
These solutions focus on the business-to-business market to take advantage of
multiple technologies, including Internet-related technologies, to address the
needs of customers.
Sterling Commerce operates primarily through three separate groups which all
offer distinct families of products and services to the worldwide business-to-
business electronic commerce market: the Commerce Services Group, the
Interchange Software Group and the Communications Software Group. Sterling
Commerce believes that its decentralized organizational structure promotes
operating flexibility, improves responsiveness to customer requirements and
focuses management on achieving revenue and profit objectives.
Sterling Commerce generates revenue from four sources: products, product
support, services and royalties. Products revenue is primarily derived from
license fees from Sterling Commerce's GENTRAN, CONNECT and VECTOR software
product families and is recognized at the time of product delivery, provided
no significant vendor obligations exist and collection is probable. Product
support revenue consists primarily of fees from product support agreements
that generally provide customers with updated or enhanced versions of Sterling
Commerce's software products and telephone and Internet access to Sterling
Commerce's technical personnel. Product support revenue is deferred and
recognized ratably over the term of the applicable product support agreement,
which is generally from one to three years. Services revenue consists
primarily of transaction fees for services offered as part of the COMMERCE
family and is recognized at the time the service is performed. Royalty revenue
consisted primarily of royalties from Sterling Software relating to
international licenses of Sterling Commerce's software products and related
product support agreements prior to the termination of the International
Distributor Agreement in June 1997.
A majority of Sterling Commerce's software customers enter into product
support agreements and renew such agreements upon expiration. Moreover,
although most COMMERCE service agreements are cancellable upon 30 days'
notice, Sterling Commerce's experience is that once customers initiate use of
Sterling Commerce's COMMERCE services, they generally continue to use such
services. Accordingly, Sterling Commerce considers revenue from product
support and COMMERCE services as recurring revenue. Recurring revenue
represented 57% of Sterling Commerce's total revenue in both 1997 and 1996.
For additional information concerning the business of Sterling Commerce, see
"Available Information."
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THE MERGER
BACKGROUND OF THE MERGER
Stephen Perkins, the President of Sterling Commerce's Communications
Software Group, and Dennis Crumpler, Chairman and Chief Executive Officer of
XcelleNet, have been acquainted with each other and their respective
businesses for a number of years through common industry trade events. Their
increasing knowledge of each other's business eventually led to a development
and marketing assistance agreement between Sterling Commerce and XcelleNet in
1995. Out of this marketing arrangement further discussions evolved between
the two companies in 1996 and 1997 regarding an expanded licensing
arrangement.
Sterling Commerce maintains a strategy of seeking to acquire businesses and
products to expand its presence in existing product and services markets,
expand into additional strategic market niches and expand into international
markets. In July 1997, Sterling Commerce retained B.T. Alex. Brown
Incorporated ("Alex. Brown"), along with Broadview Associates LLC
("Broadview"), which was on an existing retainer with Sterling Commerce, to
provide advice regarding certain strategic and financial aspects of a possible
acquisition of XcelleNet.
At regularly scheduled meetings, the Commerce Board receives and discusses
reports regarding the status of various potential acquisitions. The Commerce
Board received reports and conducted discussions regarding management's
interest in, and status of, the potential acquisition of XcelleNet at regular
meetings held August 28, 1997, December 4, 1997 and March 12, 1998.
On September 19, 1997, XcelleNet entered into a Software License and
Distribution Agreement with Sterling Commerce (the "XcelleNet Distribution
Agreement"), pursuant to which Sterling Commerce licensed XcelleNet's
RemoteWare products and obtained the right to offer and relicense those
products to customers under its own brand name. This relationship with
Sterling Commerce is one of two relationships that XcelleNet has with software
vendors for relicensing XcelleNet's products under the other vendor's marks.
On October 3, 1997, Mr. Crumpler met with Mr. Perkins in Atlanta, Georgia.
During this meeting, Mr. Perkins expressed Sterling Commerce's interest in
acquiring XcelleNet. At a subsequent meeting on October 14, 1997 in Baltimore,
Maryland among Mr. Crumpler, David Held (Chief Financial Officer of
XcelleNet), Warner Blow (President and Chief Executive Officer of Sterling
Commerce) and Mr. Perkins, Mr. Blow stated that Sterling Commerce had an
interest in acquiring XcelleNet at a price of $17.50 per share. At that time,
Mr. Crumpler responded that, while he would discuss the matter with the
XcelleNet Board, in his view XcelleNet's value was significantly greater than
$17.50 per share. In the second half of October 1997, Robertson Stephens and
XcelleNet's management identified potential strategic partners for XcelleNet
and in late October and early November, Robertson Stephens made informal
contacts with certain of those companies. No further discussions resulted at
that time from those contacts.
On November 14, 1997, XcelleNet received a letter from Sterling Commerce
indicating its interest in acquiring XcelleNet for $17.50 per share, in cash,
subject to, among other things, a due diligence investigation, the execution
of a voting agreement by certain directors, officers and significant
shareholders of XcelleNet and approval by the Commerce Board and the XcelleNet
Board. In its November 14th letter, Sterling Commerce requested that XcelleNet
respond to its indication of interest by November 24, 1997. Following receipt
of this letter, the XcelleNet Board met by telephone conference on November
18, 1997 to discuss the appropriate procedures for considering Sterling
Commerce's indication of interest. At this meeting, the XcelleNet Board also
discussed potential financial advisors for XcelleNet and appointed a committee
to make a final decision on the retention of financial advisors to XcelleNet.
Following discussions with Robertson Stephens and other potential financial
advisors, XcelleNet engaged Robertson Stephens on November 20, 1997 to serve
as financial advisor to XcelleNet in connection with the consideration of
strategic alternatives, including the indication of interest from Sterling
Commerce.
At a telephonic meeting on November 21, 1997, the XcelleNet Board discussed
the possibility of holding discussions with Sterling Commerce to better
understand its indication of interest and to consider an expanded commercial
relationship with Sterling Commerce as a possible alternative to Sterling
Commerce's acquisition of
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XcelleNet. At this meeting, the XcelleNet Board determined that it would need
additional time in order to consult with Robertson Stephens and properly
consider Sterling Commerce's indication of interest.
On November 23, 1997, Mr. Crumpler wrote to Mr. Blow explaining that the
XcelleNet Board would require approximately two weeks from that date in order
to give appropriate consideration to the indication of interest by Sterling
Commerce. On November 24, 1997, Mr. Blow wrote to Mr. Crumpler stating that
Sterling Commerce would extend the deadline for responding to Sterling
Commerce's indication of interest to December 8, 1997. Mr. Blow also indicated
that Sterling Commerce would be willing to consider making a proposal that
would include the issuance of Commerce Stock.
On November 25, 1997, the XcelleNet Board met by telephone conference, and
the XcelleNet Board authorized a meeting among senior management of XcelleNet,
two non-employee members of the XcelleNet Board and representatives of
Sterling Commerce for the purpose of better understanding the terms of
Sterling Commerce's indication of interest. On December 1, 1997, Mr. Crumpler,
Corey Smith (President and a director of XcelleNet), Shereef Nawar (Chief
Technical Officer and a director of XcelleNet), Mr. Held, Jeanne Bateman (Vice
President--Finance of XcelleNet), Donald House (a director of XcelleNet), and
Richard Marcus (a director of XcelleNet), met in Atlanta with Mr. Blow, Mr.
Perkins, Albert Hoover (Senior Vice President and General Counsel of Sterling
Commerce) and Clark Woodford (Vice President, Business Development of Sterling
Commerce), at which time the Sterling Commerce representatives explained their
views of the proposed acquisition and the terms of their proposal with the
XcelleNet representatives. Later on December 1, 1997, the XcelleNet Board met
by telephone conference to hear a report on the meeting with Sterling Commerce
from the XcelleNet participants.
The XcelleNet Board met by telephone conference on December 4, 1997 in order
to discuss strategic alternatives for XcelleNet. This discussion was continued
at a subsequent meeting of the XcelleNet Board held by telephone conference on
December 7, 1997. At this meeting, the XcelleNet Board concluded that the
terms of Sterling Commerce's indicated interest were not adequate. However, at
this meeting the XcelleNet Board authorized XcelleNet to enter into a
confidentiality agreement with Sterling Commerce in order to permit the
exchange of certain non-public information, and subject to entering into such
confidentiality agreement, authorized senior management of XcelleNet to meet
with Sterling Commerce in order to discuss such information.
Following this meeting, Mr. Crumpler discussed the results of the December
7th XcelleNet Board meeting with Mr. Blow by telephone and a meeting between
managements of the two companies was scheduled. On December 13, 1997, the
companies entered into a mutual confidentiality agreement permitting the
exchange of information and Messrs. Crumpler, Smith, Nawar and Held met with
Messrs. Perkins, Woodford, Steven Shiflet (Senior Vice President and Chief
Financial Officer of Sterling Commerce) and other representatives of Sterling
Commerce in Columbus, Ohio on December 14, 15 and 16, 1997. This meeting
consisted of a general discussion of the products and operations of XcelleNet
and the near-term potential for its business.
Following this meeting, the XcelleNet Board met by telephone conference on
December 19, 1997 and authorized an additional meeting with Sterling Commerce,
to include both companies' financial advisors, for the purpose of sharing with
the financial advisors the information that had been discussed by the
companies. This meeting was held in Columbus, Ohio on December 20, 1997.
At a telephonic meeting of the XcelleNet Board on December 23, 1997, Mr.
Crumpler reported that there had been no agreement between Sterling Commerce
and XcelleNet as to the value of XcelleNet. The XcelleNet Board determined
that although it appeared that the acquisition-related discussions with
Sterling Commerce would not continue, a meeting between technical
representatives of XcelleNet and Sterling Commerce would be appropriate in
order to further discuss XcelleNet's products and product development efforts,
which discussion could lead to an expanded commercial relationship between the
companies. This meeting of the technical representatives of both companies
took place in XcelleNet's offices on December 29 and 30, 1997.
In January and February 1998, Robertson Stephens again informally contacted
several of the same potential partners for XcelleNet that it had contacted in
October and November 1997 plus an additional potential acquirer of XcelleNet.
Based on these contacts, XcelleNet did not pursue discussions with any of
these companies.
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At the request of Mr. Woodford, representatives of Alex. Brown and Broadview
called representatives of Robertson Stephens on February 3, 1998 to determine
whether XcelleNet was interested in renewing discussions regarding a possible
acquisition. As a result of this call, a meeting was scheduled between Mr.
Blow and Mr. Crumpler.
Following XcelleNet's report of its operating results for the fourth quarter
of 1997, Mr. Crumpler and Mr. Blow met in New York City on February 11, 1998.
At this meeting, Mr. Blow indicated Sterling Commerce's interest in acquiring
XcelleNet at a price of $20 per share, payable 50% in cash and 50% in Commerce
Stock. Mr. Crumpler told Mr. Blow that while he believed that other aspects of
the proposed transaction were attractive, the $20 per share price did not
reflect the XcelleNet Board's view of the value of XcelleNet. Following this
meeting, discussions took place between representatives of the companies'
respective financial advisors.
On March 4, 1998, Robertson Stephens received from Alex. Brown a term sheet
for a proposed acquisition of XcelleNet by Sterling Commerce at a price of $22
per share, payable 50% in cash and 50% in Commerce Stock. XcelleNet responded
through Robertson Stephens that it was not interested in discussing an
acquisition transaction at that time, but that XcelleNet would be willing to
continue to discuss a possible business combination with Sterling Commerce
following the close of the first quarter of 1998.
On April 2, 1998, Mr. Perkins met with Mr. Crumpler at XcelleNet's offices
in Atlanta, Georgia to discuss how the two companies could work more
effectively together, including Sterling Commerce's interest in exclusive
distribution rights for RemoteWare in South America. Mr. Perkins also
reiterated Sterling Commerce's continued interest in acquiring XcelleNet and
encouraged Mr. Crumpler to discuss the merits of merging the two companies
with the XcelleNet Board. Mr. Crumpler agreed to discuss the topic with the
XcelleNet Board.
On April 6, 1998, Mr. Crumpler telephoned Mr. Blow and requested a meeting
to further discuss Sterling Commerce's March 4, 1998 indication of interest.
On April 7, 1998, Mr. Crumpler met with Mr. Blow in Columbus, Ohio and further
discussed Sterling Commerce's interest in acquiring XcelleNet and possible
terms of such transaction. At the conclusion of this meeting, Mr. Crumpler and
Mr. Blow agreed to proceed promptly to attempt to negotiate a definitive
agreement for the acquisition of XcelleNet by Sterling Commerce. On April 8,
1998, the XcelleNet Board met by telephone conference to consider the results
of this meeting between Mr. Crumpler and Mr. Blow, and the XcelleNet Board
authorized XcelleNet's management to proceed with negotiations with Sterling
Commerce.
On April 9, 1998, the parties met in Atlanta, Georgia and entered into an
amendment to their December 13, 1997 confidentiality agreement to provide for
an exclusive negotiating period and to extend the confidentiality provisions.
Over the course of eight days beginning April 9, 1998, each party continued
its factual investigation of the other with the aid of its financial and legal
advisors and negotiated the terms of the Merger Agreement.
On April 15, 1998, the XcelleNet Board met in Atlanta, Georgia with members
of XcelleNet's senior management and its legal and financial advisors to
consider the terms of the proposed Merger Agreement as negotiated to that time
and the remaining substantive issues that had not been resolved. At that
meeting, XcelleNet's legal advisors reviewed with the directors their
fiduciary duties, the directors discussed with representatives of Robertson
Stephens the financial aspects of the proposed Merger, Robertson Stephens
indicated that it expected to be in a position to deliver its opinion that the
Merger Consideration was fair to the XcelleNet shareholders from a financial
point of view and senior management of XcelleNet and XcelleNet's legal
advisors summarized the terms of the proposed Merger Agreement and related
documents and identified the parties' respective positions on substantive
matters as to which agreement had not been reached at that time. Senior
management of XcelleNet and XcelleNet's legal advisors also summarized for the
directors the provisions of the Merger Agreement and related agreements
pertaining to compensation of management employees of XcelleNet with XcelleNet
CIC Agreements and the proposed terms of employment of Messrs. Crumpler, Smith
and Nawar by Sterling Commerce following the Merger. At this meeting, the
XcelleNet Board instructed management to continue to negotiate with Sterling
Commerce in an effort to reach a definitive agreement with respect to the
Merger by the following day. Management of XcelleNet continued to negotiate
with Sterling Commerce and by April 16, 1998 had resolved the remaining issues
in the Merger Agreement.
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On April 16, 1998, the XcelleNet Board met by telephone conference to
consider the proposed Merger Agreement. At that time, senior management and
XcelleNet's legal advisors reviewed for the directors the terms of the
proposed Merger Agreement and related documents as they had been summarized at
the meeting the day before and described for the directors the resolution of
the issues that had remained open at the time of the meeting on April 15,
1998. At this meeting, representatives of Robertson Stephens reviewed the
terms of the proposed Merger, discussed their financial analysis with respect
thereto and orally advised the XcelleNet Board that, as of such date, in their
opinion (which opinion was subsequently confirmed in writing), the Merger
Consideration was fair to the holders of XcelleNet Stock (other than XcelleNet
Stock to be cancelled in accordance with the Merger Agreement and shares the
holders of which properly exercise their dissenters' rights under the GBCC).
See "-- Opinion of XcelleNet's Financial Advisor." Based upon the XcelleNet
Board's review and consideration of the terms of the proposed Merger Agreement
and, among other things, the opinion of Robertson Stephens mentioned above,
the XcelleNet Board unanimously determined that the Merger was fair to, and in
the best interests of, XcelleNet and its shareholders, approved the Merger
Agreement and the related agreements, authorized the execution and delivery of
the Merger Agreement and related agreements and recommended that XcelleNet's
shareholders approve the Merger Agreement.
At a telephonic meeting held on April 16, 1998, the Commerce Board met with
members of Sterling Commerce's senior management and its legal and financial
advisors. At this meeting the Commerce Board reviewed the terms of the
proposed Merger, and received presentations from Mr. Blow and Mr. Shiflet and
representatives of both Alex. Brown and Broadview. The Commerce Board also
received a report from Mr. Hoover regarding the status and results of the due
diligence investigation and the status of the negotiations with XcelleNet's
representatives with respect to the terms of the Merger Agreement and the
resolution of certain outstanding issues. A representative of Broadview orally
advised the Commerce Board that, in their opinion (which opinion was
subsequently confirmed in writing), the Merger Consideration to be paid by
Sterling Commerce in the Merger was fair, from a financial point of view, to
the holders of Commerce Stock. After a thorough review and discussion of all
factors deemed relevant to its decision, including those noted below under "--
Sterling Commerce's Reasons for the Merger," the Commerce Board unanimously
determined that the Merger was in the best interests of Sterling Commerce and
its stockholders and authorized Sterling Commerce's senior management to
execute and deliver the Merger Agreement on behalf of Sterling Commerce.
In the evening of April 16, 1998, the Merger Agreement was executed by the
parties and a joint press release was issued prior to the opening of trading
the next morning.
XCELLENET'S REASONS FOR THE MERGER
On April 16, 1998, the XcelleNet Board determined that the Merger Agreement
and the transactions contemplated thereby are fair to and in the best
interests of XcelleNet and its shareholders. Accordingly, the XcelleNet Board
unanimously approved such transactions and recommended that the shareholders
of XcelleNet approve the Merger Agreement. In determining to recommend
approval of the Merger Agreement and in approving the Merger Agreement and the
transactions contemplated thereby, the XcelleNet Board considered a number of
factors, including, but not limited to, the following:
(i) the possible difficulty in realizing the growth potential of the value
of XcelleNet Stock if XcelleNet were to remain independent as a result
of a number of factors, including increased competition resulting from
increased awareness in the systems management software industry (the
"Systems Management Software Industry") of the needs of systems
managers who manage large numbers of remote users, increased start-up
activity in the Systems Management Software Industry, the increasing
costs and risks associated with rapid growth and establishing a sales
and support infrastructure on a global basis and the potential
inability of XcelleNet to expand its distribution channels, market
share and profitability;
(ii) the difficulty faced by XcelleNet's management in generating
predictable revenues in any particular quarter due to XcelleNet's
relatively small sales and distribution network and the likely effect
of the lack of predictable quarterly revenues on the market price of
XcelleNet Stock;
(iii) the potential for synergies from combining XcelleNet with Sterling
Commerce, which the XcelleNet Board believes would have a favorable
impact on long-term value for XcelleNet shareholders by:
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(a) enhancing XcelleNet's ability to compete with other larger and
smaller developers of systems management software products;
(b) leveraging XcelleNet's business with Sterling Commerce's more
advanced distribution and sales infrastructure in North and South
America, Europe and Asia in order to more rapidly expand the
distribution of XcelleNet's products into a broader range of
markets; and
(c) providing greater product diversification through Sterling
Commerce's broad and diverse product line and the opportunity for
XcelleNet and Sterling Commerce to provide an expanded product line
and services to each other's existing customers;
(iv) the determination of the XcelleNet Board that, based on their
knowledge of the future prospects and the current conditions of the
Systems Management Software Industry in North and South America,
Europe and Asia and the competitive positions of each of XcelleNet and
Sterling Commerce in the Systems Management Software Industry, the
combination would create a company that would be better positioned to
compete successfully in the Systems Management Software Industry;
(v) the presentations of Robertson Stephens described below under "--
Opinion of XcelleNet's Financial Advisor," discussions with
representatives of Robertson Stephens regarding the Merger and
Robertson Stephens' written opinion dated April 16, 1998 to the effect
that, as of the date of such opinion and based upon and subject to the
assumptions, limitations and qualifications set forth in such opinion,
the Merger Consideration was fair to the holders of XcelleNet Stock
(other than holders of shares of XcelleNet Stock to be cancelled in
accordance with the Merger Agreement or holders that properly exercise
their dissenters' rights under the GBCC) from a financial point of
view;
(vi) the fact that the Merger Consideration to be received by XcelleNet
shareholders (based on the average closing price of Commerce Stock for
the 20 trading days ended April 15, 1998) represented a premium of
13.2% over the average closing price of XcelleNet Stock for the same
20-day period;
(vii) the fact that the Merger Consideration was the subject of arm's-
length negotiations between members of the management of XcelleNet
and Sterling Commerce;
(viii) the absence of available alternative transactions that appeared
likely to the XcelleNet Board to offer XcelleNet shareholders
immediate or long-term economic benefits comparable or superior to
the Merger on the basis of XcelleNet's and Robertson Stephens'
efforts to explore and develop such alternative transactions;
(ix) the fact that XcelleNet Stock is thinly traded, making it less likely
to receive the benefits of ownership by large institutional investors
who generally have a need for liquidity in their investments (in
particular, the average daily trading volume of XcelleNet Stock during
the first calendar quarter of 1998 was 70,129 shares as compared to an
average daily trading volume of 503,018 shares for Sterling Commerce
during the same period);
(x) the terms and conditions of the Shareholder Agreement, whereby the
Crumpler Shareholders agreed to vote or execute written consents with
respect to all of their respective shares of XcelleNet Stock in favor
of the Merger;
(xi) the provision for opinions of counsel that the Merger Consideration
would be received by XcelleNet Shareholders without recognizing gain
or loss for federal income tax purposes (except to the extent that
such shareholders receive cash for their shares of XcelleNet Stock in
the Merger);
(xii) the fact that the consummation of the Merger is conditioned upon the
approval of the holders of a majority of the shares of XcelleNet
Stock;
(xiii) the judgment, advice and analyses provided by XcelleNet's
management;
(xiv) the price to earnings ratio of Commerce Stock (which was 36.7 on
April 14, 1998, based on fiscal 1998 earnings estimates);
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(xv) certain risks associated with Sterling Commerce and the Merger as set
forth under "Risk Factors";
(xvi) the legal advice of XcelleNet's outside counsel with respect to the
terms of the Shareholder Agreement, and the Merger Agreement,
including but not limited to the ability of the XcelleNet Board to
terminate the Merger Agreement upon payment of a fee in connection
therewith if the XcelleNet Board determines to approve, endorse or
recommend an Acquisition Proposal (as defined below); and
(xvii) the regulatory approvals required in connection with the Merger,
including the risks and uncertainties associated with obtaining the
same.
In light of the XcelleNet Board's knowledge of the business and operations
of XcelleNet and its business judgment, the XcelleNet Board considered and
evaluated each of the factors listed above during the course of its
deliberations prior to approving the Merger Agreement. In view of the wide
variety of factors considered in connection with its evaluation of the Merger,
the XcelleNet Board found it impracticable to, and did not, quantify or
otherwise attempt to assign relative weights to the specific factors
considered in making its determination.
After considering all of the foregoing factors, the XcelleNet Board
concluded that a combination with Sterling Commerce, on the terms set forth in
the Merger Agreement and the related documentation, is fair to and in the best
interests of XcelleNet and its shareholders. The XcelleNet Board believes that
the factors listed above, when considered together, support the fairness of
the Merger to XcelleNet and its shareholders and the XcelleNet Board believes
that such factors, when considered together, support its recommendation that
XcelleNet shareholders vote FOR approval of the Merger Agreement.
THE XCELLENET BOARD HAS UNANIMOUSLY CONCLUDED THAT THE MERGER IS FAIR TO AND
IN THE BEST INTERESTS OF XCELLENET AND ITS SHAREHOLDERS AND UNANIMOUSLY
RECOMMENDS THAT THE SHAREHOLDERS OF XCELLENET VOTE FOR APPROVAL OF THE MERGER
AGREEMENT. XCELLENET SHAREHOLDERS SHOULD BE AWARE THAT CERTAIN MEMBERS OF THE
XCELLENET BOARD AND MANAGEMENT HAVE CERTAIN INTERESTS IN THE MERGER THAT ARE
IN ADDITION TO THOSE OF OTHER SHAREHOLDERS OF XCELLENET. SEE "THE MERGER--
INTERESTS OF CERTAIN PERSONS IN THE MERGER."
OPINION OF XCELLENET'S FINANCIAL ADVISOR
XcelleNet and Robertson Stephens executed an engagement letter, dated
November 20, 1997 (the "Robertson Stephens Engagement Letter") pursuant to
which Robertson Stephens was engaged to act as XcelleNet's exclusive financial
advisor in connection with the Merger. Pursuant to the Robertson Stephens
Engagement Letter, XcelleNet retained Robertson Stephens to provide financial
advisory and investment banking services in connection with the Board's
consideration of various strategic alternatives available to the Company,
including an evaluation of an indication of interest by Sterling Commerce. See
"--Background of the Merger."
On April 16, 1998, the Board of Directors of XcelleNet met to evaluate the
proposed Merger, at which time the Board of Directors received an oral opinion
from Robertson Stephens that the Merger Consideration was fair, from a
financial point of view, as of the date thereof, to the holders of XcelleNet
Stock (other than holders of shares of XcelleNet Stock to be cancelled in
accordance with the Merger Agreement or holders that properly exercise their
dissenters' rights under the GBCC), which opinion was subsequently confirmed
in writing on April 16, 1998. No limitations were imposed by the XcelleNet
Board on Robertson Stephens with respect to the investigations made or
procedures followed by it in furnishing its opinion. The Merger Consideration
was determined through negotiations between the managements of XcelleNet and
Sterling Commerce. Although Robertson Stephens did assist the management of
XcelleNet in those negotiations, it was not asked by, and did not recommend
to, XcelleNet that any specific Merger Consideration constituted the
appropriate Merger Consideration for the Merger. Robertson Stephens expressed
no opinion as to tax consequences of the Merger
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and the Robertson Stephens Opinion as to fairness of the Merger Consideration
does not take into account the particular tax status or position of any
shareholder of XcelleNet. In furnishing its opinion, Robertson Stephens was
not engaged as an agent or fiduciary of the holders of XcelleNet Stock or any
other third party.
THE FULL TEXT OF THE ROBERTSON STEPHENS OPINION, WHICH SETS FORTH, AMONG
OTHER THINGS, ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN, IS ATTACHED HERETO AS APPENDIX B AND IS INCORPORATED HEREIN
BY REFERENCE. SHAREHOLDERS OF XCELLENET ARE URGED TO READ THE ROBERTSON
STEPHENS OPINION IN ITS ENTIRETY. THE ROBERTSON STEPHENS OPINION WAS PREPARED
FOR THE BENEFIT AND USE OF THE XCELLENET BOARD IN ITS CONSIDERATION OF THE
MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO SHAREHOLDERS OF XCELLENET
AS TO HOW THEY SHOULD VOTE UPON OR TAKE ANY OTHER ACTION WITH RESPECT TO THE
MERGER. THE ROBERTSON STEPHENS OPINION DOES NOT ADDRESS THE RELATIVE MERITS OF
THE MERGER AND ANY OTHER TRANSACTIONS OR BUSINESS STRATEGIES DISCUSSED BY THE
XCELLENET BOARD AS ALTERNATIVES TO THE MERGER OR THE UNDERLYING BUSINESS
DECISION OF THE XCELLENET BOARD TO PROCEED WITH OR EFFECT THE MERGER. THE
SUMMARY OF THE ROBERTSON STEPHENS OPINION SET FORTH IN THIS PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF THE ROBERTSON STEPHENS OPINION.
In connection with the preparation of the Robertson Stephens Opinion,
Robertson Stephens, among other things, (i) reviewed financial information on
XcelleNet furnished to it by XcelleNet, including certain internal financial
analyses and forecasts prepared by the management of XcelleNet; (ii) reviewed
publicly available information; (iii) held discussions with the management of
XcelleNet and Sterling Commerce concerning the businesses, past and current
business operations, financial condition and future prospects of both
companies, independently and combined, including, in the case of Sterling
Commerce, discussions regarding the degree to which Robertson Stephens could
rely on publicly available Wall Street research analyst estimates of Sterling
Commerce's future financial performance; (iv) reviewed the definitive Merger
Agreement and the Shareholder Agreement; (v) reviewed the stock price and
trading histories of both companies; (vi) prepared comparable company and
discounted cash flow analyses of XcelleNet; (vii) prepared a proforma merger
analysis of the Merger; (viii) compared the financial terms of the Merger with
other transactions that it deemed relevant; (ix) reviewed estimates by
XcelleNet's and Sterling Commerce's management of the cost savings, revenue
enhancements and other benefits expected to be derived from the Merger; and
(x) made such other studies and inquiries, and reviewed such other data, as it
deemed relevant.
In rendering its opinion, Robertson Stephens has assumed that all such
information is complete and accurate in all material respects, and it has not
undertaken any independent verification of such information. It has relied
upon the assurances of management of XcelleNet that it is not aware of any
facts that would make such information inaccurate or misleading. Furthermore,
it did not obtain or make, or assume any responsibility for obtaining or
making, any independent appraisal of the properties or assets and liabilities
(contingent or otherwise) of XcelleNet or Sterling Commerce or any of their
respective subsidiaries, nor was it furnished with any such evaluations or
appraisals. With respect to the financial and operating forecasts (and the
assumptions and bases therefore) of XcelleNet that it has reviewed, it assumed
that such forecasts had been reasonably prepared and reflect the best
currently available estimates and judgments of XcelleNet management and that
such projections and forecasts will be realized in the amounts and in the time
periods currently estimated by the management of XcelleNet. It assumed that
the Merger will be consummated upon the terms set forth in the Merger
Agreement without material alteration thereof. It relied as to all legal
matters relevant to rendering its opinion on the advice of counsel. Robertson
Stephens also assumed, with XcelleNet's consent, that the Merger will be
accounted for as a "purchase" under generally accepted accounting principles.
While Robertson Stephens believes that its review, as described above,
provided an adequate basis for the opinion that it expressed, such opinion is
necessarily based upon market, economic and other conditions that exist and
can be evaluated as of the date of the Robertson Stephens Opinion, and on
information available to it as of the date thereof. Finally, Robertson
Stephens expressed no opinion as to the value of any employee agreements or
arrangements entered into in connection with the Merger Agreement. Although
developments following the date of the Robertson Stephens Opinion may affect
the opinion, Robertson Stephens assumed no obligation to update, revise or
reaffirm its opinion.
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The following is a summary of the material financial analyses performed by
Robertson Stephens in connection with rendering the Robertson Stephens
Opinion:
Comparable Company Analysis. Using publicly available information (including
estimates by publicly available third-party sources), Robertson Stephens
analyzed, among other things, the market values and trading multiples of
XcelleNet and selected publicly traded companies in the enterprise
client/server software industry, including: Information Management Associates,
Inc., New Dimension Software Ltd., Platinum Technology, Inc., Project Software
and Development, Inc., Rainbow Technologies, Inc., SPSS, Inc. and Symantec
Corp. (collectively, the "Comparable Companies"). Robertson Stephens compared
total capitalization values as multiples of calendar 1997, 1998 and 1999
revenues and operating incomes and market prices as multiples of calendar
1997, 1998 and 1999 earnings per share. All multiples were based on closing
stock prices as of April 14, 1998. Applying a range of revenue multiples for
the Comparable Companies for calendar year 1997, 1998 and 1999 to
corresponding financial data for XcelleNet resulted in an equity reference
range for XcelleNet of approximately $16.48 to $25.22 per share. Applying a
range of operating income multiples for the Comparable Companies for calendar
year 1997, 1998 and 1999 to corresponding financial data for XcelleNet
resulted in an equity reference range for XcelleNet of approximately $9.64 to
$27.95 per share. Applying a range of price-to-earnings multiples for the
Comparable Companies for calendar year 1997, 1998 and 1999 to corresponding
financial data for XcelleNet resulted in an equity reference range for
XcelleNet of approximately $8.09 to $27.42 per share.
Precedent Acquisitions Analysis. Using publicly available information,
Robertson Stephens analyzed the implied premiums and multiples paid or
proposed to be paid in selected precedent acquisitions transactions in the
enterprise client/server software industry: Magic Solutions/Network Associates
(March 24, 1998), Scopus Technology Inc./Siebel Systems Inc. (March 2, 1998),
Trusted Information Systems/Network Associates (February 23, 1998), Software
Artistry/Tivoli Systems (IBM) (December 19, 1997), Raptor Systems Inc./Axent
Technologies Inc. (December 1, 1997), Premenos Corp./Harbinger Corp. (October
23, 1997), Network General/McAfee Associates Inc. (October 13, 1997), Unison
Software Inc./Tivoli Systems (IBM) (September 15, 1997), Network Software
Associates/NetManage Inc. (July 8, 1997), Aurum Software Inc./Baan Co NV (May
13, 1997), Cheyenne Software Inc./Computer Associates International Inc.
(October 7, 1996), Datastorm Technologies Inc./Quarterdeck Corp. (March 28,
1996), TGV Software Inc./Cisco Systems Inc. (January 24, 1996), Firefox
Communications Inc./FTP Software Inc. (January 17, 1996) and Saber Software
Inc./McAfee Associates Inc. (May 30, 1995) (collectively, the "Precedent
Acquisitions Transactions"). Robertson Stephens compared, among other things,
the premiums paid in the Precedent Acquisitions Transactions over the public
equity closing sale price one day and four weeks prior to the announcement of
the transactions and over the 52-week low and 52-week high public equity
closing sale prices of the targets prior to the announcement of the
transactions. Robertson Stephens also compared total capitalization values as
multiples of the latest twelve months revenues and market prices as multiples
of the latest twelve months earnings per share. Applying the premium ranges
for the Precedent Acquisition Transactions for one day and four weeks prior to
announcement of the transactions to XcelleNet's closing prices on April 13,
1998 and March 16, 1998 resulted in an equity reference range for XcelleNet of
approximately $22.28 to $32.40. Applying the premium ranges for the 52-week
low and 52-week high of the targets prior to the announcement of the
transaction to XcelleNet's closing prices on April 14, 1998 and October 30,
1997 resulted in an equity reference range for XcelleNet of approximately
$10.63 to $27.13 per share. Applying a range of revenue multiples for the
Precedent Acquisitions Transactions to corresponding financial data for
XcelleNet resulted in an equity reference range for XcelleNet of approximately
$19.79 to $36.21 per share. Applying a range of price-to-earnings multiples
for the Precedent Acquisitions Transactions to corresponding financial data
for XcelleNet resulted in an equity reference range for XcelleNet of
approximately $11.56 to $21.19 per share. All multiples for the Precedent
Acquisitions Transactions were based on public information available at the
time of announcement, or one day, four weeks or 52 weeks prior to the
announcement, as the case may be, of such transactions, without taking into
account differing market and other conditions during the period in which the
Precedent Acquisitions Transactions occurred.
No company, transaction or business used in "Comparable Company Analysis" or
"Precedent Acquisitions Analysis" as a comparison is identical to XcelleNet or
the Merger. Accordingly, an analysis of the results of the
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foregoing is not entirely mathematical; rather it involves complex
considerations and judgements concerning differences in financial and
operating characteristics and other factors that could affect the acquisition,
public trading and other values of the Comparable Companies, Precedent
Acquisitions Transactions or the business segment, company or transactions to
which they are compared.
Discounted Cash Flow Analysis. Robertson Stephens performed a discounted
cash flow analysis of the unlevered (before interest expense) after-tax cash
flows of XcelleNet using the XcelleNet estimates that were prepared by the
management of XcelleNet for the fiscal years 1998 through 2002. Robertson
Stephens first discounted the projected, unlevered after-tax cash flows
through December 31, 2002 using a range of discount rates from 20% to 25%.
XcelleNet unlevered after-tax cash flows were calculated as the after-tax
operating earnings of XcelleNet adjusted to add back non-cash expenses and
deduct uses of cash not reflected in the income statement. Robertson Stephens
then added to the present value of the cash flows the terminal value of
XcelleNet in the fiscal year ending December 31, 2002, discounted back at the
same discount rate. The terminal value was computed by multiplying XcelleNet's
projected EBIT in fiscal 2002 by terminal multiples ranging from 8.0x to
12.0x. The discounted cash flow valuation resulted in an equity reference
range of approximately $17.09 to $26.05 per share.
Pro Forma Earnings Analysis. Robertson Stephens analyzed the impact of the
Merger on the projected earnings per share (the "EPS") of the combined company
for the fiscal years 1998 and 1999 based on XcelleNet management financial
estimates for XcelleNet and publicly available Robertson Stephens research
analyst estimates for Sterling Commerce. Such analysis indicated that the
Merger would be dilutive by approximately 0.6% in fiscal year 1998 and
accretive by approximately 2.2% in fiscal year 1999. Robertson Stephens also
performed such pro forma earnings analysis assuming the achievement of $16.2
million and $19.9 million in potential revenue synergies and cost savings
identified by XcelleNet and Sterling Commerce management for fiscal years 1998
and 1999, respectively. Such analysis indicated that the Merger would be
accretive in fiscal years 1998 and 1999 by approximately 1.5% and 10.1%,
respectively. The actual results achieved by the combined company may vary
from projected results and such variations may be material.
While the foregoing summary describes the analyses and factors that
Robertson Stephens deemed material in its presentation to the XcelleNet Board,
it is not a comprehensive description of all analyses and factors considered
by Robertson Stephens. The preparation of a fairness opinion is a complex
process that 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, such an opinion is not readily
susceptible to summary description. Robertson Stephens believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and of the factors considered by it, without considering all analyses
and factors, would create an incomplete view of the evaluation process
underlying the Robertson Stephens Opinion. Several analytical methodologies
were employed and no one method of analysis should be regarded as critical to
the overall conclusion reached by Robertson Stephens. Each analytical
technique has inherent strengths and weaknesses, and the nature of the
available information may further affect the value of particular techniques.
The conclusion reached by Robertson Stephens is based on all analyses and
factors taken as a whole and also on application of Robertson Stephens' own
experience and judgement. Such conclusion may involve significant elements of
subjective judgement and qualitative analysis. Robertson Stephens therefore
gives no opinion as to the value or merit standing alone of any one or more
parts of the analysis it performed. In performing its analyses, Robertson
Stephens considered general economic, market and financial conditions and
other matters, many of which are beyond the control of XcelleNet and Sterling
Commerce. The analyses performed by Robertson Stephens are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than those suggested by such analyses. Accordingly, analyses
relating to the value of a business do not purport to be appraisals or to
reflect the prices at which the business actually may be purchased.
Furthermore, no opinion is being expressed as to the prices at which shares of
Commerce Stock may trade at any future time.
XcelleNet engaged Robertson Stephens pursuant to the Robertson Stephens
Engagement Letter dated November 20, 1997. The Robertson Stephens Engagement
Letter provides that, for its services, Robertson
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Stephens became entitled to an initial $200,000 retainer (the "Retainer") and
is entitled to receive, contingent upon consummation of the Merger, a fee
equal to one and one-quarter percent (1.25%) of the Aggregate Transaction
Value (as defined in the Robertson Stephens Engagement Letter), against which
the Retainer will be credited. XcelleNet has also agreed to reimburse
Robertson Stephens for its out-of-pocket expenses and to indemnify and hold
harmless Robertson Stephens and its affiliates and any other person, director,
employee or agent of Robertson Stephens or any of its affiliates, or any
person controlling Robertson Stephens or its affiliates for certain losses,
claims, damages, expenses and liabilities relating to or arising out of
services provided by Robertson Stephens as financial advisor to XcelleNet. The
terms of the fee arrangement with Robertson Stephens, which XcelleNet and
Robertson Stephens believe are customary in transactions of this nature, were
negotiated at arm's length between XcelleNet and Robertson Stephens, and the
XcelleNet Board was aware of such fee arrangements.
Robertson Stephens was retained based on Robertson Stephens' experience as a
financial advisor in connection with mergers and acquisitions and in
securities valuations generally, as well as Robertson Stephens investment
banking relationship and familiarity with XcelleNet. Robertson Stephens has
provided financial advisory and investment banking services to XcelleNet from
time to time, including acting as co-manager and managing underwriter for its
initial and follow-on public offering, respectively.
Robertson Stephens is a nationally recognized investment banking firm. As
part of its investment banking business, Robertson Stephens is frequently
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, secondary distributions of
securities, private placements and other purposes. Robertson Stephens may
actively trade the equity of XcelleNet and Sterling Commerce for its own
account and for the account of its customers and, accordingly, may at any time
hold a long or short position in such securities. Robertson Stephens maintains
a market in the XcelleNet Stock and regularly publishes research reports
regarding the software industry and the business and securities of XcelleNet,
Sterling Commerce and other publicly traded companies in the software
industry.
STERLING COMMERCE'S REASONS FOR THE MERGER
The Commerce Board has unanimously determined that the Merger and the
transactions contemplated by the Merger Agreement (including the issuance of
Commerce Stock in the Merger) are fair to and in the best interests of the
holders of Commerce Stock, and has approved the Merger Agreement.
The decision of the Commerce Board to approve the Merger Agreement was based
upon various factors, including the following:
(i) the Commerce Board's consideration of the business, operations,
financial position, prospects and personnel of XcelleNet and Sterling
Commerce including potential synergies;
(ii) the Commerce Board's belief that Sterling Commerce's software
product line and XcelleNet's software product line are complementary and
consist of some of the best known products in the industry;
(iii) the Commerce Board's belief that XcelleNet's suite of products will
position the combined company as one of the leaders in the electronic
commerce market;
(iv) the Commerce Board's belief that XcelleNet's products will
accelerate Sterling Commerce's presence in the remote computing segment of
the electronic commerce market with proven products;
(v) the Commerce Board's belief that Sterling Commerce's sales,
distribution and support capabilities will enhance XcelleNet's ability to
increase revenues and earnings;
(vi) the Commerce Board's belief that XcelleNet will provide Sterling
Commerce with additional marketing channels, including value added
resellers and original equipment manufacturers;
(vii) the Commerce Board's belief that the combined company's product
lines will provide Sterling Commerce's remote users with complete systems
management solutions;
(viii) the Commerce Board's belief that customers desire "strategic
vendors" who provide broad based solutions to their communications software
and remote use requirements;
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(ix) the Commerce Board's consideration of the opportunities for
economies of scale and operating efficiencies that could result from the
Merger;
(x) the Commerce Board's consideration of the possibility that the
combined company may not be able, in the short term, to integrate
efficiently the businesses of the two companies and/or to identify and
eliminate redundant costs;
(xi) the Commerce Board's consideration that Sterling Commerce is a
reseller of XcelleNet's products pursuant to the XcelleNet Distribution
Agreement and as a result is familiar with XcelleNet and its products;
(xii) the Commerce Board's consideration of Sterling Commerce
management's concern that the XcelleNet Distribution Agreement would not
give Sterling Commerce sufficient control of the distribution of the
XcelleNet products to Sterling Commerce's customers;
(xiii) the Commerce Board's consideration of the fit between the
respective businesses of Sterling Commerce and XcelleNet and the potential
to expand the combined company's operations;
(xiv) the Commerce Board's consideration of the commitment of certain of
XcelleNet's key employees, including Dennis M. Crumpler, XcelleNet's
Chairman and Chief Executive Officer, and Corey M. Smith, XcelleNet's
President, to continue with the combined company and the compatibility and
strength of the senior management teams of the two companies;
(xv) the Commerce Board's consideration of the expectation that the
Merger would be accretive on both an earnings per share and cash flow
basis;
(xvi) the Commerce Board's consideration of presentations by, and
discussions with, senior executives of Sterling Commerce and
representatives of Broadview and Alex. Brown regarding the terms of the
Merger Agreement, the Shareholder Agreement, the amendment to the XcelleNet
Rights Agreement (as defined below) and the employment arrangements with
Messrs. Crumpler, Smith and other senior executives of XcelleNet, and the
results of the management's due diligence review; and
(xvii) the Commerce Board's receipt of Broadview's opinion described
below that, as of April 16, 1998, the Merger Consideration was fair from a
financial point of view to holders of Commerce Stock.
The foregoing discussion of the information and factors considered and given
weight by the Commerce Board is not intended to be exhaustive. In view of the
variety of factors considered in connection with its evaluation of the Merger,
the Commerce Board did not find it practicable to and did not attempt to rank
or assign relative weights to the foregoing factors. In addition, the
individual members of the Commerce Board may have given different weights to
different factors.
OPINION OF STERLING COMMERCE'S FINANCIAL ADVISOR
Sterling Commerce engaged Broadview to act as its financial advisor and
requested that Broadview render an opinion regarding the fairness, from a
financial point of view, to Sterling Commerce's stockholders, of the Merger
Consideration to be paid by Sterling Commerce in the Merger. At the meeting of
the Commerce Board on Thursday April 16, 1998, Broadview rendered its written
opinion (the "Broadview Opinion") that, as of April 16, 1998, based upon and
subject to the various factors and assumptions set forth in the Broadview
Opinion, the Merger Consideration to be paid by Sterling Commerce in the
Merger was fair, from a financial point of view, to Sterling Commerce's
stockholders. The Merger Consideration was determined pursuant to negotiations
between Sterling Commerce and XcelleNet and not pursuant to recommendations of
Broadview.
The text of the Broadview Opinion, which sets forth assumptions made,
matters considered and limitations on the review undertaken, is attached as
Appendix C to this Proxy Statement/Prospectus. In addition to a fee for its
fairness opinion, Broadview will receive a fee from Sterling Commerce
contingent upon successful completion of the Merger. The summary of the
Broadview Opinion set forth in this Proxy Statement/Prospectus is qualified in
its entirety by reference to the full text of such opinion.
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In rendering its opinion, Broadview, among other actions: (i) reviewed the
terms of the Merger Agreement and the associated exhibits thereto in the form
of the draft dated April 16, 1998, which draft contained no material
differences from the definitive Merger Agreement; (ii) reviewed XcelleNet's
Annual Reports on Form 10-K for the fiscal years ended December 31, 1996 and
1997, including the audited financial statements included therein; (iii)
participated in discussions with XcelleNet management concerning the
operations, business strategy, current financial performance and prospects for
XcelleNet, including discussions relating to XcelleNet's financial performance
during the three-month period ended March 31, 1998; (iv) reviewed certain
internal financial and operating information, including quarterly projections
through December 31, 1998, relating to XcelleNet prepared by XcelleNet's
management; (v) reviewed certain financial and operating information relating
to XcelleNet prepared by Sterling Commerce's management; (vi) reviewed the
recent reported closing prices and trading activity for XcelleNet Stock; (vii)
compared certain aspects of the financial performance of XcelleNet with public
companies Broadview deemed comparable; (viii) analyzed available information,
both public and private, concerning other mergers and acquisitions Broadview
believed to be comparable in whole or in part to the Merger; (ix) reviewed
Sterling Commerce's Annual Reports on Form 10-K for the fiscal years ended
September 30, 1996 and 1997, including the audited financial statements
included therein, and Sterling Commerce's Quarterly Report on Form 10-Q for
the three months ended December 31, 1997, including the unaudited financial
statements included therein; (x) reviewed certain financial and operating
information relating to Sterling Commerce prepared by Sterling Commerce
management; (xi) participated in discussions with Sterling Commerce management
concerning the operations, business strategy, financial performance and
prospects for Sterling Commerce; (xii) reviewed the recent reported closing
prices and trading activity for Commerce Stock; (xiii) discussed with Sterling
Commerce management its view of the strategic rationale for the Merger;
(xiv) considered the total number of shares of Commerce Stock outstanding and
the average weekly trading volume of Commerce Stock; (xv) reviewed recent
equity analyst reports covering Sterling Commerce and XcelleNet; (xvi)
analyzed the anticipated effect of the Merger on the future financial
performance of the consolidated entity; (xvii) assisted in negotiations and
discussions related to the Merger among Sterling Commerce, XcelleNet and their
financial and legal advisors; and (xviii) conducted other financial studies,
analyses and investigations as deemed appropriate for purposes of the
Broadview Opinion.
In rendering the Broadview Opinion, Broadview relied, without independent
verification, on the accuracy and completeness of all the financial and other
information (including without limitation the representations and warranties
contained in the Agreement) that was publicly available or furnished by
Sterling Commerce, XcelleNet or XcelleNet's financial advisor. Broadview
assumed that those projections prepared and provided by XcelleNet and Sterling
Commerce were reasonably prepared and reflected the best available estimates
and good faith judgments of the management of XcelleNet and Sterling Commerce
as to the future performance of XcelleNet. Broadview did not make or obtain an
independent appraisal or valuation of any of XcelleNet's assets. With regard
to any analyses relating to valuations of comparable public companies, the
share prices used were for the close of trading on April 15, 1998, the last
trading day before the Commerce Board met to give final consideration to the
proposed Merger.
The following is a summary explanation of the various sources of information
and valuation methodologies employed by Broadview in conjunction with
rendering the Broadview Opinion regarding the proposed Merger.
Public Company Comparables Analysis. Total Market Capitalization/Revenue
("TMC/R") and Price/Earnings ("P/E") multiples indicate the value public
markets place on companies in a particular market segment. Although there are
no public company "pure plays" in the market in which XcelleNet competes,
several network and communications related systems management software
companies are comparable to XcelleNet based on revenue size, growth and
business model. Broadview reviewed six public company comparables in the
network and communications related systems management software market from a
financial point of view including each company's: Trailing Twelve Month
("TTM") Revenue; TTM Revenue Growth; TTM EBIT Margin; 5-year EPS Compound
Annual Growth Rate ("CAGR"); Equity Market Capitalization; TTM P/E ratio;
Price/Forward Calendar 1998 EPS ratio ("Forward P/E"); Forward Calendar 1998
P/E to Growth ratio ("Forward PEG"); TTM TMC/EBIT ratio; and TTM TMC/R ratio.
The public company comparables were selected from the Broadview Barometer, a
proprietary database of publicly-traded Information
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Technology ("IT") companies maintained by Broadview and broken down by
industry segment. In order of descending TTM TMC/R, the public company
comparables consist of: (i) Citrix Systems, Inc.; (ii) Tangram Enterprise
Solutions, Inc.; (iii) Hummingbird Communications Ltd.; (iv) Puma Technology,
Inc.; (v) STAC, Inc.; and (vi) Wall Data Incorporated. These comparables have
a TTM P/E ratio range of 15.8 to 55.1 with a median of 22.2; Forward P/E ratio
range of 14.0 to 47.9 with a median of 26.8; Forward PEG ratio range of 0.64
to 4.79 with a median of 0.83; TTM TMC/EBIT ratio range of 7.7 to 35.5 with a
median of 8.8; and a TTM TMC/R ratio range of 0.58 to 16.70 with a median of
3.71.
The equity value per share range implied by the TTM P/E multiples is $6.96
to $24.25 with a median implied value of $9.76. The equity value per share
range implied by the Forward P/E multiples is $11.44 to $39.29 with a median
implied value of $22.02. The equity value per share range implied by the
Forward PEG multiples is $18.51 to $137.52 with a median implied value of
$23.71. The equity value per share range implied by the TTM TMC/EBIT multiples
is $7.32 to $21.17 with a median implied value of $7.87. The equity value per
share range implied by the TTM TMC/R multiples is $6.64 to $96.17 with a
median implied value of $24.04.
Transaction Comparables Analysis. Valuation statistics from transaction
comparables indicate the Adjusted Price/Revenue ("P/R") and Equity
Price/Pretax Income ("Equity Price/Pretax") multiples acquirers have paid for
comparable companies in a particular market segment. Broadview reviewed
fourteen comparable company merger and acquisition ("M&A") transactions from
1996 through the present with seller revenue greater than $15 million that
involved sellers sharing many characteristics with XcelleNet including size,
markets served and business model. Transactions were selected from Broadview's
proprietary database of published and confidential M&A transactions in the IT
industry. These transactions represent fourteen sellers in the systems
management software segment of the IT market. In order of descending P/R
multiple, the transactions used are the acquisition of: (i) Tivoli Systems,
Inc. by IBM Corp.; (ii) OpenVision Technologies, Inc. by VERITAS Software
Corp.; (iii) Cheyenne Software, Inc. by Computer Associates International,
Inc.; (iv) BGS Systems, Inc. by BMC Software Inc; (v) Software Artistry, Inc.
by IBM Corp. (Tivoli Systems, Inc.); (vi) Network General Corp. by McAfee
Associates, Inc.; (vii) Unison Software, Inc. by IBM Corp. (Tivoli Systems,
Inc.); (viii) Datatools, Inc. by BMC Software, Inc.; (ix) TGV Software, Inc.
by Cisco Systems, Inc; (x) Datastorm Technologies, Inc. by Quarterdeck Corp.;
(xi) Firefox Communications, Inc. by FTP Software, Inc.; (xii) MAXM Systems
Corp. by Boole & Babbage, Inc.; and (xiii) NetSoft by NetManage, Inc.
Additionally, Broadview considered one transaction with respect to which
Broadview has information that is not publicly available. The P/R multiples of
the fourteen transactions range from 0.71 to 14.15 with a median of 3.23. The
Equity Price/Pretax multiples of the ten transactions with either available or
meaningful data range from 7.3 to 151.4 with a median of 32.6.
The equity value per share range implied by the P/R multiples of the
fourteen transaction comparables is $7.36 to $81.99 with a median implied
value of $21.37. The equity value per share range implied by the Equity
Price/Pretax multiples in the ten transactions with either available or
meaningful data is $4.48 to $93.34 with a median implied value of $20.10.
Transaction Premiums Paid Analysis. Premiums paid in comparable public
seller transactions indicate the amount of consideration acquirers are willing
to pay above the seller's equity market capitalization. In this analysis, the
value of consideration paid in transactions involving stock is computed using
the buyer's stock price immediately prior to announcement, while the seller's
equity market capitalization is measured one day prior and thirty days prior
to announcement. Broadview reviewed 51 comparable M&A transactions involving
software vendors from January 1, 1995 to the present with total consideration
between $50 and $500 million. Transactions were selected from Broadview's
proprietary database of published and confidential M&A transactions in the IT
industry. In order of descending premium paid 30 days prior to announce date,
the software transactions used were the acquisition of: (i) High Level Design
Systems, Inc. by Cadence Design Systems, Inc.; (ii) GMIS Inc. by HBO &
Company; (iii) CyCare Systems, Inc. by HBO & Company; (iv) Softdesk Inc. by
Autodesk Inc.; (v) Trusted Information Systems, Inc. by Network Associates,
Inc.; (vi) National Health Enhancement Systems, Inc. by HBO & Company; (vii)
Scopus Technology, Inc. by Siebel Systems, Inc. (pending); (viii) Triad
Systems Corp. by Cooperative Computing, Inc.; (ix) Visigenic Software, Inc. by
Borland
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International, Inc.; (x) Interactive Group Inc. by Dataworks Corp.; (xi)
Wonderware Corp. by Siebe PLC; (xii) TGV Software, Inc. by Cisco Systems,
Inc.; (xiii) Computer Language Research, Inc. by Thomson Corp.; (xiv) Open
Environment Corp. by Borland International Inc.; (xv) Technology Modeling
Associates, Inc. by Avant! Corp.; (xvi) Alias Research, Inc. by Silicon
Graphics, Inc.; (xvii) Hogan Systems, Inc. by Continuum Co.; (xviii) MDL
Information Systems, Inc. by Reed Elsevier plc (Elsevier Science Inc.); (xix)
Software Artistry, Inc. by IBM Corp. (Tivoli Systems); (xx) Aurum Software,
Inc. by Baan International BV; (xxi) Datalogix International, Inc. by Oracle
Corp.; (xxii) Integrated Silicon Systems, Inc. by ArcSys, Inc.; (xxiii)
OpenVision Technologies, Inc. by VERITAS Software Corp.; (xxiv) Learmonth and
Burchett Management Systems plc by PLATINUM technology, inc. (pending); (xxv)
Trinzic Corp. by PLATINUM technology, inc.; (xxvi) Delrina Corp. by Symantec
Corp.; (xxvii) SQA, Inc. by Rational Software Corp.; (xxviii) AMISYS Managed
Care Systems, Inc. by HBO & Company; (xxix) Logic Works, Inc. by PLATINUM
technology, inc. (pending); (xxx) Frame Technology Corp. by Adobe Systems,
Inc.; (xxxi) Saber Software Corp. by McAfee Associates, Inc.; (xxxii) Clinicom
Inc. by HBO & Company; (xxxiii) Maxis, Inc. by Electronic Arts, Inc.; (xxxiv)
Viewlogic Systems, Inc. by Synopsys, Inc.; (xxxv) EPIC Design Technology, Inc.
by Synopsys, Inc.; (xxxvi) CIS Technologies, Inc. by National Data Corp.;
(xxxvii) Wavefront Technologies, Inc. by Silicon Graphics, Inc.; (xxxviii)
Microtec Research, Inc. by Mentor Graphics Corp.; (xxxix) HPR Inc. by HBO &
Company; (xl) BGS Systems, Inc. by BMC Software; (xli) State Of The Art, Inc.
by Sage Group PLC (pending); (xlii) Edmark Corp. by IBM Corp.; (xliii) PHAMIS
Inc. by IDX Systems Corp.; (xliv) Cooper & Chyan Technology, Inc. by Cadence
Design Systems, Inc.; (xlv) Infinity Financial Technology, Inc. by Sungard
Data Systems, Inc.; (xlvi) Enterprise Systems, Inc. by HBO & Company; (xlvii)
Unison Software Inc. by IBM Corp. (Tivoli Systems); (xlviii) Premenos Corp. by
Harbinger Corp.; (xlix) Raptor Systems, Inc. by AXENT Technologies, Inc.; (l)
Meta-Software, Inc. by Avant! Corp.; and (li) Fractal Design Corp. by
MetaTools Inc. Based upon Broadview's analysis of premiums paid in comparable
software transactions, Broadview found that premiums/(discounts) paid to
sellers' equity market capitalizations (using the buyer's share price on the
day prior to the announcement date of the transaction to calculate
consideration in stock transactions) 30 days prior to announce date ranged
from (2.3%) to 138.5% with a median of 44.7%. The premiums/(discounts) paid to
each sellers' equity market capitalization one day prior to announce date
ranged from (8.8%) to 94.7% with a median of 30.9%.
The equity value per share range implied by the premiums paid to the share
price 30 days prior to announcement is $19.36 to $47.25 with a median implied
value of $28.67. The equity value per share range implied by the premiums paid
to the share price one day prior to announcement is $19.84 to $42.34 with a
median implied value of $28.46.
Stock Performance Analysis. For comparative purposes, Broadview examined the
weekly historical volume and trading prices and the daily relative share
prices for both Commerce Stock and XcelleNet Stock. Broadview examined the
following: (i) Sterling Commerce and XcelleNet actual share prices and trading
volumes from April 11, 1997 to April 15, 1998 and (ii) relative ratio of
XcelleNet to Sterling Commerce actual share prices from April 11, 1997 to
April 15, 1998.
Pro Forma Purchase Model Analysis. A pro forma merger analysis calculates
the EPS accretion/dilution of the pro forma combined entity taking into
consideration various financial effects which will result from a consummation
of the Merger. This analysis relies upon certain financial and operating
assumptions provided by Sterling Commerce management, equity research analyst
estimates and publicly available data about XcelleNet and Sterling Commerce.
Based on consensus analyst estimates for Sterling Commerce and Sterling
Commerce management forecasts for XcelleNet, including potential synergies,
the pro forma purchase analysis indicates EPS accretion excluding the
purchased in-process research and development write-off for the fiscal years
ending September 30, 1998 and 1999 of 1.2% and 0.3%, respectively.
Consideration of the Discounted Cash Flows Valuation Methodology. While
discounted cash flows analysis is a commonly used valuation methodology,
Broadview did not employ such an analysis for the purposes of its opinion.
Discounted cash flows analysis is most appropriate for companies which exhibit
relatively steady or somewhat predictable streams of future cash flows. Given
the uncertainty in estimating both XcelleNet's future cash flows and
sustainable long-term growth rate, Broadview considered a discounted cash
flows analysis inappropriate for valuing XcelleNet.
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The Commerce Board selected Broadview as its financial advisor on the basis
of Broadview's reputation and experience in the IT sector and the computer
software industry in particular, as well as Broadview's historical
relationship with Sterling Commerce. Pursuant to the terms of an engagement
letter between Sterling Commerce and Broadview (the "Broadview Agreement"),
Broadview will receive a fee from Sterling Commerce contingent upon the
successful conclusion of the Merger. Pursuant to the terms of the Broadview
Agreement, Sterling Commerce agreed to pay Broadview a fee upon the
consummation of the transaction calculated as 1% of the total consideration
received by XcelleNet shareholders. A fee of $250,000 paid in connection with
the delivery of the Broadview Opinion will be credited against such amount.
Broadview will be reimbursed by Sterling Commerce for certain of its expenses
incurred in connection with its engagement. The terms of the Broadview
Agreement, which Sterling Commerce and Broadview believe are customary in
transactions of this nature, were negotiated at arms' length between Sterling
Commerce and Broadview, and the Commerce Board was aware of the nature of the
fee arrangement, including the fact that a significant portion of the fees
payable to Broadview is contingent upon completion of the Merger.
The above summary of the presentations by Broadview to the Commerce Board
does not purport to be a complete description of such presentations or of all
the advice rendered by Broadview. Broadview believes that its analyses and the
summary set forth above must be considered as a whole and that selecting
portions of its analyses, without considering all analyses, could create an
incomplete view of the process underlying the analyses set forth in
Broadview's presentations to the Commerce Board and in the Broadview Opinion.
The Broadview Opinion is necessarily based upon market, economic, financial
and other conditions as they existed and could be evaluated as of the date of
the Broadview Opinion. The Broadview Opinion expresses no opinion as to the
price at which Commerce Stock will trade at any time. In performing its
analyses, Broadview made numerous assumptions with respect to software
industry performance and general economic conditions, many of which are beyond
the control of Sterling Commerce or XcelleNet. The analyses performed by
Broadview are not necessarily indicative of actual values or actual future
results, which may be significantly more or less favorable than suggested by
such analyses.
CERTAIN PROJECTED FINANCIAL INFORMATION OF XCELLENET
In the course of the discussions described in "The Merger--Background of the
Merger," XcelleNet provided Sterling Commerce and its financial advisors with
certain business and financial information that was not publicly available.
Such information included, among other things, certain financial projections
for 1998 (the "XcelleNet Projections") prepared by the management of
XcelleNet. The XcelleNet Projections were prepared by XcelleNet's management
in November and December 1997, in the ordinary course of business for internal
budgeting and planning purposes only and not with a view to public disclosure.
Further, the XcelleNet Projections were prepared assuming that XcelleNet would
remain an independent public company and did not take into account any of the
potential effects of the Merger or the time and attention of management and
other employees of XcelleNet devoted to the negotiations and consummation of
the Merger during 1998.
The XcelleNet Projections reflected revenues of $70.5 million, operating
income of $17.6 million and net income of $11.6 million, or $1.18 per share on
a diluted basis, for 1998.
Material assumptions underlying the XcelleNet Projections included
assumptions regarding increases in XcelleNet's revenues resulting from an
increase in the number of direct sales representatives, an increase in
international sales, an expansion of OEM and reseller sales and an increase in
maintenance revenue. The projected revenue was based on assumptions regarding
the growth in these channels of distribution and not on actual orders or sales
leads. XcelleNet has no order backlog. The XcelleNet Projections were also
based on assumptions regarding XcelleNet's costs resulting from increased
staffing levels, increased commissions related to increased revenues,
increased funding for marketing programs and increased costs of international
expansion. These projections also assumed XcelleNet would be able to
successfully recruit and retain personnel consistent with its historical
experience.
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Because a significant portion of XcelleNet's costs are fixed in the short
term, once XcelleNet has committed to expense levels for a given period,
fluctuations in revenues result in disproportionate differences in XcelleNet's
earnings. As disclosed elsewhere in this Proxy Statement/Prospectus, XcelleNet
historically has had difficulty in accurately predicting revenues on a
quarterly or annual basis. See "The Merger--XcelleNet's Reasons for the
Merger." For example, the XcelleNet Projections reflected anticipated
revenues, operating income, net income and earnings per share in the first
quarter of 1998 of $16.3 million, $3.7 million, $2.5 million and $0.27,
respectively. XcelleNet's actual revenues, operating income, net income and
earnings per share in the first quarter of 1998 were $14.2 million, $1.6
million, $1.3 million and $0.14, respectively. Sterling Commerce took into
consideration XcelleNet's historical fluctuations in revenues, operating
income and net income in evaluating the XcelleNet Projections. Sterling
Commerce did not consider the XcelleNet Projections to be an accurate
prediction of XcelleNet's future results and developed its own internal
projections based on a composite of all information about XcelleNet available
to Sterling Commerce, including information which was publicly available.
The XcelleNet Projections are included in this Proxy Statement/Prospectus
only because such information was provided to Sterling Commerce and Broadview,
its financial advisor, which reviewed such projections when performing its
analysis of Merger and in formulating its opinion as to the fairness, from a
financial point of view, of the Merger Consideration to be paid by Sterling
Commerce. As a matter of course, neither XcelleNet nor Sterling Commerce makes
public projections or forecasts of its anticipated financial position or
results of operations. Accordingly, neither XcelleNet nor Sterling Commerce
anticipates that it will, and each of them disclaims any obligation to,
furnish updated projections to any person, cause such information to be
included in documents required to be filed with the Commission or otherwise
make such information public (irrespective in any such case of whether the
XcelleNet Projections, in light of events or developments that have occurred
after the date the XcelleNet Projections were provided to Sterling Commerce or
that may occur after the date hereof, cease to have a reasonable basis).
The XcelleNet Projections were not prepared with a view to public disclosure
or compliance with published guidelines of the Commission or the guidelines
established by the American Institute of Certified Public Accountants.
Further, while presented with numerical specificity, the XcelleNet Projections
were based upon a variety of assumptions relating to general economic
conditions and the business of XcelleNet which may not be realized and are
subject to significant uncertainties and contingencies, many of which are
beyond the control of XcelleNet and Sterling Commerce. There can be no
assurance that the XcelleNet Projections will be realized and actual results
may vary materially from those shown. The inclusion of the XcelleNet
Projections herein should not be regarded as an indication that any of
XcelleNet, Sterling Commerce or their respective financial advisors considers
such projections to be an accurate prediction of future events. Furthermore,
circumstances, in addition to the proposed Merger, have changed such that
XcelleNet's management does not presently believe that the XcelleNet
Projections represent the likely results that XcelleNet would achieve in the
future, in the event that the Merger is not completed.
The XcelleNet Projections should be evaluated in conjunction with the
historical financial statements and other information contained in reports and
statements filed with the Commission from time to time by XcelleNet and
Sterling Commerce and the information set forth under the captions "Forward-
Looking Information" and "Risk Factors."
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THE MERGER AGREEMENT
The following is a summary of the material terms of the Merger Agreement.
This summary is not a complete description of the terms and conditions of the
Merger Agreement and is qualified in its entirety by reference to the full
text of the Merger Agreement, a copy of which is attached as Appendix A to
this Proxy Statement/Prospectus and incorporated herein by this reference.
Terms used in this section of this Proxy Statement/Prospectus with initial
capital letters that are not otherwise defined herein have the meaning
ascribed to such terms in the Merger Agreement.
The Merger. On the terms and subject to the conditions of the Merger
Agreement, at the Effective Time, XcelleNet will be merged with and into
Commerce Southern in accordance with the applicable provisions of the DGCL and
the GBCC and the separate corporate existence of XcelleNet will thereupon
cease (with the Surviving Corporation being a wholly owned subsidiary of
Sterling Commerce).
As soon as practicable after satisfaction, or to the extent permitted by the
Merger Agreement, waiver of all conditions set forth in the Merger Agreement
(other than those that by their nature are to be satisfied at the closing),
XcelleNet and Commerce Southern will cause the Georgia Certificate of Merger
and the Delaware Certificate of Merger to be filed with the Secretary of State
of the State of Georgia as provided in the GBCC and with the Secretary of
State of the State of Delaware as provided in the DGCL, respectively. The
Merger will become effective once both certificates of merger have been filed
or at such later time as is specified in the Georgia Certificate of Merger or
the Delaware Certificate of Merger. The Merger will have the effects specified
in the GBCC and the DGCL.
Consideration to be Paid in the Merger. The Merger Agreement provides that,
on the terms and subject to the conditions of the Merger Agreement and in
accordance with the GBCC and the DGCL, at the Effective Time, by virtue of the
Merger and without any action on the part of any holder thereof: (i) each
share of Common Stock, par value $0.01 per share, of Commerce Southern issued
and outstanding immediately prior to the Effective Time will remain
outstanding; (ii) each share of XcelleNet Stock issued and outstanding
immediately prior to the Effective Time owned by XcelleNet or any Subsidiary
of XcelleNet or by Sterling Commerce or Commerce Southern or any other
Subsidiary of Sterling Commerce (other than shares in trust accounts, managed
accounts, custodial accounts and the like that are beneficially owned by third
parties) will automatically be cancelled and retired and will cease to exist,
and no consideration will be delivered or deliverable in exchange therefor;
and (iii) each share of XcelleNet Stock issued and outstanding immediately
prior to the Effective Time (other than those to be cancelled in accordance
with the Merger Agreement and any Dissenting Shares) will be converted into
the right to receive the Merger Consideration consisting of: (a) a cash
payment in an amount equal to $8.80, the Cash Payment; and (b) 0.2885, the
Stock Factor, of a fully paid and nonassessable share of Commerce Stock upon
surrender of the certificate formerly representing such share of XcelleNet
Stock in accordance with the Merger Agreement, to be adjusted, if necessary,
as described in the following paragraph.
In the event that the aggregate amount of all Cash Payments plus the dollar
value of all Dissenting Shares exceeds the value of all shares of Commerce
Stock to be issued pursuant to the Merger Agreement (based upon the closing
sales price of Commerce Stock on the last trading day prior to the Closing
Date), the Merger Consideration will be adjusted by reducing the Cash Payment
and increasing the aggregate number of shares of Commerce Stock, in each case,
to the minimum extent necessary, such that the dollar amount of the aggregate
Cash Payments plus the dollar value of all Dissenting Shares (the value of
each Dissenting Share will be deemed to equal $22.00 solely for the purposes
of this adjustment) is equal to the value of all shares of Commerce Stock to
be issued (based upon the closing sales price of Commerce Stock on the last
trading day prior to the Closing Date). In determining such adjustment, to the
extent the Cash Payment is reduced, the number of shares of Commerce Stock to
be issued will be increased, dollar for dollar, valuing Commerce Stock as the
lesser of (i) the closing sales price of Commerce Stock on the last day prior
to the Closing Date, and (ii) the average of the closing sales prices of
Commerce Stock for the three trading days prior to the Closing Date.
The Stock Factor will be adjusted to reflect fully the effect of any stock
split, reverse split, stock dividend (including any dividend or distribution
of securities convertible into XcelleNet Stock or Commerce Stock),
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reorganization, recapitalization or other like change with respect to
XcelleNet Stock or Commerce Stock occurring after the date of the Merger
Agreement and on or prior to the Effective Time.
Each share of Commerce Stock issued in the Merger will be accompanied by a
Commerce Right (as defined below), unless the Commerce Rights have expired or
been redeemed prior to the Effective Time.
Dissenting Shares. Notwithstanding anything in the Merger Agreement to the
contrary, any shares of XcelleNet Stock issued and outstanding immediately
prior to the Effective Time held by a holder who has the right to demand, and
who properly demands, payment for such shares, the Dissenting Shares, in
accordance with Article 13 of the GBCC will not be converted into a right to
receive the Merger Consideration, unless such holder fails to perfect or
otherwise loses such holder's right to payment in accordance with Article 13
of the GBCC. If, after the Effective Time, such holder fails to perfect or
loses any such right, each such share of such holder shall be treated as a
share of XcelleNet Stock that had been converted as of the Effective Time into
the right to receive the Merger Consideration in accordance with the Merger
Agreement. At the Effective Time, any holder of Dissenting Shares (a
"Dissenting Shareholder") will cease to have any rights with respect thereto,
except the rights provided in Article 13 of the GBCC and as provided in the
immediately preceding sentence. XcelleNet will give prompt notice to Sterling
Commerce of any demands received by XcelleNet for payment in accordance with
Article 13 of the GBCC, and Sterling Commerce will have the right to
participate in and direct all negotiations and proceedings with respect to
such demands. XcelleNet will not, except with the prior written consent of
Sterling Commerce, make any payment with respect to, or settle or offer to
settle, any such demands.
Treatment of XcelleNet Stock Options. The Merger Agreement provides that at
the Effective Time, each outstanding XcelleNet Option issued under XcelleNet's
1987 Stock Option Plan, as amended, XcelleNet's 1994 Stock Option Plan for
Outside Directors, as amended, XcelleNet's 1996 Long-Term Incentive Plan or
issued on an individual basis and not under a plan (collectively, the
"XcelleNet Stock Option Plans") will be assumed by Sterling Commerce and will
constitute an option, a Substitute Option, to acquire, on substantially the
same terms and subject to substantially the same conditions as were applicable
under the XcelleNet Stock Option Plans, including without limitation, term,
vesting, exercisability, status as an "incentive stock option" under Section
422 of the Code and termination provisions, the number of shares of Commerce
Stock (rounded down to the nearest whole share) determined by multiplying the
number of shares of XcelleNet Stock subject to the XcelleNet Option
immediately prior to the Effective Time by 0.4809, the Option Conversion
Factor, at an exercise price per share of Commerce Stock (increased to the
nearest whole cent) equal to the exercise price per share of XcelleNet Stock
subject to the XcelleNet Option divided by the Option Conversion Factor;
except that, in the case of any XcelleNet Option to which Section 421 of the
Code applies by reason of its qualification as an incentive stock option under
Section 422 of the Code, the conversion formula will be adjusted if necessary
to comply with Section 424(a) of the Code.
XcelleNet has agreed to use its best efforts to obtain all necessary
waivers, consents or releases from holders of XcelleNet Options under the
XcelleNet Stock Option Plans and take any such other action as may be
reasonably necessary to give effect to the transactions described above.
Sterling Commerce has also agreed to take all corporate action necessary to
reserve for issuance a sufficient number of shares of Commerce Stock for
delivery upon exercise of Substitute Options. Sterling Commerce will use all
its reasonable efforts to register the shares of Commerce Stock subject to the
Substitute Options with the Commission on an appropriate registration
statement, to maintain the effectiveness of such registration statement as
long as the Substitute Options remain outstanding, and to cause the shares of
Commerce Stock subject to the Substitute Options to be listed on the NYSE and
such other exchanges as Sterling Commerce may determine.
Fractional Shares. No certificates or script representing fractional shares
of Commerce Stock will be issued upon the surrender for exchange of
certificates that immediately prior to the Effective Time represented shares
of XcelleNet Stock that have been converted pursuant to the Merger Agreement,
and such fractional share interests will not entitle the owner thereof to vote
or to any rights of a stockholder of Sterling Commerce. In lieu of any such
fractional shares, each holder of XcelleNet Stock who would otherwise be
entitled to receive a fractional share of Commerce Stock upon surrender of
Certificates for exchange pursuant to the Merger
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Agreement will be paid an amount in cash (without interest), rounded to the
nearest cent, determined by multiplying (i) the per share closing price on the
NYSE of Commerce Stock (as reported on the NYSE Composite Transactions List)
on the date on which the Effective Time occurs (or, if Commerce Stock does not
trade on the NYSE on such date, the first date of trading of Commerce Stock on
the NYSE after the Effective Time) by (ii) the fractional interest to which
such holder otherwise would be entitled. Promptly upon request from the Paying
Agent, Sterling Commerce will make available to the Paying Agent the cash
necessary for this purpose.
Representations and Warranties. The Merger Agreement contains various
representations and warranties of the parties thereto. These include
representations by XcelleNet with respect to: (i) organization, standing and
corporate power; (ii) authority and noncontravention; (iii) capital structure;
(iv) Commission documents; (v) absence of certain changes or events and no
undisclosed material liabilities; (vi) certain information; (vii) real
property and other assets; (vii) software; (ix) intellectual property; (x) no
infringement; (xi) material contracts; (xii) litigation; (xiii) compliance
with applicable laws; (xiv) environmental laws; (xv) taxes; (xvi) benefit
plans; (xvii) absence of changes in benefit plans; (xviii) labor matters;
(xix) brokers; (xx) written opinion of financial advisor; (xxi) voting
requirements; (xxii) rights plan matters; (xxiii) takeover statutes; and
(xxiv) related parties.
Sterling Commerce and Commerce Southern have also made certain
representations and warranties with respect to: (i) organization, standing and
corporate power; (ii) authority and noncontravention; (iii) capital structure;
(iv) Commission documents; (v) absence of certain changes or events and no
undisclosed material liabilities; (vi) certain information; (vii) financial
capacity; (viii) brokers; (ix) litigation; and (x) compliance with applicable
laws.
No representations and warranties made by XcelleNet, Sterling Commerce or
Commerce Southern will survive beyond the Effective Time.
No Solicitation. The Merger Agreement provides that, until the termination
of the Merger Agreement, XcelleNet will not, and will not authorize or permit
any of its Subsidiaries or any of its or their affiliates, officers,
directors, employees, agents or representatives (including without limitation
any investment banker, financial advisor, attorney or accountant retained by
XcelleNet or any of its Subsidiaries), to, directly or indirectly, initiate,
solicit, or encourage (including by way of furnishing information or
assistance) or take any other action to facilitate, any inquiries, any
expression of interest or the making of any proposal that constitutes, or may
reasonably be expected to lead to, an Acquisition Proposal (as defined below),
or enter into or maintain or continue discussions or negotiate with any person
in furtherance of such inquiries or to obtain an Acquisition Proposal or agree
to or endorse any Acquisition Proposal; except that nothing in the Merger
Agreement will prohibit the XcelleNet Board from (i) furnishing information
to, or entering into, maintaining or continuing discussions or negotiations
with, any person that makes an unsolicited Acquisition Proposal after the date
of the Merger Agreement, or (ii) recommending an Acquisition Proposal to the
shareholders of XcelleNet if, and to the extent that, the XcelleNet Board (a)
determines in good faith that such Acquisition Proposal would constitute a
Superior Proposal (as defined below) and (b) determines in good faith (after
consultation with outside legal counsel) that such action is necessary for the
XcelleNet Board to comply with its fiduciary duties under applicable Law, and,
prior to furnishing any non-public information to such person, XcelleNet
receives from such person an executed confidentiality agreement with
provisions no less favorable to XcelleNet than the letter agreement relating
to the furnishing of confidential information of XcelleNet to Sterling
Commerce. The Merger Agreement further provides that XcelleNet will promptly
notify Sterling Commerce after receipt of any Acquisition Proposal or any
request for information relating to XcelleNet or any of its Subsidiaries or
for access to the properties, books or records of XcelleNet or any of its
Subsidiaries by any person who has informed XcelleNet that such person is
considering making or who has made an Acquisition Proposal, and XcelleNet will
keep Sterling Commerce informed in reasonable detail of the status and details
of the Acquisition Proposal. For purposes of the Merger Agreement,
"Acquisition Proposal" means an inquiry, offer or proposal regarding any of
the following (other than the transactions contemplated by the Merger
Agreement with Sterling Commerce or Commerce Southern) involving XcelleNet:
(i) any merger, consolidation, share exchange, recapitalization, business
combination or other similar transaction; (ii) any sale, lease, exchange,
mortgage, pledge, transfer or
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other disposition of all or substantially all of the assets of XcelleNet and
its Subsidiaries, taken as a whole, in a single transaction or series of
related transactions; (iii) any tender offer or exchange offer for 20% or more
of the outstanding shares of capital stock of XcelleNet or the filing of a
registration statement under the Securities Act in connection therewith; or
(iv) any public announcement of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing. The Merger
Agreement defines "Superior Proposal" as any Acquisition Proposal that the
XcelleNet Board determines in its good faith judgment (based on the advice of
a financial advisor of nationally recognized reputation) to be more favorable
to XcelleNet's shareholders than the Merger and for which financing, to the
extent required, is then committed or which, in the good faith judgment of the
XcelleNet Board, is reasonably capable of being obtained by such third party.
Notwithstanding the foregoing, the Merger Agreement does not prohibit
XcelleNet from taking and disclosing to its shareholders a position
contemplated by Rule 14e-2 promulgated under the Exchange Act or from making
any disclosure to XcelleNet's shareholders that, in the good faith judgment of
the XcelleNet Board based on the advice of outside counsel, is required under
applicable Law; except that XcelleNet may not withdraw or modify, or propose
to withdraw or modify, its position with respect to the Merger or approve or
recommend, or propose to approve or recommend, an Acquisition Proposal unless
XcelleNet and the XcelleNet Board comply with all the provisions of the Merger
Agreement regarding solicitation and Acquisition Proposals.
Conditions to the Merger. Pursuant to the Merger Agreement, the obligations
of each party to perform the Merger Agreement and to effect the Merger are
subject to the satisfaction or written waiver on or prior to the Closing Date
of the following conditions: (i) the Merger Agreement will have been approved
by the affirmative vote of the requisite number of XcelleNet shareholders in
the manner required pursuant to XcelleNet's Amended and Restated Articles of
Incorporation, as amended (the "XcelleNet Articles"), the XcelleNet Bylaws,
the GBCC and other applicable Law; (ii) no temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger will be in effect, and no applicable Law that makes
consummation of the Merger illegal will have been enacted or adopted since the
date of the Merger Agreement; (iii) all necessary waiting periods under the
HSR Act applicable to the Merger will have expired or been terminated; (iv)
the Registration Statement will have been declared effective under the
Securities Act and not be the subject of any stop order or proceedings seeking
a stop order; and (v) Commerce Stock issuable to XcelleNet's shareholders
pursuant to the Merger will have been approved for listing on the NYSE,
subject to official notice of issuance.
The obligations of Sterling Commerce and Commerce Southern to perform the
Merger Agreement and to effect the Merger are further subject to satisfaction
or written waiver on or prior to the Closing Date of the following conditions:
(i) the representations and warranties of XcelleNet contained in the Merger
Agreement, which representations and warranties will be deemed for purposes of
this condition not to include any qualification or limitation with respect to
materiality (whether by reference to "Material Adverse Effect" or otherwise),
will be true and correct as of the Closing Date, except where the matters in
respect of which such representations and warranties are not true and correct,
in the aggregate, have not had or could not reasonably be expected to have a
Material Adverse Effect on XcelleNet, with the same effect as though such
representations and warranties were made as of the Closing Date and Sterling
Commerce and Commerce Southern will have received a certificate signed on
behalf of XcelleNet by an authorized officer of XcelleNet to such effect; (ii)
XcelleNet will have performed in all material respects all obligations
required to be performed by it under the Merger Agreement at or prior to the
Closing Date, and Sterling Commerce and Commerce Southern will have received a
certificate signed on behalf of XcelleNet by an authorized officer of
XcelleNet to such effect; (iii) since the date of the Merger Agreement,
XcelleNet and its Subsidiaries, taken as a whole, will not have experienced
any change, event or occurrence that has had or could reasonably be expected
to have individually or in the aggregate, a Material Adverse Effect on
XcelleNet (subject to certain limitations as described in the Merger
Agreement); (iv) there will not be pending any Claim seeking to restrain or
prohibit the Merger or seeking to obtain from Sterling Commerce or XcelleNet
or any of their respective affiliates in connection with the Merger any
damages, or seeking any other relief that, following the Merger, would limit
or restrict the ability of Sterling Commerce or any of its Subsidiaries to own
and conduct both the assets and businesses owned and conducted by Sterling
Commerce and its Subsidiaries prior to the Merger and the assets and
businesses owned
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and conducted by XcelleNet and its Subsidiaries prior to the Merger, except
where such limitations and restrictions, in the aggregate, have not had or
could not reasonably be expected to have a Material Adverse Effect on Sterling
Commerce or XcelleNet, each on a consolidated basis; (v) all consents,
authorizations, orders, approvals, filings or registrations identified will
have been obtained or made, except for the filing of the Georgia Certificate
of Merger and the Delaware Certificate of Merger and except where the failure
to have obtained or made such consents, authorizations, orders, approvals,
filings or registrations could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Sterling
Commerce or Commerce Southern; and (vi) XcelleNet will have received from
Alston & Bird LLP, counsel to XcelleNet, on the date of this Proxy
Statement/Prospectus and on the Closing Date, opinions, in each case dated as
of such respective dates and stating that the Merger will be treated for
federal income tax purposes as a reorganization within the meaning of Section
368(a) of the Code and that no gain or loss will be recognized by the
shareholders of XcelleNet upon their exchange of XcelleNet Stock for the
Merger Consideration under Section 354 of the Code (except to the extent such
shareholders receive cash for their shares of XcelleNet Stock).
The obligations of XcelleNet to perform the Merger Agreement and to effect
the Merger are further subject to satisfaction or written waiver on or prior
to the Closing Date of the following conditions: (i) the representations and
warranties of each of Sterling Commerce and Commerce Southern contained in the
Merger Agreement, which representations and warranties will be deemed for
purposes of this condition not to include any qualification or limitation with
respect to materiality (whether by reference to "Material Adverse Effect" or
otherwise), will be true and correct as of the Closing Date, except where the
matters in respect of which such representations and warranties are not true
and correct, in the aggregate, have not had or could not reasonably be
expected to have a Material Adverse Effect on Sterling Commerce, with the same
effect as though such representations and warranties were made as of the
Closing Date, and XcelleNet shall have received a certificate signed on behalf
of Sterling Commerce and Commerce Southern by an authorized officer of
Sterling Commerce to such effect; (ii) each of Sterling Commerce and Commerce
Southern will have performed in all material respects all obligations required
to be performed by it under the Merger Agreement at or prior to the Closing
Date, and XcelleNet will have received a certificate signed on behalf of
Sterling Commerce by an authorized executive officer of Sterling Commerce to
such effect; (iii) since the date of the Merger Agreement, Sterling Commerce
and its Subsidiaries, taken as a whole, will not have experienced any change
or occurrence particular to them that has had or would have a Material Adverse
Effect on Sterling Commerce; and (iv) Sterling Commerce will have received
from Jones, Day, Reavis & Pogue, counsel to Sterling Commerce, on the date of
this Proxy Statement/Prospectus and on the Closing Date, opinions, in each
case dated as of such respective dates and stating that the Merger will be
treated for federal income tax purposes as a reorganization within the meaning
of Section 368(a) of the Code and that no gain or loss will be recognized by
the shareholders of XcelleNet upon their exchange of XcelleNet Stock for the
Merger Consideration under Section 354 of the Code (except to the extent such
shareholders receive cash for their shares of XcelleNet Stock).
Termination. The Merger Agreement may be terminated and the transactions
contemplated thereby may be abandoned at any time prior to the Effective Time,
notwithstanding approval thereof by the XcelleNet shareholders, in any one of
the following circumstances: (i) by mutual written consent duly authorized by
the Commerce Board and the XcelleNet Board; (ii) by Sterling Commerce or
XcelleNet, if the Effective Time has not occurred on or before October 31,
1998, except that neither Sterling Commerce nor XcelleNet may terminate if
such party's failure to fulfill any of its obligations under the Merger
Agreement is the reason that the Effective Time has not occurred on or before
such date; (iii) by Sterling Commerce or XcelleNet, if any federal or state
court of competent jurisdiction or other Governmental Entity has issued an
order, decree or ruling, or taken any other action permanently restraining,
enjoining or otherwise prohibiting the Merger and such order, decree, ruling
or other action has become final and non-appealable; (iv) by Sterling Commerce
or XcelleNet, if the Special Meeting has been held and the Merger Agreement
has not been approved by the affirmative vote of the requisite number of
XcelleNet's shareholders or by Sterling Commerce if the Special Meeting has
not been held by October 26, 1998; (v) by Sterling Commerce or XcelleNet if
the XcelleNet Board has determined to approve, endorse or recommend an
Acquisition Proposal to its shareholders; (vi) by Sterling Commerce, if the
XcelleNet Board has (a) withdrawn, modified, or amended in any adverse respect
its approval or recommendation of the
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Merger Agreement, the Merger, or the other transactions contemplated by the
Merger Agreement, (b) failed to call, or once called, adjourned, cancelled or
postponed the Special Meeting without the prior written consent of Sterling
Commerce (which consent in the case of an adjournment or postponement will not
be unreasonably withheld), or (c) resolved to do any of the foregoing; (vii)
by Sterling Commerce or XcelleNet (provided that the terminating party is not
then in material breach of any representation, warranty, covenant, or other
agreement contained in the Merger Agreement) if (a) the other party has failed
to comply in any material respect with any of the material covenants and
agreements contained in the Merger Agreement to be complied with or performed
by such party at or prior to such date of termination, and such failure
continues for 20 calendar days after the actual receipt by such party of a
written notice from the other party setting forth in detail the nature of such
failure, or (b) a representation or warranty of the other party contained in
the Merger Agreement has been breached in any respect on the date when made
(or in the case of any representations and warranties that are made as of a
different date, as of such different date) and the breach cannot be or has not
been cured within 20 calendar days after the giving of written notice to the
breaching party of such breach and the matters in respect of which such
representation and warranty shall have been breached has had or would
reasonably expected to have a Material Adverse Effect on such other party; or
(viii) by XcelleNet if (a) Sterling Commerce enters into a definitive
agreement providing for a merger, consolidation or other business combination
transaction pursuant to which (1) a majority of the members of the board of
directors of the surviving entity in any such transaction is not comprised of
members of the Commerce Board immediately prior to the consummation of such
transaction, or (2) the holders of Commerce Stock immediately prior to such
transaction own less than a majority of the outstanding voting securities of
the surviving entity in such transaction; (b) the Commerce Board adopts a plan
of liquidation or dissolution of Sterling Commerce; (c) Sterling Commerce
enters into a definitive agreement for the acquisition by a third party of
more than 50% of the consolidated assets of Sterling Commerce; or (d) a tender
offer or exchange offer for 50% or more of the outstanding shares of Commerce
Stock is commenced and the Commerce Board recommends that the stockholders of
Sterling Commerce tender their shares in such tender offer or exchange offer.
In the event the Merger Agreement is terminated based upon an event
described in clause (iv), (v), or (vi) above, then XcelleNet will pay Sterling
Commerce a fee in the amount of $2.2 million (the "Initial Fee"). If the
Merger Agreement is terminated based upon an event described in clause (iv),
(v), or (vi) above and there had been commenced, publicly disclosed or
publicly proposed any Acquisition Proposal prior to such termination, then
XcelleNet will pay Sterling Commerce the Initial Fee promptly and in any event
within two business days of such termination. If within one year of a
termination under the circumstances described in the immediately preceding
sentence, XcelleNet enters into a definitive agreement with respect to an
Acquisition Proposal, then XcelleNet will pay Sterling Commerce an additional
fee of $4.4 million promptly, and in any event within two business days of the
execution of such definitive agreement by XcelleNet. If the Merger Agreement
is terminated based upon an event described in clause (viii) above, then
Sterling Commerce will pay XcelleNet a fee in the amount of $2.2 million
promptly and in any event within two business days of such termination. If
XcelleNet or Sterling Commerce fails to pay the appropriate termination fee or
fees in accordance with the applicable provisions of the Merger Agreement, the
non-paying party will pay the costs and expenses (including reasonable legal
fees and expenses) in connection with any action, including the filing of any
lawsuit or other legal action, together with interest on the amount of any
unpaid fee at the so-called composite "prime rate" as quoted from time to time
during the relevant period in the Southwest Edition of The Wall Street
Journal, plus 4% per annum from the date such fee or fees were required to be
paid.
Special Meeting. The Merger Agreement provides that XcelleNet will take all
action necessary, in accordance with the GBCC, the Exchange Act and other
applicable Law, the rules of the Nasdaq, the XcelleNet Articles and the
XcelleNet Bylaws, to convene a special meeting of XcelleNet's shareholders as
promptly as practicable after the Registration Statement is declared effective
by the Commission for the purpose of considering and voting upon the Merger
Agreement. The Merger Agreement provides that, subject to XcelleNet's right to
terminate the Merger Agreement described under the caption "--Termination"
above and subject to the XcelleNet Board determining in good faith that the
making of such recommendation or the failure to withdraw such recommendation
would constitute a breach of fiduciary duties of the members of the XcelleNet
Board under
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applicable Law, the XcelleNet Board will recommend that the holders of the
shares of XcelleNet Stock vote in favor of the approval of the Merger
Agreement at the Special Meeting and such recommendation will be included in
this Proxy Statement/Prospectus.
Consents, Approvals, and Filings. The Merger Agreement provides that each of
the parties to the Merger Agreement will (i) make promptly its respective
filings, and thereafter make any other required submissions, under the HSR
Act, and the Exchange Act with respect to the Merger and the other
transactions contemplated thereby and (ii) use its reasonable efforts to take,
or cause to be taken, all appropriate action, and to do, or cause to be done,
all things necessary, proper or advisable under applicable Laws and
regulations to consummate and make effective the Merger and the other
transactions contemplated thereby, including without limitation using its
reasonable efforts to obtain all licenses, permits, consents, approvals,
authorizations, qualifications, and orders of Governmental Entities, and
parties to contracts with XcelleNet and its Subsidiaries as are necessary for
the consummation of the Merger and the other transactions contemplated thereby
and to fulfill the conditions to the Merger except that (i) in no event shall
Sterling Commerce or any of its Subsidiaries be required to agree or commit to
divest, hold separate, offer for sale, abandon, limit its operation of or take
similar action with respect to any assets (tangible or intangible) or any
business interest of it or any of its Subsidiaries (including without
limitation Commerce Southern after consummation of the Merger) in connection
with or as a condition to receiving the consent or approval of any
Governmental Entity (including without limitation under the HSR Act) and (ii)
no party will be precluded from exercising its rights under the Merger
Agreement.
Indemnification. The Merger Agreement provides that from and after the
Effective Time, Commerce Southern will indemnify, defend and hold harmless
each person who is now, or has been at any time prior to the date of the
Merger Agreement or who, with the consent of Sterling Commerce, becomes prior
to the Effective Time, an officer or director of XcelleNet (each, an "
Indemnified Party") against all losses, claims, damages, costs, expenses
(including reasonable costs of investigation and defense and reasonable
attorneys' fees and expenses), liabilities or judgments or amounts that are
paid in settlement, with the approval of the indemnifying party (which
approval is not to be unreasonably withheld) of or in connection with any
threatened or actual Claim based in whole or in part on, or arising in whole
or in part out of, the fact that such person is or was a director or officer
of XcelleNet whether pertaining to any matter existing or occurring at or
prior to the Effective Time and whether asserted or claimed prior to, or at or
after, the Effective Time ("Indemnified Liabilities"), including all
Indemnified Liabilities based in whole or in part on, or arising in whole or
in part out of, or pertaining to the Merger Agreement or the transactions
contemplated thereby, in each case, to the fullest extent permitted under the
GBCC, and by the XcelleNet Articles and XcelleNet Bylaws, including provisions
relating to advances of expenses incurred in the defense of any matter and
whether or not Sterling Commerce or Commerce Southern is insured against any
such matter. Without limiting the foregoing, in any case in which approval by
Commerce Southern is required to effectuate any indemnification, Commerce
Southern will direct, at the election of the Indemnified Party, that the
determination of any such approval shall be made by independent counsel
mutually agreed upon by Sterling Commerce and the Indemnified Party.
Without limiting the foregoing, in the event any such Claim is brought
against any Indemnified Party, whether arising before or after the Effective
Time, Commerce Southern will assume and direct all aspects of the defense
thereof, including settlement; Commerce Southern will retain and direct, and
pay all fees and expenses of, counsel reasonably satisfactory to such
Indemnified Party, except that if Commerce Southern elects not to assume such
defense or if counsel for the Indemnified Party advises that there are
substantive issues that raise conflicts of interest between Sterling Commerce
or Commerce Southern and the Indemnified Party, the Indemnified Party may
retain counsel reasonably satisfactory to Sterling Commerce, and Commerce
Southern will pay all reasonable fees and expenses of such counsel for the
Indemnified Party promptly as statements therefor are received to the extent
not prohibited by applicable Law and upon receipt of any affirmation and
undertaking required by applicable Law. Commerce Southern will be obligated to
pay for only one firm of counsel for all Indemnified Parties in any
jurisdiction, except to the extent that, in the opinion of counsel to an
Indemnified Party, under applicable standards of professional conduct, there
exist conflicts of interest among such Indemnified Parties that preclude one
firm of counsel from representing the interests of all such Indemnified
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Parties. The Indemnified Party will cooperate in the vigorous defense of any
such matter. The Indemnified Party will have a right to participate in (but
not control) the defense of any such matter with its own counsel and at its
own expense. Neither Sterling Commerce nor Commerce Southern will be liable
for any settlement effected without its prior written consent, which will not
be unreasonably withheld. After the Effective Time, neither Sterling Commerce
nor Commerce Southern will settle any such matter unless (i) the Indemnified
Party gives prior written consent, which will not be unreasonably withheld, or
(ii) the terms of the settlement provide that the Indemnified Party will have
no responsibility for the discharge of any settlement amount and impose no
other obligations or duties on the Indemnified Party and the settlement
discharges all rights against Indemnified Party with respect to such matter.
Any Indemnified Party wishing to claim indemnification under the Merger
Agreement, upon learning of any such claim, action, suit, proceeding or
investigation, will notify XcelleNet (or, after the Effective Time, Sterling
Commerce and Commerce Southern) (but the failure so to notify will not relieve
a party from any liability which it may have under the Merger Agreement
provisions regarding indemnification except to the extent such failure
prejudices such party).
If Sterling Commerce or Commerce Southern or any successors or assigns
consolidate with or merge into any other person and any such entity is not the
continuing or surviving person in such consolidation or merger, or transfers
all or substantially all of its assets to any entity, then and in each case,
provision will be made so that the successors and assigns of Sterling Commerce
or Commerce Southern, as the case may be, will assume the obligations set
forth in the indemnification provisions of the Merger Agreement. Sterling
Commerce will or will cause Commerce Southern to, purchase policies of
directors' and officers' "run-off" liability insurance (or policies that
contain terms and conditions that are no less advantageous, in any material
respect, to the directors and officers and former directors and officers of
XcelleNet as the directors' and officers' liability insurance policies that
are in effect at XcelleNet on the date of the Merger Agreement), which
insurance will remain in effect for a period of not less than three years from
and after the Effective Time; except that, Commerce Southern will not be
required to pay an annual premium thereon in excess of the last annual premium
paid prior to the date of the Merger Agreement by XcelleNet on its current
directors' and officers' insurance policy.
Pursuant to the Merger Agreement, Sterling Commerce guaranteed, for a period
of seven years, the performance by Commerce Southern of the indemnification
obligations of Commerce Southern resulting from the indemnification provisions
of the Merger Agreement except that if any claim is asserted or made within
such seven-year period, Sterling Commerce's guarantee will continue in respect
of any such claim until its final disposition.
Employee Benefit Matters. Following the Effective Time, Sterling Commerce
will cause Commerce Southern, as the Surviving Corporation in the Merger, and
its Subsidiaries to honor in accordance with their terms the XcelleNet CIC
Agreements as modified by the Acceleration Agreements (as defined below), and
all provisions for vested benefits or other vested amounts earned or accrued
through the Effective Time under XcelleNet's employee benefit and welfare
plans, to the extent it does not constitute a violation of the Merger
Agreement.
As promptly as practicable following the Effective Time, Sterling Commerce
will cause to be provided generally to officers and employees of XcelleNet
employee benefits under employee benefit and welfare plans (other than stock
option or other plans involving the potential issue of Commerce Stock), on
terms and conditions which when taken as a whole are substantially similar to
those currently provided by Sterling Commerce to their similarly situated
officers and employees; except that for a period for 12 months after the
Effective Time, Sterling Commerce will provide generally to officers and
employees of XcelleNet and its Subsidiaries (other than those persons who
currently have written severance agreements with XcelleNet) severance benefits
in accordance with the policies of either XcelleNet or Sterling Commerce,
whichever will provide the greater benefit to the officer or employee. For
purposes of participation, vesting and (except in the case of Sterling
Commerce retirement and sabbatical plans) benefit accrual under Sterling
Commerce's employee benefit plans, the service of the employees of XcelleNet
prior to the Effective Time will be treated as service with Sterling Commerce.
Fees and Expenses. The Merger Agreement provides that, except as described
below, all costs and expenses incurred in connection with the Merger, the
Merger Agreement and the transactions contemplated by
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the Merger Agreement will be paid by the party incurring the expenses, whether
or not the Merger is consummated, except that each of Sterling Commerce and
XcelleNet will bear and pay one-half of the costs and expenses incurred in
connection with (i) the filing, printing and mailing of the Registration
Statement and this Proxy Statement/Prospectus (including Commission filing
fees) and (ii) the filings of the premerger notification and report forms
under the HSR Act (including filing fees).
Amendment. Subject to the applicable provisions of the GBCC and the DGCL, at
any time prior to the Effective Time the parties to the Merger Agreement may
modify or amend the Merger Agreement by written agreement executed and
delivered by duly authorized officers of the respective parties, except that
after approval of the Merger Agreement by the XcelleNet shareholders, no
amendment will be made that would reduce the amount or change the type of
consideration into which each share of XcelleNet Stock will be converted upon
consummation of the Merger. The Merger Agreement may not be amended except by
an instrument in writing signed on behalf of each of the parties.
THE SHAREHOLDER AGREEMENT
As a condition to Sterling Commerce's willingness to enter into the Merger
Agreement, the Crumpler Shareholders entered into the Shareholder Agreement
with Sterling Commerce. Pursuant to the Shareholder Agreement, the Crumpler
Shareholders (who beneficially own, in the aggregate, approximately 17% of the
outstanding XcelleNet Stock) have agreed to vote their shares of XcelleNet
Stock in favor of approval of the Merger and the adoption of the Merger
Agreement at the Special Meeting. The Crumpler Shareholders have also agreed,
except pursuant to the Merger Agreement, not to dispose of any shares of
XcelleNet Stock or to enter into any contract or arrangement to dispose of any
shares of XcelleNet Stock or to grant any proxy or power of attorney with
respect to their shares.
Pursuant to the Shareholder Agreement, the Crumpler Shareholders have also
agreed, prior to the second anniversary of the Effective Time, not to sell or
otherwise transfer such number of shares of Commerce Stock representing more
than 35% of the Merger Consideration received in the Merger. The Shareholder
Agreement will automatically terminate upon the earlier of (i) the termination
of the Merger Agreement, or (ii) the Effective Time (except for the provisions
relating to the representations and warranties of, and post-Merger share
transfer restrictions on, the Crumpler Shareholders, which provisions will
survive the Effective Time).
STOCK EXCHANGE LISTING
Prior to the Effective Time, Sterling Commerce will file an application to
list the shares of Commerce Stock to be issued in connection with the Merger
on the NYSE, subject to official notice of issuance. It is a condition to the
parties' obligations to consummate the Merger that such shares will have been
approved for listing, subject to official notice of issuance. See "--The
Merger Agreement--Conditions to the Merger." Shares of Commerce Stock are
traded on the NYSE under the symbol "SE."
DELISTING AND DEREGISTRATION OF XCELLENET STOCK
If the Merger is consummated, XcelleNet Stock will be removed from quotation
trading on Nasdaq and deregistered under the Exchange Act.
ACCOUNTING TREATMENT
The Merger will be accounted for under the purchase method of accounting in
accordance with generally accepted accounting principles. Under the purchase
method of accounting, the purchase price paid by Sterling Commerce for
XcelleNet (including direct costs of the Merger) will be allocated to the
identifiable assets of XcelleNet based upon estimates of the fair value of
XcelleNet's identifiable assets and liabilities as of the Effective Time, with
the excess of the purchase price over the fair value of XcelleNet's net
identifiable assets being allocated to goodwill. After the Merger, the
financial condition and results of operations of XcelleNet will be included
(but not separately reported) in the consolidated financial condition and
results of operations of Sterling Commerce.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Tax Opinions. Consummation of the Merger is conditioned upon the receipt of
a legal opinion of Alston & Bird LLP, XcelleNet's legal counsel, and a legal
opinion of Jones, Day, Reavis & Pogue, Sterling Commerce's legal counsel, to
the effect that (i) the Merger will qualify as a tax-free reorganization under
Section 368(a) of the Code; (ii) each of XcelleNet and Sterling Commerce will
be a party to that reorganization within the meaning of Section 368(b) of the
Code; and (iii) no gain or loss will be recognized by the shareholders of
XcelleNet upon their exchange of shares of XcelleNet stock for the Merger
Consideration under Section 354 of the Code (except to the extent that such
shareholders receive cash for their shares of XcelleNet Stock). IF XCELLENET
WAIVES THE CONDITION TO ITS OBLIGATION TO CONSUMMATE THE MERGER RELATING TO
THE RECEIPT OF THE LEGAL OPINIONS REFERRED TO ABOVE, XCELLENET WILL RESOLICIT
PROXIES FROM ITS STOCKHOLDERS WITH RESPECT TO THE MERGER.
In rendering these opinions, XcelleNet's legal counsel and Sterling
Commerce's legal counsel will rely upon representations contained in letters
from XcelleNet and Sterling Commerce delivered for the purpose of the
opinions. The opinions will also assume that the Merger will be consummated in
accordance with the provisions of the Merger Agreement.
Certain Consequences of Reorganization Status. Provided that the Merger
constitutes a reorganization within the meaning of Section 368(a) of the Code,
and subject to the discussion below under "Additional Considerations," a
shareholder will generally recognize capital gain, but not loss, for U.S.
federal income tax purposes with respect to the receipt of Commerce Stock and
cash in exchange for XcelleNet Stock pursuant to the Merger. The amount of
gain, if any, recognized by a shareholder will be equal to the lesser of (i)
the amount of gain realized (i.e., the excess of the amount of cash and the
fair market value of Commerce Stock received in the Merger over the tax basis
of XcelleNet Stock surrendered) and (ii) the amount of cash (other than cash
received in lieu of a fractional share of Commerce Stock) received in the
Merger. In the case of a shareholder that owns more than one "block" of
XcelleNet Stock, the amount of gain recognized should be calculated separately
with respect to each "block" surrendered in the Merger. For purposes of such
calculation, the aggregate amount of cash and Commerce Stock received by a
shareholder will be allocated proportionally among the "blocks" of XcelleNet
Stock surrendered in exchange therefor pursuant to the Merger. In the case of
an individual shareholder, capital gain recognized with respect to the receipt
of Commerce Stock and cash in exchange for XcelleNet Stock will generally be
subject to U.S. federal income tax at a maximum rate of (i) 20%, if the
shareholder held such XcelleNet Stock for more than 18 months at the Effective
Time and (ii) 28%, if the shareholder held such XcelleNet Stock for more than
one year, but not more than 18 months at the Effective Time. The aggregate tax
basis of the Commerce Stock received by a shareholder will be the same as the
aggregate tax basis of XcelleNet Stock surrendered in exchange therefor
pursuant to the Merger, decreased by the total amount of cash received (other
than cash received in lieu of a fractional share of Commerce Stock) and
increased by the amount of gain recognized. The holding period of Commerce
Stock will include the holding period of XcelleNet Stock surrendered in
exchange therefor. A shareholder of XcelleNet who receives cash in lieu of a
fractional share of Commerce Stock will generally be treated as having
received such fractional share of Commerce Stock and sold such share in a
taxable transaction. Accordingly, such shareholder will recognize gain or loss
equal to the difference, if any, between the amount of cash received and such
shareholder's adjusted tax basis in the fractional share interest.
Additional Considerations. The gain recognized should be treated as capital
gain provided the requirements of Section 302 of the Code are satisfied. If
those requirements are not satisfied, the gain recognized could be treated as
dividend income. In order to determine whether those requirements are
satisfied, a shareholder is treated as receiving solely Commerce Stock in the
Merger (instead of the combination of shares of Commerce Stock and cash
actually received) and then receiving cash from Sterling Commerce in a
hypothetical redemption of the additional shares of Commerce Stock an
XcelleNet shareholder would be treated as having received. The hypothetical
redemption will satisfy the requirements of Section 302 if it is "not
essentially equivalent to a dividend." Whether such hypothetical redemption of
Commerce Stock is "not essentially equivalent to a dividend" depends on the
individual facts and circumstances of each shareholder but in any event must
result in a meaningful reduction of a shareholder's proportionate stock
interest in
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Sterling Commerce. Generally, in the case of an XcelleNet shareholder whose
stock interest in Sterling Commerce (relative to the total number of Sterling
Commerce shares outstanding) is minimal, and who exercises no control or
management power over the affairs of Sterling Commerce, any actual reduction
in proportionate interest will be treated as "meaningful." Because of the
complexity of the test under Section 302 of the Code, shareholders are urged
to consult their own tax advisors regarding the proper treatment of the gain
recognized by such shareholder in the Merger.
Backup Withholding. Unless an exemption applies, Sterling Commerce's
exchange agent will be required to withhold 31% of any cash payments to which
a shareholder or other payee is entitled pursuant to the Merger, unless the
shareholder or other payee provides his or her tax identification number
(social security number or employer identification number) and certifies that
such number is correct. Each shareholder and, if applicable, each other payee
is required to complete and sign the Form W-9 that will be included as part of
the transmittal letter sent to XcelleNet shareholders by Sterling Commerce to
avoid backup withholding, unless an applicable exemption exists and is proved
in a manner satisfactory to Sterling Commerce and the exchange agent.
The foregoing discussion is intended only as a summary of the material U.S.
federal income tax consequences of the Merger and does not purport to be a
complete analysis or description of all potential tax effects of the Merger.
In addition, the discussion does not address all of the tax consequences that
may be relevant to particular taxpayers in light of their personal
circumstances or to taxpayers subject to special treatment under the Code (for
example, insurance companies, financial institutions, dealers in securities,
tax-exempt organizations, foreign corporations, foreign partnerships or other
foreign entities and individuals who are not citizens or residents of the
United States).
THE FOREGOING DISCUSSION IS BASED UPON THE PROVISIONS OF THE CODE,
APPLICABLE TREASURY REGULATIONS THEREUNDER, INTERNAL REVENUE SERVICE RULINGS
AND JUDICIAL DECISIONS, AS IN EFFECT AS OF THE DATE OF THIS PROXY
STATEMENT/PROSPECTUS. THERE CAN BE NO ASSURANCE THAT FUTURE LEGISLATIVE,
ADMINISTRATIVE OR JUDICIAL CHANGES OR INTERPRETATIONS WILL NOT AFFECT THE
ACCURACY OF THE STATEMENTS OR CONCLUSIONS SET FORTH HEREIN. ANY SUCH CHANGE
COULD APPLY RETROACTIVELY AND COULD AFFECT THE ACCURACY OF SUCH DISCUSSION. NO
RULINGS HAVE BEEN OR WILL BE SOUGHT FROM THE INTERNAL REVENUE SERVICE
CONCERNING THE TAX CONSEQUENCES OF THE MERGER.
NO INFORMATION IS PROVIDED HEREIN WITH RESPECT TO THE TAX CONSEQUENCES, IF
ANY, OF THE MERGER UNDER APPLICABLE FOREIGN, STATE, LOCAL OR OTHER TAX LAWS.
EACH SHAREHOLDER OF XCELLENET IS URGED TO CONSULT SUCH SHAREHOLDER'S OWN TAX
ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH SHAREHOLDER OF THE MERGER
UNDER U.S. FEDERAL, STATE, LOCAL OR ANY OTHER APPLICABLE TAX LAWS.
AMENDMENT TO XCELLENET RIGHTS AGREEMENT
Prior to the execution and delivery of the Merger Agreement and the
Shareholder Agreement, XcelleNet amended the Shareholder Protection Rights
Agreement, dated November 21, 1997, between XcelleNet and SunTrust Bank,
Atlanta, as Rights Agent (the "XcelleNet Rights Agreement") to provide that
neither the approval, execution or delivery of the Merger Agreement or the
Shareholder Agreement nor the consummation of the transactions contemplated by
the Merger Agreement or the Shareholder Agreement will cause the rights issued
under the XcelleNet Rights Agreement to become exercisable.
REGULATORY APPROVALS
Sterling Commerce and XcelleNet must observe the notification and waiting
period requirements of the HSR Act before the Merger may be consummated. The
HSR Act provides for an initial 30-calendar day waiting period following the
filing with the Antitrust Division and the FTC of certain Notification and
Report Forms by Sterling Commerce and XcelleNet. The HSR Act further provides
that if, within the initial 30-calendar day waiting period, the FTC or the
Antitrust Division issues a request for additional information or documents,
49
<PAGE>
the waiting period will be extended until 11:59 p.m. on the twentieth day
after the date of substantial compliance by the filing parties with such
request. Only one such extension of the initial waiting period is permitted
under the HSR Act; however, the filing parties may voluntarily extend the
waiting period.
Sterling Commerce, XcelleNet and Mr. Crumpler made the requisite initial
filings under the HSR Act in connection with the Merger. The applicable
waiting period under the HSR Act was terminated by the FTC on June 1, 1998.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the Merger. At any time before or
after the Effective Time, the FTC or the Antitrust Division could, among other
things, seek under the antitrust laws to enjoin the Merger or to cause
Sterling Commerce to divest itself, in whole or in part, of XcelleNet or of
other businesses conducted by Sterling Commerce. Under certain circumstances,
private parties and state governmental authorities may bring legal action
under the antitrust laws challenging the Merger. See "--The Merger Agreement--
Conditions to the Merger" and "-- Consents, Approvals, and Filings."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
General. Certain members of XcelleNet's management and the XcelleNet Board
may be deemed to have certain interests in the Merger that are in addition to
their interests as shareholders of XcelleNet generally. Such interests relate
to, among other things, provisions in the Merger Agreement regarding the
treatment of outstanding XcelleNet Options, the performance and provision of
obligations and benefits under existing severance agreements and compensation
and benefit plans and the indemnification of and provision of insurance
coverage for the directors and officers of XcelleNet. The XcelleNet Board was
aware of these interests and considered them, among other matters, in
approving the Merger Agreement and the transactions contemplated thereby. See
"The Merger Agreement--Treatment of XcelleNet Stock Options," "--Employee
Benefit Matters," and "--Indemnification."
XcelleNet Stock Options. At the Effective Time, each outstanding XcelleNet
Option under the XcelleNet Stock Option Plans will be assumed by Sterling
Commerce and will constitute an option to acquire, on substantially the same
terms and subject to substantially the same conditions as were applicable
under such option plans, including without limitation, term, exercisability,
status as an "incentive stock option" under Section 422 of the Code, and
termination provisions, a number of shares of Commerce Stock (rounded down to
the nearest whole share) determined by multiplying the number of shares of
XcelleNet Stock subject to the XcelleNet Option immediately prior to the
Effective Time by the Option Conversion Factor at an exercise price per share
of Commerce Stock (increased to the nearest whole cent) equal to the exercise
price per share of XcelleNet Stock subject to the XcelleNet Option divided by
the Option Conversion Factor, except that in the case of any XcelleNet Option
to which Section 421 of the Code applies by reason of its qualification as an
incentive stock option under Section 422 of the Code, the conversion formula
will be adjusted if necessary to comply with Section 424(a) of the Code.
Employment and Severance Arrangements. XcelleNet is currently a party to
XcelleNet CIC Agreements with 16 executives, including Dennis M. Crumpler
(Chairman and Chief Executive Officer), Corey M. Smith (President and a
director), Shereef W. Nawar (Chief Technical Officer and a director), Stefanus
F. Coetzee (Senior Vice President--North American Customer Operations), W.
Michael Parham (Senior Vice President--Business Development), and Jethro J.
Felton, III (Vice President--North American Sales). As used in this Proxy
Statement/Prospectus, Messrs. Crumpler, Smith, Nawar, Coetzee, Parham and
Felton are referred to as the "XcelleNet Officers."
Under the terms of each XcelleNet CIC Agreement, each of the covered
executives is entitled to receive a lump-sum cash severance payment (in an
amount equal to one or two times the executive's current annual base salary
and targeted bonus, a prorated bonus for the year in which the executive's
employment is terminated and, if such executive's XcelleNet Options are not
otherwise vested, a cash payment equal to 1.2 times the difference
50
<PAGE>
between the fair value of the shares of XcelleNet Stock underlying the covered
executive's unvested XcelleNet Options that would vest during a specified time
period and the exercise price of such XcelleNet Options) and the continuation
of certain employee benefits for a period of one or two years in the event the
executive's employment with XcelleNet is terminated or the executive
terminates his or her employment for certain reasons within a specified time
period following a Change in Control (as defined in the XcelleNet CIC
Agreements). In addition, under the terms of the XcelleNet CIC Agreements, if
any amount payable thereunder or otherwise is determined to be an "excess
parachute payment" under the Code, such executive would be entitled to receive
an additional payment, net of income taxes (a "Tax Payment"), to compensate
such executive for the excise tax imposed by the Code on such payment.
Further, during the 30-day period following the first anniversary of a Change
in Control, each of the covered executives is entitled to terminate his or her
employment with XcelleNet, for any reason or without reason, with the right to
receive the benefits provided under the XcelleNet CIC Agreements. The
consummation of the Merger will constitute a Change in Control for the purpose
of the XcelleNet CIC Agreements.
Sterling Commerce considered the terms of the XcelleNet CIC Agreements in
the context of its desire that a significant number of XcelleNet's management
and technical employees become employees of Sterling Commerce following that
Merger. Sterling Commerce concluded that it was in its best interests to seek
to terminate the XcelleNet CIC Agreements. As a result, in connection with the
Merger, Sterling Commerce and XcelleNet entered into an agreement (the
"Acceleration Agreements") with 15 executives who are parties to an XcelleNet
CIC Agreement, including each of the XcelleNet Officers.
Under the terms of each Acceleration Agreement, upon the Effective Time, the
executive's XcelleNet CIC Agreement will terminate (in exchange for a lump-sum
cash payment) and all outstanding nonqualified stock options granted by
XcelleNet to the executive will become fully vested and immediately
exercisable. Outstanding incentive stock options granted by XcelleNet to the
executive will either become fully vested and immediately exercisable as of
the Effective Time or become vested and exercisable as of the Effective Time
in such amounts so as not to disqualify the options as incentive stock
options, and as of the first day of each year thereafter, if the executive
remains an employee of Sterling Commerce, will become vested as to the maximum
additional number of shares, if any, so as not to disqualify the options as
incentive stock options. The executive will also be entitled to receive
welfare benefits for one year following the Effective Time regardless of
whether the executive remains employed by Sterling Commerce. The lump-sum
payments to be made under the Acceleration Agreements to the XcelleNet
Officers are as follows: Mr. Crumpler, $0; Mr. Smith, $800,000; Mr. Nawar,
$478,000; Mr. Coetzee, $494,000; Mr. Parham, $412,000; and Mr. Felton
$196,000. The aggregate amount payable under all Acceleration Agreements is
approximately $4.4 million, excluding estimated Tax Payments of approximately
$910,000.
In addition, Sterling Commerce has extended written offers of employment
(subject to consummation of the Merger) to nine XcelleNet executives,
including four of the XcelleNet Officers, providing for base salary, cash
incentive bonuses, options to purchase Commerce Stock and employee benefits
comparable to those received by similarly situated executives of Sterling
Commerce. The annual base salary, target bonus for fiscal 1999 and number of
Commerce Stock options reflected in the offers made to each of the XcelleNet
Officers are as follows: Mr. Crumpler, $210,000, $140,000 and 75,000; Mr.
Smith, $200,000, $125,000 and 65,000; Mr. Nawar, $150,000, $75,000 and 20,000;
and Mr. Felton, $120,000, $110,000 and 25,000.
Directors' Options. In connection with the Merger, the XcelleNet Board has
provided that unvested XcelleNet Options to purchase 166,250 shares of
XcelleNet Stock, in the aggregate, held by the six non-employee directors of
XcelleNet, which options would not otherwise vest on or before July 1, 1998,
will become fully vested and immediately exercisable at the Effective Time.
Employee Benefits. As promptly as practicable following the Effective Time,
Sterling Commerce will cause to be provided generally to officers and
employees of XcelleNet employee benefits under employee benefit and welfare
plans (other than stock option or other plans involving the potential issuance
of Commerce Stock), on terms and conditions which when taken as a whole are
substantially similar to those currently provided by
51
<PAGE>
Sterling Commerce to their similarly situated officers and employees;
provided, that, for a period of 12 months after the Effective Time, Sterling
Commerce will provide generally to officers and employees of XcelleNet (other
than those persons who currently have written severance agreements with
XcelleNet) severance benefits in accordance with the policies of either
XcelleNet or Sterling Commerce, whichever will provide the greater benefit to
the officer or employee. For purposes of participation, vesting and (except in
the case of Sterling Commerce's retirement and sabbatical plans) benefit
accrual under Sterling Commerce's employee benefit plans, the service of the
employees of XcelleNet prior to the Effective Time will be treated as service
with Sterling Commerce.
DISSENTERS' RIGHTS
Under Georgia law, holders of XcelleNet Stock are entitled to dissenters'
rights in connection with the Merger. Any record holder of XcelleNet Stock who
objects to the Merger may elect to have his, her or its shares appraised under
the procedures set forth in Article 13 of the GBCC and to be paid the
appraised value of his, her or its shares, which, pursuant to Article 13 of
the GBCC, will be the shares' fair value immediately before the consummation
of the Merger, excluding any appreciation or depreciation in anticipation of
the Merger. An appraisal proceeding may result in a determination of fair
value less than or greater than the value of the Merger Consideration that
would have been payable in respect of such shares had the shareholder not
elected to perfect his, her or its dissenters' rights.
Any record holder of XcelleNet Stock contemplating the exercise of
dissenters' rights is urged to review carefully the provisions of Article 13
of the GBCC, particularly with respect to the procedural steps required to
perfect the right of appraisal. The right to dissent may be lost if the
procedural requirements of Article 13 of the GBCC are not followed exactly.
Set forth below, to be read in conjunction with the full text of Article 13 of
the GBCC attached as Appendix D hereto, is a summary of the procedures
relating to exercise of the right of appraisal.
According to Section 14-2-1320 of Article 13, of the GBCC XcelleNet, in its
Notice of the Special Meeting at which the Merger Agreement will be voted on,
must state that holders of XcelleNet Stock are or may be entitled to
dissenters' rights under Article 13 of the GBCC and include in such notice a
copy of Article 13 of the GBCC. This Proxy Statement/Prospectus constitutes
such notice to the holders of XcelleNet Stock.
A shareholder electing to exercise his, her or its rights under Article 13
of the GBCC must deliver to XcelleNet, before a vote is taken with respect to
the approval of the Merger Agreement, a written notice of the Dissenting
Shareholder's intent to demand payment for his, her or its shares if the
proposed Merger is effectuated, and the Dissenting Shareholder must not vote
his, her or its shares in favor of the Merger Agreement. A vote against
approval of the Merger Agreement will not, by itself, constitute a valid
written demand for dissenters' rights. Such demands should be mailed or
delivered to XcelleNet, Inc., 5 Concourse Parkway, Suite 850, Atlanta, Georgia
30328, Attention: Secretary. If the Merger Agreement is approved at the
Special Meeting, XcelleNet will deliver a written notice (a "Dissenter's
Notice") to each Dissenting Shareholder within 10 days after approval of the
Merger Agreement. The Dissenter's Notice must (i) state where the payment
demand must be sent and where and when certificates for certificated shares
must be deposited; (ii) inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment demand is
received; (iii) set a date by which XcelleNet must receive the payment demand,
which date may not be fewer than 30 nor more than 60 days after the date of
the Dissenter's Notice; and (iv) be accompanied by a copy of Article 13 of the
GBCC. Each Dissenting Shareholder sent a Dissenter's Notice has a duty to
demand payment and deposit his, her or its certificates in accordance with
Article 13 of the GBCC; however, such Dissenting Shareholder retains all other
rights of a shareholder until these rights are cancelled or modified by the
effectuation of the Merger. If the Merger is not consummated within 60 days
after the date set for demanding payment and depositing share certificates,
XcelleNet must return the deposited certificates.
Within 10 days after the receipt of the demand for payment or within 10 days
after the Merger, whichever is later, XcelleNet must make a written offer to
each Dissenting Shareholder who has filed a demand for payment
52
<PAGE>
to pay an amount estimated to be the "fair value" of his, her or its shares,
plus accrued interest. The offer of payment must be accompanied by: (i)
XcelleNet's balance sheet as of the end of a fiscal year ending not more than
16 months before the date of payment, an income statement for that year, a
statement of changes in shareholders' equity for that year, and the latest
available interim financial statements, if any; (ii) a statement of
XcelleNet's estimate of the fair value of the shares; (iii) an explanation of
how the interest was calculated; (iv) a statement of the right of holders of
Dissenting Shares to demand payment under Section 14-2-1327 of Article 13 of
the GBCC; and (v) a copy of Article 13 of the GBCC. If the Dissenting
Shareholder accepts XcelleNet's offer by written notice to XcelleNet within 30
days of XcelleNet's offer or is deemed to have accepted XcelleNet's offer by
failure to respond within 30 days, XcelleNet must make payment within 60 days
after it made the offer or the closing of the Merger, whichever occurs later.
A Dissenting Shareholder may notify XcelleNet, in writing, of his, her or
its own estimate of the "fair value" of his, her or its shares and the amount
of interest due and demand payment, if (i) the Dissenting Shareholder believes
that the amount offered is less than the fair value of his, her or its shares
or that the interest due is incorrectly calculated; or (ii) XcelleNet, having
failed to take the proposed action, does not return the deposited certificates
within 60 days after the date set for demanding payment. In any event, notice
must be delivered within 30 days after XcelleNet's offered payment for the
shares. In addition, if XcelleNet does not offer payment within the time
period set forth in the preceding paragraph, a Dissenting Shareholder may
demand delivery of certain XcelleNet financial information (which XcelleNet
must provide within 10 days after receipt of such demand) and may, at any time
within three years of the consummation of the Merger, notify XcelleNet of such
holder's own estimate of the fair value of the Dissenting Shares and demand
payment.
If a demand for payment remains unsettled, then XcelleNet, within 60 days
after receipt of the demand for payment, must file a proceeding in the
Superior Court of Fulton County, Georgia, to determine the "fair value" of the
shares, together with accrued interest. XcelleNet must make all Dissenting
Shareholders, whether or not residents of Georgia, whose demands remain
unsettled parties to the proceeding. If XcelleNet fails to bring such action
within the 60-day period, XcelleNet will be required to pay each Dissenting
Shareholder whose demand remains unsettled, the amount demanded.
The costs and expenses of any such action will be determined by the court
and shall be assessed against XcelleNet.
53
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
have been prepared to give effect to the Merger using the purchase method of
accounting.
The unaudited pro forma combined condensed financial statements of Sterling
Commerce give effect to the consummation of the Merger, as if the Merger had
been consummated: (i) on March 31, 1998, in the case of the Unaudited Pro
Forma Combined Condensed Balance Sheet and (ii) on October 1, 1996, in the
case of the Unaudited Pro Forma Combined Condensed Statements of Operations
for the fiscal year ended September 30, 1997 and the six months ended March
31, 1998.
The unaudited pro forma combined condensed financial information is
presented for illustrative purposes only and is not necessarily indicative of
what Sterling Commerce's actual financial position or results of operations
would have been had the Merger been consummated on such dates, nor is it
necessarily indicative of future financial position or results of operations.
Additionally, it does not give effect to (i) any transactions other than the
Merger and those described in the accompanying Notes to Unaudited Pro Forma
Combined Condensed Financial Statements of Sterling Commerce; (ii) either
Sterling Commerce's or XcelleNet's results of operations since March 31, 1998;
or (iii) any one-time charges that may result from the restructuring of
Sterling Commerce's existing business due to the Merger. Sterling Commerce's
management is still in the process of evaluating and planning for the
restructuring directly related to the Merger. In addition, Sterling Commerce
intends to restructure certain other parts of its existing businesses and
expects to incur charges related thereto, which costs are not included in the
pro forma combined condensed financial information. All of these restructuring
costs are expected to be incurred in the quarter ending September 30, 1998,
when the Merger is expected to close and decisions related to the
restructurings are expected to be finalized. Although Sterling Commerce's
management is still in the process of evaluating the nature, scope and extent
of the restructurings, it currently estimates that the related charges will be
in the range of $65 million to $80 million in the aggregate. The pro forma
combined condensed financial information does not purport to be indicative of
Sterling Commerce's financial position or results of operations as of the date
hereof or for any period ended on the date hereof, as of the Closing Date, or
for any period ending at the Closing Date, or as of or for any other future
date or period.
The following unaudited pro forma combined condensed financial statements
are based upon the historical financial statements of Sterling Commerce and
XcelleNet and should be read in conjunction with such historical financial
statements, the related notes, and the other information included or
incorporated by reference in this Proxy Statement/Prospectus. See "Available
Information." Sterling Commerce has retained independent valuation
professionals to determine the fair value of the assets and liabilities of
XcelleNet (including intangible assets) as of the Effective Time. Although
such determination of fair value is not presently expected to result in values
that are materially greater or less than the values assumed in the preparation
of the following unaudited pro forma combined condensed financial statements,
there can be no assurance with respect thereto.
The unaudited pro forma combined condensed financial statements are based
upon the respective historical consolidated financial statements of Sterling
Commerce and XcelleNet and should be read in conjunction with the respective
historical consolidated financial statements and notes thereto of Sterling
Commerce and XcelleNet incorporated by reference in this Proxy
Statement/Prospectus.
54
<PAGE>
STERLING COMMERCE, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
STERLING PRO FORMA
COMMERCE XCELLENET ADJUSTMENTS PRO FORMA
HISTORICAL HISTORICAL (NOTE 2) COMBINED
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents..... $269,122 $16,678 $ (74,151)(a) $211,649
Marketable securities......... 273,061 16,786 289,847
Accounts and notes receivable,
net.......................... 116,280 12,533 128,813
Income tax receivable......... 9,731 227 9,958
Prepaid expenses and other
current assets............... 20,060 1,959 22,019
-------- ------- --------- --------
Total current assets........ 688,254 48,183 (74,151) 662,286
Property and equipment, net..... 74,186 4,553 78,739
Computer software, net.......... 48,735 1,694 18,488 (c) 68,917
Excess cost over net assets ac-
quired, net.................... 16,190 2,319 25,531 (c) 44,040
Noncurrent deferred income tax-
es............................. 895 (895)(c)
Other assets.................... 15,281 337 15,618
Investment in XcelleNet......... 224,716 (a)
(48,366)(b)
(176,350)(c)
-------- ------- --------- --------
Total Assets................ $842,646 $57,981 $ (31,027) $869,600
======== ======= ========= ========
Current Liabilities:
Accounts payable and accrued
liabilities.................. $ 52,308 $ 5,269 $ 8,180 (a) $ 65,757
Income taxes payable.......... 6,893 6,893
Deferred revenue.............. 61,141 3,252 64,393
-------- ------- --------- --------
Total current liabilities... 120,342 8,521 8,180 137,043
Deferred income taxes......... 16,733 6,774 (c) 23,507
Other noncurrent liabilities.. 13,975 1,094 15,069
Stockholders' equity:
Common stock.................. 910 84 (84)(b) 934
24 (a)
Additional paid-in capital.... 546,342 34,644 (34,644)(b) 688,703
142,361 (a)
Retained earnings............. 144,344 13,638 (13,638)(b) 4,344
(140,000)(c)
-------- ------- --------- --------
Total stockholders' equity.. 691,596 48,366 (39,207) 693,981
-------- ------- --------- --------
Total liabilities and
stockholders' equity..... $842,646 $57,981 $ (31,027) $869,600
======== ======= ========= ========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
55
<PAGE>
STERLING COMMERCE, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
XCELLENET
----------------------------------------------
STERLING ADD PRO FORMA
COMMERCE DEDUCT HISTORICAL PROFORMA COMBINED
HISTORICAL HISTORICAL HISTORICAL THREE MONTHS YEAR PRO FORMA YEAR
YEAR ENDED YEAR ENDED THREE MONTHS ENDED ENDED ADJUSTMENTS ENDED
9/30/97 12/31/97 ENDED12/31/97 12/31/96 9/30/97 (NOTE 3) 9/30/97
---------- ---------- ------------- ------------ -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Products............... $119,958 $34,320 $10,540 $10,258 $34,038 $153,996
Product support........ 71,316 14,942 4,229 3,117 13,830 85,146
Services............... 142,565 4,317 1,238 340 3,419 145,984
Royalties.............. 16,758 16,758
-------- ------- ------- ------- ------- ------- --------
350,597 53,579 16,007 13,715 51,287 401,884
Cost and expenses:
Cost of sales:
Products and product
support.............. 35,863 6,027 1,590 1,299 5,736 $ 6,821(a) 48,420
Services.............. 34,752 4,147 1,178 580 3,549 38,301
-------- ------- ------- ------- ------- ------- --------
70,615 10,174 2,768 1,879 9,285 6,821 86,721
Product development and
enhancement........... 24,853 8,840 2,177 2,049 8,712 33,565
Selling, general and
administrative........ 134,849 29,453 7,996 8,235 29,692 164,541
Purchased research and
development........... 31,879 31,879
Reorganization costs... 15,810 1,025 3,112 4,137 19,947
-------- ------- ------- ------- ------- ------- --------
278,006 49,492 12,941 15,275 51,826 6,821 336,653
-------- ------- ------- ------- ------- ------- --------
Income (loss) before
other income and income
taxes.................. 72,591 4,087 3,066 (1,560) (539) (6,821) 65,231
Other income............ 16,693 877 288 177 766 17,459
-------- ------- ------- ------- ------- ------- --------
Income (loss) before
income taxes........... 89,284 4,964 3,354 (1,383) 227 (6,821) 82,690
Provision for (benefit
of) income taxes....... 33,840 1,819 1,174 (529) 116 (1,534)(b) 32,422
-------- ------- ------- ------- ------- ------- --------
Net income (loss)..... $ 55,444 $ 3,145 $ 2,180 $ (854) $ 111 $(5,287) $ 50,268
======== ======= ======= ======= ======= ======= ========
Net income per common
share:
Basic.................. $ 0.66 $ 0.58
======== ========
Diluted................ $ 0.64 $ 0.56
======== ========
Shares used to compute
net income per common
share:
Basic.................. 83,561 85,992
======== ========
Diluted................ 85,983 89,007
======== ========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
56
<PAGE>
STERLING COMMERCE, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
XCELLENET
----------------------------------------------
STERLING
COMMERCE DEDUCT ADD PRO FORMA
HISTORICAL HISTORICAL HISTORICAL PROFORMA COMBINED
SIX MONTHS HISTORICAL NINE MONTHS THREE MONTHS SIX MONTHS PRO FORMA SIX MONTHS
ENDED YEAR ENDED ENDED ENDED ENDED ADJUSTMENTS ENDED
3/31/98 12/31/97 9/30/97 3/31/98 3/31/98 (NOTE 3) 3/31/98
---------- ---------- ----------- ------------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Products............... $ 76,860 $34,320 $23,780 $ 8,175 $18,715 $ 95,575
Product support........ 45,762 14,942 10,713 4,492 8,721 54,483
Services............... 94,737 4,317 3,079 1,546 2,784 97,521
-------- ------- ------- ------- ------- ------- --------
217,359 53,579 37,572 14,213 30,220 247,579
Costs and expenses:
Cost of sales:
Products and product
support............... 18,928 6,027 4,437 1,587 3,177 $ 3,411(a) 25,516
Services............... 25,564 4,147 2,969 1,253 2,431 27,995
-------- ------- ------- ------- ------- ------- --------
44,492 10,174 7,406 2,840 5,608 3,411 53,511
Product development and
enhancement........... 14,040 8,840 6,663 2,206 4,383 18,423
Selling, general and
administrative........ 90,366 29,453 21,457 7,572 15,568 105,934
Reorganization costs... 1,025 1,025
-------- ------- ------- ------- ------- ------- --------
148,898 49,492 36,551 12,618 25,559 3,411 177,868
-------- ------- ------- ------- ------- ------- --------
Income (loss) before
other income and income
taxes.................. 68,461 4,087 1,021 1,595 4,661 (3,411) 69,711
Other income............ 11,919 877 589 328 616 12,535
-------- ------- ------- ------- ------- ------- --------
Income (loss) before
income taxes........... 80,380 4,964 1,610 1,923 5,277 (3,411) 82,246
Provision for (benefit
of) income taxes....... 29,202 1,819 645 663 1,837 (767)(b) 30,272
-------- ------- ------- ------- ------- ------- --------
Net income (loss)..... $ 51,178 $ 3,145 $ 965 $ 1,260 $ 3,440 $(2,644) $ 51,974
======== ======= ======= ======= ======= ======= ========
Net income per common
share:
Basic.................. $ 0.57 $ 0.56
======== ========
Diluted................ $ 0.55 $ 0.54
======== ========
Shares used to compute
net income per common
share:
Basic.................. 90,069 92,500
======== ========
Diluted................ 93,786 96,810
======== ========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
57
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1.GENERAL
The Merger will be accounted for as a purchase business combination by
Sterling Commerce. These unaudited pro forma combined condensed financial
statements reflect the payment of approximately $74.2 million in cash and the
issuance of approximately 2,431,000 shares of Commerce Stock in exchange for
an aggregate of approximately 8,426,000 shares of XcelleNet Stock (amount of
XcelleNet Stock outstanding as of May 31, 1998). The pro forma adjustments
assume a payment of $8.80 in cash per share of XcelleNet Stock and the
issuance of 0.2885 share of Commerce Stock for each share of XcelleNet Stock
as set forth in the following table:
<TABLE>
<S> <C>
XcelleNet Stock outstanding as of May 31, 1998..................... 8,426,266
Stock Factor....................................................... 0.2885
---------
Number of shares of Commerce Stock exchanged....................... 2,430,978
</TABLE>
The actual amount of the cash payment and the actual number of shares of
Commerce Stock to be issued will be determined at the Effective Time based on
the actual number of shares of XcelleNet Stock outstanding on that date and a
Stock Factor of 0.2885, subject to adjustment as provided in the Merger
Agreement. See "The Merger--The Merger Agreement--Consideration to be Paid in
the Merger."
The accompanying unaudited pro forma combined condensed financial statements
reflect an aggregate purchase price of approximately $225 million, consisting
of cash paid, Commerce Stock issued to XcelleNet shareholders, valued at
$45.75 per share, and costs of Sterling Commerce directly related to the
Merger as follows (in thousands):
<TABLE>
<S> <C>
Cash paid to XcelleNet shareholders................................ $ 74,151
Commerce Stock issued and XcelleNet options assumed to complete the
Merger............................................................ 142,385
Investment advisor, legal, accounting and other professional fees
and expenses...................................................... 5,660
Other costs related to the Merger.................................. 2,520
--------
$224,716
========
</TABLE>
For purposes of the accompanying unaudited pro forma combined condensed
balance sheet, the aggregate purchase price has been allocated to the net
assets acquired, with the remainder recorded as excess cost over net assets
acquired on the basis of preliminary estimates of fair values. These
preliminary estimates of fair value were determined by Sterling Commerce's
management based primarily on information furnished by management of
XcelleNet. Sterling Commerce will retain independent valuation professionals
to assist in the determination of the value to be assigned to the individual
assets to be acquired, including intangible assets and in-process research and
development. While the pro forma information has been presented based on the
best information currently available to Sterling Commerce's management, the
final allocation of the purchase price will be based on a complete evaluation
of the assets and liabilities of XcelleNet. Although the final valuation of
the assets to be acquired is not presently expected to result in values that
are significantly different from management's estimates as included in the
unaudited pro forma combined condensed balance sheet, there can be no
assurance with respect thereto.
2.UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
The accompanying unaudited pro forma combined condensed balance sheet
assumes the Merger was consummated on March 31, 1998 and reflects the
following pro forma adjustments:
a) To record the aggregate cost of the Merger as described in Note 1
above.
b) To eliminate XcelleNet's historical equity balances.
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c) To record the allocation of the purchase price for the Merger to the
assets and liabilities acquired as follows (in thousands):
<TABLE>
<S> <C>
Working capital................................................... $ 39,662
Property and equipment............................................ 4,553
Software.......................................................... 20,182
Other assets...................................................... 337
Other liabilities................................................. (1,094)
Deferred income taxes............................................. (6,774)
Purchased in-process research and development to be charged to
expense upon consummation of the Merger ......................... 140,000
Excess cost over net assets acquired.............................. 27,850
--------
$224,716
========
</TABLE>
3.UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
The accompanying unaudited pro forma combined condensed statements of
operations have been prepared as if the Merger was consummated as of October
1, 1996 and reflect the following pro forma adjustments:
a) To record amortization of software acquired in the Merger computed
using the straight-line method over its estimated remaining economic
life (five years) and amortization of excess cost over net assets
acquired over its estimated remaining economic life (ten years).
b) To adjust the provision for income taxes to reflect the impact on the
results of operations of the Merger and related pro forma adjustments.
4.UNAUDITED PRO FORMA COMBINED EARNINGS PER COMMON SHARE DATA
The unaudited pro forma combined basic net income per common share is
computed by dividing pro forma combined net income by the weighted average
number of shares of Commerce Stock outstanding during the period plus
2,430,978, the number of shares of Commerce Stock currently anticipated to be
issued to complete the Merger. The unaudited pro forma combined diluted net
income per common share is computed by dividing pro forma combined net income
by the weighted average number of shares of Commerce Stock outstanding during
the period, as adjusted for the effect of dilutive stock options, plus
3,024,388, the number of shares of Commerce Stock currently anticipated to be
issued, as adjusted for the effect of dilutive stock options of XcelleNet
assumed, to complete the Merger.
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DESCRIPTION OF STERLING COMMERCE CAPITAL STOCK
GENERAL
The Commerce Certificate provides that the authorized capital stock of
Sterling Commerce consists of 150,000,000 shares of Commerce Stock and
50,000,000 shares of Commerce Preferred Stock. Upon consummation of the
Merger, assuming the Merger Consideration is not adjusted in accordance with
the Merger Agreement, approximately 93.9 million shares of Commerce Stock will
be issued and outstanding, and no shares of Commerce Preferred Stock will be
issued or outstanding. As of the date of this Proxy Statement/Prospectus,
approximately 19,675,000 shares of Commerce Stock are reserved for issuance
under the Sterling Commerce, Inc. Amended and Restated 1996 Stock Option Plan
(the "Commerce Stock Option Plan"), 4,000,000 shares of Commerce Stock are
reserved for issuance under the Sterling Commerce, Inc. Employee Stock
Purchase Plan and 1,500,000 shares of Sterling Commerce's Series A Junior
Participating Preferred Stock, par value $.01 per share, are reserved for
issuance pursuant to the Rights Agreement, dated December 18, 1996, between
Sterling Commerce and BankBoston, N.A. as rights agent (the "Commerce Rights
Plan"). See "--Commerce Rights Plan."
Under the terms of the Commerce Stock Option Plan, the number of shares of
Commerce Stock available for issuance under such plan is automatically
adjusted upward, if necessary, as of the end of each calendar quarter, so that
the aggregate number of shares available for issuance under the Commerce Stock
Option Plan is equal to 20% of the total number of outstanding shares of
Commerce Stock then outstanding, computed on a fully diluted basis. As a
result of the foregoing adjustment provision, the issuance of shares of
Commerce Stock in the Merger, and the conversion of XcelleNet Options into
options to purchase Commerce Stock in accordance with the terms of the Merger
Agreement, will result in an increase in the number of shares of Commerce
Stock available for issuance under the Commerce Stock Option Plan.
COMMERCE STOCK
The holders of Commerce Stock are entitled to one vote per share owned of
record on all matters voted upon by Sterling Commerce's stockholders. Subject
to preferential rights that may be applicable to any Commerce Preferred Stock
outstanding, holders of Commerce Stock are entitled to receive dividends if,
as and when declared by the Commerce Board out of funds legally available
therefor. In the event of a liquidation, dissolution or winding-up of Sterling
Commerce, holders of Commerce Stock are entitled to share equally and ratably
in the assets of Sterling Commerce, if any, remaining after the payment of all
liabilities of Sterling Commerce and the liquidation preferences of any
outstanding Commerce Preferred Stock. Holders of Commerce Stock have no
preemptive rights, cumulative voting rights or rights to convert their
Commerce Stock into any other securities, and there are no redemption or
sinking fund provisions with respect to Commerce Stock.
Commerce Stock is listed on the NYSE under the symbol "SE." BankBoston, N.A.
is the transfer agent and registrar for Commerce Stock.
COMMERCE PREFERRED STOCK
The Commerce Board has the authority to issue the authorized shares of
Commerce Preferred Stock in one or more series and to fix the designations,
relative powers, preferences, rights, qualifications, limitations and
restrictions of all shares of each such series, including without limitation
dividend rates, conversion rights, voting rights, redemption and sinking fund
provisions, liquidation preferences and the number of shares constituting each
such series, without any further vote or action by the stockholders. The
issuance of Commerce Preferred Stock could decrease the amount of earnings and
assets available for distribution to holders of Commerce Stock or adversely
affect the rights and powers, including voting rights, of the holders of
Commerce Stock. The issuance of Commerce Preferred Stock also could have the
effect of delaying, deterring or preventing a change in control of Sterling
Commerce without further action by Sterling Commerce's stockholders.
COMMERCE RIGHTS PLAN
Pursuant to the Commerce Rights Plan, 1,500,000 shares of Series A Junior
Participating Preferred Stock, par value $.01 per share ("Junior Preferred
Shares"), are reserved for issuance. One right (a "Commerce
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Right") to purchase 1/100th of a Junior Preferred Share (structured so as to
be substantially the equivalent of a share of Commerce Stock) is attached to
each issued and outstanding share of Commerce Stock, including the shares of
Commerce Stock issued in connection with the Merger. Subject to certain
conditions, each Commerce Right entitles the holder to purchase 1/100th of a
Junior Preferred Share at a price (the "Purchase Price") of $200.00 per
1/100th of a Junior Preferred Share (subject to adjustment).
In general, the Commerce Rights will not become exercisable or transferable
apart from the shares of Commerce Stock, unless a person or group of
affiliated or associated persons becomes the beneficial owner of, or commences
a tender offer that would result in beneficial ownership of 15% or more of the
outstanding shares of Commerce Stock (any such person or group of persons
being referred to in the Commerce Rights Plan as an "Acquiring Person").
Thereafter, under certain circumstances, each Commerce Right (other than any
Commerce Rights that are or were beneficially owned by an Acquiring Person,
which Commerce Rights will be void) could become exercisable to purchase at
the Purchase Price a number of shares of Commerce Stock (or, in certain
circumstances, the common stock of a company into which Sterling Commerce is
merged or consolidated or to which Sterling Commerce sells all or
substantially all of its assets) having a market value equal to two times the
Purchase Price. The Commerce Rights will expire on December 31, 2006, unless
earlier redeemed by Sterling Commerce at a redemption price of $.01 per
Commerce Right (subject to adjustment), or otherwise exchanged or amended in
accordance with the terms of the Commerce Rights Plan.
CERTAIN CORPORATE GOVERNANCE MATTERS OF STERLING COMMERCE
The Commerce Bylaws provide that the directors of Sterling Commerce are to
be classified into three classes, with the directors in each class serving for
three-year terms and until their successors are elected. Any additional person
elected to the Commerce Board will be added to a particular class of directors
to be determined at the time of such election. In accordance with the Commerce
Certificate and Commerce Bylaws, the number of directors in each class are
identical, or as nearly as practicable thereto, based on the total number of
directors then serving as such. The Commerce Certificate and the Commerce
Bylaws provide, in general, that (i) the number of directors of Sterling
Commerce will be fixed by resolution of the Commerce Board; (ii) the directors
of Sterling Commerce in office from time to time will fill any vacancy or
newly created directorship on the Commerce Board, with any new director to
serve in the class of directors to which he or she is so elected; (iii)
directors of Sterling Commerce may be removed only for cause by the holders of
at least 75% of Sterling Commerce's voting stock; (iv) stockholder action can
be taken only at an annual or special meeting of stockholders and not by
written consent in lieu of a meeting; and (v) special meetings of stockholders
may be called only by the Chairman of the Board or the President of Sterling
Commerce or by a majority of the total number of directors of Sterling
Commerce and the business permitted to be conducted at any such meeting is
limited to that brought before the meeting by the Chairman of the Board or the
President of Sterling Commerce or by a majority of the total number of
directors of Sterling Commerce. The Commerce Bylaws also require that
stockholders of Sterling Commerce desiring to bring any business before an
annual meeting of Sterling Commerce's stockholders deliver written notice
thereof to the Secretary of Sterling Commerce not later than 60 days in
advance of the meeting of stockholders; except that in the event that the date
of the meeting is not furnished to stockholders in a notice or publicly
disclosed by Sterling Commerce more than 65 days prior to the meeting, notice
by the stockholder to be timely must be delivered to the Secretary of Sterling
Commerce not later than the close of business on the tenth day following the
day on which such notice of the date of the meeting was mailed or such public
disclosure was made. The Commerce Bylaws further require that the notice by
the stockholder set forth a description of the business to be brought before
the meeting and certain information concerning the stockholder proposing such
business, including such stockholder's name and address, the class and number
of shares of Sterling Commerce that are owned beneficially by such
stockholder, and any material interest of such stockholder in the business
proposed to be brought before the meeting.
Under applicable provisions of the DGCL, the approval of a Delaware
corporation's board of directors, in addition to stockholder approval, is
required to adopt any amendment to the corporation's certificate of
incorporation, but a corporation's bylaws may be amended either by action of
its stockholders or, if the
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corporation's certificate of incorporation so provides, its board of
directors. The Commerce Certificate and the Commerce Bylaws provide that the
provisions summarized above and the provisions relating to the classification
of the Sterling Commerce Board and nomination procedures may not be amended by
the stockholders, nor may any provision inconsistent therewith be adopted by
the stockholders, without the affirmative vote of the holders of at least 75%
of Sterling Commerce's voting stock, voting together as a single class.
The foregoing provisions of the Commerce Certificate and the Commerce
Bylaws, and the terms of the Commerce Rights Plan, may discourage or make more
difficult the acquisition of control of Sterling Commerce by means of a tender
offer, open market purchase, proxy contest or otherwise. These provisions may
have the effect of discouraging certain types of coercive takeover practices
and inadequate takeover bids and to encourage persons seeking to acquire
control of Sterling Commerce first to negotiate with Sterling Commerce.
Sterling Commerce's management believes that the foregoing measures provide
benefits to Sterling Commerce and its stockholders by enhancing Sterling
Commerce's ability to negotiate with the proponent of any unfriendly or
unsolicited proposal to take over or restructure Sterling Commerce and that
such benefits outweigh the disadvantages of discouraging such proposals
because, among other things, negotiation of such proposals could result in an
improvement of their terms.
Sterling Commerce is a Delaware corporation and is subject to Section 203
("Section 203") of the DGCL. In general, Section 203 prevents an "interested
stockholder" (defined generally as a person owning 15% or more of a
corporation's outstanding voting stock) from engaging in a "business
combination" (as defined in Section 203) with a Delaware corporation for three
years following the date such person became an interested stockholder unless
(i) before such person became an interested stockholder, the board of
directors of the corporation approved the transaction in which the interested
stockholder became an interested stockholder or approved the business
combination; (ii) upon consummation of the transaction that resulted in the
interested stockholder's becoming an interested stockholder, the interested
stockholder owns at least 85% of the voting stock of the corporation
outstanding at the time such transaction commenced (excluding stock held by
directors who are also officers of the corporation and by employee stock plans
that do not provide employees with the rights to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer); or (iii) following the transaction in which such person
became an interested stockholder, the business combination is approved by the
board of directors of the corporation and authorized at a meeting of
stockholders by the affirmative vote of the holders of at least two-thirds of
the outstanding voting stock of the corporation not owned by the interested
stockholder. Under Section 203, the restrictions described above also do not
apply to certain business combinations proposed by an interested stockholder
following the announcement or notification of one of certain extraordinary
transactions involving the corporation and a person who had not been an
interested stockholder during the previous three years or who became an
interested stockholder with the approval of a majority of the corporation's
directors and which transaction is approved or not opposed by a majority of
the board of directors then in office.
RESTRICTIONS ON RESALES OF COMMERCE STOCK BY AFFILIATES
The shares of Commerce Stock to be issued to the holders of XcelleNet Stock
in the Merger are being registered under the Securities Act pursuant to the
Registration Statement. However, because some holders of XcelleNet Stock are
or may be "affiliates" of XcelleNet at the time of the Special Meeting, such
persons will not be able to resell Commerce Stock received by them in the
Merger unless such Commerce Stock is registered for resale under the
Securities Act, is sold in compliance with an applicable exemption from the
registration requirements of the Securities Act or is sold in compliance with
Rule 145 under the Securities Act ("Rule 145").
Rule 145 permits holders of securities received in a merger or other
exchange to sell such securities without registration under the Securities Act
provided such sale is made in compliance with certain provisions of Rule 144
under the Securities Act ("Rule 144") or certain holding period requirements
have been satisfied. The applicable provisions of Rule 144 allow a holder of
such securities to sell, without registration, within any three-month period a
number of shares of such securities that does not exceed the greater of 1% of
the number of
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outstanding securities in question or the average weekly trading volume in the
securities in question during the four calendar weeks preceding a specified
date subject to the satisfaction of certain other requirements regarding the
manner of sale and the availability of current public information regarding
the issuer. Rule 145 also permits a holder of such securities to sell such
securities without registration if: (i) such holder is not an affiliate of the
issuer and a period of at least one year has elapsed since the date such
securities were acquired from the issuer in the transaction, and the issuer
meets the requirements of Rule 144 regarding the availability of current
public information, or (ii) such holder is not, and has not been for at least
three months, an affiliate of the issuer and a period of at least two years
has elapsed since the date such securities were acquired from the issuer in
the transaction.
COMPARISON OF RIGHTS OF HOLDERS OF XCELLENET STOCK AND COMMERCE STOCK
GENERAL
XcelleNet is incorporated under the laws of the state of Georgia. Sterling
Commerce is incorporated under the laws of the state of Delaware. The rights
of XcelleNet's shareholders are currently governed by the GBCC, the XcelleNet
Articles and the XcelleNet Bylaws. If XcelleNet's shareholders approve the
Merger Agreement and the Merger becomes effective, shareholders of XcelleNet
will become stockholders of Sterling Commerce. For that reason, after the
Effective Time of the Merger, their rights will be governed by the DGCL, the
Commerce Certificate and the Commerce Bylaws.
THE FOLLOWING IS A COMPARISON OF CERTAIN RIGHTS OF HOLDERS OF XCELLENET
STOCK WITH THE RIGHTS OF HOLDERS OF COMMERCE STOCK. IT IS NOT INTENDED TO BE
COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE RELEVANT
PROVISIONS OF THE LAWS AND DOCUMENTS DISCUSSED BELOW.
AUTHORIZED CAPITAL STOCK
XcelleNet. The total number of authorized shares of capital stock of
XcelleNet is 40,000,000 shares, of which 30,000,000 shares are XcelleNet Stock
and 10,000,000 shares are preferred stock, par value $0.01 per share, which
may be issued in series by the XcelleNet Board.
Sterling Commerce. The total number of authorized shares of capital stock of
Sterling Commerce is 200,000,000 shares, of which 150,000,000 shares are
Commerce Stock and 50,000,000 shares are Commerce Preferred Stock. See
"Description of Sterling Commerce Capital Stock--General."
AMENDMENT OF ARTICLES OR CERTIFICATE OF INCORPORATION AND BYLAWS
XcelleNet. Under the GBCC, an amendment to a corporation's articles of
incorporation requires a recommendation of the amendment from the board of
directors (unless the board of directors elects because of a conflict of
interest or other special circumstances to make no recommendation and
communicates the basis for its election to the shareholders) and the approval
of holders of a majority of the outstanding shares entitled to vote thereon,
unless the GBCC, the XcelleNet Articles, or the board of directors require a
greater vote or a vote by voting groups; provided, however, the GBCC provides
that the board of directors may make certain relatively technical amendments
to a corporation's articles of incorporation without shareholder action. The
holders of outstanding shares of a class are entitled to vote as a separate
class on a proposed amendment that would: (i) increase or decrease the
aggregate number of authorized shares of such class (unless the articles of
incorporation provide otherwise); (ii) increase or decrease the par value of
the shares of such class; (iii) effect an exchange or reclassification of all
or part of the shares of the class into shares of another class; (iv) effect
an exchange or reclassification, or create a right of exchange of all or any
part of the shares of another class into the shares of such class; (v) change
the designations, preferences, limitations or rights of all or part of the
shares of such class; or (vi) have certain other specified effects.
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Under the GBCC, a corporation's board of directors may amend or repeal the
corporation's bylaws or adopt new bylaws unless the articles of incorporation
reserve the power exclusively to the shareholders or the shareholders, in
amending or repealing a particular bylaw, provide expressly that the board of
directors may not amend or repeal such bylaw.
The XcelleNet Bylaws may be altered, amended or repealed, or new bylaws
adopted by a majority of the XcelleNet Board; however, any bylaws adopted by
the XcelleNet Board may be altered, amended or repealed, and new bylaws
adopted by the shareholders. The shareholders of XcelleNet may prescribe that
any action they take in adopting or amending any bylaw or bylaws shall not be
altered, amended or repealed by the XcelleNet Board. Notwithstanding the
foregoing, the provisions of the XcelleNet Bylaws regarding shareholder action
without a meeting, indemnification, amendments and restrictions on certain
business combinations with interested shareholders may be amended only by the
procedure provided in the GBCC for the amendment of articles of incorporation.
Sterling Commerce. Under the DGCL, an amendment to a corporation's
certificate of incorporation requires the approval of the board of directors
and the approval of holders of a majority of the outstanding stock entitled to
vote thereon. The holders of the outstanding shares of a class are entitled to
vote as a separate class on a proposed amendment that would increase or
decrease the aggregate number of authorized shares of such class, increase or
decrease the par value of the shares of such class, or alter or change the
powers, preferences or special rights of the shares of such class so as to
affect them adversely.
The Commerce Bylaws may be amended by a majority of the Commerce Board or by
holders of a majority of the outstanding stock entitled to vote thereon. See
"Description of Sterling Commerce Capital Stock--Certain Corporate Governance
Matters of Sterling Commerce."
APPROVAL OF MERGERS, DISSOLUTION AND ASSET SALES
XcelleNet. Under the GBCC, a merger or share exchange generally requires the
recommendation of the board of directors and the approval of a majority of the
holders of the outstanding shares entitled to vote thereon and a majority of
the outstanding shares entitled to vote separately on the plan as a voting
group by the articles of incorporation. However, the GBCC provides that
approval by the shareholders of a corporation on a plan of merger is not
required if: (i) the corporation is the sole surviving corporation in the
merger; (ii) the articles of incorporation of the corporation will not differ
from its articles of incorporation before the merger; (iii) each shareholder
of the corporation whose shares were outstanding immediately before the
effective date of the merger will hold the same number of shares, with
identical designations, preferences, limitations and relative rights,
immediately after the effective date of the merger; and (iv) the number and
kind of shares outstanding immediately after the merger, plus the number and
kind of shares issuable as a result of the merger and by the conversion of
securities issued pursuant to the merger or the exercise of rights and
warrants issued pursuant to the merger, will not exceed the total number and
kind of shares of the surviving corporation authorized by its articles of
incorporation immediately prior to the merger. Under the GBCC, the dissolution
of a corporation or a disposition of all, or substantially all, of the
property and assets of a corporation generally requires the recommendation by
the board of directors and the approval of a majority of the holders entitled
to vote thereon, unless the articles of incorporation, the bylaws or board of
directors requires a greater vote or a vote by voting groups.
XcelleNet also elected under the XcelleNet Bylaws to be governed by Sections
14-2-1131, 14-2-1132 and 14-2-1133 of the GBCC regarding "Interested
Shareholders." These provisions require certain super-majority votes for
transactions with any "Interested Shareholders" (generally defined as any
person, other than the corporation or any subsidiary, beneficially owning at
least 10% of the voting stock of the corporation or an affiliate of the
corporation who beneficially owned 10% of the voting stock within the past two
years). Repeal or amendment of such a bylaw must be approved by at least two-
thirds of the directors who are not affiliates of the Interested Shareholder
and by a majority of the votes entitled to be cast by the holders of shares
not beneficially owned by the Interested Shareholder.
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The GBCC generally prohibits a Georgia corporation from entering into
certain "business combination" transactions with any Interested Shareholder
for a period of five years following the time such shareholder becomes an
Interested Shareholder unless: (i) prior to such time, the corporation's board
of directors approves the business combination or the transaction resulting in
the shareholder becoming an interested shareholder; (ii) the interested
shareholder acquires 90% or more of the outstanding voting stock of the
corporation (excluding "affiliated shares" held by affiliates, subsidiaries or
benefit plans) as part of the transaction in which it becomes an Interested
Shareholder; or (iii) subsequent to becoming an Interested Shareholder, such
shareholder acquires 90% or more of the outstanding voting stock of the
corporation (excluding "affiliated shares") and a majority of the remaining
outstanding voting stock (excluding affiliated shares) approve the business
combination. A "business combination" is defined under Section 14-2-1131 to
generally include, among others, the following types of transactions between
the interested shareholder and the corporation: mergers and consolidations;
sales, leases, transfers and other dispositions (including as part of a
dissolution) of assets having an aggregate market value equal to 10% or more
of either the aggregate market value of all assets of the corporation on a
consolidated basis or the aggregate market value of all the outstanding stock
of the corporation; certain transactions that would increase the interested
shareholder's proportionate share ownership of the stock of any equity
securities of the corporation or such subsidiary which have an aggregate
market value of 5% or more of the total market value of the outstanding common
and preferred shares; and transactions involving the receipt by the interested
shareholder of the benefit of any loans, advances, guarantees, pledges or
other financial benefits provided by or through the corporation.
Sterling Commerce. Under the DGCL, a merger, consolidation, dissolution or
sale or other disposition of substantially all of a corporation's assets
generally requires the approval of the board of directors and holders of a
majority of the outstanding stock entitled to vote thereon. However, the DGCL
provides that no vote of the stockholders of the surviving corporation is
required, unless the certificate of incorporation provides otherwise, to
approve a merger if: (i) the agreement of merger does not amend in any respect
the corporation's certificate of incorporation; (ii) each share of the
corporation's stock outstanding immediately prior to the merger is to be an
identical outstanding or treasury share of the surviving corporation after the
merger; and (iii) either (a) no shares of common stock of the surviving
corporation and no shares, securities or obligations convertible into such
stock are to be issuable as a result of the merger or (b) the increase in the
outstanding shares as a result of the merger does not exceed 20% of the shares
of common stock of the surviving corporation outstanding immediately prior to
the effective date of the merger.
In addition to the foregoing, Section 203 of the DGCL, in general, prohibits
certain business combinations between a Delaware corporation and an interested
stockholder within three years of the time such stockholder became an
interested stockholder unless (i) prior to such time the board of directors of
the corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder; (ii)
upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, exclusive of shares owned by directors who are also
officers and by certain employee stock plans; or (iii) after such time, the
business combination is approved by the board of directors and authorized by
the affirmative vote at a stockholders' meeting of at least 66 2/3% of the
outstanding voting stock which is not owned by the interested stockholder. In
addition, the restrictions of Section 203 do not apply to business
combinations proposed after the public announcement or notice of a transaction
meeting specified criteria and before consummation or abandonment of such
transaction. For purposes of Section 203, "business combinations" include,
among others, the following types of transactions between the interested
stockholder and the corporation: mergers and consolidations; sales, pledges,
transfers and other dispositions (including as part of a dissolution) of
assets having an aggregate market value equal to 10% or more of either the
aggregate market value of all assets of the corporation on a consolidated
basis or the aggregate market value of all the outstanding stock of the
corporation; certain transactions that would increase the interested
stockholder's proportionate share ownership of the stock of any class or
series of the corporation or such subsidiary; and transactions involving the
receipt by the interested stockholder of the benefit of any loans, advances,
guarantees, pledges or other financial benefits provided by or through the
corporation. For purposes of Section 203, an "interested
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stockholder" generally is any person who is the beneficial owner of 15% or
more of the outstanding voting stock of the corporation, and the affiliates
and associates of such person. See "Description of Sterling Commerce Capital
Stock--Certain Corporate Governance Matters of Sterling Commerce."
SPECIAL MEETINGS
XcelleNet. Under the GBCC, a special meeting of shareholders may be called
by either (i) the board of directors or such other person or persons as may be
authorized by the articles of incorporation or by the bylaws or (ii) the
holders of shares entitled to cast not less than 25% of all shares entitled to
vote at the special meeting, unless a different percentage is provided for in
the articles of incorporation or bylaws. The XcelleNet Bylaws provide that a
special meeting of shareholders may be called only by the Chairman of the
Board, Chief Executive Officer or the XcelleNet Board or by the corporation
upon written request of the holders of 25% of all the shares entitled to vote
in any election of directors.
Sterling Commerce. Under the DGCL, a special meeting of stockholders may be
called by the board of directors or by such persons as may be authorized by
the certificate of incorporation or by the bylaws. The Commerce Certificate
and Commerce Bylaws provide that a special meeting of stockholders may be
called only by the Chairman of the Board or the President or by the Secretary
upon the written request of a majority of the Commerce Board. Consequently,
holders of Commerce Stock do not have the ability to call a special meeting of
stockholders. See "Description of Sterling Commerce Capital Stock--Certain
Corporate Governance Matters of Sterling Commerce."
ACTION WITHOUT A MEETING
XcelleNet. Under the GBCC, any action required or permitted to be taken at a
shareholders' meeting may be taken without a meeting pursuant to the written
consent of the holders of all of the shares entitled to vote with respect to
the action that is the subject of the consent, except that the articles of
incorporation may provide that such action may be taken pursuant to the
written consent of the holders of shares having not less than the minimum
number of votes that would have been necessary to take such action at a
meeting at which the holders of all shares entitled to vote on the action were
present and voted. The XcelleNet Articles do not address shareholder action
without a meeting, and as a result, no action may be taken by written consent
unless holders of all shares of XcelleNet Stock are signatories to such
consent.
Sterling Commerce. Under the DGCL, unless otherwise provided in the
certificate of incorporation, any action required or permitted to be taken at
a stockholders' meeting may be taken without a meeting pursuant to the written
consent of the holders of the number of shares that would have been required
to effect the action at an actual meeting of stockholders. The Commerce
Certificate provides that no action may be taken without a meeting and the
power of the stockholders to act by written consent without a meeting is
specifically denied.
DIRECTORS
XcelleNet. Under the GBCC, unless the articles of incorporation provide
otherwise, the directors of a corporation are elected by a plurality of the
votes of shares entitled to vote thereon present in person or by proxy at the
meeting at which directors are elected and there is no cumulative voting in
the election of directors. The XcelleNet Bylaws provide that the number of
directors shall be no less than three and no more than 11, the precise number
to be determined by resolution of the shareholders or the XcelleNet Board. The
number of directors of XcelleNet is currently fixed at nine. Each director
serves until the next succeeding annual meeting and thereafter until his
successor shall have been elected and qualified or until his or her earlier
death, resignation or removal. Directors of XcelleNet may be removed with or
without cause by the affirmative vote of the holders of a majority of the
shares of XcelleNet capital stock entitled to vote thereon. Vacancies on the
XcelleNet Board may be filled by the majority vote of the remaining directors
then in office, except for vacancies occurring by reason of removal by the
shareholders.
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Sterling Commerce. Under the DGCL, unless the certificate of incorporation
or bylaws of the corporation provide otherwise, the directors shall be elected
by a plurality of the votes of the shares present in person or represented by
proxy at the meeting and entitled to vote on the election of directors.
Directors of Sterling Commerce are elected by the holders of a majority of the
shares of Sterling Commerce capital stock entitled to vote thereon present in
person or by proxy at the meeting at which directors are elected. There is no
cumulative voting in the election of Sterling Commerce directors. The Commerce
Bylaws provide that the number of directors shall be determined by resolution
of the Commerce Board. The number of directors of Sterling Commerce is
currently fixed at seven. The directors are divided into three classes, with
directors in each class serving a staggered term of three years or until his
or her earlier death, resignation or removal. The Commerce Certificate
provides that directors of Sterling Commerce may be removed with cause by the
affirmative vote of the holders of at least 75% of the voting power of the
outstanding shares of Commerce capital stock entitled to vote thereon.
Vacancies on the Sterling Commerce Board may be filled by the majority vote of
the remaining directors, although less than a quorum, or by a sole remaining
director. See "Description of Sterling Commerce Capital Stock--Certain
Corporate Governance Matters of Sterling Commerce."
LIMITATION OF DIRECTOR LIABILITY
XcelleNet. Under the GBCC, corporations may adopt a provision in their
articles of incorporation eliminating or limiting the personal liability of a
director to the corporation or its shareholders for monetary damages for any
action taken, or any failure to take action as a director, except that Georgia
law does not permit the elimination or limitation of monetary liability for a
director in the event of (i) misappropriation of corporate business
opportunities; (ii) intentional misconduct or knowing violation of the law;
(iii) unlawful distributions; or (iv) any transaction in which such director
receives an improper personal benefit. In addition, under the XcelleNet
Articles, any additional liabilities permitted to be limited or eliminated by
subsequent legislation will automatically be limited to the fullest extent
permitted by the amended GBCC.
Sterling Commerce. Under the DGCL, a certificate of incorporation may
contain a provision eliminating or limiting the personal liability of
directors to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, except that such provision cannot
eliminate or limit the liability of a director: (i) for any breach of a
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) statutory liability for unlawful payment of
dividends or unlawful stock purchase or redemption; or (iv) for any
transaction from which the director derived an improper personal benefit. The
Commerce Certificate provides that, to the fullest extent permitted by the
DGCL, a director shall not be liable to Sterling Commerce or its stockholders
for monetary damages for breach of fiduciary duty as a director.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
XcelleNet. Under the GBCC, a Georgia corporation may indemnify an individual
who is a party to a proceeding because he or she is or was a director against
liability incurred in such proceeding, provided that such individual acted in
good faith and reasonably believed (i) in the case of conduct in his or her
official capacity, that such conduct was in the best interests of the
corporation; (ii) in all other cases other than a criminal proceeding, that
such conduct was at least not opposed to the best interests of the
corporation; and (iii) in the case of a criminal proceeding, that such
individual had no reasonable cause to believe that such conduct was unlawful.
A Georgia corporation may not indemnify a director under Section 14-2-851 (i)
in connection with a proceeding by or in the right of the corporation, except
for reasonable expenses incurred by such director in connection with the
proceeding, provided it is determined that such director met the relevant
standard of conduct set forth above, or (ii) in connection with any proceeding
with respect to conduct for which such director was adjudged liable on the
basis that he or she received an improper personal benefit.
Prior to indemnifying a director under Section 14-2-851 of the GBCC, a
determination must be made that the director has met the relevant standard of
conduct. Such determination must be made by: (i) a majority vote
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of a quorum consisting of directors not at that time parties to the suit; (ii)
a duly designated committee of directors; (iii) duly selected special legal
counsel; or (iv) a vote of the shareholders, excluding shares owned by or
voted under the control of directors who are at the time parties to the suit.
A Georgia corporation may, before final disposition of a proceeding, advance
funds to pay for or reimburse the reasonable expenses incurred by a director
who is a party to a proceeding because he or she is a director, provided that
such director delivers to the corporation a written affirmation of his or her
good faith belief that he or she met the relevant standard of conduct
described in Section 14-2-851 of the GBCC, or that the proceeding involves
conduct for which such director's liability has been properly eliminated by
action of the corporation, and a written undertaking by the director to repay
any funds advanced if it is ultimately determined that such director was not
entitled to such indemnification. Under the GBCC, a corporation must indemnify
a director who was wholly successful, on the merits or otherwise, in the
defense of any proceeding to which the director was a party because he or she
was a director of the corporation against reasonable expenses incurred by the
director in connection with the proceeding.
The GBCC also allows a Georgia corporation to indemnify directors made a
party to a proceeding without regard to the above-referenced limitations, if
authorized by the articles of incorporation or a bylaw, contract or resolution
duly adopted by a vote of the shareholders of the corporation by a majority of
votes entitled to be cast, excluding shares owned or voted under the control
of the director or directors who are not disinterested, and to advance funds
to pay for or reimburse reasonable expenses incurred in the defense thereof,
subject to restrictions similar to the restrictions described in the preceding
paragraph; provided, however, that the corporation may not indemnify a
director adjudged liable: (i) for any appropriation, in violation of his or
her duties, of any business opportunity of the corporation; (ii) for acts or
omissions which involve intentional misconduct or a knowing violation of law;
(iii) for unlawful distributions; or (iv) for any transaction from which he or
she received an improper personal benefit.
Under Georgia law, a corporation's authority to indemnify officers, unlike
directors, is restricted only by public policy. A person who is both an
officer and a director is treated, for indemnification purposes, as a
director.
The XcelleNet Articles do not address indemnification of directors, officers
or other persons. However, the XcelleNet Bylaws provide that: (i) XcelleNet
will indemnify persons who are or were directors or officers (both in their
capacities as directors and officers and, if serving at the request of
XcelleNet as a director, officer, trustee, employee or agent of another
foreign or domestic corporation, trust, partnership, joint venture, sole
proprietorship, employee benefit plan or other enterprise) to the full extent
permitted by the GBCC; (ii) XcelleNet will pay or reimburse, in advance of the
final disposition of any proceeding, to all persons who are or were directors
or officers of XcelleNet all reasonable expenses incurred by such persons to
the full extent permitted by the GBCC; and (iii) XcelleNet will indemnify
persons who are or were employees or agents (other than directors or
officers), to the same extent as to a director or officer, or to any lesser
extent determined by the XcelleNet Board. The XcelleNet Bylaws also provide
that XcelleNet may purchase or maintain insurance on behalf of any director or
officer or an individual who is or was an employee or agent of XcelleNet or
who, while an employee or agent of XcelleNet, is or was serving at the request
of XcelleNet as directors, officers, trustees, employees, agents or similar
functionaries of another foreign or domestic corporation, trust, partnership,
joint venture, sole proprietorship, employee benefit plan or other enterprise
against any liability asserted against him and incurred by him in such a
capacity or arising out of his status as a director, officer, employee or
agent, whether or not XcelleNet would have the power to indemnify him against
the liability under certain provisions of the XcelleNet Bylaws.
Sterling Commerce. Under the DGCL, (i) a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that the person 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 corporation,
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partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by the person in connection with such action,
suit or proceeding if the person acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe the person's conduct was unlawful, and (ii) a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or
in the right of the corporation to procure a judgment in its favor by reason
of the fact that the person 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 corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees) actually and reasonably incurred by the person in connection
with the defense or settlement of such action or suit if the person acted in
good faith and in a manner the person reasonably believed to be in or not
opposed to the best interests of the corporation, except that no
indemnification may be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought determines upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court deems proper.
Under the DGCL, to the extent that a present or former director or officer
of a corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in the immediately preceding
sentence, or in defense of any claim, issue or matter referred to therein,
such person must be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection therewith.
The DGCL provides that any indemnification under the provisions described in
the second preceding paragraph (unless ordered by a court) will be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the present or former director, officer, employee or agent
is proper in the circumstances because the person has met the applicable
standard of conduct, which determination will be made, with respect to a
person who is a director or officer at the time of such determination, (i) by
a majority vote of the directors who are not parties to such action, suit or
proceeding, even though less than a quorum; or (ii) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion; or (iii) by the stockholders. Under the DGCL, expenses
(including attorneys' fees) incurred by an officer or director in defending
any civil, criminal, administrative or investigative action, suit or
proceeding may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that such person is not entitled to be indemnified by the
corporation. Such expenses (including attorneys' fees) incurred by former
directors and officers or other employees and agents may be so paid upon such
terms and conditions, if any, as the corporation deems appropriate.
Under the DGCL, a corporation has power to purchase and maintain insurance
on behalf of any person who 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 corporation, partnership,
joint venture, trust or other enterprise, against any liability asserted
against such person and incurred by such person in any such capacity, or
arising out of such person's status as such, whether or not the corporation
would have the power to indemnify such person against such liability under the
DGCL.
The Commerce Certificate provides that Sterling Commerce will indemnify
every director and officer of Sterling Commerce to the fullest extent allowed
by law, except as otherwise provided in the Commerce Bylaws. The Commerce
Bylaws provide for the indemnification to the full extent permitted under the
DGCL. The Commerce Bylaws also provide that Sterling Commerce has the power to
purchase and maintain insurance as permitted by the DGCL.
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NOMINATION OF DIRECTORS; PROPOSAL OF BUSINESS
XcelleNet. The XcelleNet Bylaws do not contain any advance notice and
informational procedures that must be complied with in order for a shareholder
to nominate a person to serve as a director or to propose an item of business
at a shareholders' meeting.
Sterling Commerce. The Commerce Bylaws contain detailed advance notice and
informational procedures that must be complied with in order for a stockholder
to nominate a person to serve as a director. The Commerce Bylaws generally
require a stockholder to give notice of a proposed nominee in advance of the
stockholders' meeting at which directors will be elected. In addition, the
Commerce Bylaws contain detailed advance notice and informational procedures
that must be followed in order for a Sterling Commerce stockholder to propose
an item of business for consideration at a meeting of Sterling Commerce
stockholders.
DIVIDENDS AND DISTRIBUTIONS
XcelleNet. Under the GBCC, a corporation may make distributions to its
shareholders subject to the restriction of the articles of incorporation and
so long as the corporation would still be able to pay its debts as they become
due in the usual course of business or so long as the corporation's total
assets are more than the sum of its total liabilities plus an amount that
would be needed, if the corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
distribution. The XcelleNet Articles impose restrictions on distributions as
long as shares of preferred stock are outstanding. At the Record Date,
however, no shares of preferred stock had been issued.
Sterling Commerce. Under the DGCL, a corporation may pay dividends out of
surplus or if there is no surplus out of net profits for the fiscal year in
which declared and for the preceding fiscal year. The DGCL also provides that
dividends may not be paid out of net profits if, after the payment of the
dividend, the corporation's capital would be less than the capital represented
by the outstanding stock of all classes having a preference upon the
distribution of assets.
CERTAIN DISSENTERS' OR APPRAISAL RIGHTS
XcelleNet. Under the GBCC, shareholders have the right to dissent and
receive payment of the fair value of their shares in the event of: (i) mergers
or share exchanges on which the shareholders are entitled to vote; (ii) sales
of all or substantially all of the corporation's assets (unless the sale is
pursuant to a court order and the proceeds are distributed to the shareholders
within one year after the sale); or (iii) amendments to the articles of
incorporation materially and adversely affecting their rights or interests as
shareholders. This right is not available when the affected shares are listed
on a national securities exchange or held of record by more than 2,000
shareholders unless (i) the articles of incorporation or a resolution of the
Board approving the transaction provides otherwise, or (ii) in a plan of
merger or share exchange, the holders of such shares are required to accept
anything other than shares of the surviving corporation or another publicly-
held corporation listed on a national securities exchange or held of record by
more than 2,000 shareholders, except for cash in lieu of fractional shares.
Under the GBCC, if proposed corporate action creating dissenters' rights is
submitted to a vote at a shareholders' meeting, the meeting notice must state
that shareholders are or may be entitled to assert dissenters' rights and be
accompanied by a copy of Article 13 of the GBCC. Record holders who wish to
assert dissenters' rights must deliver written notice of their intent to
demand payment to the corporation before the vote is taken and must not vote
their shares. If the action is approved at a shareholders' meeting, the
corporation must deliver written dissenters' notice to those shareholders and
offer to pay an amount the corporation estimates to be the fair value of the
shares, plus accrued interest. See "The Merger--Dissenters' Rights."
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Sterling Commerce. The DGCL generally entitles a stockholder to exercise
appraisal rights upon a merger or consolidation of the corporation effected
pursuant to the DGCL if the holder complies with the requirements of Section
262 thereof. However, the DGCL does not provide appraisal rights for
stockholders of a corporation upon such a merger or consolidation if the stock
of the corporation is listed on a national securities exchange or designated
as a national market system security on Nasdaq or held by more than 2,000
holders and stockholders are not required by the terms of the merger or
consolidation to accept for their stock anything except: (i) shares of stock
of the corporation surviving or resulting from such merger or consolidation,
or depository receipt in respect thereof; (ii) shares of stock of any other
corporation, or depository receipts in respect thereof, which shares of stock
or depository receipts at the effective date of the merger or consolidation
will be either listed on a national securities exchange or designated as a
national market system security on Nasdaq or held of record by more than 2,000
holders; (iii) cash in lieu of fractional shares or fractional depository
receipts; or (iv) any combination of the shares of stock, depository receipts,
and cash in lieu of fractional shares or fractional depository receipts.
DERIVATIVE ACTIONS
XcelleNet. Derivation actions may be brought under the GBCC by a shareholder
in the right of the corporation. The GBCC provides that a shareholder
(including a beneficial owner whose shares are held in a voting trust or by a
nominee on the beneficial owner's behalf) may not commence or maintain a
derivative proceeding unless the shareholder (i) was a shareholder of the
corporation at the time of the act or omission complained of or became a
shareholder by operation of law from a person that was a shareholder at that
time and (ii) fairly and adequately represents the interests of the
corporation in enforcing the right of the corporation. The GBCC further
provides that no shareholder may commence or maintain a derivative action
until (i) a written demand is filed with the corporation setting forth with
particularity the act, omission, or other matter that is the subject of the
claim or challenge and requesting that the corporation take suitable action
and (ii) 90 days have expired since the date the demand was made (unless
irreparable injury to the corporation is being suffered or would result by
waiting for 90 day period to expire) or the corporation has rejected the
demand. A court may dismiss a derivative proceeding if (i) a majority vote of
independent and disinterested directors; (ii) a majority vote of a committee
of two or more independent directors appointed by a majority vote of
independent directors; or (iii) a panel of one or more independent and
disinterested persons appointed by the court determines in good faith, after
conducting a reasonable inquiry and based on the factors that the person or
group deems appropriate under the circumstances, that the continuation of the
derivative proceeding is not in the best interests of the corporation. The
GBCC also provides that, upon termination of a derivative proceeding, the
court may order (i) a corporation to pay the reasonable expenses of the
plaintiff incurred in the proceeding if it finds that the proceeding has
resulted in a substantial benefit to the corporation, or (ii) the plaintiff to
pay the reasonable expenses of the corporation or any defendant incurred in
investigating and defending the proceeding if it finds that the proceeding was
commenced or maintained without reasonable cause or for an improper purpose.
Sterling Commerce. Derivative actions may be brought under the DGCL by a
stockholder on behalf of, and for the benefit of, the corporation. The DGCL
provides that a stockholder must aver in the complaint that he or she was a
stockholder of the corporation at the time of the transaction of which he or
she complains. However, no action may be brought by a stockholder unless he
first seeks remedial action on his claim from the corporation's board, unless
such a demand for redress is excused. The board of a Delaware corporation can
appoint an independent litigation committee to review a stockholder's request
for a derivative action and the litigation committee, acting reasonably and in
good faith, can terminate the stockholder's action subject to a court's review
of such committee's independence, good faith, and reasonable investigation.
Under the DGCL, the court in a derivative action may apply a variety of legal
and equitable remedies on behalf of the corporation that vary depending on the
facts and circumstances of the case and the nature of the claim brought.
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LEGAL MATTERS
The validity of the shares of Commerce Stock to be issued in connection with
the Merger will be passed upon for Sterling Commerce by Jones, Day, Reavis &
Pogue, Dallas, Texas.
EXPERTS
The audited consolidated financial statements of XcelleNet incorporated by
reference in this Proxy Statement/Prospectus, to the extent and for the
periods indicated in their report have been audited by Arthur Andersen LLP,
independent public accountants and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
The consolidated financial statements of Sterling Commerce appearing in
Sterling Commerce's Annual Report (Form 10-K) for the year ended September 30,
1997, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
SHAREHOLDER PROPOSALS
Any proposal of a shareholder of XcelleNet intended to be presented at the
1999 Annual Meeting of Shareholders of XcelleNet must be received in writing
by the Secretary of XcelleNet by December 7, 1998 for inclusion, if
appropriate, in the proxy statement relating to such annual meeting. If the
Merger is consummated, it is anticipated that no such annual meeting will be
held.
OTHER MATTERS
As of the date of this Proxy Statement/Prospectus, the XcelleNet Board does
not know of any matters that will be presented for consideration at the
Special Meeting other than as described in this Proxy Statement/Prospectus.
However, if any other matter shall properly come before the Special Meeting
and shall be voted upon, the proposed proxies will be deemed to confer
authority to the individuals named as authorized therein to vote the shares
represented by such proxies as to any such matters that fall within the
purpose set forth in the Notice of such Special Meeting as determined by a
majority of the XcelleNet Board.
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INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Acceleration Agreements.................................................... 51
Acquiring Person........................................................... 61
Acquisition Proposal....................................................... 41
Alex. Brown................................................................ 23
Antitrust Division......................................................... 4
Broadview.................................................................. 23
Broadview Agreement........................................................ 37
Broadview Opinion.......................................................... 33
CAGR....................................................................... 34
Cash Payment............................................................... 2
Closing Date............................................................... 3
Code....................................................................... 3
Commerce Board............................................................. 14
Commerce Bylaws............................................................ 19
Commerce Certificate....................................................... 19
Commerce Preferred Stock................................................... 19
Commerce Right............................................................. 60
Commerce Rights Plan....................................................... 60
Commerce Southern.......................................................... i
Commerce Stock............................................................. i
Commerce Stock Option Plan................................................. 60
Commission................................................................. i
Comparable Companies....................................................... 30
Crumpler Shareholders...................................................... 1
Delaware Certificate of Merger............................................. 2
DGCL....................................................................... 2
Dissenters' Notice......................................................... 52
Dissenting Shareholder..................................................... 40
Dissenting Shares.......................................................... 2
Effective Time............................................................. 2
EPS........................................................................ 31
Equity Price/Pretax........................................................ 35
Exchange Act............................................................... ii
Forward P/E................................................................ 34
Forward PEG................................................................ 34
FTC........................................................................ 4
GBCC....................................................................... 2
Georgia Certificate of Merger.............................................. 2
HSR Act.................................................................... 4
Indemnified Liabilities.................................................... 45
Indemnified Party.......................................................... 45
Initial Fee................................................................ 44
IT......................................................................... 35
International Distributor Agreement........................................ 17
Junior Preferred Shares.................................................... 60
M&A........................................................................ 35
Merger..................................................................... i
Merger Agreement........................................................... i
Merger Consideration....................................................... 2
Nasdaq..................................................................... 7
</TABLE>
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
NYSE....................................................................... ii
Option Conversion Factor................................................... 3
P/E........................................................................ 34
P/R........................................................................ 35
Precedent Acquisition Transactions......................................... 30
Purchase Price............................................................. 61
Record Date................................................................ i
Registration Statement..................................................... i
Retainer................................................................... 32
Robertson Stephens......................................................... 2
Robertson Stephens Engagement Letter....................................... 28
Robertson Stephens Opinion................................................. 2
Rule 144................................................................... 62
Rule 145................................................................... 62
Section 203................................................................ 62
Securities Act............................................................. i
Shareholder Agreement...................................................... 2
Special Meeting............................................................ i
Sterling Commerce.......................................................... i
Sterling Software.......................................................... 17
Stock Factor............................................................... 2
Substitute Option.......................................................... 3
Superior Proposal.......................................................... 42
Surviving Corporation...................................................... i
Systems Management Software Industry....................................... 26
Tax Payment................................................................ 51
TMC/R...................................................................... 34
TTM........................................................................ 34
XcelleNet.................................................................. i
XcelleNet Articles......................................................... 42
XcelleNet Board............................................................ i
XcelleNet Bylaws........................................................... 20
XcelleNet CIC Agreements................................................... 4
XcelleNet Distribution Agreement........................................... 23
XcelleNet Officers......................................................... 50
XcelleNet Option........................................................... 3
XcelleNet Projections...................................................... 37
XcelleNet Rights Agreement................................................. 49
XcelleNet Stock............................................................ i
XcelleNet Stock Option Plans............................................... 40
</TABLE>
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APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
STERLING COMMERCE, INC.
STERLING COMMERCE (SOUTHERN), INC.
AND
XCELLENET, INC.
DATED AS OF APRIL 16, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I--THE MERGER...................................................... A-1
SECTION 1.1 The Merger................................................... A-1
SECTION 1.2 Closing...................................................... A-1
SECTION 1.3 Effective Time............................................... A-1
SECTION 1.4 Effects of the Merger........................................ A-2
SECTION 1.5 Certificate of Incorporation; Bylaws......................... A-2
SECTION 1.6 Directors; Officers.......................................... A-2
ARTICLE II--EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS.................................................. A-2
SECTION 2.1 Effect on Capital Stock...................................... A-2
SECTION 2.2 Stock Options................................................ A-3
SECTION 2.3 Share Purchase Rights........................................ A-4
ARTICLE III--PAYMENT FOR SHARES............................................ A-4
SECTION 3.1 Payment For Shares........................................... A-4
ARTICLE IV--REPRESENTATIONS AND WARRANTIES................................. A-6
SECTION 4.1 Representations and Warranties of Company.................... A-6
SECTION 4.2 Representations and Warranties of Parent and Merger Sub...... A-17
ARTICLE V--COVENANTS....................................................... A-19
SECTION 5.1 Conduct of Business of Company............................... A-19
ARTICLE VI--ADDITIONAL AGREEMENTS.......................................... A-21
SECTION 6.1 Preparation of the Proxy Statement and the Form S-4;
Accountant's Letters ................................................... A-21
SECTION 6.2 Shareholders Meeting......................................... A-21
SECTION 6.3 Access to Information; Confidentiality....................... A-21
SECTION 6.4 Reasonable Best Efforts...................................... A-22
SECTION 6.5 Indemnification.............................................. A-22
SECTION 6.6 Public Announcements......................................... A-23
SECTION 6.7 No Solicitation; Acquisition Proposals....................... A-24
SECTION 6.8 Consents, Approvals and Filings.............................. A-24
SECTION 6.9 Board Action Relating to Stock Option Plans and Stock
Purchase Plan........................................................... A-25
SECTION 6.10 Employment and Employee Benefit Matters..................... A-25
SECTION 6.11 Affiliates and Certain Shareholders......................... A-26
SECTION 6.12 NYSE Listing................................................ A-26
SECTION 6.13 Advice of Changes........................................... A-26
SECTION 6.14 Tax Treatment............................................... A-26
SECTION 6.15 Company Rights Agreement.................................... A-26
SECTION 6.16 Parent Rights Agreement..................................... A-26
ARTICLE VII--CONDITIONS PRECEDENT.......................................... A-26
SECTION 7.1 Conditions to Each Party's Obligation to Effect the Merger... A-26
SECTION 7.2 Conditions to Obligations of Parent and Merger Sub........... A-27
SECTION 7.3 Conditions to Obligation of Company.......................... A-28
SECTION 7.4 Frustration of Closing Conditions............................ A-28
ARTICLE VIII--TERMINATION, AMENDMENT AND WAIVER............................ A-28
SECTION 8.1 Termination.................................................. A-28
SECTION 8.2 Effect of Termination........................................ A-29
SECTION 8.3 Amendment.................................................... A-30
SECTION 8.4 Extension; Waiver............................................ A-30
</TABLE>
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 8.5 Termination Fees............................................. A-30
SECTION 8.6 Procedure for Termination, Amendment, Extension or Waiver.... A-30
ARTICLE IX--GENERAL PROVISIONS............................................. A-31
SECTION 9.1 Nonsurvival of Representations and Warranties................ A-31
SECTION 9.2 Fees and Expenses............................................ A-31
SECTION 9.3 Definitions.................................................. A-31
SECTION 9.4 Notices...................................................... A-32
SECTION 9.5 Interpretation............................................... A-32
SECTION 9.6 Entire Agreement; Third-Party Beneficiaries.................. A-33
SECTION 9.7 Governing Law................................................ A-33
SECTION 9.8 Assignment................................................... A-33
SECTION 9.9 Enforcement.................................................. A-33
SECTION 9.10 Severability................................................ A-33
SECTION 9.11 Counterparts................................................ A-33
</TABLE>
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AGREEMENT AND PLAN OF MERGER, dated as of April 16, 1998, among STERLING
COMMERCE, INC., a Delaware corporation ("Parent"), STERLING COMMERCE
(SOUTHERN), INC., a Delaware corporation and wholly owned subsidiary of Parent
("Merger Sub"), and XCELLENET, INC., a Georgia corporation ("Company").
RECITALS:
A. The respective Boards of Directors of Parent, Merger Sub and Company have
determined that it would be advisable and in the best interests of their
respective shareholders for Parent to acquire Company, by means of a merger of
Company with and into Merger Sub (the "Merger"), on the terms and subject to
the conditions set forth in this Agreement.
B. Concurrently with the execution and delivery of this Agreement and as a
condition to Parent's and Merger Sub's willingness to enter into this
Agreement, Parent and certain shareholders of Company have entered into a
Shareholder Agreement, dated as of the date hereof (the "Shareholder
Agreement").
C. Parent, Merger Sub and Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties hereto
hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. On the terms and subject to the conditions set forth
in this Agreement, and in accordance with Section 252 of the General
Corporation Law of the State of Delaware (the "DGCL") and Section 14-2-1107 of
the Georgia Business Corporation Code (the "GBCC"), the Merger shall be
effected and Company shall be merged with and into Merger Sub at the Effective
Time (as hereinafter defined). At the Effective Time, the separate existence
of Company shall cease and Merger Sub shall continue as the surviving
corporation (sometimes hereinafter referred to as the "Surviving
Corporation").
SECTION 1.2 Closing. Unless this Agreement shall have been terminated and
the transactions herein contemplated shall have been abandoned pursuant to
Article VIII, and subject to the satisfaction or waiver of all of the
conditions set forth in Article VII, the closing of the Merger (the "Closing")
will take place at 10:00 a.m. on the second business day following
satisfaction or waiver of all of the conditions set forth in Article VII,
other than those conditions that by their nature are to be satisfied at the
Closing, but subject to the fulfillment or waiver of those conditions (the
"Closing Date"), at the offices of Jones, Day, Reavis & Pogue, 2300 Trammell
Crow Center, 2001 Ross Avenue, Dallas, Texas 75201, unless another date, time
or place is agreed to in writing by the parties hereto.
SECTION 1.3 Effective Time. As soon as practicable after satisfaction or, to
the extent permitted hereunder, waiver of all conditions set forth in Article
VII, Merger Sub will execute a certificate of merger complying with the DGCL
(the "Delaware Certificate of Merger") and a certificate of merger complying
with the GBCC (the "Georgia Certificate of Merger"). On the Closing Date,
Merger Sub will promptly file the Georgia Certificate of Merger with the
Secretary of State of the State of Georgia (the "Georgia Secretary of State")
and file the Delaware Certificate of Merger with the Secretary of State of the
State of Delaware (the "Delaware Secretary of State") and, together with
Company, make all other filings or recordings required by the GBCC or the DGCL
in connection with the Merger. The Merger shall become effective immediately
upon the later of the filing of the Georgia Certificate of Merger and the
filing of the Delaware Certificate of Merger or at such later time as is
specified in the Georgia Certificate of Merger or the Delaware Certificate of
Merger (the "Effective Time").
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SECTION 1.4 Effects of the Merger. The Merger shall have the effects set
forth in the applicable provisions of the GBCC and the DGCL. Without limiting
the generality of the foregoing, and subject thereto, at the Effective Time,
all property of Company and Merger Sub shall vest in the Surviving
Corporation, and all liabilities of Company and Merger Sub shall become the
liabilities of the Surviving Corporation.
SECTION 1.5 Certificate of Incorporation; Bylaws. At the Effective Time, (a)
the certificate of incorporation of Merger Sub as in effect at the Effective
Time shall, from and after the Effective Time, be the certificate of
incorporation of the Surviving Corporation until thereafter changed or amended
in accordance with the provisions thereof and applicable Law (as hereinafter
defined) and (b) the bylaws of Merger Sub as in effect at the Effective Time
shall, from and after the Effective Time, be the bylaws of the Surviving
Corporation until thereafter changed or amended in accordance with the
provisions thereof and applicable law.
SECTION 1.6 Directors; Officers. From and after the Effective Time, the
directors and officers of the Surviving Corporation shall be as set forth in
Section 1.6 of the Disclosure Memorandum (as hereinafter defined) until the
earlier of their resignation or removal or until their respective successors
are duly elected and qualified, as the case may be.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL
STOCK OF THE CONSTITUENT CORPORATIONS
SECTION 2.1 Effect on Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of any holder of shares of Company's
common stock, par value $0.01 per share (individually a "Share" and
collectively the "Shares"), or any other capital stock of Company or any
shares of capital stock of Merger Sub:
(a) Common Stock of Merger Sub. Each share of common stock, par value $0.01
per share, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall remain outstanding.
(b) Cancellation of Treasury Shares and Parent-Owned Shares. Each Share
issued and outstanding immediately prior to the Effective Time that is owned
by Company or any Subsidiary (as hereinafter defined) of Company or by Parent,
Merger Sub or any other Subsidiary of Parent (other than shares in trust
accounts, managed accounts, custodial accounts and the like that are
beneficially owned by third parties) shall automatically be canceled and
retired and shall cease to exist, and no consideration shall be delivered or
deliverable in exchange therefor.
(c) Conversion of Shares. Each Share issued and outstanding immediately
prior to the Effective Time (other than Shares to be canceled in accordance
with Section 2.1(b) and any Dissenting Shares (as hereinafter defined)) shall
be converted into the right to receive the Merger Consideration (as
hereinafter defined) upon surrender of the certificate formerly representing
such Share in accordance with this Agreement.
(d) Merger Consideration. "Merger Consideration" shall mean, (i) a cash
payment in an amount equal to $8.80 (the "Cash Payment") and (ii) 0.2885 (the
"Stock Factor") of a fully paid and nonassessable share of Parent's common
stock, $0.01 par value per share ("Parent Common Stock"), adjusted, if
necessary, pursuant to the following paragraph.
Notwithstanding the foregoing, in the event that the aggregate amount of the
Cash Payments, plus the dollar value of all Dissenting Shares (determined as
provided in this Section 2.1(d)), exceeds the value of all shares of Parent
Common Stock to be issued pursuant to Section 2.1(c) (based upon the closing
sales price of the Parent Common Stock on the last trading day prior to the
Closing Date), the Merger Consideration shall be adjusted by reducing the Cash
Payment and increasing the aggregate number of Shares of Parent Common Stock
to be issued
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pursuant to Section 2.1(c) in each case, to the minimum extent necessary, such
that the dollar amount of the aggregate Cash Payments plus the dollar value of
all Dissenting Shares (determined as provided in this Section 2.1(d)) is equal
to the value of all shares of Parent Common Stock to be issued (based upon the
closing sales price of the Parent Common Stock on the last trading day prior
to the Closing Date). In determining the adjustment pursuant to the previous
sentence, to the extent the Cash Payment is reduced, the number of shares of
Parent Common Stock shall be increased, dollar for dollar, valuing the Parent
Common Stock as the lesser of (i) the closing sales price of the Parent Common
Stock on the last trading day prior to the Closing Date, and (ii) the average
of the closing sales prices of Parent Common Stock for the three trading days
prior to the Closing Date. For the purposes of this Section 2.1(d) only, the
value of each Dissenting Share shall be deemed to be an amount equal to $22.
The Stock Factor shall be adjusted to reflect fully the effect of any stock
split, reverse split, stock dividend (including any dividend or distribution
of securities convertible into Common Stock (as hereinafter defined) or Parent
Common Stock), reorganization, recapitalization or other like change with
respect to the Common Stock or the Parent Common Stock occurring after the
date hereof and on or prior to the Effective Time.
(e) Dissenting Shares. Notwithstanding anything in this Agreement to the
contrary, any Shares issued and outstanding immediately prior to the Effective
Time held by a holder who has the right to demand, and who properly demands,
payment for such Shares ("Dissenting Shares") in accordance with Article 13 of
the GBCC (together with any successor provision, "Article 13") shall not be
converted into a right to receive the Merger Consideration, unless such holder
fails to perfect or otherwise loses such holder's right to payment in
accordance with Article 13. If, after the Effective Time, such holder fails to
perfect or loses any such right, each such Share of such holder shall be
treated as a Share that had been converted as of the Effective Time into the
right to receive the Merger Consideration in accordance with this Section 2.1.
At the Effective Time, any holder of Dissenting Shares shall cease to have any
rights with respect thereto, except the rights provided in Article 13 and as
provided in the immediately preceding sentence. Company shall give prompt
notice to Parent of any demands received by Company for payment in accordance
with Article 13, and Parent shall have the right to participate in and direct
all negotiations and proceedings with respect to such demands. Company shall
not, except with the prior written consent of Parent, make any payment with
respect to, or settle or offer to settle, any such demands.
SECTION 2.2 Stock Options.
(a) At the Effective Time, each then-outstanding option to purchase Shares
(collectively, "Options") under Company's 1987 Stock Option Plan, as amended,
Company's 1994 Stock Option Plan for Outside Directors, as amended, Company's
1996 Long-Term Incentive Plan and issued on an individual basis and not under
a plan (collectively, the "Stock Option Plans") shall be assumed by Parent and
shall constitute an option (a "Substitute Option") to acquire, on
substantially the same terms and subject to substantially the same conditions
as were applicable under such Option, including without limitation term,
vesting, exercisability, status as an "incentive stock option" under Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), and
termination provisions, the number of shares of Parent Common Stock, rounded
down to the nearest whole share, determined by multiplying the number of
Shares subject to such Option immediately prior to the Effective Time by
0.4809 (the "Option Conversion Factor") at an exercise price per share of
Parent Common Stock (increased to the nearest whole cent) equal to the
exercise price per share of Common Stock subject to such Option divided by the
Option Conversion Factor; provided, however, that in the case of any Option to
which Section 421 of the Code applies by reason of its qualification as an
incentive stock option under Section 422 of the Code, the conversion formula
shall be adjusted if necessary to comply with Section 424(a) of the Code.
(b) Company shall use its best efforts to obtain all necessary waivers,
consents or releases from holders of Options under the Stock Option Plans and
take any such other action as may be reasonably necessary to give effect to
the transactions contemplated by this Section 2.2.
(c) Parent shall take all corporate action necessary to reserve for issuance
a sufficient number of shares of Parent Common Stock for delivery upon
exercise of Substitute Options pursuant to the terms set forth in
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<PAGE>
Section 2.2(a). As soon as practicable after the Effective Time, Parent shall
use reasonable efforts to file and cause to be declared effective a
registration statement on Form S-8 (or any successor form) or another
appropriate form to register the shares of Parent Common Stock subject to
Substitute Options and Parent shall use reasonable efforts to maintain the
effectiveness of such registration statements for so long as the Substitute
Options remain outstanding. In addition, Parent shall use reasonable efforts
to cause the shares of Parent Common Stock subject to Substitute Options to be
listed on the NYSE (as hereinafter defined) and such other exchanges as Parent
shall determine.
SECTION 2.3 Share Purchase Rights. Each reference in this Article II and in
Article III to a "Share" is a reference to such Share together with the Rights
(as hereinafter defined in Section 4.1(c)), if any, associated with such
Share.
ARTICLE III
PAYMENT FOR SHARES
SECTION 3.1 Payment For Shares.
(a) Payment Fund. Concurrently with the Effective Time, Parent shall
deposit, or shall cause to be deposited, with or for the account of
BankBoston, N.A. or such other bank or trust company designated by Parent
reasonably satisfactory to Company (the "Paying Agent") for the benefit of the
holders of Shares (i) shares of Parent Common Stock representing the aggregate
stock portion of the Merger Consideration and (ii) cash in an aggregate amount
sufficient to pay the aggregate cash portion of the Merger Consideration
(hereinafter collectively referred to as the "Payment Fund").
(b) Letters of Transmittal; Surrender of Certificates. As soon as reasonably
practicable after the Effective Time, Parent shall instruct the Paying Agent
to mail to each holder of record (other than Company or any of its
Subsidiaries or Parent, Merger Sub or any of their respective Subsidiaries) of
a certificate or certificates that, immediately prior to the Effective Time,
evidenced outstanding Shares (the "Certificates"), (i) a form of letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon proper delivery of
the Certificates to the Paying Agent, and shall be in such form and have such
other provisions as Parent may reasonably specify) and (ii) instructions for
use in effecting the surrender of the Certificates in exchange for payment
therefor. Upon surrender of a Certificate for cancellation to the Paying Agent
together with such letter of transmittal, duly executed, and such other
customary documents as may be required pursuant to such instructions, the
holder of such Certificate shall be entitled to receive in respect thereof (A)
a certificate representing the number of whole shares of Parent Common Stock
(and cash in lieu of fractional shares of Parent Common Stock as contemplated
by this Section 3.1) that the aggregate number of Shares previously
represented by such certificate or certificates so surrendered shall have been
converted into the right to receive pursuant to Section 2.1(c) and (B) cash in
an amount equal to the product of (1) the number of Shares theretofore
represented by such Certificate and (2) the Cash Payment, and the Certificate
so surrendered shall forthwith be canceled. No interest shall be paid or
accrued on the Merger Consideration payable upon the surrender of any
Certificate. If payment is to be made to a person other than the person in
whose name the surrendered Certificate is registered, it shall be a condition
of payment that the Certificate so surrendered shall be promptly endorsed or
otherwise in proper form for transfer and that the person requesting such
payment shall pay any transfer or other taxes required by reason of the
payment to a person other than the registered holder of the surrendered
Certificate or established to the satisfaction of Parent and the Surviving
Corporation that such tax has been paid or is not applicable.
(c) Cancellation and Retirement of Shares; No Further Rights. As of the
Effective Time, all Shares (other than Shares to be canceled in accordance
with Section 2.1(b) and any Dissenting Shares) issued and outstanding
immediately prior to the Effective Time shall cease to be outstanding and
shall automatically be canceled and retired and shall cease to exist, and each
holder of a Certificate theretofore representing any such
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<PAGE>
Shares shall cease to have any rights with respect thereto (including, without
limitation, the right to vote), except the right to receive the Merger
Consideration, without interest, upon surrender of such Certificate in
accordance with this Article III, and until so surrendered, each such
Certificate shall represent for all purposes only the right, subject to
Section 2.1(e), to receive the Merger Consideration, without interest. The
Merger Consideration paid upon the surrender for exchange of Certificates in
accordance with the terms of this Article III shall be deemed to have been
paid in full satisfaction of all rights pertaining to the Shares theretofore
represented by such Certificates.
(d) Distributions with Respect to Unsurrendered Shares. No dividends or
other distributions with respect to Parent Common Stock with a record date
after the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the Shares represented thereby, and no cash
payment in lieu of fractional shares shall be paid to any such holder pursuant
to Section 3.1(e), and all such dividends, other distributions and cash in
lieu of fractional shares shall be paid by Parent to the Paying Agent and
shall be included in the Payment Fund, in each case until the surrender of
such Certificate in accordance with this Article III. Subject to the effect of
applicable escheat or similar Laws, following surrender of any such
Certificate there shall be paid to the holder of the certificate representing
shares of Parent Common Stock issued in exchange therefor, without interest,
(i) at the time of such surrender, the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid
with respect to such shares of Parent Common Stock, and the amount of any cash
payable in lieu of fractional shares to which such holder is entitled pursuant
to Section 3.1(e) and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective Time
but prior to such surrender and with a payment date subsequent to such
surrender payable with respect to such shares of Parent Common Stock.
(e) No Fractional Shares.
(i) No certificates or scrip representing fractional shares of Parent
Common Stock shall be issued upon the surrender for exchange of
certificates that immediately prior to the Effective Time represented
Shares which have been converted pursuant to Section 2.1(c), and such
fractional share interests will not entitle the owner thereof to vote or to
any rights of a stockholder of Parent.
(ii) In lieu of any such fractional shares, each holder of Shares who
would otherwise have been entitled to a fraction of a share of Parent
Common Stock upon surrender of Certificates for exchange pursuant to this
Section 3.1 will be paid an amount in cash (without interest), rounded to
the nearest cent, determined by multiplying (A) the per share closing price
on the NYSE of Parent Common Stock (as reported on the NYSE Composite
Transactions List) on the date on which the Effective Time occurs (or, if
Parent Common Stock does not trade on the NYSE on such date, the first date
of trading of Parent Common Stock on the NYSE after the Effective Time) by
(B) the fractional interest to which such holder otherwise would be
entitled. Promptly upon request from the Paying Agent, Parent will make
available to the Paying Agent the cash necessary for this purpose.
(f) Investment of Payment Fund. The Paying Agent shall invest the cash
portion of the Payment Fund as directed by Parent, in (i) direct obligations
of the United States of America, (ii) obligations for which the full faith and
credit of the United States of America is pledged to provide for the payment
of principal and interest, (iii) commercial paper rated the highest quality by
either Moody's Investors Services, Inc. or Standard & Poor's Corporation, or
(iv) certificates of deposit, bank repurchase agreements or bankers'
acceptances of commercial banks with capital exceeding $500 million. Any net
earnings with respect to the Payment Fund shall be the property of and paid
over to Parent as and when requested by Parent; provided, however, that any
such investment or any such payment of earnings shall not delay the receipt by
holders of Certificates of the Merger Consideration.
(g) Termination of Payment Fund. Any portion of the Payment Fund which
remains undistributed to the holders of Certificates for 180 days after the
Effective Time shall be delivered to Parent, upon demand, and any holders of
Certificates that have not theretofore complied with this Article III shall
thereafter look only to Parent, and only as general creditors thereof, for
payment of their claim for any Merger Consideration.
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(h) No Liability. None of Parent, Merger Sub, the Surviving Corporation or
the Paying Agent shall be liable to any person in respect of any payments or
distributions payable from the Payment Fund delivered to a public official
pursuant to any applicable abandoned property, escheat or similar Law. If any
Certificates shall not have been surrendered prior to five years after the
Effective Time (or immediately prior to such earlier date on which any Merger
Consideration in respect of such Certificate would otherwise escheat to or
become the property of any Governmental Entity (as hereinafter defined)), any
amounts payable in respect of such Certificate shall, to the extent permitted
by applicable Law, become the property of the Surviving Corporation, free and
clear of all claims or interest of any person previously entitled thereto.
(i) Withholding Rights. Parent shall be entitled to deduct and withhold, or
cause to be deducted or withheld, from the consideration otherwise payable
pursuant to this Agreement to any holder of Shares, Options or Certificates
such amounts as are required to be deducted and withheld with respect to the
making of such payment under the Code, or any provision of applicable state,
local or foreign tax law. To the extent that amounts are so withheld, such
withheld amounts shall be treated for all purposes of this Agreement as having
been paid to such holders in respect of which such deduction and withholding
was made.
(j) Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Paying Agent
will issue in exchange for such lost, stolen or destroyed Certificate the
Merger Consideration and, if applicable, any cash in lieu of fractional
shares, and unpaid dividends and distributions on Shares deliverable in
respect thereof, pursuant to this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.1 Representations and Warranties of Company. Company represents
and warrants to Parent and Merger Sub as follows:
(a) Organization, Standing and Corporate Power. Each of Company and each
Subsidiary of Company is a corporation duly organized, validly existing and in
good standing under the Laws of the jurisdiction in which it is incorporated
and has the requisite corporate power and authority to carry on its business
as now being conducted. Each of Company and each Subsidiary of Company is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing
of its properties makes such qualification or licensing necessary, other than
in such jurisdictions where the failure to be so qualified or licensed could
not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect (as hereinafter defined) on Company. Company has
delivered to Parent true, complete and correct copies of the articles of
incorporation and bylaws or comparable governing documents of Company and each
Subsidiary of Company, in each case as amended to the date of this Agreement.
A true, correct and complete list of all Subsidiaries of Company, together
with the jurisdiction of incorporation of each such Subsidiary, is set forth
in Section 4.1(a) of the Disclosure Memorandum. Company owns directly or
indirectly each of the outstanding shares of capital stock of each of the
Subsidiaries set forth in Section 4.1(a) of the Disclosure Memorandum. Each of
the outstanding shares of capital stock of each of Company's Subsidiaries is
duly authorized, validly issued, fully paid and nonassessable (or, in the case
of foreign Subsidiaries, is appropriately authorized, validly issued and, if
applicable under local Law, nonassessable), and except as set forth in
Section 4.1(a) of the Disclosure Memorandum is owned, directly or indirectly,
by Company free and clear of all Liens (as hereinafter defined). Except as set
forth in Section 4.1(a) of the Disclosure Memorandum, neither Company nor any
of its Subsidiaries owns directly or indirectly any interest or investment
(whether equity or debt) in any corporation, partnership, joint venture,
business, trust or entity (other than investments in short-term investment
securities acquired in the ordinary course of business).
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(b) Authority; Noncontravention. Company has all necessary corporate power
and authority to enter into this Agreement. The execution and delivery of this
Agreement by Company and the consummation by Company of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Company, subject, in the case of the Merger, to the
approval of this Agreement by its shareholders as contemplated by Section 6.2.
This Agreement has been duly executed and delivered by Company and, assuming
this Agreement constitutes the valid and binding agreement of Parent and
Merger Sub, constitutes a valid and binding obligation of Company, enforceable
against Company in accordance with its terms. Except as specified in Section
4.1(b) of the Disclosure Memorandum, the execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated by
this Agreement and compliance with the provisions hereof will not, (i)
conflict with any of the provisions of the articles of incorporation or bylaws
of Company or the comparable documents of any Subsidiary of Company, (ii)
subject to the governmental filings and other matters referred to in the next
following sentence, conflict with, result in a breach of or default (with or
without notice or lapse of time, or both) under, or give rise to a material
obligation, a right of termination, cancellation or acceleration of any
obligation or a loss of a material benefit under, or require the consent of
any person under, any indenture or other agreement, permit, concession,
franchise, license or similar instrument or undertaking to which Company or
any of its Subsidiaries is a party or by which Company or any of its
Subsidiaries or any of their respective assets is bound or affected, or (iii)
subject to the governmental filings and other matters referred to in the next
following sentence, contravene any applicable Law currently in effect, which,
in the case of clauses (ii) and (iii) above could reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on Company.
No consent, approval or authorization of, or declaration or filing with, or
notice to, any Governmental Entity (as hereinafter defined) which has not been
received or made is required by or with respect to Company or any of its
Subsidiaries in connection with the execution and delivery of this Agreement
by Company or the consummation by Company of the transactions contemplated
hereby, except for (i) the filing of premerger notification and report forms
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), with respect to the Merger, (ii) the filing with the SEC of
(A) the Proxy Statement (as hereinafter defined) relating to the approval and
adoption by the shareholders of Company of this Agreement, and (B) such
reports under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as may be required in connection with this Agreement and the
transactions contemplated by this Agreement, (iii) the filing of the Delaware
Certificate of Merger with the Delaware Secretary of State and the Georgia
Certificate of Merger with the Georgia Secretary of State, and appropriate
documents with the relevant authorities of other states in which Company is
qualified to do business, (iv) such other consents, approvals, authorizations,
filings or notices as are specified in Section 4.1(b) of the Disclosure
Memorandum, and (v) any other filings, authorizations, consents or approvals
the failure to make or obtain which could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Company.
(c) Capital Structure. The authorized capital stock of Company consists of
(i) 30,000,000 shares of common stock, par value $0.01 per share (the "Common
Stock") and (ii) 10,000,000 shares of Preferred Stock, par value $0.01 per
share ("Preferred Stock"), of which 250,000 shares are designated Series G
Junior Participating Preferred Stock ("Series G Preferred Stock"). At the
close of business on April 15, 1998: (i) 8,381,193 shares of Common Stock were
issued and outstanding, (ii) 2,877,977 shares of Common Stock were reserved
for issuance pursuant to outstanding Options granted under the Stock Option
Plans, (iii) 218,152 shares of Common Stock were reserved for issuance
pursuant to Company's 1995 Employee Stock Purchase Plan (the "Stock Purchase
Plan"), and (iv) 250,000 shares of Company's Series G Preferred Stock were
authorized for issuance solely pursuant to the exercise of the preferred stock
purchase rights (the "Rights") issued pursuant to the Shareholder Protection
Rights Agreement, dated as of November 21, 1997, between Company and SunTrust
Bank, Atlanta, as rights agent (the "Company Rights Agreement"). Except as set
forth in the immediately preceding sentence, at the close of business on April
15, 1998, no shares of capital stock (including without limitation shares of
Series G Preferred Stock) or other equity securities of Company were issued,
reserved for issuance or outstanding. All outstanding shares of capital stock
of Company are duly authorized, validly issued, fully paid and nonassessable
and not subject to preemptive rights. Except as specified above or in Section
4.1(c) of the Disclosure Memorandum, neither Company nor any Subsidiary of
Company has or, at or after the Effective Time will have, any outstanding
option, warrant, call, subscription or other right, agreement
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or commitment which (i) obligates Company or any Subsidiary of Company to
issue, sell or transfer, or repurchase, redeem or otherwise acquire, any
shares of the capital stock of Company or any Subsidiary of Company, (ii)
restricts the transfer of any shares of capital stock of Company or any of its
Subsidiaries, or (iii) relates to the voting of any shares of Company or any
of its Subsidiaries. No bonds, debentures, notes or other indebtedness of
Company or any Subsidiary of Company having the right to vote (or convertible
into, or exchangeable for, securities having the right to vote) on any matters
on which the shareholders of Company or any Subsidiary of Company may vote are
issued or outstanding.
(d) SEC Documents. Company has filed all required reports, schedules, forms,
statements and other documents with the Securities and Exchange Commission
(the "SEC") since January 1, 1996 (such reports, schedules, forms, statements
and other documents are hereinafter referred to as the "SEC Documents"). As of
their respective dates, the SEC Documents complied in all material respects
with the requirements of the Securities Act of 1933, as amended (the
"Securities Act"), or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such SEC
Documents, and none of the SEC Documents as of such dates contained any untrue
statements of a material fact or omitted to state a material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
consolidated financial statements of Company included in the SEC Documents
comply in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto as in
effect at the time of filing the respective SEC Documents, have been prepared
in accordance with generally accepted accounting principles (except, in the
case of unaudited consolidated quarterly statements, as permitted by Form 10-
Q) applied on a consistent basis during the periods involved (except as may
otherwise be indicated in the notes thereto) and fairly present the
consolidated financial position of Company and its consolidated Subsidiaries
as of the dates thereof and the consolidated results of their operations and
cash flows for the periods then ended (subject, in the case of unaudited
quarterly statements, to normal year-end audit adjustments).
(e) Absence of Certain Changes or Events; No Undisclosed Material
Liabilities.
(i) Except as contemplated by this Agreement and except as disclosed in
the SEC Documents filed and publicly available prior to the date of this
Agreement (the "Filed SEC Documents") or in Section 4.1(e)(i) of the
Disclosure Memorandum, since the date of the most recent audited financial
statements included in the Filed SEC Documents, Company and its
Subsidiaries have conducted their business only in the ordinary course, and
there has not been (A) any change, event or occurrence which has had or
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on Company; (B) any declaration, setting aside or
payment of any dividend or other distribution in respect of shares of
Company's capital stock, or any redemption or other acquisition by Company
of any shares of its capital stock; (C) any increase in the rate or terms
of compensation payable or to become payable by Company or its Subsidiaries
to their directors, officers or employees, except increases occurring in
the ordinary course of business consistent with past practices; (D) any
entry into, or increase in the rate or terms of, any bonus, insurance,
severance, pension or other employee or retiree benefit plan, payment or
arrangement made to, for or with any such directors, officers or employees,
except increases occurring in the ordinary course of business consistent
with past practices or as required by applicable Law; (E) any entry into
any agreement, commitment or transaction by Company or any of its
Subsidiaries which is material to Company and its Subsidiaries taken as a
whole, except for agreements, commitments or transactions entered into in
the ordinary course of business; (F) any change by Company in accounting
methods, principles or practices, except as required or permitted by
generally accepted accounting principles; (G) any write-off or write-down
of, or any determination to write-off or write-down, any asset of Company
or any of its Subsidiaries or any portion thereof; or (H) any agreements by
Company or any of its Subsidiaries to do any of the things described in the
preceding clauses (A) through (G) other than as expressly contemplated or
provided for herein.
(ii) Except as disclosed in the Filed SEC Documents or in Section
4.1(e)(ii) of the Disclosure Memorandum and except for liabilities incurred
in the ordinary course of business since the date of the most
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recent financial statements included in the Filed SEC Documents, as of the
date hereof, there are no liabilities of Company or any Subsidiary of any
kind whatsoever, whether accrued, contingent, absolute, due, to become due,
determined, determinable or otherwise, having or which could reasonably be
expected to have, individually or in the aggregate, a Material Adverse
Effect on Company.
(f) Certain Information. None of the information supplied or to be supplied
by Company specifically for inclusion or incorporation by reference in (i) the
registration statement on Form S-4 to be filed with the SEC by Parent in
connection with the issuance by Parent of shares of Parent Common Stock in the
Merger (the "Form S-4") will, at the time the Form S-4 is filed with the SEC,
at any time that it is amended or supplemented 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 to make the statements therein not misleading, or (ii) the Proxy
Statement will, at the time the Proxy Statement is filed with the SEC, at any
time that the Proxy Statement is amended or supplemented, at the time the
Proxy Statement is mailed to the shareholders of Company or at the time of the
Shareholders Meeting (as hereinafter defined), 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 Proxy Statement
will comply in all material respects with the requirements of the Exchange Act
and the rules and regulations thereunder, except that no representation or
warranty is made by Company with respect to statements made or incorporated by
reference therein based on information supplied by or on behalf of Parent or
Merger Sub specifically for inclusion or incorporation by reference in such
documents.
(g) Real Property; Other Assets. Except as set forth in Section 4.1(g) of
the Disclosure Memorandum, Company has heretofore made available to Parent
true, correct and complete copies of all leases, subleases and other
agreements (the "Real Property Leases") under which Company or any of its
Subsidiaries uses or occupies or has the right to use or occupy, now or in the
future, any real property or facility (the "Leased Real Property"), including
all modifications, amendments and supplements thereto. Except as set forth in
Section 4.1(g) of the Disclosure Memorandum and except in each case where the
failure could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on Company: (A) to the knowledge of
Company, Company or one of its Subsidiaries has a valid and subsisting
leasehold interest or other right or license to occupy in each parcel of
Leased Real Property and such leasehold interest or other right or license to
occupy is free and clear of all Liens and each Real Property Lease is in full
force and effect, (B) all rent and other sums and charges payable by Company
or its Subsidiaries as tenants thereunder are current in all material
respects, (C) no termination event or condition or uncured default of a
material nature on the part of Company or any such Subsidiary or, to Company's
knowledge, the landlord, exists under any Real Property Lease, and (D) Company
or one of its Subsidiaries is the sole undisputed lessee of each Leased Real
Property, is in actual possession thereof and is entitled to quiet enjoyment
thereof in accordance with the terms of the applicable Real Property Lease.
Neither Company nor any of its Subsidiaries owns, leases or occupies any real
property other than the Leased Real Property.
(h) Software.
(i) Section 4.1(h)(i) of the Disclosure Memorandum sets forth under the
caption "Owned Software" a true, correct and complete list of all computer
programs (source code or object code) owned by Company or any Subsidiary of
Company, including without limitation any computer programs in the
development or testing phase (collectively, the "Owned Software"), Section
4.1(h)(i) of the Disclosure Memorandum sets forth under the caption
"Licensed Software" a true, correct and complete list of all computer
programs (source code or object code) licensed to Company or any Subsidiary
of Company by another person and licensed by Company to third parties
(collectively, the "Licensed Software"), and Section 4.1(h)(i) of the
Disclosure Memorandum sets forth under the caption "Other Software" a true,
correct and complete list of all computer programs (source code or object
code) licensed to Company or any Subsidiary of Company by another person
and not licensed by Company to third parties, the loss of the current
license to which could reasonably be expected to have a Material Adverse
Effect on Company (collectively, the "Other Software" and, together with
the Owned Software and the Licensed Software, the "Software").
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(ii) Except as specified in Section 4.1(h)(ii) of the Disclosure
Memorandum, Company, directly or through its Subsidiaries, has good,
marketable and exclusive title to, and the valid and enforceable power and
unqualified right to sell, license, lease, transfer, use or otherwise
exploit, all versions and releases of the Owned Software and all copyrights
thereof, free and clear of all Liens. Company, directly or through its
Subsidiaries, is in actual possession of the source code and object code
for each computer program included in the Owned Software, and Company,
directly or through its Subsidiaries, is in possession of all other
documentation, including without limitation all related engineering
specifications, program flow charts, installation and user manuals and
know-how necessary for the effective use of the Software as currently used
in Company's business or as offered or represented to Company's customers
or potential customers. The license agreements for the Licensed Software
and Other Software are in full force and effect, and Company has complied
with all of its obligations under such license agreements. Company,
directly or through its Subsidiaries, has the valid and enforceable power
and right to license, lease, transfer, use or otherwise exploit, all
versions and releases of the Licensed Software as provided in the licenses
thereto, true, correct and complete copies of which have been made
available to Parent and its representatives (and which licenses are listed
in Section 4.1(h)(i) of the Disclosure Memorandum). Company, directly or
through its Subsidiaries is in actual possession of the object code and
user manuals for each computer program included in the Licensed Software.
The Software, together with such other computer software licensed by
Company or any of its Subsidiaries from time to time, the loss of the
license to which could not reasonably be expected to have a Material
Adverse Effect on Company, constitutes all of the computer programs
necessary to conduct the business of Company and its Subsidiaries as now
conducted. The Software includes all of the computer programs used in the
development, marketing, licensing, sale or support of the products and the
services presently offered by Company. Except for those customers who have
licensed Owned Software and the resellers listed in Section 4.1(h)(ii) of
the Disclosure Memorandum, no person other than Company and its
Subsidiaries has any right or interest of any kind or nature in or with
respect to the Owned Software or any portion thereof. Except for Company
and its Subsidiaries and the resellers listed in Section 4.1(h)(ii) of the
Disclosure Memorandum, no person has any rights to sell, license, lease or
transfer the Owned Software or any portion thereof.
(iii) Section 4.1(h)(iii) of the Disclosure Memorandum sets forth a true,
correct and complete list, (A) by computer program, of all persons other
than Company and its Subsidiaries that have been provided with the source
code for any of the Owned Software, (B) of all agreements with persons
holding such source code as escrow agent (and the escrow agent's list of
third party beneficiaries), and (C) of the form of agreement pursuant to
which any third party has a right to be provided such source code. All
agreements pursuant to which any third parties have a right to be provided
the source code are, in all material respects, in the form set forth in
Section 4.1(h)(iii) of the Disclosure Memorandum. Except as specified in
Section 4.1(h)(iii) of the Disclosure Memorandum, no person (other than
Company and its Subsidiaries and any person that is a party to a contract
referred to in clause (vii) of the first sentence of Section 4.1(k) that
restricts such person from disclosing any information concerning such
source code) is in possession of, or has or has had access to, any source
code for any computer program included in the Owned Software.
(iv) Except as disclosed in Section 4.1(h)(iv) of the Disclosure
Memorandum, there are no defects in (i) any computer program included in
the Owned Software or (ii) to the knowledge of Company, any Licensed
Software or Other Software that, in either case, would materially adversely
affect the functioning thereof in accordance with any published
specifications therefor. Without limiting the generality of the foregoing,
all of the Owned Software and, to the knowledge of Company, all Licensed
Software and Other Software has the following properties and capabilities:
(A) the capability to correctly recognize and accurately process dates
expressed as a four-digit number (or the binary equivalent or other machine
readable iteration thereof) (collectively, the "Four-Digit Dates"); (B) the
capability to accurately execute calculations using Four-Digit Dates; (C)
the functionality (both on-line and batch), including entry, inquiry,
maintenance and update, to support processing involving Four-Digit Dates;
(D) except as disclosed in Section 4.1(h)(iv) of the Disclosure Memorandum
the capability to generate interfaces and reports that support processing
involving Four-Digit Dates; (E) the capability to generate and successfully
transition, without human intervention, into the year 2000 using the
correct system date and to thereafter continue
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processing with Four-Digit Dates; and (F) the capability to provide correct
results in forward and backward data calculations spanning century
boundaries, including the conversion of pre-2000 dates currently stored as
two-digit dates. Section 4.1(h)(iv) of the Disclosure Memorandum sets forth
a true, correct and complete list of any current developments or
maintenance efforts with respect to the Owned Software, including without
limitation the development of new computer programs, enhancements or
revisions to existing computer programs included in the Owned Software and
software fixes in progress for any person to whom or to which Company or a
Subsidiary of Company has sold, licensed, leased, transferred or otherwise
furnished Owned Software or related products or services.
(v) Except as specified in Section 4.1(h)(v) of the Disclosure
Memorandum, none of the sale, license, lease, transfer, use, reproduction,
distribution, modification or other exploitation by Company, any Subsidiary
of Company or any of their respective successors or assigns of any version
or release of any computer program included in the Owned Software or the
Licensed Software obligates or will obligate Company, any Subsidiary of
Company or any of their respective successors or assigns to pay any
royalty, fee or other compensation to any other person.
(vi) Except as specified in Section 4.1(h)(i) of the Disclosure
Memorandum, neither Company nor any of its Subsidiaries markets and none of
them is obligated to support any Licensed Software.
(i) Intellectual Property.
(i) Section 4.1(i)(i) of the Disclosure Memorandum sets forth a true,
correct and complete list (including, to the extent applicable,
registration, application or file numbers) of all patents, registered
copyrights, registered trademarks and service marks and registered trade
names owned by Company or any Subsidiary of Company, and all registrations
of or applications for registration of any of the foregoing, including any
additions thereto or extensions, continuations, renewals or divisions
thereof (setting forth the registration, issue or serial number and a
description of the same) (collectively, the "Scheduled Intellectual
Property"). Parent has heretofore been furnished with a true, correct and
complete list of each registration or application for registration covering
any of the Scheduled Intellectual Property which is registered with, or in
respect of which any application for registration has been filed with, any
Governmental Entity. Except as described in Section 4.1(i)(i) of the
Disclosure Memorandum, none of the Scheduled Intellectual Property has been
declared invalid or challenged as invalid by any Governmental Entity or any
other person, and to the knowledge of Company, the Scheduled Intellectual
Property was properly obtained in accordance with all applicable Laws.
(ii) The Scheduled Intellectual Property together with all unregistered
copyrights and trademarks, domain names, and other intellectual property
rights, including without limitation, trade secrets, processes, formulae,
designs and know-how, owned or licensed by Company or any of its
Subsidiaries and the rights licensed pursuant to licenses listed in Section
4.1(i)(ii) of the Disclosure Memorandum (together with the Scheduled
Intellectual Property, the "Intellectual Property") constitute all of the
intellectual property rights necessary to conduct their business as it is
now conducted, and includes all of the intellectual property rights owned
or licensed by Company and its Subsidiaries that are used in the
development, marketing, licensing or support of the Software except for
intellectual property rights, the absence of which could not reasonably be
expected to have a Material Adverse Effect on Company. Except as specified
in Section 4.1(i)(ii) of the Disclosure Memorandum, (A) Company, directly
or through its Subsidiaries, has good, marketable and exclusive title to,
and the valid and enforceable power and unqualified right to use, the
Intellectual Property free and clear of all Liens and (B) no person or
entity other than Company and its Subsidiaries has any right or interest of
any kind or nature in or with respect to the Intellectual Property or any
portion thereof or any rights to use, market or exploit the Intellectual
Property or any portion thereof. Section 4.1(i)(i) of the Disclosure
Memorandum also sets forth a true, correct and complete list of all
unregistered trademarks, service marks and domain names owned and used by
Company or any of its subsidiaries.
(j) No Infringement. Except as specified in Section 4.1(j) of the Disclosure
Memorandum, neither the existence nor the sale, license, lease, transfer, use,
reproduction, distribution, modification or other exploitation
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by Company, any Subsidiary of Company or any of their respective successors or
assigns of any Software or Intellectual Property, as such Software or
Intellectual Property, as the case may be, is or was, or is currently planned
to be, sold, licensed, leased, transferred, used or otherwise exploited by
such persons, does, did or will (i) infringe on any patent, trademark,
copyright or other right of any other person, (ii) constitute a misuse or
misappropriation of any trade secret, know-how, process, proprietary
information or other right of any other person, or (iii) entitle any other
person to any interest therein, or right to compensation from Company, any
Subsidiary of Company or any of their respective successors or assigns by
reason thereof. Except as specified in Section 4.1(j) of the Disclosure
Memorandum, neither Company nor any of its Subsidiaries has received any
notice of any lawsuit, claim, demand, proceeding or investigation (a "Claim")
involving matters of the type contemplated by the immediately preceding
sentence, or to the knowledge of Company, has any person asserted or
threatened to make any Claim involving matters of the type contemplated by the
immediately preceding sentence or is aware of any facts or circumstances that
could reasonably be expected to give rise to any such Claim. Except as
specified in Section 4.1(j) of the Disclosure Memorandum, there are no
restrictions on the ability of Company, any Subsidiary of Company or any of
their respective successors or assigns to sell, license, lease, transfer, use,
reproduce, distribute, modify or otherwise exploit any Owned Software or
Intellectual Property.
(k) Material Contracts. The following constitute Material Contracts: (i)
contracts with any current officer or director of Company or any of its
Subsidiaries; (ii) contracts pursuant to which Company or any of its
Subsidiaries has licensed other persons to use, sublicense, market or
distribute the Owned Software; (iii) contracts pursuant to which Company or
any of its Subsidiaries license other persons to use Owned Software which
deviate in any material respect from the form contracts used since December
31, 1993, copies of which have been provided to Parent; (iv) contracts
pursuant to which other persons license Company or any of its Subsidiaries the
right to use and sublicense to others the Licensed Software; (v) contracts for
the sale of, or the grant to any person of any preferential rights to
purchase, the assets of Company or any of its Subsidiaries, other than
contracts entered into in the ordinary course of business; (vi) contracts
which restrict Company or any of its Subsidiaries from competing in any line
of business or with any person in any geographical area or which restrict any
other person from competing with Company or any of its Subsidiaries in any
line of business or in any geographical area; (vii) contracts which restrict
Company or any of its Subsidiaries from disclosing any information concerning
or obtained from any other person; (viii) contracts which restrict any other
person from disclosing any information concerning or obtained from Company or
any of its Subsidiaries; (ix) indentures, credit agreements, security
agreements, mortgages, guaranties, promissory notes and other contracts
relating to the borrowing of money; and (x) all other agreements, contracts or
instruments entered into outside of the ordinary course of business or which
are material to Company. There have been made available to Parent and its
representatives true, correct and complete copies of all of the Material
Contracts other than the Material Contracts specified in clauses (iii), (vii)
and (viii) of the immediately preceding sentence. Except as specified in
Section 4.1(k) of the Disclosure Memorandum, all of the Material Contracts are
in full force and effect and are the legal, valid and binding obligation of
Company and/or its Subsidiaries and each of the other parties thereto,
enforceable against them in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar Laws
affecting creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity). Except as
specified in Section 4.1(k) of the Disclosure Memorandum, neither Company nor
any of its Subsidiaries is in breach or default in any material respect under
any Material Contract nor, to the knowledge of Company, is any other party to
any Material Contract in breach or default thereunder in any material respect.
The deviations to the form contracts that are reflected in the Material
Contracts referred to in clause (iii) above could not reasonably be expected
to have a Material Adverse Effect on Company.
(l) Litigation, Etc. As of the date hereof, except as specified in Section
4.1(l) of the Disclosure Memorandum, (i) there is no suit, claim, action,
proceeding (at law or in equity) or investigation pending or, to the knowledge
of Company, threatened against Company or any of its Subsidiaries before any
court or other Governmental Entity, and (ii) neither Company nor any of its
Subsidiaries is subject to any outstanding order, writ, judgement, injunction,
decree or arbitration order or award that, in any such case described in
clauses (i) and
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(ii), has had or could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on Company. As of the date hereof, there
are no suits, claims, actions, proceedings or investigations pending or, to
the knowledge of Company, threatened, seeking to prevent, hinder, modify or
challenge the transactions contemplated by this Agreement.
(m) Compliance with Applicable Laws. All federal, state, local and foreign
governmental approvals, authorizations, certificates, filings, franchises,
licenses, notices, permits and rights ("Permits") necessary for each of
Company and its Subsidiaries to own, lease or operate its properties and
assets and to carry on its business as now conducted have been obtained or
made, and there has occurred no default under any such Permit, except for the
lack of Permits and for defaults under Permits which lack or default could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Company. Except as disclosed in the Filed SEC Documents or
in Section 4.1(m) of the Disclosure Memorandum, Company and its Subsidiaries
are in compliance with all applicable Laws, except for non-compliance which
could not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on Company.
(n) Environmental Laws. Except as could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Company: (i) to
the knowledge of Company, neither Company nor any of its Subsidiaries has
violated or is in violation of any Environmental Law (as hereinafter defined);
(ii) to the knowledge of Company, none of the properties leased by Company or
any of its Subsidiaries (including without limitation soils and surface and
ground waters) are contaminated with any Hazardous Substance in quantities
which require investigation or remediation under Environmental Laws; (iii)
neither Company nor any of its Subsidiaries has received any claim of
liability under Environmental Laws arising from any off-site contamination;
(iv) neither Company nor any of its Subsidiaries has received notice of any
claim for liability or remediation obligation under any Environmental Law; (v)
no assets of Company or any of its Subsidiaries are subject to pending or, to
the knowledge of Company, threatened Liens under any Environmental Law;
(vi) Company and its Subsidiaries have all Permits required under any
Environmental Law ("Environmental Permits"); and (vii) Company and its
Subsidiaries are in compliance with their respective Environmental Permits, if
any.
(o) Taxes. Except as specified in Section 4.1(o) of the Disclosure
Memorandum:
(i) Except where the failure to do so could not reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect on
Company, each of Company and each Subsidiary of Company (and any affiliated
or unitary group of which any such person was a member) has (A) timely
filed all federal, state, local and foreign returns, declarations, reports,
estimates, information returns and statements ("Returns") required to be
filed by or for it in respect of any Taxes (as hereinafter defined) and has
caused such Returns as so filed to be true, correct and complete, (B)
established reserves that are reflected in Company's most recent financial
statements included in the Filed SEC Documents and that as so reflected are
adequate for the payment of all Taxes not yet due and payable with respect
to the results of operations of Company and its Subsidiaries through the
date hereof, and (C) timely withheld and paid over to the proper taxing
authorities all Taxes and other amounts required to be so withheld and paid
over. Each of Company and each Subsidiary of Company (and any affiliated or
unitary group of which any such person was a member) has timely paid all
Taxes that are shown as being due on the Returns referred to in the
immediately preceding sentence.
(ii) (A) There has been no taxable period for which a Return of Company
or any of its Subsidiaries has been examined by the IRS, (B) all
examinations, if any, by the IRS of any taxable period have been completed
without the assertion of material deficiencies, and (C) except for alleged
deficiencies which have been finally and irrevocably resolved, Company has
not received formal or informal notification that any deficiency for any
Taxes, the amount of which could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Company, has
been or will be proposed, asserted or assessed against Company or any of
its Subsidiaries by any federal, state, local or foreign taxing authority
or court with respect to any period.
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(iii) Neither Company nor any of its Subsidiaries has requested, executed
or entered into with the IRS or any other taxing authority (A) any
agreement or other document that continues in force and effect beyond the
Effective Time and that extends or has the effect of extending the period
for assessments or collection of any federal, state, local or foreign
Taxes, (B) any closing agreement or other similar agreement (nor has
Company or any of its Subsidiaries received any ruling, technical advice
memorandum or similar determination) affecting the determination of Taxes
required to be shown on any Return not yet filed, or (C) requested any
extension of time to be granted to file after the Effective Date any return
required by applicable Law to be filed by it.
(iv) Neither Company nor any of its Subsidiaries has made an election
under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the
Code apply to any disposition of a subsection (f) asset (as such term is
defined in Section 341(f)(4) of the Code) owned by Company or any of its
Subsidiaries. None of the assets of Company or any of its Subsidiaries is
required to be treated as being owned by any other person pursuant to the
"safe harbor" leasing provisions of Section 168(f)(8) of the Internal
Revenue Code of 1954 as formerly in effect.
(v) Neither Company nor any of its Subsidiaries is a party to, is bound
by or has any obligation under any tax sharing agreement or similar
agreement or arrangement.
(vi) Company has not agreed to make, nor is it required to make, any
material adjustment under Section 481(a) of the Code by reason of a change
in accounting method or otherwise.
(vii) Neither Company nor any of its Subsidiaries is, or has been, a
United States Real Property Holding Corporation within the meaning of
Section 897(c)(2) of the Code during the applicable period specified in
Section 897(c)(1)(A)(ii) of the Code.
For purposes of this Agreement, "Taxes" shall mean all federal, state,
local, foreign income, property, sales, excise, employment, payroll,
franchise, withholding and other taxes, tariffs, charges, fees, levies,
imposts, duties, licenses or other assessments of every kind and description,
together with any interest and any penalties, additions to tax or additional
amounts imposed by any taxing authority.
(p) Benefit Plans. Section 4.1(p) of the Disclosure Memorandum sets forth a
true, correct and complete list of all the "employee benefit plans" (as that
term is defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA")) maintained or contributed to for the benefit of
any current or former employee, officer or director of Company or any of its
Subsidiaries ("Company ERISA Plans") and any other benefit or compensation
plan, program or arrangement maintained or contributed to for the benefit of
any current or former employee, officer or director of Company or any of its
Subsidiaries (Company ERISA Plans and such plans being referred to as "Company
Plans"). Company has furnished or made available to Parent and its
representatives a true, correct and complete copy of every document pursuant
to which each Company Plan is established or operated (including any summary
plan descriptions), a written description of any Company Plan for which there
is no written document, and the three most recent annual reports, financial
statements and actuarial valuations with respect to each Company Plan. Except
as specified in Section 4.1(p) of the Disclosure Memorandum:
(i) none of the Company ERISA Plans is a "multiemployer plan" within the
meaning of ERISA;
(ii) none of the Company Plans promises or provides retiree health or
life insurance benefits to any person;
(iii) none of the Company ERISA Plans is a plan subject to Title IV of
ERISA;
(iv) except as disclosed in Section 4.1(p)(iv) of the Disclosure
Memorandum, none of the Company Plans provides for payment of a benefit,
the increase of a benefit amount, the payment of a contingent benefit or
the acceleration of the payment or vesting of a benefit by reason of the
execution of this Agreement or the consummation of the transactions
contemplated by this Agreement;
(v) neither Company nor any of its Subsidiaries has an obligation to
adopt, or is considering the adoption of, any new Company Plan or, except
as required by Law, the amendment of an existing Company Plan;
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(vi) each Company ERISA Plan intended to be qualified under Section
401(a) of the Code has received a favorable determination letter from the
Internal Revenue Service ("IRS") that it is so qualified except as
disclosed in Section 4.1(p)(vi) of the Disclosure Memorandum and nothing
has occurred since the date of such letter that could reasonably be
expected to affect the qualified status of such Company ERISA Plan;
(vii) except as described in Section 4.1(p)(vii) of the Disclosure
Memorandum, each Company Plan has been operated in accordance with its
terms and the requirements of all applicable Law; and
(viii) Company is not aware of any claims relating to the Company Plans,
other than routine claims for benefits;
provided, however, that the failure of the representations set forth in
clauses (vi), (vii) and (viii) to be true and correct shall not be deemed to
be a breach of any such representation unless such failures could reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect on Company.
(q) Absence of Changes in Benefit Plans. Except as disclosed in the Filed
SEC Documents or in Section 4.1(q) of the Disclosure Memorandum, since the
date of the most recent audited financial statements included in the Filed SEC
Documents, neither Company nor any of its Subsidiaries has adopted or agreed
to adopt any collective bargaining agreement or any Company Plan or any
amendment thereto.
(r) Labor Matters.
(i) Except as specified in Section 4.1(r)(i) of the Disclosure
Memorandum, neither Company nor any of its Subsidiaries is a party to any
employment, severance, labor or collective bargaining agreement, and there
are no employment, severance, labor or collective bargaining agreements
which pertain to employees of Company or any of its Subsidiaries. Company
has heretofore made available to Parent true, complete and correct copies
of the agreements specified in Section 4.1(r)(i) of the Disclosure
Memorandum, together with all amendments, modifications, supplements or
side letters affecting the duties, rights and obligations of any party
thereunder.
(ii) No employees of Company or any of its Subsidiaries are represented
by any labor organization and, to the knowledge of Company, no labor
organization or group of employees of Company or any of its Subsidiaries
has made a pending demand for recognition or certification. There are no
representation or certification proceedings or petitions seeking a
representation proceeding presently pending or threatened in writing to be
brought or filed with the National Labor Relations Board or any other labor
relations tribunal or authority and, to the knowledge of Company, there are
no organizing activities involving Company or any of its Subsidiaries
pending with any labor organization or group of employees of Company or any
of its Subsidiaries.
(iii) Except as specified in Section 4.1(r)(iii) of the Disclosure
Memorandum, there are no (A) unfair labor practice charges, grievances or
complaints pending or threatened in writing by or on behalf of any employee
or group of employees of Company or any of its Subsidiaries which, if
resolved against Company or any of its Subsidiaries, as the case may be,
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on Company, or (B) complaints, charges or claims
against Company or any of its Subsidiaries pending, or threatened in
writing to be brought or filed, with any Governmental Entity or arbitrator
based on, arising out of, in connection with, or otherwise relating to the
employment or termination of employment of any individual by Company or any
of its Subsidiaries which, if resolved against Company or any of its
Subsidiaries, as the case may be, could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Company.
(s) Brokers. No broker, investment banker, financial advisor or other
person, other than BancAmerica Robertson Stephens, the fees and expenses of
which will be paid by Company, is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Company.
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(t) Written Opinion of Financial Advisor. Company has received the written
opinion of BancAmerica Robertson Stephens, dated April 16, 1998 (a true and
complete copy of which has been delivered to Parent by Company), to the effect
that, based upon and subject to the matters set forth therein and as of the
date thereof, the Merger Consideration was fair to such shareholders from a
financial point of view.
(u) Voting Requirements. The affirmative vote of a majority of the votes
entitled to be cast by the holders of Shares entitled to vote thereon at the
Shareholders Meeting with respect to the approval and adoption of this
Agreement is the only vote of the holders of any class or series of Company's
capital stock or other securities required in connection with the consummation
by Company of the Merger and the other transactions contemplated hereby to be
consummated by Company.
(v) Rights Plan Matters. A true, correct and complete copy of the Company
Rights Agreement (including all amendments thereto) is included in the Filed
SEC Documents. Concurrently with the execution and delivery of this Agreement,
Company's Board of Directors has taken all necessary action to approve, and
each of Company and the Rights Agent has duly executed, an amendment to the
Company Rights Agreement which provides that (i) notwithstanding anything in
the Company Rights Agreement to the contrary, the execution and delivery of
this Agreement or the Shareholder Agreement, the public announcement or
consummation of the transactions contemplated hereby or thereby and the other
matters provided for herein (including the Merger) or therein will not result
in (A) Parent or Merger Sub or any of their respective Affiliates or
Associates being an Acquiring Person, (B) the occurrence of a Flip-In Date, a
Stock Acquisition Date, a Separation Time, a Flip-Over Transaction or Event,
or (C) the Rights becoming exercisable, and (ii) the Expiration Time of the
Rights shall occur immediately prior to the Effective Time, and Company shall
cause such amendment, together with a certificate from Company that such
amendment satisfies the terms of Section 5.4 of the Company Rights Agreement,
to be delivered to the Rights Agent in accordance with Section 5.4 of the
Company Rights Agreement. Except as set forth in the preceding sentence in
connection with the transactions contemplated by this Agreement or the
Shareholder Agreement, the Company Rights Agreement shall not be amended by
Company without the prior written consent of Parent, which consent Parent may
withhold in its sole discretion. For purposes hereof, the terms "Acquiring
Person," "Affiliate," "Associate," "Expiration Time," "Flip-In Date," "Stock
Acquisition Date," "Flip-Over Transaction or Event," "Right" and "Rights
Agent" shall have the respective meanings ascribed thereto in the Company
Rights Agreement.
(w) Takeover Statutes. The Board of Directors of Company has approved the
execution and delivery of this Agreement and the Shareholder Agreement and the
transactions contemplated hereby and thereby in accordance with the applicable
provisions of the GBCC, and as a result thereof, Article 11, Part 3, of the
GBCC and Article 12 of Company's bylaws do not and will not apply to this
Agreement and the Shareholder Agreement, or the transactions contemplated
hereby and thereby.
(x) Related Parties. Except as disclosed in Filed SEC Documents or Section
4.1(x) of the Disclosure Memorandum, to the knowledge of Company, none of the
executive officers or directors of Company, or any beneficial owner of two
percent (2%) or more of the outstanding Shares, or any entity controlled by
any of the foregoing or any member of the immediate family of any of the
foregoing:
(i) owns, directly or indirectly, any interest in (except for stock
holdings not in excess of two percent (2%) held solely for investment
purposes in securities which are listed on a national securities exchange
or which are regularly traded in the over-the-counter market), or is an
owner, sole proprietor, stockholder, partner, director, officer, employee,
consultant or agent of any person which is a competitor, lessor, lessee or
customer of, or supplier of goods or services to, Company or any of its
Subsidiaries, except where the value to such person of any such arrangement
with Company and its Subsidiaries has not exceeded $60,000 during the
period since December 31, 1997;
(ii) owns, directly or indirectly, in whole or in part, any real
property, leasehold interests, tangible property or intangible property
which Company or any of its Subsidiaries currently use in their business;
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(iii) has any cause of action or other suit, action or claim whatsoever
against, or owes any amount to Company or any of its Subsidiaries, except
for claims in the ordinary course of business, such as for accrued vacation
pay, accrued benefits under any compensation plans and similar matters; or
(iv) has sold to, or purchased from, Company or any of its Subsidiaries
any assets or property for consideration in excess of $60,000 in the
aggregate since December 31, 1997.
As used in this Section 4.1(x), a person's immediate family shall mean such
person's spouse, parents, grandparents, uncles, aunts, first cousins,
children, siblings, mothers and fathers-in-law, sons and daughters-in-law, and
brothers and sisters-in-law.
SECTION 4.2 Representations and Warranties of Parent and Merger Sub. Parent
and Merger Sub represent and warrant to Company as follows:
(a) Organization, Standing and Corporate Power. Each of Parent and Merger
Sub is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction in which it is incorporated and has the
requisite corporate power and authority to carry on its business as now being
conducted. Each of Parent and Merger Sub and each other Subsidiary of Parent
is duly qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing
of its properties makes such qualification or licensing necessary, other than
in such jurisdictions where the failure to be so qualified or licensed would
not, individually or in the aggregate, have a Material Adverse Effect on
Parent. Parent has delivered to Company true and complete copies of the
certificate of incorporation and by-laws of Parent and certificate of
incorporation and by-laws of Merger Sub, as amended to the date of this
Agreement.
(b) Authority; Noncontravention. Parent and Merger Sub have all necessary
corporate power and authority to enter into this Agreement. The execution and
delivery of this Agreement by Parent and Merger Sub and the consummation by
Parent and Merger Sub of the transactions contemplated hereby have been duly
authorized by the respective Boards of Directors of Parent and Merger Sub and
have been duly approved by Parent as sole shareholder of Merger Sub, and no
other corporate proceedings on the part of Parent or Merger Sub are necessary
to authorize this Agreement or to consummate the transactions contemplated
hereby. This Agreement has been duly executed and delivered by each of Parent
and Merger Sub and, assuming this Agreement constitutes the valid and binding
agreement of Company, constitutes a valid and binding obligation of each of
Parent and Merger Sub, enforceable against each such party in accordance with
its terms. Except as specified in Section 4.2(b) of the Disclosure Memorandum,
the execution and delivery of this Agreement do not, and the consummation of
the transactions contemplated by this Agreement and compliance with the
provisions of this Agreement will not (i) conflict with any of the provisions
of the certificate of incorporation or bylaws of Parent or the certificate of
incorporation or bylaws of Merger Sub, (ii) subject to the governmental
filings and other matters referred to in the next following sentence, conflict
with, result in a breach of or default (with or without notice or lapse of
time, or both) under, or give rise to a material obligation, a right of
termination, cancellation or acceleration of any obligation or loss of a
material benefit under, or require the consent of any person under, any
indenture, or other agreement, permit, concession, franchise, license or
similar instrument or undertaking to which Parent or Merger Sub is a party or
by which Parent or Merger Sub or any of their respective assets is bound or
affected, or (iii) subject to the governmental filings and other matters
referred to in the next following sentence, contravene any applicable Law
currently in effect, which, in the case of clauses (ii) and (iii) above, could
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Parent. No consent, approval or authorization of, or
declaration or filing with, or notice to, any Governmental Entity which has
not been received or made is required by or with respect to Parent or Merger
Sub in connection with the execution and delivery of this Agreement by Parent
or Merger Sub or the consummation by Parent or Merger Sub, as the case may be,
of any of the transactions contemplated by this Agreement, except for (i) the
filing of premerger notification and report forms under the HSR Act with
respect to the Merger, (ii) the filing with the SEC of (A) the Form S-4 and
(B) such reports under the Exchange Act as may be required in connection with
this Agreement and the transactions contemplated by this Agreement, (iii) the
filing of the Delaware Certificate of Merger with the Delaware Secretary of
State, the Georgia Certificate of Merger with the Georgia
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Secretary of State and appropriate documents with the relevant authorities of
other states in which Company is qualified to do business, (iv) state "blue-
sky" filings, (v) NYSE approvals, (vi) such other consents, approvals,
authorizations, filings or notices as are specified in Section 4.2(b) of the
Disclosure Memorandum, and (vii) any other applicable filings, authorizations,
consents or approvals the failure to make or obtain which could not reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect on Parent.
(c) Capital Structure. As of the date hereof, the authorized capital stock
of Parent consists of (i) 150,000,000 shares of Parent Common Stock, and (ii)
50,000,000 shares of preferred stock, par value $0.01 per share, of which
1,500,000 shares are designated Series A Junior Participating Preferred Stock
("Parent Series A Preferred Stock"). At the close of business on April 15,
1998, (i) 91,024,996 shares of Parent Common Stock were issued and
outstanding, (ii) 20,018,187 shares of Parent Common Stock were reserved for
issuance pursuant to Parent's stock option plan (subject to adjustment in
accordance with the terms of such stock option plan in the form filed as an
exhibit to the Filed Parent SEC Documents (as hereinafter defined)), (iii)
4,000,000 shares of Parent Common Stock were reserved for issuance pursuant to
Parent's employee stock purchase plan, and (iv) 1,500,000 shares of Parent
Series A Preferred Stock were authorized for issuance solely pursuant to the
exercise of the preferred stock purchase rights issued pursuant to the Rights
Agreement, dated December 18, 1997, between Parent and The First National Bank
of Boston, as rights agent. Except as set forth in the immediately preceding
sentence, at the close of business on April 15, 1998, no shares of capital
stock or other equity securities of Parent were issued, reserved for issuance
or outstanding. All outstanding shares of capital stock of Parent are, and all
shares of Parent Common Stock which may be issued pursuant to this Agreement
will be, when issued, duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights. The authorized capital
stock of Merger Sub consists of 1,000 shares of common stock, $0.01 par value
per share, all of which shares have been validly issued, are fully paid and
nonassessable and are owned by Parent. As of the date hereof, no bonds,
debentures, notes or other indebtedness of Parent having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote) on
any matters on which the stockholders of Parent may vote are issued or
outstanding.
(d) SEC Documents. Parent has filed all required reports, schedules, forms,
statements and other documents with the SEC since October 1, 1996 (the "Parent
SEC Documents"). As of their respective dates, the Parent SEC Documents
complied in all material respects with the requirements of the Securities Act
or the Exchange Act, as the case may be, and the rules and regulations of the
SEC promulgated thereunder applicable to such Parent SEC Documents, and none
of the Parent SEC Documents as of such dates contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The consolidated
financial statements of Parent included in the Parent SEC Documents comply in
all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles (except,
in the case of unaudited statements, as permitted by Form 10-Q) applied on a
consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly present the consolidated financial position of
Parent and its consolidated Subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments).
(e) Absence of Certain Changes of Events; No Undisclosed Material
Liabilities.
(i) Except as disclosed in the Parent SEC Documents filed and publicly
available prior to the date of this Agreement (the "Filed Parent SEC
Documents") or in Section 4.2(e) of the Disclosure Memorandum, since the
date of the most recent audited financial statements included in the Filed
Parent SEC Documents, Parent and its Subsidiaries have conducted their
business only in the ordinary course, and there has not been any change,
event or occurrence which has had or would have, individually or in the
aggregate, a Material Adverse Effect on Parent.
(ii) Except as set forth in or disclosed in the Filed Parent SEC
Documents or in the Disclosure Memorandum and except for liabilities
incurred in the ordinary course of business since the date of the most
recent financial statements included in the Filed Parent SEC Documents, as
of the date hereof, there are no
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liabilities of Parent or any Subsidiary of any kind whatsoever, whether
accrued, contingent, absolute, due, to become due, determined, determinable
or otherwise, having or which would, individually or in the aggregate, have
a Material Adverse Effect on Parent.
(f) Certain Information. None of the information supplied or to be supplied
by Parent or Merger Sub in writing specifically for inclusion or incorporation
by reference in (i) the Form S-4 will, at the time the Form S-4 is filed with
the SEC, at any time it is amended or supplemented or 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 to make the statements therein not misleading, or (ii) the Proxy
Statement will, at the time it is filed with the SEC, at any time that the
Proxy Statement is amended or supplemented, at the time the Proxy Statement is
mailed to the shareholders of Company, or at the time of the Shareholders
Meeting, 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 Form S-4 will comply in all material respects with the
requirements of the Securities Act and the Exchange Act and the rules and
regulations promulgated thereunder, except that no representation or warranty
is made by Parent or Merger Sub with respect to statements made or
incorporated by reference in such document based on information supplied by or
on behalf of Company specifically for inclusion or incorporation by reference
therein.
(g) Financial Capacity. Parent has available sufficient funds to enable it
to satisfy its obligations under Section 3.1.
(h) Brokers. No broker, investment banker, financial advisor or other
person, other than Broadview Associates LLC and B.T. Alex. Brown Incorporated,
the fees and expenses of which will be paid by Parent, is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Parent or Merger Sub.
(i) Litigation, Etc. As of the date hereof, except as disclosed in Section
4.2(i) of the Disclosure Memorandum, (i) there is no suit, claim, action,
proceeding (at law or in equity) or investigation pending or, to the knowledge
of Parent, threatened against Parent or any of its Subsidiaries (including,
without limitation, any product liability claims) before any court or other
Governmental Entity, and (ii) neither Parent nor any of its Subsidiaries is
subject to any outstanding order, writ, judgement, injunction, order, decree
or arbitration award or order that, in any such case described in clauses (i)
and (ii), has had or would have, individually or in the aggregate, a Material
Adverse Effect on Parent. As of the date hereof, there are no suits, actions,
claims, proceedings or investigations pending or, to the knowledge of Parent,
threatened, seeking to prevent, hinder, modify or challenge the transactions
contemplated by this Agreement.
(j) Compliance with Applicable Laws. All Permits necessary for each of
Parent and its Subsidiaries to own, lease or operate its properties and assets
and to carry on its business as now conducted have been obtained or made, and
there has occurred no default under any such Permit, except for the lack of
Permits and for defaults under Permits which lack or default could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Parent. Except as disclosed in the Filed Parent SEC
Documents or in Section 4.2(j) of the Disclosure Memorandum, Parent and its
Subsidiaries are in compliance with all applicable Laws, except for
noncompliance which could not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on Parent.
ARTICLE V
COVENANTS
SECTION 5.1 Conduct of Business of Company. Except as contemplated by this
Agreement, during the period from the date of this Agreement to the Effective
Time, Company shall, and shall cause each of its Subsidiaries to, act and
carry on its businesses only in the ordinary course of business and, to the
extent
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consistent therewith, use reasonable best efforts to preserve intact its
current business organizations, keep available the services of its current
officers and key employees and preserve the goodwill of those engaged in
material business relationships with them, and to that end, without limiting
the generality of the foregoing, except as set forth in Section 5.1 of the
Disclosure Memorandum, Company shall not, and shall not permit any of its
Subsidiaries to, without the prior consent of Parent:
(i) (A) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property) in respect of, any of
its outstanding capital stock (other than with respect to a Subsidiary of
Company, to its corporate parent), (B) split, combine or reclassify any of
its outstanding capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of
its outstanding capital stock, or (C) purchase, redeem or otherwise acquire
any shares of outstanding capital stock or any rights, warrants or options
to acquire any such shares;
(ii) issue, sell, grant, pledge or otherwise encumber any shares of its
capital stock, any other voting securities or any securities convertible
into or exchangeable for, or any rights, warrants or options to acquire,
any such shares, voting securities or convertible or exchangeable
securities, other than upon the exercise of Options outstanding on the date
of this Agreement;
(iii) amend its articles of incorporation, bylaws or other comparable
charter or organizational documents;
(iv) directly or indirectly acquire, make any investment in, or make any
capital contributions to, any person (other than any direct or indirect
wholly owned Subsidiary);
(v) directly or indirectly sell or otherwise dispose of any of its
properties or assets that are material to its business, except for sales or
licenses of software in the ordinary course of business;
(vi) (A) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, or (B) make any loans or advances to any
other person, other than to Company or to any direct or indirect wholly
owned Subsidiary of Company and other than routine advances to employees,
except, in the case of clause (A), for borrowings under existing credit
facilities described in the Filed SEC Documents in the ordinary course of
business;
(vii) grant or agree to grant to any employee any increase in wages or
bonus, severance, profit sharing, retirement, deferred compensation,
insurance or other compensation or benefits, or establish any new
compensation or benefit plans or arrangements, or amend or agree to amend
any existing Company Plans, except as may be required under existing
agreements or by Law and normal, regularly scheduled increases in respect
of non-officer employees consistent with past practices;
(viii) enter into or amend any employment, consulting, severance or
similar agreement with any individual;
(ix) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other material
reorganization or any agreement relating to an Acquisition Proposal (as
hereinafter defined) (other than as expressly permitted pursuant to this
Agreement);
(x) make any tax election or settle or compromise any income tax
liability of Company or of any of its Subsidiaries involving on an
individual basis more than $25,000;
(xi) make any change in any method of accounting or accounting practice
or policy, except as required by any changes in generally accepted
accounting principles;
(xii) enter into any agreement, understanding or commitment that
restrains, limits or impedes Company's ability to compete with or conduct
any business or line of business; or
(xiii) authorize any of, or commit or agree to take any of, the foregoing
actions in respect of which it is restricted by the provisions of this
Section 5.1.
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ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 Preparation of the Proxy Statement and the Form S-4;
Accountant's Letters.
(a) As soon as practicable following the date hereof:
(i) Company and Parent shall jointly prepare for inclusion in the Form S-
4, and Company shall file with the SEC, as soon as practicable after the
date hereof, a proxy statement (the "Proxy Statement") relating to the
Merger in accordance with the Exchange Act and the rules and regulations
under the Exchange Act, with respect to the transactions contemplated by
this Agreement. Company, Parent and Merger Sub shall cooperate with each
other in the preparation of the Proxy Statement. Company and Parent shall
use all reasonable efforts to respond promptly to any comments made by the
SEC with respect to the Proxy Statement, and to cause the Proxy Statement
to be mailed to the shareholders of Company at the earliest practicable
date after the Form S-4 is declared effective by the SEC.
(ii) Parent shall prepare and file with the SEC, as soon as practicable
after the date hereof, the Form S-4. Each of Company and Parent shall use
all reasonable efforts to have the Form S-4 declared effective under the
Securities Act as promptly as practicable after such filing. Parent also
shall take any action (other than qualifying to do business in any
jurisdiction in which it is not now so qualified or filing a general
consent to service of process) required to be taken under any applicable
state securities laws in connection with the issuance of Parent Common
Stock in the Merger, and Company shall furnish all information concerning
Company and the holders of the Shares as may be reasonably requested in
connection with any such action.
(b) Company shall use its reasonable efforts to cause to be delivered to
Parent a letter of Arthur Anderson LLP, Company's independent public
accountants, dated as of a date within two business days before the date on
which the Form S-4 shall become effective, and a letter of Arthur Anderson
LLP, dated as of a date within two business days before the Closing Date, each
addressed to Parent, in form and substance reasonably satisfactory to Parent
and customary in scope and substance for letters delivered by independent
accountants in connection with registration statements similar to the Form S-
4.
(c) Parent shall use its reasonable efforts to cause to be delivered to
Company a letter of Ernst & Young LLP, Parent's independent public
accountants, dated as of a date within two business days before the date on
which the Form S-4 shall become effective and a letter of Ernst & Young LLP,
dated as of a date within two business days before the Closing Date, each
addressed to Company, in form and substance reasonably satisfactory to Company
and customary in scope and substance for letters delivered by independent
public accountants in connection with registration statements similar to the
Form S-4.
SECTION 6.2 Shareholders Meeting. Subject to Company's right to terminate
this Agreement pursuant to Section 8.1, Company shall take all action
necessary, in accordance with the GBCC, the Exchange Act and other applicable
Law, the rules of NASDAQ and its articles of incorporation and bylaws, to
convene a meeting of the shareholders of Company (the "Shareholders Meeting")
as promptly as practicable after the Form S-4 is declared effective by the SEC
for the purpose of considering and voting upon this Agreement. Subject to
Company's right to terminate this Agreement pursuant to Section 8.1 and
subject to the Board of Directors of Company determining in good faith that
the making of such recommendation or the failure to withdraw such
recommendation would constitute a breach of fiduciary duties of the members of
the Board of Directors of Company under applicable Law, the Board of Directors
of Company shall recommend that the holders of the Shares vote in favor of the
approval of this Agreement at the Shareholders Meeting and such recommendation
shall be included in the Proxy Statement. At the Shareholders Meeting, Parent
and Merger Sub shall vote any Shares beneficially owned by them in favor of
the approval of this Agreement.
SECTION 6.3 Access to Information; Confidentiality. Company shall, and shall
cause each of its Subsidiaries to, afford to Parent and to Parent's officers,
employees, counsel, financial advisors and other
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representatives reasonable access during normal business hours during the
period prior to the Effective Time to all its properties, books, contracts,
commitments, tax returns, personnel and records and, during such period,
Company shall, and shall cause each of its Subsidiaries to, furnish as
promptly as practicable to Parent such information concerning its business,
properties, financial condition, operations and personnel as Parent may from
time to time reasonably request, provided that the foregoing action shall be
reasonably related to the transactions contemplated hereby (including, without
limitation, the integration of Company's business with Parent and its existing
businesses) and shall not interfere unnecessarily with normal operations.
Parent shall, and shall cause each of its Subsidiaries to, afford to Company
and to Company's officers, employees, counsel, financial advisors and other
representatives reasonable access during normal business hours during the
period prior to the Effective Time to all its properties, books, contracts,
commitments, tax returns, personnel and records and during such period, Parent
shall, and shall cause each of its Subsidiaries to, furnish as promptly as
practicable to Company such information concerning its business, properties,
financial condition, operations and personnel as Company may from time to time
reasonably request, provided that the foregoing action shall be reasonably
related to the transactions contemplated hereby and shall not interfere
unnecessarily with normal operations. Any such investigation by Parent or
Company shall not affect the representations or warranties contained in this
Agreement. Parent and Company will hold, and will cause their respective
directors, officers, partners, employees, accountants, counsel, financial
advisors and other representatives and affiliates to hold, any non-public
information obtained from the other party in confidence to the extent required
by, and in accordance with the provisions of the letter agreements between
Parent and Company with respect to confidentiality and other matters.
SECTION 6.4 Reasonable Best Efforts. Subject to the terms and conditions set
forth in this Agreement, each of the parties shall use its reasonable best
efforts to take, or cause to be taken, all actions, and do, or cause to be
done, and 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 the satisfaction of the respective
conditions set forth in Article VII, provided that nothing herein shall
preclude any party from exercising its rights under this Agreement.
SECTION 6.5 Indemnification.
(a) From and after the Effective Time, the Surviving Corporation shall
indemnify, defend and hold harmless each person who is now, or has been at any
time prior to the date hereof or who, with the consent of Parent, becomes
prior to the Effective Time, an officer or director of Company (each, an
"Indemnified Party") against all losses, claims, damages, costs, expenses
(including reasonable costs of investigation and defense and reasonable
attorneys' fees and expenses), liabilities or judgments or amounts that are
paid in settlement with the approval of the indemnifying party (which approval
shall not be unreasonably withheld) of or in connection with any threatened or
actual Claim based in whole or in part on or arising in whole or in part out
of the fact that such person is or was a director or officer of Company
whether pertaining to any matter existing or occurring at or prior to the
Effective Time and whether asserted or claimed prior to, or at or after, the
Effective Time ("Indemnified Liabilities"), including all Indemnified
Liabilities based in whole or in part on, or arising in whole or in part out
of, or pertaining to this Agreement or the transactions contemplated hereby,
in each case, to the fullest extent permitted under the GBCC and by Company's
Articles of Incorporation and Bylaws as in effect on the date hereof,
including provisions relating to advances of expenses incurred in the defense
of any matter and whether or not Parent or the Surviving Corporation is
insured against any such matter. Without limiting the foregoing, in any case
in which approval by the Surviving Corporation is required to effectuate any
indemnification, the Surviving Corporation shall direct, at the election of
the Indemnified Party, that the determination of any such approval shall be
made by independent counsel mutually agreed upon by Parent and the Indemnified
Party.
(b) Without limiting the foregoing, in the event any such Claim is brought
against any Indemnified Party, whether arising before or after the Effective
Time, the Surviving Corporation shall assume and direct all aspects of the
defense thereof, including settlement; the Surviving Corporation shall retain
and direct, and pay all fees and expenses of, counsel reasonably satisfactory
to such Indemnified Party, provided that if the Surviving
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Corporation elects not to assume such defense or if counsel for the
Indemnified Party advises that there are substantive issues that raise
conflicts of interest between Parent or the Surviving Corporation and the
Indemnified Party, the Indemnified Party may retain counsel reasonably
satisfactory to Parent, and the Surviving Corporation shall pay all reasonable
fees and expenses of such counsel for the Indemnified Party promptly as
statements therefor are received to the extent not prohibited by applicable
Law and upon receipt of any affirmation and undertaking required by applicable
Law. The Surviving Corporation shall be obligated pursuant to this paragraph
(b) to pay for only one firm of counsel for all Indemnified Parties in any
jurisdiction, except to the extent that, in the opinion of counsel to an
Indemnified Party, under applicable standards of professional conduct, there
exist conflicts of interest among such Indemnified Parties that preclude one
firm of counsel from representing the interests of all such Indemnified
Parties. The Indemnified Party shall cooperate in the vigorous defense of any
such matter. The Indemnified Party shall have a right to participate in (but
not control) the defense of any such matter with its own counsel and at its
own expense. Neither Parent nor the Surviving Corporation shall be liable for
any settlement effected without its prior written consent, which shall not be
unreasonably withheld. After the Effective Time neither Parent nor the
Surviving Corporation shall settle any such matter unless (i) the Indemnified
Party gives prior written consent, which shall not be unreasonably withheld,
or (ii) the terms of the settlement provide that the Indemnified Party shall
have no responsibility for the discharge of any settlement amount and impose
no other obligations or duties on the Indemnified Party and the settlement
discharges all rights against Indemnified Party with respect to such matter.
Any Indemnified Party wishing to claim indemnification under this Section 6.5,
upon learning of any such claim, action, suit, proceeding or investigation,
shall notify Company (or, after the Effective Time, Parent and the Surviving
Corporation) (but the failure so to notify shall not relieve a party from any
liability which it may have under this Section 6.5 except to the extent such
failure prejudices such party).
(c) If Parent or the Surviving Corporation or any successors or assigns
shall consolidate with or merge into any other person and shall not be the
continuing or surviving person in such consolidation or merger, or shall
transfer all or substantially all of its assets to any person, then and in
each case, provision shall be made so that the successors and assigns of
Parent or the Surviving Corporation, as the case may be, shall assume the
obligations set forth in this Section 6.5.
(d) Parent shall, or shall cause the Surviving Corporation to, purchase
policies of directors' and officers' "run-off" liability insurance (or
policies that contain terms and conditions that are no less advantageous, in
any material respect, to the directors and officers and former directors and
officers of Company as the directors' and officers' liability insurance
policies that are in effect at Company on the date hereof), which insurance
shall remain in effect for a period of not less than three years from and
after the Effective Time; provided that the Surviving Corporation shall not be
required to pay an annual premium thereon in excess of the last annual premium
paid prior to the date hereof by Company on its current directors' and
officers' insurance policy.
(e) The provisions of this Section 6.5 shall survive the Effective Time, are
intended expressly to be for the benefit of, and shall be enforceable by, each
Indemnified Party and their respective heirs and representatives. Parent
hereby guarantees, for a period of seven years, the performance by the
Surviving Corporation of the indemnification obligations of the Surviving
Corporation pursuant to this Section 6.5; provided that, in the event that any
claim is asserted or made within such seven-year period, Parent's guarantee
shall continue in respect of any such claim until final disposition of such
claim.
SECTION 6.6 Public Announcements. Parent and Merger Sub, on the one hand,
and Company, on the other hand, shall consult with each other before issuing,
and provide each other the opportunity to review and comment upon, any press
release, SEC filing (including without limitation the Form S-4 and the Proxy
Statement) or other public statements with respect to the transactions
contemplated by this Agreement, including the Merger, and shall not issue any
such press release or make any such public statement prior to such
consultation, except (i) to the extent any party reasonably determines, after
consultation with its counsel, that disclosure is necessary or advisable in
order to satisfy such party's disclosure obligations under applicable Law, or
(ii) as may be required by court process or by obligations pursuant to any
listing agreement with any national securities exchange.
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SECTION 6.7 No Solicitation; Acquisition Proposals.
(a) Until the termination of this Agreement in accordance with Section 8.1,
Company shall not, and shall not authorize or permit any of its Subsidiaries,
or any of its or their affiliates, officers, directors, employees, agents or
representatives (including without limitation any investment banker, financial
advisor, attorney or accountant retained by Company or any of its
Subsidiaries), to, directly or indirectly, initiate, solicit or encourage
(including by way of furnishing information or assistance), or take any other
action to facilitate, any inquiries, any expression of interest or the making
of any proposal that constitutes, or may reasonably be expected to lead to, an
Acquisition Proposal (as hereinafter defined), or enter into or maintain or
continue discussions or negotiate with any person in furtherance of such
inquiries or to obtain an Acquisition Proposal or agree to or endorse any
Acquisition Proposal; provided, however, that nothing in this Agreement shall
prohibit the Board of Directors of Company from (A) furnishing information to,
or entering into, maintaining or continuing discussions or negotiations with,
any person that makes an unsolicited Acquisition Proposal after the date
hereof or (B) recommending an Acquisition Proposal to the shareholders of
Company, if, and to the extent that, the Board of Directors of Company, (i)
determines in good faith that such Acquisition Proposal would constitute a
Superior Proposal (as hereinafter defined) and (ii) determines in good faith
(after consultation with outside legal counsel) that such action is necessary
for the Board of Directors of Company to comply with its fiduciary duties
under applicable Law, and, prior to furnishing any non-public information to
such person, Company receives from such person an executed confidentiality
agreement with provisions no less favorable to Company than the letter
agreement relating to the furnishing of confidential information of Company to
Parent referred to in the last sentence of Section 6.3. Company shall promptly
(and, in any event within 24 hours) notify Parent after receipt of any
Acquisition Proposal or any request for information relating to Company or any
of its Subsidiaries or for access to the properties, books or records of
Company or any of its Subsidiaries by any person who has informed Company that
such person is considering making, or has made, an Acquisition Proposal, and
Company shall keep Parent informed in reasonable detail of the status and
details of any such Acquisition Proposal.
(b) For purposes of this Agreement, "Acquisition Proposal" means an inquiry,
offer or proposal regarding any of the following (other than the transactions
contemplated by this Agreement with Parent or Merger Sub) involving Company:
(A) any merger, consolidation, share exchange, recapitalization, business
combination or other similar transaction; (B) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of all or substantially all
the assets of Company and its Subsidiaries, taken as a whole, in a single
transaction or series of related transactions; (C) any tender offer or
exchange offer for 20 percent or more of the outstanding shares of capital
stock of Company or the filing of a registration statement under the
Securities Act in connection therewith; or (D) any public announcement of a
proposal, plan or intention to do any of the foregoing or any agreement to
engage in any of the foregoing. For purposes of this Agreement, "Superior
Proposal" means any Acquisition Proposal that Company's Board of Directors
determines in its good faith judgment (based on the advice of a financial
advisor of nationally recognized reputation) to be more favorable to Company's
shareholders than the Merger and for which financing, to the extent required,
is then committed or which, in the good faith judgment of Company's Board of
Directors, is reasonably capable of being obtained by such third party.
(c) Nothing contained in this Section 6.7 shall prohibit Company from taking
and disclosing to its shareholders a position contemplated by Rule 14e-2
promulgated under the Exchange Act or from making any disclosure to Company's
shareholders which, in the good faith judgment of the Board of Directors of
Company based on the advice of outside counsel, is required under applicable
Law; provided that Company does not withdraw or modify, or propose to withdraw
or modify, its position with respect to the Merger or approve or recommend, or
propose to approve or recommend, an Acquisition Proposal unless Company and
its Board of Directors have complied with all the provisions of this Section
6.7.
SECTION 6.8 Consents, Approvals and Filings. Upon the terms and subject to
the conditions hereof, each of the parties hereto shall (a) make promptly its
respective filings, and thereafter make any other required submissions, under
the HSR Act and the Exchange Act, with respect to the Merger and the other
transactions contemplated hereby and (b) use its reasonable efforts to take,
or cause to be taken, all appropriate action, and to
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do, or cause to be done, all things necessary, proper or advisable under
applicable Laws and regulations to consummate and make effective the Merger
and the other transactions contemplated hereby, including without limitation
using its reasonable efforts to obtain all licenses, permits, consents,
approvals, authorizations, qualifications and orders of Governmental Entities
and parties to contracts with Company and its Subsidiaries as are necessary
for the consummation of the Merger and the other transactions contemplated
hereby and to fulfill the conditions to the Merger; provided, however, (i)
that in no event shall Parent or any of its Subsidiaries be required to agree
or commit to divest, hold separate, offer for sale, abandon, limit its
operation of or take similar action with respect to any assets (tangible or
intangible) or any business interest of it or any of its Subsidiaries
(including without limitation the Surviving Corporation after consummation of
the Merger) in connection with or as a condition to receiving the consent or
approval of any Governmental Entity (including without limitation under the
HSR Act) and (ii) that nothing herein shall preclude any party from exercising
its rights under this Agreement.
SECTION 6.9 Board Action Relating to Stock Option Plans and Stock Purchase
Plan.
(a) As soon as practicable following the date of this Agreement, the Board
of Directors of Company (or, if appropriate, any committee administering a
Stock Option Plan) shall adopt such resolutions or take such actions, if any,
as may be required to adjust the terms of all outstanding Options in
accordance with Section 2.2 and shall make such other changes to the Stock
Option Plans as it deems appropriate to give effect to the Merger (subject to
the approval of Parent, which shall not be unreasonably withheld).
Notwithstanding the foregoing or anything else in this Agreement to the
contrary, except as disclosed in Section 6.9(a) of the Disclosure Memorandum,
Company shall not take any action to accelerate the vesting, exercisability or
other rights under any Options granted under any Stock Option Plan.
(b) Without limiting the generality or effect of Section 5.1, at the written
request of Parent, the Board of Directors of Company shall adopt such
resolutions or take such actions as may be required pursuant to the Stock
Purchase Plan such that no Option Period (as such term is defined in the Stock
Purchase Plan) will commence after the date hereof. Alternatively, at the
request of Parent, the Board of Directors of Company shall amend the Stock
Purchase Plan as reasonably requested by Parent, including to provide that the
next Option Period will expire at or immediately prior to the Effective Time.
SECTION 6.10 Employment and Employee Benefit Matters.
(a) Each of Parent, Merger Sub and Company will take the actions indicated
to be taken by it in Section 6.10(a) of the Disclosure Memorandum at or prior
to the time specified therein. Following the Effective Time, Parent shall
cause the Surviving Corporation and its Subsidiaries to honor in accordance
with their terms all employment, severance, consulting and other compensation
contracts disclosed in Section 6.10(a) of the Disclosure Memorandum between
Company or any of its Subsidiaries and any current or former director, officer
or employee thereof, and all provisions for vested benefits or other vested
amounts earned or accrued through the Effective Time under the Company Plans,
to the extent it does not constitute a violation of this Agreement.
(b) As promptly as practicable, following the Effective Time, Parent shall
cause to be provided generally to officers and employees of Company and its
Subsidiaries employee benefits under employee benefit and welfare plans (other
than stock option or other plans involving the potential issuance of Parent
Common Stock), on terms and conditions which when taken as a whole are
substantially similar to those currently provided by Parent to their similarly
situated officers and employees; provided, that, for a period of 12 months
after the Effective Time, Parent shall provide generally to officers and
employees of Company and its Subsidiaries (other than those persons who
currently have written severance agreements with Company) severance benefits
in accordance with the policies of either (i) Company as disclosed in
Section 6.10(b) of the Disclosure Memorandum, or (ii) Parent, whichever of (i)
or (ii) will provide the greater benefit to the officer or employee. For
purposes of participation, vesting and (except in the case of Parent
retirement and sabbatical plans) benefit accrual under Parent's employee
benefit plans, the service of the employees of Company and its Subsidiaries
prior to the Effective Time shall be treated as service with Parent
participating in such employee benefit plans.
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SECTION 6.11 Affiliates and Certain Shareholders. At least three business
days prior to the Closing Date, Company shall deliver to Parent a letter
identifying all persons whom it reasonably believes are "affiliates" of
Company for purposes of Rule 145 under the Securities Act. Company shall use
its reasonable efforts to cause each such person to deliver to Parent on or
prior to the Closing Date a written agreement substantially in the form
attached as Exhibit A hereto. Parent shall not be required to maintain the
effectiveness of the Form S-4 or any other registration statement under the
Securities Act for the purposes of resale of Parent Common Stock by such
affiliates, and the certificates representing Parent Common Stock received by
such affiliates in the Merger shall bear a customary legend regarding
applicable Securities Act restrictions.
SECTION 6.12 NYSE Listing. Parent shall use its reasonable efforts to cause
the shares of Parent Common Stock to be issued in the Merger to be approved
for listing on the NYSE, subject to official notice of issuance, prior to the
Closing Date, and Parent shall give all notices and make all filings with the
NYSE required in connection with the transactions contemplated herein.
SECTION 6.13 Advice of Changes. Parent and Company shall promptly advise the
other party orally and in writing of (i) any representation or warranty made
by it contained in this Agreement that is qualified as to materiality becoming
untrue or inaccurate in any respect or any such representation or warranty
that is not so qualified becoming untrue or inaccurate in any material
respect, (ii) the failure by it to comply in any material respect with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement, or (iii) any change or
event having, or which, insofar as can reasonably be foreseen, could
reasonably be expected to have, a Material Adverse Effect on such party or on
the truth of their respective representations and warranties or the ability of
the conditions set forth in Article VII to 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.
SECTION 6.14 Tax Treatment. Each of Parent and Company shall use reasonable
efforts to cause the Merger, and shall take no action that would cause the
Merger not, to qualify as a reorganization under the provisions of Section 368
of the Code and to obtain the opinions of counsel referred to in Sections 7.2
and 7.3.
SECTION 6.15 Company Rights Agreement. Company's Board of Directors shall
take all further action (in addition to that referred to in Section 4.1(v))
reasonably requested in writing by Parent in order to render the Rights
inapplicable to the Merger and the other transactions contemplated by this
Agreement and the Shareholder Agreement. Except as provided above with respect
to the Merger and the other transactions contemplated by this Agreement and
the Shareholder Agreement and in Section 4.1(v), Company's Board of Directors
shall not (a) amend the Company Rights Agreement or (b) take any action with
respect to, or make any determination under, the Company Rights Agreement,
including a redemption of the Rights.
SECTION 6.16 Parent Rights Agreement. Immediately after the Effective Time,
each share of Parent Common Stock issued as part of the Merger Consideration
shall have the same rights as all other shares of Parent Common Stock
outstanding immediately after the Effective Time under the terms of the Rights
Agreement filed as an exhibit to the Filed Parent SEC Documents.
ARTICLE VII
CONDITIONS PRECEDENT
SECTION 7.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to perform this Agreement and effect the
Merger are subject to the satisfaction or written waiver on or prior to the
Closing Date of the following conditions:
(a) Shareholder Approval. This Agreement shall have been approved and
adopted by the affirmative vote of the requisite number of shareholders of
Company in the manner required pursuant to Company's articles of incorporation
and bylaws, the GBCC and other applicable Law.
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(b) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect, and no applicable Law that
makes consummation of the Merger illegal shall have been enacted or adopted
since the date of this Agreement and shall remain in effect; provided,
however, that the party invoking this condition shall have complied with its
obligations under Section 6.8.
(c) HSR Act. All necessary waiting periods under the HSR Act applicable to
the Merger shall have expired or been earlier terminated.
(d) Form S-4. The Form S-4 shall have been declared effective under the
Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order.
(e) NYSE Listing. The shares of Parent Common Stock issuable to Company's
shareholders pursuant to the Merger shall have been approved for listing on
the NYSE, subject to official notice of issuance.
SECTION 7.2 Conditions to Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to perform this Agreement and effect the
Merger are further subject to satisfaction or written waiver on or prior to
the Closing Date of the following conditions:
(a) Representations and Warranties. The representations and warranties of
Company contained in this Agreement, which representations and warranties
shall be deemed for purposes of this Section 7.2 not to include any
qualification or limitation with respect to materiality (whether by reference
to "Material Adverse Effect" or otherwise), shall be true and correct as of
the Closing Date, except where the matters in respect of which such
representations and warranties are not true and correct, in the aggregate,
have not had and could not reasonably be expected to have a Material Adverse
Effect on Company, with the same effect as though such representations and
warranties were made as of the Closing Date, and Parent and Merger Sub shall
have received a certificate signed on behalf of Company by an authorized
executive officer of Company to such effect.
(b) Performance of Obligations of Company. Company shall have performed in
all material respects all obligations required to be performed by it under
this Agreement at or prior to the Closing Date, and Parent and Merger Sub
shall have received a certificate signed on behalf of Company by an authorized
officer of Company to such effect.
(c) No Material Adverse Change. Since the date of this Agreement, Company
and its Subsidiaries, taken as a whole, shall not have experienced any change,
event or occurrence that has had or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Company,
provided that for the purposes of this Section 7.2(c), a "Material Adverse
Effect" shall not be deemed to include the impact of delays of revenues of
Company that are caused by delays in the signing of customer contracts that,
but for the pendency of the transactions contemplated by this Agreement, would
have been signed; provided that the burden of proving such cause shall be
borne by Company.
(d) Certain Litigation. There shall not be pending any Claim seeking to
restrain or prohibit the Merger or seeking to obtain from Parent or Company or
any of their respective affiliates in connection with the Merger any damages,
or seeking any other relief that, following the Merger, would limit or
restrict the ability of Parent and its Subsidiaries to own and conduct both
the assets and businesses owned and conducted by Parent and its Subsidiaries
prior to the Merger and the assets and businesses owned and conducted by
Company and its Subsidiaries prior to the Merger, except where such
limitations and restrictions, in the aggregate, have not had or could not
reasonably be expected to have a Material Adverse Effect on the Parent on a
consolidated basis or Company on a consolidated basis.
(e) Consents. All consents, authorizations, orders, approvals, filings or
registrations identified in Section 7.2(e) of the Disclosure Memorandum shall
have been obtained or made, except for the filing of the certificates of
merger pursuant to Section 1.3 and except where the failure to have obtained
or made such consents, authorizations, orders, approvals, filings or
registrations could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on Parent or the Surviving Corporation.
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(f) Tax Opinions. Company shall have received from Alston & Bird, counsel to
Company, on the date of the Proxy Statement and on the Closing Date, opinions,
in each case dated as of such respective dates and stating that the Merger
will be treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code and that Company and Parent will each be
a party to that reorganization within the meaning of Section 368(b) of the
Code and that no gain or loss will be recognized by the shareholders of
Company upon their exchange of Shares for the Merger Consideration under
Section 354 of the Code (except to the extent such shareholders receive cash
for their Shares). In rendering such opinions, counsel for Company shall be
entitled to rely upon representations of officers of Company, Parent and
stockholders of Parent.
SECTION 7.3 Conditions to Obligation of Company. The obligations of Company
to perform this Agreement and effect the Merger are further subject to
satisfaction or written waiver on or prior to the Closing Date of the
following conditions:
(a) Representations and Warranties. The representations and warranties of
each of Parent and Merger Sub contained in this Agreement, which
representations and warranties shall be deemed for purposes of this Section
7.3 not to include any qualification or limitation with respect to materiality
(whether by reference to "Material Adverse Effect" or otherwise), shall be
true and correct as of the Closing Date, except where the matters in respect
of which such representations and warranties are not true and correct, in the
aggregate, have not had and could not reasonably be expected to have a
Material Adverse Effect on Parent, with the same effect as though such
representations and warranties were made as of the Closing Date, and Company
shall have received a certificate signed on behalf of Parent and Merger Sub by
an authorized officer of Parent to such effect.
(b) Performance of Obligations of Parent and Merger Sub. Each of Parent and
Merger Sub shall have performed in all material respects all obligations
required to be performed by it under this Agreement at or prior to the Closing
Date, and Company shall have received a certificate signed on behalf of Parent
by an authorized executive officer of Parent to such effect.
(c) No Material Adverse Change. Since the date of this Agreement, Parent and
its Subsidiaries, taken as a whole, shall not have experienced any change or
occurrence particular to them, that has had or would have a Material Adverse
Effect on Parent.
(d) Tax Opinions. Parent shall have received from Jones, Day, Reavis &
Pogue, counsel to Parent, on the date of the Proxy Statement and on the
Closing Date, opinions, in each case dated as of such respective dates and
stating that the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code and that
Parent and Company will each be a party to that reorganization within the
meaning of Section 368(b) of the Code and that no gain or loss will be
recognized by the shareholders of Company upon their exchange of the Shares
for the Merger Consideration under Section 354 of the Code (except to the
extent such shareholders receive cash for their Shares). In rendering such
opinions, counsel for Parent shall be entitled to rely upon representations of
officers of Parent, Company and stockholders of Parent.
SECTION 7.4 Frustration of Closing Conditions. Neither Parent nor Company
may rely on the failure of any condition set forth in Section 7.1, 7.2 or 7.3,
as the case may be, to be satisfied if such failure was caused by such party's
failure to comply with or perform any of its obligations or covenants set
forth in this Agreement.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 Termination. Notwithstanding any other provisions of this
Agreement, and notwithstanding approval and adoption of this Agreement by the
shareholders of Company, this Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Effective Time
in any one of the following circumstances:
(a) By mutual written consent duly authorized by the Boards of Directors of
Parent and Company.
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(b) By Parent or Company, if the Effective Time shall not have occurred on
or before October 31, 1998; provided, however, that neither Parent nor Company
may terminate this Agreement pursuant to this Section 8.1(b) if such party's
failure to fulfill any of its obligations under the Agreement shall be a
reason that the Effective Time shall not have occurred on or before such date.
(c) By Parent or Company, if any federal or state court of competent
jurisdiction or other Governmental Entity shall have issued an order, decree
or ruling, or taken any other action permanently restraining, enjoining or
otherwise prohibiting the Merger and such order, decree, ruling or other
action shall have become final and non-appealable, provided that neither party
may terminate this Agreement pursuant to this Section 8.1(c) if it has not
complied with its obligations under Section 6.8.
(d) By Parent or Company, if the Shareholders Meeting shall have been held
and this Agreement shall not have been approved and adopted by the affirmative
vote of the requisite number of shareholders of Company or (ii) by Parent, if
the Shareholders Meeting shall not have been held by October 26, 1998, as a
result of a breach by Company of its obligations under Section 6.2.
(e) By Parent or Company, if the Board of Directors of Company shall have
determined to approve, endorse or recommend an Acquisition Proposal to its
shareholders.
(f) By Parent, if the Board of Directors of Company shall have (i)
withdrawn, modified or amended in any adverse respect its approval or
recommendation of this Agreement, the Merger or the other transactions
contemplated hereby, (ii) failed to call, or once called, adjourned, canceled
or postponed the Shareholders Meeting without the prior written consent of
Parent (which consent in the case of an adjournment or postponement shall not
be unreasonably withheld), or (iii) resolved to do any of the foregoing.
(g) By Parent or Company (provided that the terminating party is not then in
material breach of any representation, warranty, covenant, or other agreement
contained in this Agreement), if (i) the other party shall have failed to
comply in any material respect with any of the material covenants and
agreements contained in this Agreement to be complied with or performed by
such party at or prior to such date of termination, and such failure continues
for 20 calendar days after the actual receipt by such party of a written
notice from the other party setting forth in detail the nature of such
failure, or (ii) a representation or warranty of the other party contained in
this Agreement shall have been breached in any respect on the date when made
(or in the case of any representations and warranties that are made as of a
different date, as of such different date) and the breach cannot be or has not
been cured within 20 calendar days after the giving of written notice to the
breaching party of such breach and the matters in respect of which such
representation or warranty shall have been breached has had or could
reasonably be expected to have a Material Adverse Effect on such other party.
(h) By Company, in the event that (i) Parent enters into a definitive
agreement providing for a merger, consolidation or other business combination
transaction pursuant to which (a) a majority of the members of the board of
directors of the surviving entity in any such transaction is not comprised of
members of the Board of Directors of Parent immediately prior to the
consummation of such transaction, or (b) the holders of Parent Common Stock
immediately prior to such transaction own less than a majority of the
outstanding voting securities of the surviving entity in such transaction;
(ii) the Board of Directors of Parent adopts a plan of liquidation or
dissolution of Parent; (iii) Parent enters into a definitive agreement
providing for the acquisition by a third party of more than 50% of the
consolidated assets of Parent; or (iv) a tender offer or exchange offer for
50% or more of the outstanding shares of Parent Common Stock is commenced and
the Board of Directors of Parent recommends that the stockholders of Parent
tender their shares in such tender offer or exchange offer.
SECTION 8.2 Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 8.1 hereof, this Agreement
(except for the provisions of the last sentence of Section 4.1(s), Section
4.2(h), Section 6.3, Section 6.6, this Section 8.2, Section 8.5 and Article
IX) shall forthwith become void and cease to have any force or effect, without
any liability on the part of any party hereto or any of its affiliates;
provided, however, that nothing in this Section 8.2 shall relieve any party to
this Agreement of liability for any willful or intentional breach of this
Agreement.
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<PAGE>
SECTION 8.3 Amendment. Subject to the applicable provisions of the GBCC and
the DGCL, at any time prior to the Effective Time, the parties hereto may
modify or amend this Agreement, by written agreement executed and delivered by
duly authorized officers of the respective parties; provided, however, that
after approval and adoption of this Agreement at the Shareholders Meeting, no
amendment shall be made which would reduce the amount or change the type of
consideration into which each Share shall be converted upon consummation of
the Merger. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties.
SECTION 8.4 Extension; Waiver. At any time prior to the Effective Time, the
parties may (a) extend the time for the performance of any of the obligations
or other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties of the other parties contained in this
Agreement or in any document delivered pursuant to this Agreement, or (c)
subject to Section 8.3, waive compliance with any of the agreements or
conditions of the other parties contained in this Agreement. Any agreement on
the part of a party to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party. The failure
of any party to this Agreement to assert any of its rights under this
Agreement or otherwise shall not constitute a waiver of such rights.
SECTION 8.5 Termination Fees.
(a) In the event that this Agreement is terminated pursuant to Section
8.1(d), 8.1(e) or 8.1(f), then Company shall pay Parent a fee in the amount
of $2.2 million (the "Initial Fee").
(b) In the event that this Agreement is terminated pursuant to Section
8.1(d), Section 8.1(e), or Section 8.1(f) and there shall have been
commenced, publicly disclosed or publicly proposed any Acquisition Proposal
prior to such termination, then Company shall pay Parent the Initial Fee
promptly and in any event within two business days of such termination. If
within one year of a termination under the circumstances described in the
immediately preceding sentence, Company enters into a definitive agreement
with respect to an Acquisition Proposal, then Company shall pay Parent an
additional fee of $4.4 million promptly, and in any event within two
business days of the execution of such definitive agreement by Company.
(c) In the event that this Agreement is terminated pursuant to Section
8.1(h), then Parent shall pay Company a fee in the amount of $2.2 million
promptly and in any event within two business days of such termination.
(d) If Company or Parent fails to pay the appropriate fee or fees in
accordance with this Section 8.5, the non-paying party shall pay the costs
and expenses (including reasonable legal fees and expenses) in connection
with any action, including the filing of any lawsuit or other legal action,
together with interest on the amount of any unpaid fee at the so-called
composite "prime rate" as quoted from time to time during the relevant
period in the Southwest Edition of The Wall Street Journal, plus 4% per
annum from the date such fee or fees were required to be paid pursuant to
this Section 8.5.
(e) Any payment required to be made pursuant to this Section 8.5 shall be
made by delivery of a certified check or by wire transfer of immediately
available funds to an account designated by the recipient thereof.
SECTION 8.6 Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 8.1, an amendment of this
Agreement pursuant to Section 8.3 or an extension or waiver pursuant to
Section 8.4 shall, in order to be effective, require in the case of Parent,
Merger Sub or Company, action by its Board of Directors or the duly authorized
designee of its Board of Directors.
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<PAGE>
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Effective Time. This
Section 9.1 shall not limit any covenant or agreement of the parties which by
its terms contemplates performance after the Effective Time.
SECTION 9.2 Fees and Expenses. Except as set forth in this Section 9.2, all
fees and expenses incurred in connection with the Merger, this Agreement and
the transactions contemplated by this Agreement shall be paid by the party
incurring such fees or expenses, whether or not the Merger is consummated,
except that each of Parent and Company shall bear and pay one-half of the
costs and expenses incurred in connection with (i) the filing, printing and
mailing of the Form S-4 and the Proxy Statement (including SEC filing fees)
and (ii) the filings of the premerger notification and report forms under the
HSR Act (including filing fees).
SECTION 9.3 Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person;
(b) "business day" means any day other than Saturday, Sunday or any other
day on which banks in the City of New York are required or permitted to close;
(c) "Disclosure Memorandum" means the disclosure memorandum delivered by
each party to the other simultaneously with the execution of the Agreement;
(d) "Environmental Laws" means any Law relating to (i) releases or
threatened releases of Hazardous Substances or materials containing Hazardous
Substances; (ii) the manufacture, handling, transport, use, treatment, storage
or disposal of Hazardous Substances or materials containing Hazardous
Substances; or (iii) otherwise relating to pollution of the environment or the
protection of human health;
(e) "Governmental Entity" means any domestic or foreign government, court,
governmental agency, authority, entity or instrumentality;
(f) "Hazardous Substances" means (i) those substances defined in or
regulated under the following federal statutes and their state counterparts,
as each may be amended from time to time, and all regulations thereunder: the
Hazardous Materials Transportation Act, the Resource Conservation and Recovery
Act, the Comprehensive Environmental Response, Compensation and Liability Act,
the Clean Water Act, the Safe Drinking Water Act, the Atomic Energy Act, the
Federal Insecticide, Fungicide and Rodenticide Act and the Clean Air Act;
(ii) petroleum and petroleum products including crude oil and any fractions
thereof; (iii) natural gas, synthetic gas and any mixtures thereof; (iv)
radon; (v) any other contaminant; and (vi) any substance with respect to which
any Governmental Entity requires environmental investigation, monitoring,
reporting or remediation;
(g) "knowledge" means the actual knowledge of any executive officer of
Company or Parent, as the case may be;
(h) "Law" means the provisions of any law, statute, ordinance, rule, orders
and regulations of any Governmental Entity;
(i) "Liens" means, collectively, all pledges, claims, liens, charges,
mortgages, conditional sale or title retention agreements, hypothecations,
collateral assignments, security interests, easements and other encumbrances
of any kind or nature whatsoever;
(j) a "Material Adverse Effect" with respect to any person means a material
adverse effect on (i) the ability of such person to perform its obligations
hereunder or consummate the transactions contemplated hereby or (ii) the
condition (financial or otherwise), assets, business, liabilities (actual or
contingent) or operations of such person and its Subsidiaries taken as a
whole;
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<PAGE>
(k) the "NASDAQ" means The NASDAQ Stock Market, Inc.;
(l) the "NYSE" means The New York Stock Exchange, Inc.;
(m) a "person" means an individual, corporation, partnership, joint venture,
association, trust, unincorporated organization or other entity; and
(n) a "Subsidiary" of any person means any other person of which (i) the
first mentioned person or any Subsidiary thereof is a general partner, (ii)
voting power to elect a majority of the board of directors or others
performing similar functions with respect to such other person is held by the
first mentioned person and/or by any one or more of its Subsidiaries, or (iii)
at least 50% of the equity interests of such other person is, directly or
indirectly, owned or controlled by such first mentioned person and/or by any
one or more of its Subsidiaries.
SECTION 9.4 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally or sent by overnight courier (providing proof of
delivery) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(i) if to Parent, to
Sterling Commerce, Inc.
4600 Lakehurst Court
Dublin, Ohio 43016-2000
Attention: General Counsel
Telecopy: (614) 718-1510
with a copy (which shall not constitute notice) to:
Jones, Day, Reavis & Pogue
2300 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: James E. O'Bannon
Telecopy: (214) 969-5100
(ii) if to Company, to
XcelleNet, Inc.
5 Concourse Parkway, Suite 850
Atlanta, Georgia 30328
Attention: Dennis M. Crumpler
Telecopy: (770) 698-2952
with a copy (which shall not constitute notice) to:
Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attention: William H. Avery
Telecopy: (404) 881-7777
SECTION 9.5 Interpretation. When a reference is made in this Agreement to a
Section, such reference shall be to a Section of this Agreement unless
otherwise indicated. 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. Whenever the words "include",
"includes" or "including" are used in this Agreement, they shall be deemed to
be followed by the words "without limitation".
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SECTION 9.6 Entire Agreement; Third-Party Beneficiaries. This Agreement
constitutes the entire agreement, and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement (except for the letter agreement referenced
in the last sentence of Section 6.3). This Agreement is not intended to confer
upon any person (including without limitation any employees or former
employees of Company), other than the parties hereto.
SECTION 9.7 Governing Law. Except to the extent necessarily governed by the
GBCC, this Agreement shall be governed by, and construed in accordance with,
the Laws of the State of Delaware, regardless of the Laws that might otherwise
govern under applicable principles of conflicts of Laws thereof.
SECTION 9.8 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or
in part, by operation of Law or otherwise by any of the parties without the
prior written consent of the other parties, and any such assignment that is
not consented to shall be null and void, except that Parent and/or Merger Sub
may assign this Agreement to any direct wholly owned Subsidiary of Parent
without the prior consent of Company; provided that each of Parent and Merger
Sub shall remain liable for all of its respective obligations under this
Agreement. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of, and be enforceable by, the parties and their
respective successors and assigns.
SECTION 9.9 Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction
or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court of the
United States located in the State of Delaware, this being in addition to any
other remedy to which they are entitled at Law or in equity.
SECTION 9.10 Severability. Whenever possible, each provision or portion of
any provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable Law but if any provision or portion of
any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable Law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or portion of any provision in such jurisdiction, and this
Agreement will be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision or portion of any provision
had never been contained herein.
SECTION 9.11 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other parties.
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<PAGE>
IN WITNESS WHEREOF, Parent, Merger Sub and Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
STERLING COMMERCE, INC.
/s/ Stephen R. Perkins
By: _________________________________
Stephen R. Perkins,
Executive Vice President
STERLING COMMERCE (SOUTHERN), INC.
/s/ Stephen R. Perkins
By: _________________________________
Stephen R. Perkins,
President
XCELLENET, INC.
/s/ Dennis M. Crumpler
By: _________________________________
Dennis M. Crumpler,
Chairman and Chief Executive
Officer
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<PAGE>
EXHIBIT A
FORM OF AFFILIATE AGREEMENT
Gentlemen:
The undersigned is a holder of shares of common stock, par value $.01 per
share ("Company Common Stock"), of XcelleNet, Inc., a Georgia corporation
("Company"), or may become a holder of shares of Company Common Stock prior to
the effective time of the Merger (as hereinafter defined) upon exercise of
certain options held by the undersigned to purchase shares of Company Common
Stock. As such, the undersigned will be entitled to receive in connection with
the merger (the "Merger") of Company with and into Sterling Commerce
(Southern), Inc., a Delaware corporation and a subsidiary of Sterling
Commerce, Inc., a Delaware corporation ("Parent"), shares of common stock, par
value $.01 per share, of Parent (the "Securities") in exchange for any such
shares of Company Common Stock held by the undersigned at the effective time
of the Merger.
The undersigned acknowledges that the undersigned may be deemed an
"affiliate" of Company within the meaning of Rule 145 ("Rule 145") promulgated
under the Securities Act of 1933, as amended (the "Act") of the Securities and
Exchange Commission (the "Commission"), although nothing contained herein
shall be construed as an admission of such status.
If in fact the undersigned were an affiliate of Company under the Act, the
undersigned's ability to sell, assign or transfer any Securities received by
the undersigned in exchange for any shares of Company Common Stock pursuant to
the Merger may be restricted unless such transaction is registered under the
Act or an exemption from such registration is available. The undersigned
understands that such exemptions are limited and the undersigned has obtained
advice of counsel as to the nature and conditions of such exemptions,
including instructions with respect to the applicability to the sale of such
Securities of Rules 144 and 145(d) promulgated under the Act.
The undersigned hereby represents to and covenants to Parent that the
undersigned will not sell, assign or transfer any Securities received by the
undersigned in exchange for shares of Company Common Stock pursuant to the
Merger except (i) pursuant to an effective registration statement under the
Act, (ii) by a transaction in conformity with the volume and other limitations
of Rule 145 or Rule 144 under the Act ("Rule 144"), to the extent applicable,
and any other applicable rules promulgated by the Commission, or (iii) in a
transaction which, in the opinion of independent counsel reasonably
satisfactory to Parent, is not required to be registered under the Act.
In the event of a sale of Securities pursuant to Rule 145, or, if
applicable, Rule 144, the undersigned will provide Parent with evidence of
compliance with such Rule, in the form of customary seller's or broker's
Rule 145 or, if applicable, Rule 144, representation letters or as Parent may
otherwise reasonably request. The undersigned understands that Parent may
instruct its transfer agent to withhold the transfer of any Securities
disposed of by the undersigned in a manner inconsistent with this letter.
The undersigned acknowledges and agrees that appropriate legends will be
placed on certificates representing Securities received by the undersigned in
the Merger or held by a transferee thereof, which legends will be removed (i)
by delivery of substitute certificates upon receipt of an opinion in form and
substance reasonably satisfactory to Parent to the effect that such legends
are no longer required for the purposes of the Act and the rules and
regulations of the Commission promulgated thereunder or (ii) in the event of a
sale of the Securities which has been registered under the Act.
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<PAGE>
The undersigned acknowledges that it has carefully reviewed this letter and
understands the requirements hereof and the limitations imposed upon the
distribution, sale, transfer or other disposition of Securities.
Very truly yours,
-------------------------------------
Dated: , 1998
As an inducement to the above individual to deliver this letter, Parent
agrees that for so long and to the extent necessary to permit such individual
to sell the Securities pursuant to Rule 145 and, to the extent applicable,
Rule 144 under the Act, Parent shall use all reasonable efforts to file, on a
timely basis, all reports and data required to be filed by it with the
Commission pursuant to Section 13 of the Securities and Exchange Act of 1934.
Very truly yours,
STERLING COMMERCE, INC.
By: _________________________________
Name:
Title:
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<PAGE>
APPENDIX B
BancAmerica
ROBERTSON STEPHENS
APRIL 16, 1998
PRIVILEGED AND CONFIDENTIAL
Board of Directors
XcelleNet, Inc.
5 Concourse Parkway
Atlanta, GA 30328
Members of the Board:
You have asked our opinion with respect to the fairness to the Holders of
XcelleNet Common Stock (as defined below), from a financial point of view and
as of the date hereof, of the Consideration (as defined below), in the
proposed merger of XcelleNet, Inc. ("XcelleNet") with and into a wholly owned
subsidiary ("Merger Sub") of Sterling Commerce, Inc. ("Sterling") pursuant to
the Agreement and Plan of Merger, to be dated as of April 16, 1998 (the
"Agreement"), by and among XcelleNet, Sterling and Merger Sub. Under the terms
of the Agreement, XcelleNet shall be merged with and into Merger Sub (the
"Merger"). Merger Sub shall be the surviving corporation and the separate
existence of XcelleNet shall cease. In the Merger, each outstanding share of
XcelleNet Common Stock will be converted into the right to receive $8.80 in
cash and 0.2885 shares of Sterling Common Stock (the "Consideration"); in the
event that the aggregate amount of the cash payments (the "Cash
Consideration") and the dollar value of all Dissenting Shares (as defined in
the Merger Agreement) exceeds the aggregate value (based on the closing price
of Sterling Common Stock on the last trading day prior to the closing of the
Merger (the "Closing Price")) of the Sterling Common Stock to be issued, the
Consideration shall be adjusted by reducing the Cash Consideration and
increasing the aggregate number of shares of Sterling Common Stock to be
issued, to the minimum extent necessary, such that the Cash Consideration plus
the dollar value of all Dissenting Shares is equal to the value of all shares
of Sterling Common Stock to be issued (based upon the closing sales price of
Sterling Common Stock on the last trading day prior to the closing date of the
Merger (the "Closing Date")). In determining the adjustment pursuant to the
previous sentence, to the extent the Cash Consideration is reduced, the number
of shares of Sterling Common Stock shall be increased, dollar for dollar,
valuing Sterling Common Stock as the lesser of (i) the closing sales price of
Sterling Common Stock on the last trading day prior to the Closing Date, and
(ii) the average of the closing sales prices of Sterling Common Stock for the
three trading days prior to the Closing Date. All outstanding options and
warrants to acquire XcelleNet Common Stock and equivalents, shall be converted
into equivalent rights to acquire Sterling Common Stock at an exchange ratio
equal to 0.4809. The "Holders of XcelleNet Common Stock" includes all holders
of XcelleNet Common Stock except for Sterling, Merger Sub and their respective
affiliates and holders of Dissenting Shares. The Agreement states that the
parties intend, and we have assumed, that the Merger will qualify as a tax-
deferred transaction for the Holders of XcelleNet Common Stock and be
accounted for as a purchase" in accordance with U.S. generally accepted
accounting principles. The terms and conditions of the Merger are set out more
fully in the Agreement. In connection with the Agreement, certain shareholders
of XcelleNet have entered into a shareholder agreement (the "Shareholder
Agreement").
For purposes of this opinion we have (i) reviewed financial information on
XcelleNet furnished to us by XcelleNet, including certain internal financial
analyses and forecasts prepared by the management of XcelleNet; (ii) reviewed
publicly available information; (iii) held discussions with the management of
XcelleNet and Sterling concerning the businesses, past and current business
operations, financial condition and future prospects
555 CALIFORNIA STREET SAN FRANCISCO 94104 415-781-9700 O
INVESTMENT BANKERS MEMBERS OF ALL MAJOR EXCHANGES
B-1
<PAGE>
of both companies, independently and combined, including, in the case of
Sterling, discussion regarding the degree to which we could rely on publicly
available Wall Street research analyst estimates of Sterling's future
financial performance; (iv) reviewed the Agreement and the Shareholders
Agreement; (v) reviewed the stock price and trading histories of both
companies; (vi) prepared comparable company and discounted cash flow analyses
of XcelleNet; (vii) prepared a pro-forma merger analysis of the Merger; (viii)
compared the financial terms of the Merger with other transactions that we
deemed relevant; (ix) reviewed estimates by XcelleNet's and Sterling's
management of the cost savings, revenue enhancements and other benefits
expected to be derived from the Merger; and (x) made such other studies and
inquiries, and reviewed such other data, as we deemed relevant.
In rendering our opinion, we have assumed that all such information is
complete and accurate in all material respects, and we have not undertaken any
independent verification of such information. We have relied upon the
assurances of management of XcelleNet that it is not aware of any facts that
would make such information inaccurate or misleading. Furthermore, we did not
obtain or make, or assume any responsibility for obtaining or making, any
independent appraisal of the properties or assets and liabilities (contingent
or otherwise) of XcelleNet or Sterling or any of their respective
subsidiaries, nor were we furnished with any such evaluations or appraisals.
With respect to the financial and operating forecasts (and the assumptions and
bases therefore) of XcelleNet that we have reviewed, we have assumed that such
forecasts have been reasonably prepared and reflect the best currently
available estimates and judgments of XcelleNet management and that such
projections and forecasts will be realized in the amounts and in the time
periods currently estimated by the management of XcelleNet. We have assumed
that the Merger will be consummated upon the terms set forth in the Agreement
without material alteration thereof. We have relied as to all legal matters
relevant to rendering our opinion on the advice of counsel.
This opinion is necessarily based upon market, economic and other conditions
as in effect on, and information made available to us as of, the date hereof.
It should be understood that subsequent developments may effect this opinion
and that we disclaim any undertaking or obligation to advise any person of any
change in any fact or matter affecting this opinion which may come or be
brought to our attention after the date of this opinion. Our opinion is
limited to the fairness from a financial point of view of the Consideration to
the Holders of XcelleNet Common Stock and does not address the underlying
business decision of the Board of Directors of XcelleNet to engage in the
Merger. We do not express any opinion as to the value of any employee
agreements or arrangements entered into in connection with the Agreement or
the Merger. We further express no opinion as to the future value of the shares
of Sterling Common Stock.
We are familiar with XcelleNet, having provided certain investment banking
services to XcelleNet from time to time, including acting as an underwriter
for the initial public offering of shares of XcelleNet Common Stock in April
1994, as the managing underwriter for the secondary public offering of shares
of XcelleNet Common Stock in March 1997 and maintaining a market in shares of
XcelleNet Common Stock. Additionally, in the ordinary course of business, we
may trade Sterling and XcelleNet securities for our own account and the
account of our customers and, accordingly, may at any time hold a long or
short position in such securities.
Our opinion is directed to the Board of Directors of XcelleNet and is not
intended to be and does not constitute a recommendation to any shareholder of
XcelleNet as to how such shareholder should vote upon or take any other action
with respect to the Merger. This opinion may be included in a proxy or
registration statement of XcelleNet or Sterling distributed in connection with
the Merger, provided that this opinion is reproduced therein in full and any
description of, or reference to, this opinion therein is in form and substance
acceptable to us and our legal counsel. Except as provided in the previous
sentence, this opinion shall not be reproduced, summarized, described or
referred to, or furnished to any party, without our prior written consent.
Based upon and subject to the foregoing considerations, it is our opinion,
that, as of the date hereof, the Consideration is fair to the Holders of
XcelleNet Common Stock from a financial point of view.
Very truly yours,
BANCAMERICA ROBERTSON STEPHENS
/s/ George M. Vetter, III
-------------------------------------
Authorized Signatory
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<PAGE>
APPENDIX C
LOGO
[LETTERHEAD OF BROADVIEW ASSOCIATES LLC APPEARS HERE]
April 16, 1998
CONFIDENTIAL
Board of Directors
Sterling Commerce, Inc.
4600 Lakehurst Ct.
Dublin, OH 43016-2000
Dear Members of the Board:
We understand that Sterling Commerce, Inc. ("Sterling Commerce"), Sterling
Commerce (Southern), Inc., a wholly owned subsidiary of Sterling Commerce (the
"Merger Sub"), and XcelleNet, Inc. ("XcelleNet") propose to enter into an
Agreement and Plan of Merger (the "Agreement") pursuant to which, through the
merger of XcelleNet with and into the Merger Sub (the "Merger"), each share of
XcelleNet common stock, $0.01 par value per share ("XcelleNet Common Stock"),
shall be converted into the right to receive the Merger Consideration (as
defined below). The Merger Consideration consists of a cash payment equal to
$8.80 and 0.2885 shares of Sterling Commerce Common Stock, $0.01 par value per
share ("Sterling Commerce Common Stock") and is subject to adjustment in
certain circumstances based on the trading price of Sterling Commerce Common
Stock immediately prior to the closing of the Merger. The terms and conditions
of the above described Merger are more fully detailed in the Agreement.
You have requested our opinion as to whether the Merger Consideration to be
paid by Sterling Commerce in the Merger is fair, from a financial point of
view, to Sterling Commerce shareholders.
Broadview Associates focuses on providing merger and acquisition advisory
services to information technology ("IT") companies. In this capacity, we are
continually engaged in valuing such businesses, and we maintain an extensive
database of IT mergers and acquisitions for comparative purposes. We are
currently acting as financial advisor to Sterling Commerce's Board of
Directors and will receive a fee from Sterling Commerce upon the successful
conclusion of the Merger.
In rendering our opinion, we have, among other things:
1.) reviewed the terms of the Agreement and the associated exhibits thereto
in the form of the draft dated April 16, 1998 furnished to us by Alston & Bird
LLP on April 16, 1998 (which, for the purposes of this opinion, we have
assumed, with your permission, to be identical in all material respects to the
agreement to be executed);
2.) reviewed XcelleNet's Form 10-K for the fiscal years ended December 31,
1996 and 1997, including the audited financial statements included therein;
LOGO
[ADDRESSES OF BROADVIEW ASSOCIATES APPEAR HERE]
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<PAGE>
3.) participated in discussions with XcelleNet management concerning the
operations, business strategy, current financial performance and prospects for
XcelleNet, including discussions relating to XcelleNet's financial performance
during its three month period ended March 31, 1998;
4.) reviewed certain internal financial and operating information, including
quarterly projections through December 31, 1998, relating to XcelleNet
prepared by XcelleNet management;
5.) reviewed certain financial and operating information relating to
XcelleNet prepared by Sterling Commerce management;
6.) reviewed the recent reported closing prices and trading activity for
XcelleNet Common Stock;
7.) compared certain aspects of the financial performance of XcelleNet with
public companies we deemed comparable;
8.) analyzed available information, both public and private, concerning
other mergers and acquisitions we believe to be comparable in whole or in part
to the Merger;
9.) reviewed Sterling Commerce's Form 10-K for the fiscal years ended
September 30, 1996 and 1997, including the audited financial statements
included therein, and Sterling Commerce's Form 10-Q for the three months ended
December 31, 1997, including the unaudited financial statements included
therein;
10.) reviewed certain financial and operating information relating to
Sterling Commerce prepared by Sterling Commerce management;
11.) participated in discussions with Sterling Commerce management
concerning the operations, business strategy, financial performance and
prospects for Sterling Commerce;
12.) reviewed the recent reported closing prices and trading activity for
Sterling Commerce Common Stock;
13.) discussed with Sterling Commerce management its view of the strategic
rationale for the Merger;
14.) considered the total number of shares of Sterling Commerce Common Stock
outstanding and the average weekly trading volume of Sterling Commerce Common
Stock;
15.) reviewed recent equity analyst reports covering Sterling Commerce and
XcelleNet;
16.) analyzed the anticipated effect of the Merger on the future financial
performance of the consolidated entity;
17.) assisted in negotiations and discussions related to the Merger among
Sterling Commerce, XcelleNet and their financial and legal advisors; and
18.) conducted other financial studies, analyses and investigations as we
deemed appropriate for purposes of this opinion.
In rendering our opinion, we have relied, without independent verification,
on the accuracy and completeness of all the financial and other information
(including without limitation the representations and warranties contained in
the Agreement) that was publicly available or furnished to us by Sterling
Commerce, XcelleNet or XcelleNet's financial advisor. With respect to the
financial projections examined by us, we have assumed that they were
reasonably prepared and reflected the best available estimates and good faith
judgments of the management of Sterling Commerce and XcelleNet as to the
future performance of XcelleNet. We have neither made nor obtained an
independent appraisal or valuation of any of XcelleNet's assets.
Based upon and subject to the foregoing, we are of the opinion that the
Merger Consideration to be paid by Sterling Commerce in the Merger is fair,
from a financial point of view, to Sterling Commerce shareholders.
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For purposes of this opinion, we have assumed that neither Sterling Commerce
nor XcelleNet is currently involved in any material transaction other than the
Merger, other transactions of which we are aware and those activities
undertaken in the ordinary course of conducting their respective businesses.
Our opinion is necessarily based upon market, economic, financial and other
conditions as they exist and can be evaluated as of the date of this opinion,
and any change in such conditions may impact this opinion. We express no
opinion as to the price at which Sterling Commerce Common Stock will trade at
any time.
This opinion speaks only as of the date hereof. It is understood that this
opinion is for the information of the Board of Directors of Sterling Commerce
in connection with its consideration of the Merger and does not constitute a
recommendation to any Sterling Commerce shareholder as to how such shareholder
should vote on the Merger. This opinion may not be published or referred to,
in whole or part, without our prior written permission, which shall not be
unreasonably withheld. Broadview Associates hereby consents to references to
and the inclusion of this opinion in its entirety in the Proxy
Statement/Prospectus to be distributed to the XcelleNet shareholders in
connection with the Merger.
Sincerely,
/s/ Broadview Associates LLC
Broadview Associates LLC
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APPENDIX D
ARTICLE 13
OF
GEORGIA BUSINESS CORPORATION CODE
(S)14-2-1301 Definitions.
As used in this article, the term:
(1) "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder.
(2) "Corporate action" means the transaction or other action by the
corporation that creates dissenters' rights under Code Section 14-2-1302.
(3) "Corporation" means the issuer of shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger
or share exchange of that issuer.
(4) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Code Section 14-2-1302 and who exercises that right
when and in the manner required by Code Sections 14-2-1320 through 14-2-
1327.
(5) "Fair value," with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate action
to which the dissenter objects, excluding any appreciation or depreciation
in anticipation of the corporate action.
(6) "Interest" means interest from the effective date of the corporate
action until the date of payment, at a rate that is fair and equitable
under all the circumstances.
(7) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on file
with a corporation.
(8) "Shareholder" means the record shareholder or the beneficial
shareholder.
(S) 14-2-1302 Right to dissent.
(a) A record shareholder of the corporation is entitled to dissent from, and
obtain payment of the fair value of his shares in the event of, any of the
following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a party:
(A) If approval of the shareholders of the corporation is required
for the merger by Code Section 14-2-1103 or the articles of
incorporation and the shareholder is entitled to vote on the merger; or
(B) If the corporation is a subsidiary that is merged with its parent
under Code Section 14-2-1104;
(2) Consummation of a plan of share exchange to which the corporation is
a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all or substantially all of the
property of the corporation if a shareholder vote is required on the sale
or exchange pursuant to Code Section 14-2-1202, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to
the shareholders within one year after the date of sale;
(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the shares;
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(B) Creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any matter,
or to cumulate votes, other than a limitation by dilution through
issuance of shares or other securities with similar voting rights;
(E) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be
acquired for cash under Code Section 14-2-604; or
(F) Cancels, redeems, or repurchases all or part of the shares of the
class; or
(5) Any corporate action taken pursuant to a shareholder vote to the
extent that Article 9 of this chapter, the articles of incorporation,
bylaws, or a resolution of the board of directors provides that voting or
nonvoting shareholders are entitled to dissent and obtain payment for their
shares.
(b) A shareholder entitled to dissent and obtain payment for his shares
under this article may not challenge the corporate action creating his
entitlement unless the corporate action fails to comply with procedural
requirements of this chapter or the articles of incorporation or bylaws of the
corporation or the vote required to obtain approval of the corporate action
was obtained by fraudulent and deceptive means, regardless of whether the
shareholder has exercised dissenter's rights.
(c) Notwithstanding any other provision of this article, there shall be no
right of dissent in favor of the holder of shares of any class or series
which, at the record date fixed to determine the shareholders entitled to
receive notice of and to vote at a meeting at which a plan of merger or share
exchange or a sale or exchange of property or an amendment of the articles of
incorporation is to be acted on, were either listed on a national securities
exchange or held of record by more than 2,000 shareholders, unless:
(1) In the case of a plan of merger or share exchange, the holders of
shares of the class or series are required under the plan of merger or
share exchange to accept for their shares anything except shares of the
surviving corporation or another publicly held corporation which at the
effective date of the merger or share exchange are either listed on a
national securities exchange or held of record by more than 2,000
shareholders, except for scrip or cash payments in lieu of fractional
shares; or
(2) The articles of incorporation or a resolution of the board of
directors approving the transaction provides otherwise.
(S)14-2-1303 Dissent by nominees and beneficial owners.
A record shareholder may assert dissenters' rights as to fewer than all the
shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one beneficial shareholder and notifies the
corporation in writing of the name and address of each person on whose behalf
he asserts dissenters' rights. The rights of a partial dissenter under this
Code section are determined as if the shares as to which he dissents and his
other shares were registered in the names of different shareholders.
(S)14-2-1320 Notice of dissenters' rights.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the
meeting notice must state that shareholders are or may be entitled to assert
dissenters' rights under this article and be accompanied by a copy of this
article.
(b) If corporate action creating dissenters' rights under Code Section 14-2-
1302 is taken without a vote of shareholders, the corporation shall notify in
writing all shareholders entitled to assert dissenters' rights that the action
was taken and send them the dissenters' notice described in Code Section 14-2-
1322 no later than ten days after the corporate action was taken.
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(S) 14-2-1321 Notice of intent to demand payment.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record
shareholder who wishes to assert dissenters' rights:
(1) Must deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed
action is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(b) A record shareholder who does not satisfy the requirements of subsection
(a) of this Code section is not entitled to payment for his shares under this
article.
(S) 14-2-1322 Dissenters' notice.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is authorized at a shareholders' meeting, the corporation
shall deliver a written dissenters' notice to all shareholders who satisfied
the requirements of Code Section 14-2-1321.
(b) The dissenters' notice must be sent no later than ten days after the
corporate action was taken and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Set a date by which the corporation must receive the payment demand,
which date may not be fewer than 30 nor more than 60 days after the date
the notice required in subsection (a) of this Code section is delivered;
and
(4) Be accompanied by a copy of this article.
(S) 14-2-1323 Duty to demand payment.
(a) A record shareholder sent a dissenters' notice described in Code Section
14-2-1322 must demand payment and deposit his certificates in accordance with
the terms of the notice.
(b) A record shareholder who demands payment and deposits his shares under
subsection (a) of this Code section retains all other rights of a shareholder
until these rights are canceled or modified by the taking of the proposed
corporate action.
(c) A record shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice,
is not entitled to payment for his shares under this article.
(S) 14-2-1324 Share restrictions.
(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under Code Section 14-2-1326.
(b) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are
canceled or modified by the taking of the proposed corporate action.
(S) 14-2-1325 Offer of payment.
(a) Except as provided in Code Section 14-2-1327, within ten days of the
later of the date the proposed corporate action is taken or receipt of a
payment demand, the corporation shall by notice to each dissenter who
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complied with Code Section 14-2-1323 offer to pay to such dissenter the amount
the corporation estimates to be the fair value of his or her shares, plus
accrued interest.
(b) The offer of payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year ending
not more than 16 months before the date of payment, an income statement for
that year, a statement of changes in shareholders' equity for that year,
and the latest available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair value of the
shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under Code
Section 14-2-1327; and
(5) A copy of this article.
(c) If the shareholder accepts the corporation's offer by written notice to
the corporation within 30 days after the corporation's offer or is deemed to
have accepted such offer by failure to respond within said 30 days, payment
for his or her shares shall be made within 60 days after the making of the
offer or the taking of the proposed corporate action, whichever is later.
(S) 14-2-1326 Failure to take action.
(a) If the corporation does not take the proposed action within 60 days
after the date set for demanding payment and depositing share certificates,
the corporation shall return the deposited certificates and release the
transfer restrictions imposed on uncertificated shares.
(b) If, after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under Code Section 14-2-1322 and repeat the payment demand
procedure.
(S) 14-2-1327 Procedure if shareholder dissatisfied with payment or offer.
(a) A dissenter may notify the corporation in writing of his own estimate of
the fair value of his shares and amount of interest due, and demand payment of
his estimate of the fair value of his shares and interest due, if:
(1) The dissenter believes that the amount offered under Code Section 14-
2-1325 is less than the fair value of his shares or that the interest due
is incorrectly calculated; or
(2) The corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within 60 days after the date set for
demanding payment.
(b) A dissenter waives his or her right to demand payment under this Code
section and is deemed to have accepted the corporation's offer unless he or
she notifies the corporation of his or her demand in writing under subsection
(a) of this Code section within 30 days after the corporation offered payment
for his or her shares, as provided in Code Section 14-2-1325.
(c) If the corporation does not offer payment within the time set forth in
subsection (a) of Code Section 14-2-1325:
(1) The shareholder may demand the information required under subsection
(b) of Code Section 14-2-1325, and the corporation shall provide the
information to the shareholder within ten days after receipt of a written
demand for the information; and
(2) The shareholder may at any time, subject to the limitations period of
Code Section 14-2-1332, notify the corporation of his own estimate of the
fair value of his shares and the amount of interest due and demand payment
of his estimate of the fair value of his shares and interest due.
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(S) 14-2-1330 Court action.
(a) If a demand for payment under Code Section 14-2-1327 remains unsettled,
the corporation shall commence a proceeding within 60 days after receiving the
payment demand and petition the court to determine the fair value of the
shares and accrued interest. If the corporation does not commence the
proceeding within the 60 day period, it shall pay each dissenter whose demand
remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding, which shall be a nonjury
equitable valuation proceeding, in the superior court of the county where a
corporation's registered office is located. If the surviving corporation is a
foreign corporation without a registered office in this state, it shall
commence the proceeding in the county in this state where the registered
office of the domestic corporation merged with or whose shares were acquired
by the foreign corporation was located.
(c) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding, which
shall have the effect of an action quasi in rem against their shares. The
corporation shall serve a copy of the petition in the proceeding upon each
dissenting shareholder who is a resident of this state in the manner provided
by law for the service of a summons and complaint, and upon each nonresident
dissenting shareholder either by registered or certified mail or by
publication, or in any other manner permitted by law.
(d) The jurisdiction of the court in which the proceeding is commenced under
subsection (b) of this Code section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers
described in the order appointing them or in any amendment to it. Except as
otherwise provided in this chapter, Chapter 11 of Title 9, known as the
"Georgia Civil Practice Act," applies to any proceeding with respect to
dissenters' rights under this chapter.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount which the court finds to be the fair value of his shares, plus
interest to the date of judgment.
(S) 14-2-1331 Court costs and counsel fees.
(a) The court in an appraisal proceeding commenced under Code Section 14-2-
1330 shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court, but not
including fees and expenses of attorneys and experts for the respective
parties. The court shall assess the costs against the corporation, except that
the court may assess the costs against all or some of the dissenters, in
amounts the court finds equitable, to the extent the court finds the
dissenters acted arbitrarily, vexatiously, or not in good faith in demanding
payment under Code Section 14-2-1327.
(b) The court may also assess the fees and expenses of attorneys and experts
for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the
requirements of Code Sections 14-2-1320 through 14-2-1327; or
(2) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses
are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by this article.
(c) If the court finds that the services of attorneys for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these attorneys reasonable fees to be paid out of the
amounts awarded the dissenters who were benefited.
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(S) 14-2-1332 Limitation of actions.
No action by any dissenter to enforce dissenters' rights shall be brought
more than three years after the corporate action was taken, regardless of
whether notice of the corporate action and of the right to dissent was given by
the corporation in compliance with the provisions of Code Section 14-2-1320 and
Code Section 14-2-1322.
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XCELLENET, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF XCELLENET, INC.
FOR USE AT THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON JULY 21, 1998
The undersigned holder of shares of Common Stock, par value $0.01 per share, of
XcelleNet, Inc. ("XcelleNet"), hereby appoints Dennis M. Crumpler and Shereef
W. Nawar and each of them, as proxies of the undersigned, with full power of
substitution and resubstitution, to represent and vote as set forth herein all
of the shares of common stock of XcelleNet held of record by the undersigned on
June 8, 1998 at the Special Meeting of Shareholders to be held on Tuesday, July
21, 1998, commencing at 8:00 a.m., Eastern time, at The Westin Atlanta North at
Perimeter Hotel, 7 Concourse Parkway, Atlanta, Georgia, and at any and all
postponements and adjournments thereof (the "Special Meeting").
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED
"FOR" THE PROPOSAL SET FORTH ON THE OTHER SIDE HEREOF AND OTHERWISE IN THE
DISCRETION OF THE PROXY HOLDERS AS TO ANY OTHER MATTER WHICH MAY PROPERLY COME
BEFORE THE SPECIAL MEETING.
(Continued, and to be dated and signed, on the other side)
<PAGE>
THE DIRECTORS OF XCELLENET, INC. UNANIMOUSLY RECOMMEND
A VOTE FOR THE FOLLOWING PROPOSAL.
[X] PLEASE MARK YOUR VOTE AS IN THIS EXAMPLE.
Approval of an Agreement and Plan of Merger, dated as of April 16, 1998, by and
among Sterling Commerce, Inc., a Delaware corporation ("Sterling Commerce"),
Sterling Commerce (Southern), Inc., a Delaware corporation and a wholly owned
subsidiary of Sterling Commerce ("Commerce Southern"), and XcelleNet, Inc., a
Georgia corporation ("XcelleNet"), pursuant to which XcelleNet will be merged
with and into Commerce Southern, with Commerce Southern continuing as the
surviving corporation and remaining a wholly owned subsidiary of Sterling
Commerce. FOR [_] AGAINST [_] ABSTAIN [_]
This proxy should be dated, signed
by the Shareholder as his or her
name appears below, and returned
promptly in the enclosed envelope.
Joint owners should each sign
personally, and trustees and
others signing in a representative
capacity should indicate the
capacity in which they sign.
Dated: ____________________________
___________________________________
Signature of Shareholder
___________________________________
USING BLUE OR BLACK INK, PLEASE MARK, SIGN, AND
PROMPTLY RETURN THIS PROXY CARD IN THE ENVELOPE Signature of Shareholder
PROVIDED
