SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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:
[X] Preliminary Proxy Statement [ ] Confidential, For Use of
the Commission Only
[ ] Definitive Proxy Statement (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule
14a-11(c) or Rule 14a-12
CROSSWORLDS SOFTWARE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
[ ] No fee required.
[X] 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:
Common Stock, par value $0.001 per share, of CrossWorlds Software, Inc.
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(2) Aggregate number of securities to which transactions applies:
27,026,143 shares of CrossWorlds Common Stock (representing the number
of shares of CrossWorlds Common Stock outstanding as of November 19,
2001
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
The filing fee of $25,135 was calculated pursuant to Exchange Act
Rule 0-11(c)(1) by multiplying 1/50th of 1% by the aggregate amount of cash
to be transferred to security holders in the transaction.
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(4) Proposed maximum aggregate value of transaction:
$125,671,565
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(5) Total fee paid:
$25,135
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[ ] 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.:
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(3) Filing Party:
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(4) Date Filed:
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SPECIAL MEETING OF STOCKHOLDERS
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
Dear CrossWorlds Software, Inc. stockholder:
The board of directors of CrossWorlds Software, Inc. has approved a merger
combining International Business Machines Corporation and CrossWorlds.
If the merger is completed, holders of CrossWorlds' common stock will
receive $4.65 in cash, without interest, for each share of CrossWorlds' common
stock they own.
Stockholders of CrossWorlds will be asked, at a special meeting of
CrossWorlds' stockholders, to adopt the merger agreement. The board of directors
of CrossWorlds has determined that the merger and the merger agreement are in
the best interests of CrossWorlds' stockholders and has declared the merger
advisable and recommends that CrossWorlds' stockholders adopt the merger
agreement.
The date, time and place of the special meeting to consider and vote upon a
proposal to adopt the merger agreement is as follows:
[ , January , 2002
9:00 a.m., local time
CrossWorlds Software, Inc.
577 Airport Boulevard
Burlingame, California 94010]
The proxy statement attached to this letter provides you with information
about the special meeting of the CrossWorlds stockholders and the proposed
merger. We encourage you to read the entire proxy statement carefully.
YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the special
meeting, if you are a holder of CrossWorlds' common stock please take the time
to vote by completing, signing, dating and mailing the enclosed proxy card to
us.
ALFRED J. AMOROSO
President and Chief Executive Officer
CrossWorlds Software, Inc.
The proxy statement is dated December , 2001, and is first being mailed
to stockholders of CrossWorlds on or about December , 2001.
THE PROXY STATEMENT INCORPORATES IMPORTANT BUSINESS AND FINANCIAL INFORMATION
ABOUT IBM AND CROSSWORLDS THAT IS NOT INCLUDED IN OR DELIVERED WITH THIS
DOCUMENT. THIS INFORMATION IS AVAILABLE WITHOUT CHARGE TO CROSSWORLDS
STOCKHOLDERS UPON WRITTEN OR ORAL REQUEST. STOCKHOLDERS SHOULD CONTACT
CROSSWORLDS SOFTWARE, INC. AT 577 AIRPORT BOULEVARD, BURLINGAME, CALIFORNIA
94010, ATTN: INVESTOR RELATIONS, (650) 685-9000.
TO OBTAIN TIMELY DELIVERY OF REQUESTED DOCUMENTS BEFORE THE SPECIAL MEETING, YOU
MUST REQUEST THEM NO LATER THAN , 200 , WHICH IS FIVE BUSINESS DAYS
BEFORE THE DATE OF THE SPECIAL MEETING.
ALSO SEE "WHERE YOU CAN FIND MORE INFORMATION" IN THE PROXY STATEMENT.
CROSSWORLDS SOFTWARE, INC.
577 AIRPORT BOULEVARD
BURLINGAME, CALIFORNIA 94010
(650) 685-9000
---------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY , 2002
To the stockholders of CrossWorlds Software, Inc.:
A special meeting of stockholders of CrossWorlds Software, Inc., a Delaware
corporation, will be held on , January , 2002 at 9:00 a.m.,
local time, at the executive offices of CrossWorlds located at 577 Airport
Boulevard, Burlingame, California 94010, for the following purposes:
l. To consider and vote upon a proposal to adopt the Agreement and Plan of
Merger, dated as of October 29, 2001, among International Business
Machines Corporation, Duke Acquisition Corp., a Delaware corporation and
a wholly owned subsidiary of IBM, and CrossWorlds Software, Inc.; and
2. To transact such other business as may properly come before the special
meeting or any adjournment or postponement thereof.
The board of directors of CrossWorlds has fixed the close of business on
December , 2001 as the record date for the determination of stockholders
entitled to notice of, and to vote at, the special meeting and any adjournment
or postponement thereof. Only holders of record of shares of CrossWorlds' common
stock at the close of business on the record date are entitled to notice of, and
to vote at, the special meeting or any adjournment or postponement of it. At the
close of business on the record date, CrossWorlds had outstanding and entitled
to vote [ ] shares of common stock. Holders of CrossWorlds' common
stock are entitled to dissenters' rights under the Delaware General Corporation
Law in connection with the merger. See "Appraisal Rights" on page 29.
YOUR VOTE IS IMPORTANT. THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY
OF THE OUTSTANDING SHARES OF CROSSWORLDS' COMMON STOCK IS REQUIRED TO ADOPT THE
MERGER AGREEMENT. EVEN IF YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, WE
REQUEST THAT YOU COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY AND THUS
ENSURE THAT YOUR SHARES WILL BE REPRESENTED AT THE SPECIAL MEETING IF YOU ARE
UNABLE TO ATTEND. IF YOU SIGN, DATE AND MAIL YOUR PROXY CARD WITHOUT INDICATING
HOW YOU WISH TO VOTE, YOUR PROXY WILL BE COUNTED AS A VOTE IN FAVOR OF ADOPTION
OF THE MERGER AGREEMENT. IF YOU FAIL TO RETURN YOUR CROSSWORLDS PROXY CARD, THE
EFFECT WILL BE THAT YOUR SHARES WILL NOT BE COUNTED FOR PURPOSES OF DETERMINING
WHETHER A QUORUM IS PRESENT AT THE CROSSWORLDS SPECIAL MEETING BUT WILL
EFFECTIVELY BE COUNTED AS A VOTE AGAINST ADOPTION OF THE MERGER AGREEMENT. IF
YOU DO ATTEND THE SPECIAL MEETING AND WISH TO VOTE IN PERSON, YOU MAY WITHDRAW
YOUR PROXY AND VOTE IN PERSON.
By Order of the Board of Directors,
ALFRED J. AMOROSO
President and Chief Executive Officer
Burlingame, California
December , 2001
CROSSWORLDS' BOARD OF DIRECTORS HAS DECLARED ADVISABLE, AND RECOMMENDS,
THAT CROSSWORLDS' STOCKHOLDERS VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT.
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY..................................................... 3
MARKET PRICE AND DIVIDEND DATA.............................. 9
THE SPECIAL MEETING......................................... 10
Date, Time and Place...................................... 10
Purpose of Special Meeting................................ 10
Record Date; Stock Entitled to Vote; Quorum............... 10
Votes Required............................................ 10
Voting by CrossWorlds' Directors, Executive Officers and
Certain Stockholders................................... 10
Voting of Proxies......................................... 10
Revocability of Proxies................................... 11
Solicitation of Proxies................................... 11
THE COMPANIES............................................... 12
CrossWorlds............................................... 12
IBM....................................................... 12
IBM Merger Subsidiary..................................... 12
THE MERGER.................................................. 13
Background to the Merger.................................. 13
Reasons for the Merger and Board of Directors'
Recommendation......................................... 19
Opinion of Thomas Weisel Partners LLC..................... 20
Interests of CrossWorlds' Directors and Management in the
Merger................................................. 25
Appraisal Rights.......................................... 29
Accounting Treatment...................................... 31
Form of the Merger........................................ 31
Merger Consideration...................................... 31
Conversion of Shares; Procedures for Exchange of
Certificates........................................... 31
Effective Time of the Merger.............................. 32
Delisting and Deregistration of CrossWorlds' Common
Stock.................................................. 32
Material United States Federal Income Tax Consequences of
the Merger............................................. 32
Regulatory Matters........................................ 33
Litigation................................................ 33
Continuation of CrossWorlds' Employee Benefits............ 34
Effect on Awards Outstanding Under CrossWorlds' Stock
Plans.................................................. 34
THE MERGER AGREEMENT AND STOCKHOLDERS AGREEMENT............. 35
The Merger Agreement...................................... 35
The Stockholders Agreement................................ 43
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 45
STOCKHOLDER PROPOSALS....................................... 47
OTHER MATTERS............................................... 47
WHERE YOU CAN FIND MORE INFORMATION......................... 48
</Table>
Annexes:
Annex A -- Agreement and Plan of Merger
Annex B -- Stockholders Agreement
Annex C -- Opinion of Thomas Weisel Partners LLC
Annex D -- Section 262 of the Delaware General Corporation Law -- Appraisal
Rights
-i-
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT WILL CROSSWORLDS' STOCKHOLDERS RECEIVE IN THE MERGER?
A: As a result of the merger, CrossWorlds' stockholders will receive $4.65 in
cash, without interest, for each share of CrossWorlds' common stock they own.
For example, if you own 100 shares of CrossWorlds' common stock, you will
receive $465 in cash in exchange for your CrossWorlds shares.
Q: WHAT DO I NEED TO DO NOW?
A: We urge you to read this proxy statement carefully, including its annexes,
and to consider how the merger affects you. Then just mail your completed,
dated and signed proxy card in the enclosed return envelope as soon as
possible so that your shares can be voted at the special meeting of
CrossWorlds' stockholders.
Q: WHAT HAPPENS IF I DO NOT RETURN A PROXY CARD?
A: The failure to return your proxy card will have the same effect as voting
against the merger.
Q: MAY I VOTE IN PERSON?
A: Yes. If your shares are not held in "streetname," you may attend the special
meeting of CrossWorlds' stockholders, and vote your shares in person, rather
than signing and returning your proxy card.
Q: MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You may change your vote at any time before your proxy card is voted at
the special meeting. You can do this in one of three ways. First, you can
send a written, dated notice to the Secretary of CrossWorlds stating that you
would like to revoke your proxy. Second, you can complete, date, and submit a
new proxy card. Third, you can attend the meeting and vote in person. Your
attendance alone will not revoke your proxy. If you have instructed a broker
to vote your shares, you must follow directions received from your broker to
change those instructions.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will not be able to vote your shares without instructions from
you. You should instruct your broker to vote your shares, following the
procedure provided by your broker. Without instructions, your shares will not
be voted, which will have the effect of a vote against the merger.
Q: SHOULD I SEND IN MY CROSSWORLDS STOCK CERTIFICATES NOW?
A: No. After the merger is completed, you will receive written instructions for
exchanging your shares of CrossWorlds' common stock for the merger
consideration of $4.65 in cash, without interest, for each share of
CrossWorlds' common stock.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working toward completing the merger as quickly as possible. In
addition to obtaining stockholder approval, we must satisfy all other closing
conditions, including the expiration or termination of applicable regulatory
waiting periods. We expect to complete the merger shortly after the special
meeting.
Q: AM I ENTITLED TO DISSENTERS' RIGHTS?
A: Yes. Holders of CrossWorlds' common stock are entitled to dissenters' rights
under the Delaware General Corporation Law in connection with the merger.
1
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you would like additional copies, without charge, of this proxy statement
or if you have questions about the merger, including the procedures for
voting your shares, you should contact:
CROSSWORLDS SOFTWARE, INC.
Attn: Investor Relations
577 Airport Boulevard
Burlingame, California 94010
Telephone: (650) 685-9000
2
SUMMARY
This summary highlights selected information from this proxy statement and
may not contain all of the information that is important to you. To understand
the merger fully and for a more complete description of the legal terms of the
merger, you should read carefully this entire proxy statement and the documents
we refer to herein. See "Where You Can Find More Information" on page 48. The
merger agreement is attached as Annex A to this proxy statement. We encourage
you to read the merger agreement as it is the legal document that governs the
merger. We have included page references in parentheses to direct you to a more
complete description of the topics presented in this summary.
FORWARD-LOOKING INFORMATION
This proxy statement may contain projections or other forward-looking
statements regarding future events or the future financial performance of
CrossWorlds. These forward-looking statements are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. These
statements are neither promises nor guarantees, but involve risks and
uncertainties that could cause actual results to differ materially from those
set forth in the forward-looking statements, including, without limitation, the
risk that the merger may not be consummated in a timely manner, if at all, risks
regarding employee retention and other risks detailed in the current filings
with the SEC of both IBM and CrossWorlds, including their most recent filings on
Form 10-Q, which discuss these and other important risk factors concerning their
respective operations.
THE COMPANIES (PAGE 12)
CROSSWORLDS SOFTWARE, INC.
577 Airport Boulevard
Burlingame, California 94010
Telephone: (650) 685-9000
CrossWorlds provides business integration software to extend and unite a
company's evolving business processes. CrossWorlds' products help companies
streamline and improve internal operations and trading relationships through a
cohesive business process management approach. With a patented, unified
architecture for integrating processes within the enterprise and across the
Internet to trading partners, CrossWorlds' products reduce information
technology costs, increase productivity and improve responsiveness to customer
demands. CrossWorlds was incorporated in Delaware in March 1996.
INTERNATIONAL BUSINESS MACHINES CORPORATION
One New Orchard Road
Armonk, New York 10504
Telephone: (914) 499-1900
IBM, a New York corporation, develops and manufactures advanced information
technologies, including computer systems, software, networking systems, storage
drives and microelectronics. IBM translates these advanced technologies into
value for its customers through its professional solutions and services
worldwide.
DUKE ACQUISITION CORP.
One New Orchard Road
Armonk, New York 10504
Telephone: (914) 499-1900
Duke Acquisition Corp. is a Delaware corporation and a wholly-owned
subsidiary of IBM. Duke Acquisition Corp. was organized solely for the purpose
of entering into the merger agreement with CrossWorlds and completing the merger
and has not conducted any business operations.
3
MERGER CONSIDERATION (PAGE 31)
If the merger is completed, you will receive $4.65 in cash, without
interest, in exchange for each share of CrossWorlds' common stock that you own.
After the merger is completed, you will have the right to receive the
merger consideration but you will no longer have any rights as a CrossWorlds'
stockholder. CrossWorlds' stockholders will receive the merger consideration
after exchanging their CrossWorlds' stock certificates in accordance with the
instructions contained in the letter of transmittal to be sent to CrossWorlds'
stockholders shortly after completion of the merger.
MARKET PRICE AND DIVIDEND DATA (PAGE 9)
CrossWorlds' common stock is listed on The Nasdaq National Market. On
October 29, 2001, the last full trading day prior to the public announcement of
the proposed merger, CrossWorlds' common stock closed at $3.54. On December ,
2001, the last full trading day prior to the date of this proxy statement,
CrossWorlds' common stock closed at $ .
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (PAGE 32)
The exchange of shares of CrossWorlds' common stock for the cash merger
consideration will be a taxable transaction to CrossWorlds' stockholders for
United States federal income tax purposes.
TAX MATTERS CAN BE COMPLICATED, AND THE TAX CONSEQUENCES OF THE MERGER TO
YOU WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU SHOULD CONSULT YOUR OWN
TAX ADVISOR TO FULLY UNDERSTAND THE TAX CONSEQUENCES OF THE MERGER TO YOU.
REASONS FOR THE MERGER (PAGE 19)
The CrossWorlds board of directors approved the merger based on a number of
factors, including the following:
- the value of the consideration to be received by CrossWorlds'
stockholders in the merger pursuant to the merger agreement, as well as
the fact that stockholders would receive the consideration in cash with
no financing condition;
- CrossWorlds' prospects if it were to remain independent, the relative
size of CrossWorlds and its competitors and CrossWorlds' future as an
independent company in light of weakness in third quarter bookings,
decreases in deferred revenue amounts in the third quarter, fears of
continued customer delays or deferrals of purchases in the fourth quarter
and beyond, risks of personnel retention and the weak and uncertain
current and anticipated worldwide economic environment;
- the fact that the companies operating in the application server market
were beginning to adopt standards that included integration capabilities,
creating thereby an inevitable convergence between the integration and
application server markets, thus reducing the potential market for the
products of CrossWorlds;
- the current status of the integration server market and the perceived
competitive advantage in the industry of large infrastructure software
players with significant distribution capacity, compatible product and
service offerings and substantial financial resources;
- the possible alternatives to the merger (including the possibility of
continuing to operate CrossWorlds as an independent entity, and the
perceived risks thereof), the range of possible benefits to CrossWorlds'
stockholders of such alternatives and the timing and the likelihood of
accomplishing the goal of any of such alternatives, and the board of
directors' assessment that none of such alternatives were reasonably
likely to present superior opportunities for CrossWorlds, or reasonably
likely to create greater value for CrossWorlds' stockholders, than the
merger;
4
- the financial condition, historical results of operations and business
and strategic objectives of CrossWorlds, as well as the risks involved in
achieving those objectives;
- other historical information concerning CrossWorlds' business, prospects,
financial performance and condition, operations, technology, management
and competitive position;
- the fact that the $4.65 per share to be paid as the consideration in the
merger represents a premium of approximately 62.0% over the one-month
trailing average of $2.87 per share, a premium of approximately 37.6%
over the one-week trailing average of $3.38 per share, and a premium of
approximately 31.4% over the $3.54 closing sale price for the shares on
The Nasdaq National Market on October 29, 2001, the last trading day
prior to the public announcement of the execution of the merger
agreement;
- the fact that Thomas Weisel Partners LLC and members of CrossWorlds'
management had contacted approximately 25 selected companies (including
IBM) in the application server, enterprise application integration,
application vendor and other infrastructure software segments of the
market regarding their interest in a possible acquisition transaction
with CrossWorlds and, although each party was afforded ample time and
information to submit an offer, of those contacted, only IBM had made a
formal offer to acquire CrossWorlds; and
- the opinion of Thomas Weisel Partners, dated October 29, 2001, that, as
of that date, the merger consideration to be received by CrossWorlds'
stockholders pursuant to the merger was fair to such stockholders from a
financial point of view. A copy of the Thomas Weisel Partners opinion is
attached to this proxy statement as Annex C. Such opinion should be read
in its entirety for a description of the procedures followed, assumptions
and qualifications made, matters considered and limitations of the review
undertaken by Thomas Weisel Partners.
RECOMMENDATIONS TO STOCKHOLDERS (PAGE 19)
The CrossWorlds board of directors believes that the merger is advisable
and fair to you and in your best interests. The CrossWorlds board of directors
has declared advisable, and recommends, that you vote "for" adoption of the
merger agreement.
OPINION OF FINANCIAL ADVISOR (PAGE 20)
In deciding to approve the merger, one of the factors that the CrossWorlds
board of directors considered was the opinion of its financial advisor, Thomas
Weisel Partners, delivered orally to the CrossWorlds board of directors on
October 29, 2001, and confirmed in writing on that same day, that, based upon
certain assumptions and qualifications, the merger consideration to be received
by the stockholders of CrossWorlds pursuant to the merger was fair to the
stockholders of CrossWorlds from a financial point of view as of such date. The
full text of the Thomas Weisel Partners opinion describes the basis for its
opinion and is attached as Annex C to this proxy statement. CROSSWORLDS URGES
YOU TO READ THE ENTIRE OPINION CAREFULLY.
THE SPECIAL MEETING OF CROSSWORLDS' STOCKHOLDERS (PAGE 10)
Time, Date and Place. A special meeting of the stockholders of CrossWorlds
will be held on , January , 2002, at the principal executive offices
of CrossWorlds located at 577 Airport Boulevard, Burlingame, California 94010 at
9:00 a.m., local time, to consider and vote upon a proposal to adopt the merger
agreement.
Record Date and Voting Power. You are entitled to vote at the special
meeting if you owned shares of CrossWorlds' common stock at the close of
business on December , 2001, the record date for the special meeting. You will
have one vote at the special meeting for each share of CrossWorlds' common stock
you owned at the close of business on the record date. There are [ ] shares
of CrossWorlds' common stock entitled to be voted at the special meeting.
5
Required Vote. The adoption of the merger agreement requires the
affirmative vote of a majority of the shares of CrossWorlds' common stock
outstanding at the close of business on the record date.
Share Ownership of Directors and Management. The directors and executive
officers of CrossWorlds and their affiliates own approximately 36.83% of the
shares entitled to vote at the special meeting. Directors and executive officers
of CrossWorlds who own approximately 35.19% of the shares entitled to vote at
the special meeting have agreed to vote their shares in favor of adoption of the
merger agreement.
INTERESTS OF CROSSWORLDS' OFFICERS AND DIRECTORS IN THE MERGER (PAGE 25)
When considering the recommendation by the CrossWorlds board of directors,
you should be aware that a number of CrossWorlds' officers and directors have
interests in the merger that are different from the interests of other
CrossWorlds stockholders. For example, if the merger is consummated, certain
indemnification arrangements for current and former directors and officers of
CrossWorlds will be continued and certain of CrossWorlds' officers may also be
entitled to retention bonus payments in connection with the merger.
CONDITIONS TO THE COMPLETION OF THE MERGER (PAGE 35)
IBM and CrossWorlds are obligated to complete the merger only if they
satisfy or, in some cases, waive several conditions, including:
- the holders of a majority of the outstanding shares of CrossWorlds'
common stock must have voted in favor of adopting the merger agreement;
- the waiting period required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 or any other applicable competition, merger
control, antitrust or similar law must have expired or been terminated;
- no temporary restraining order, preliminary or permanent injunction or
other decree issued by any court of competent jurisdiction or legal
restraint or prohibition which has the effect of preventing the
completion of the merger may be in effect;
- certain consents, approvals, authorizations, qualifications and orders
must have been obtained by CrossWorlds; and
- IBM and CrossWorlds must not have breached in any material respect any of
the representations, warranties and covenants contained in the merger
agreement.
In addition, IBM will be obligated to complete the merger only if there is
no pending suit, action or proceeding by any governmental entity or third party,
or any such suit, action or proceeding threatened by a governmental entity (in
each case, other than a suit, claim, action, investigation or proceeding brought
by a third party based on state law fiduciary duty claims related to the
transactions contemplated by the merger agreement):
- challenging or seeking to restrain or prohibit the completion of the
merger;
- seeking to prohibit or limit in any material respect the ownership or
operation by CrossWorlds or IBM (or their respective affiliates) of a
material portion of the respective businesses or assets of CrossWorlds
and its subsidiaries (taken as a whole) or IBM and its subsidiaries
(taken as a whole) or to require any of them to dispose of or hold
separate any material portion of the respective businesses or assets of
CrossWorlds and its subsidiaries (taken as a whole) or IBM and its
subsidiaries (taken as a whole) as a result of the merger;
- seeking to impose limitations on the ability of IBM (or its affiliates)
to acquire or hold, or exercise full rights or ownership of, any shares
of CrossWorlds' common stock (including the right to vote those shares);
or
6
- seeking to prohibit IBM (or any of its affiliates) from effectively
controlling in any material respect a substantial portion of the business
or operations of CrossWorlds or its subsidiaries.
IBM's obligation to complete the merger is subject to the further condition
that there not be any restraining order, injunction or other court order or
decree or legal restraint or prohibition in effect that could reasonably be
expected to result in any of the effects described in the immediately preceding
bullet points.
TERMINATION OF THE MERGER AGREEMENT (PAGE 37)
IBM and CrossWorlds can terminate the merger agreement under certain
circumstances, including:
- by mutual written consent of IBM, Duke Acquisition Corp. and CrossWorlds;
- by IBM or CrossWorlds, if the merger has not been completed by March 31,
2002 for any reason; provided, however, that this right to terminate the
merger agreement will not be available to a party whose action or failure
to act was a principal cause or resulted in the failure of the merger to
be completed by that date and such action or failure constituted a breach
of the merger agreement;
- by IBM or CrossWorlds, if any restraining order, injunction or other
order or decree issued by any court of competent jurisdiction or other
legal restraint or prohibition is in effect, which has become final and
nonappealable;
- by either IBM or CrossWorlds, if the stockholders of CrossWorlds do not
adopt the merger agreement at a stockholders meeting duly convened
therefor or at any adjournment or postponement of such meeting;
- by IBM or CrossWorlds, if the other party has breached or failed to
perform in any material respect any of its representations, warranties,
covenants or other agreements contained in the merger agreement, which
breach or failure to perform would give rise to the failure of a
condition to the merger and cannot be cured or has not been cured within
25 days after written notice of such breach or failure;
- by IBM if any restraining order, injunction or other order or decree
issued by any court of competent jurisdiction or other legal restraint or
prohibition having the effects described in the bullet points in the
second paragraph under "-- Conditions to the Merger" above has become
final and non-appealable; or
- by IBM in the event that CrossWorlds' board of directors or any committee
thereof (a) withdraws or proposes publicly to withdraw, or modifies or
proposes publicly to modify in a manner adverse to IBM, the
recommendation or declaration of advisability by such board or any such
committee of the merger agreement or the merger, or resolves or agrees to
take any such action, or (b) fails to confirm its recommendation and
declaration of advisability of the merger agreement and the merger within
ten business days after a written request by IBM that it do so.
LIMITATION ON CONSIDERING OTHER ACQUISITION PROPOSALS (PAGE 36)
CrossWorlds has agreed not to (a) solicit, initiate or encourage, or take
any other action knowingly to facilitate, any takeover proposal or (b) enter
into, continue or otherwise participate in any discussions or negotiations
regarding, or furnish to any person any information with respect to or otherwise
cooperate in any way with, any takeover proposal, unless the other party making
the takeover proposal has made a bona fide unsolicited takeover proposal to the
CrossWorlds board of directors that the board of directors determines in good
faith is or is reasonably likely to be superior to the merger.
EXPENSES AND TERMINATION FEES (PAGE 37)
The merger agreement provides that regardless of whether the merger is
consummated, all expenses incurred by the parties shall be borne by the party
incurring such expenses.
7
The merger agreement requires, however, that CrossWorlds pay IBM a
termination fee of $4.8 million if, among other things:
- the merger agreement is terminated by either IBM or CrossWorlds because
the merger has not been consummated by March 31, 2002 and (i) at or prior
to such termination, another takeover proposal from a third party has
been made, announced or become known to the CrossWorlds stockholders, or
any person or group has acquired ownership of 10% or more of CrossWorlds'
common stock, and (ii) within 12 months following such termination
CrossWorlds or any of its subsidiaries enters into an agreement with
respect to, or consummates, any takeover proposal;
- the merger agreement is terminated by either IBM or CrossWorlds because
the special meeting of CrossWorlds' stockholders was held and the
CrossWorlds stockholders have failed to adopt the merger agreement and
(i) at or prior to such termination, another takeover proposal from a
third party has been made, announced or become known to the CrossWorlds
stockholders, or any person or group has acquired ownership of 10% or
more of CrossWorlds' common stock, and (ii) within 12 months following
such termination CrossWorlds or any of its subsidiaries enters into an
agreement with respect to, or consummates, any takeover proposal; or
- the merger agreement is terminated by IBM because the board of directors
of CrossWorlds or a committee thereof has (i) withdrawn or adversely
modified or publicly proposed to withdraw or adversely modify the
recommendation or declaration of advisability of the board of directors
or such committee in favor of the merger or (ii) failed to confirm its
recommendation and declaration of advisability of the merger agreement
and the merger within 10 business days of a written request by IBM that
it do so.
ACCOUNTING TREATMENT (PAGE 31)
The merger will be accounted for as a "purchase transaction" for financial
accounting purposes.
REGULATORY MATTERS (PAGE 33)
The Hart-Scott-Rodino Antitrust Improvements Act prohibits us from
completing the merger until we have furnished certain information and materials
to the Antitrust Division of the Department of Justice and the Federal Trade
Commission and the required waiting period has ended. Both IBM and CrossWorlds
have filed the required notification and report forms. The required waiting
period expires on December 20, 2001 unless extended by the Antitrust Division or
the Federal Trade Commission with a request for additional information.
APPRAISAL RIGHTS (PAGE 29)
CrossWorlds' stockholders have the right under Delaware law to dissent from
the approval of the merger and to exercise appraisal rights and to receive
payment in cash for the fair value of their shares of CrossWorlds' common stock
determined in accordance with Delaware law. The fair value of shares of
CrossWorlds' common stock as determined in accordance with Delaware law may be
more or less than the merger consideration to be paid to non-dissenting
CrossWorlds stockholders in the merger. To preserve their rights, stockholders
who wish to exercise appraisal rights must not vote in favor of the adoption of
the merger agreement and must follow specific procedures. Dissenting CrossWorlds
stockholders must precisely follow these specific procedures to exercise
appraisal rights, or their appraisal rights may be lost. These procedures are
described in this proxy statement, and the provisions of Delaware law that grant
appraisal rights and govern such procedures are attached as Annex D. We
encourage all of CrossWorlds' stockholders to read these provisions carefully
and in their entirety.
8
MARKET PRICE AND DIVIDEND DATA
CrossWorlds common stock is included in The Nasdaq National Market under
the symbol "CWLD." This table shows, for the periods indicated, the range of
high and low closing per share sales prices for CrossWorlds' common stock as
reported on The Nasdaq National Market.
<Table>
<Caption>
CROSSWORLDS'
COMMON STOCK
------------------
LOW HIGH
------- ------
YEAR ENDED DECEMBER 31, 2000
Second quarter (from June 1, 2000)........................ $ 9.125 18.125
Third quarter............................................. 15.563 26.375
Fourth quarter............................................ 3.313 17.375
YEAR ENDED DECEMBER 31, 2001
First quarter............................................. 2.344 7.000
Second quarter............................................ 2.150 3.100
Third quarter............................................. 2.30 4.14
Fourth quarter (through December , 2001)................ -- --
</Table>
Prior to June 1, 2000, there was no public market for CrossWorlds' common
stock.
The following table sets forth the closing per share sales price of
CrossWorlds' common stock, as reported on The Nasdaq National Market on October
29, 2001, the last full trading day before the public announcement of the
proposed merger, and on December , 2001, the latest practicable trading day
before the printing of this proxy statement:
<Table>
<Caption>
CROSSWORLDS'
COMMON STOCK
CLOSING PRICE
-------------
October 29, 2001............................................ $3.54
December , 2001........................................... $ --
</Table>
CrossWorlds has never declared or paid cash dividends on its common stock.
The current policy of CrossWorlds is to retain earnings for use in its business.
Following the merger there will be no further market for CrossWorlds' common
stock.
9
THE SPECIAL MEETING
We are furnishing this proxy statement to stockholders of CrossWorlds as
part of the solicitation of proxies by the CrossWorlds board of directors for
use at the special meeting.
DATE, TIME AND PLACE
We will hold the special meeting at the corporate offices of CrossWorlds,
577 Airport Boulevard, Burlingame, California 94010, at 9:00 A.M., local time,
on [ ] [JANUARY ], 2002.
PURPOSE OF SPECIAL MEETING
At the special meeting, we will ask holders of CrossWorlds' common stock to
adopt the merger agreement. The CrossWorlds board of directors has approved the
merger agreement and the merger, has determined that the merger agreement and
the merger are fair to and in the best interests of CrossWorlds and its
stockholders, and recommends that CrossWorlds' stockholders vote "for" the
adoption of the merger agreement.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Only holders of record of CrossWorlds' common stock at the close of
business on [DECEMBER ], 2001, the record date, are entitled to notice of and
to vote at the special meeting. On the record date, shares of
CrossWorlds common stock were issued and outstanding and held by approximately
holders of record. A quorum is present at the special meeting if a majority
of the shares of CrossWorlds' common stock issued and outstanding and entitled
to vote on the record date are represented in person or by proxy. In the event
that a quorum is not present at the special meeting, it is expected that the
meeting will be adjourned or postponed to solicit additional proxies. Holders of
record of CrossWorlds' common stock on the record date are entitled to one vote
per share at the special meeting on the proposal to adopt the merger agreement.
VOTES REQUIRED
The adoption of the merger agreement requires the affirmative vote of the
holders of a majority of the shares of CrossWorlds' common stock outstanding on
the record date. If a CrossWorlds stockholder abstains from voting or does not
vote, either in person or by proxy, it will count as a vote against the adoption
of the merger agreement.
VOTING BY CROSSWORLDS' DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN STOCKHOLDERS
At the close of business on the record date, directors and executive
officers of CrossWorlds and their affiliates owned and were entitled to vote
shares of CrossWorlds' common stock, which represented approximately
% of the shares of CrossWorlds' common stock outstanding on that date.
Under the terms of a stockholders agreement, the directors and certain
stockholders of CrossWorlds have agreed to vote their shares of CrossWorlds'
common stock, and the shares over which they have voting control, in each case
as owned or controlled on October 29, 2001, for the adoption of the merger
agreement. On the record date, these directors and stockholders of CrossWorlds
owned and were entitled to vote shares of CrossWorlds' common stock,
or approximately % of the shares of CrossWorlds' common stock outstanding
on the record date.
VOTING OF PROXIES
All shares represented by properly executed proxies received in time for
the special meeting will be voted at the special meeting in the manner specified
by the holders. Properly executed proxies that do not contain voting
instructions will be voted "for" the adoption of the merger agreement.
Shares of CrossWorlds' common stock represented at the special meeting but
not voting, including shares of CrossWorlds' common stock for which proxies have
been received but for which stockholders have
10
abstained, will be treated as present at the special meeting for purposes of
determining the presence or absence of a quorum for the transaction of all
business.
Only shares affirmatively voted for the adoption of the merger agreement,
including properly executed proxies that do not contain voting instructions,
will be counted as favorable votes for that proposal. If a CrossWorlds'
stockholder abstains from voting or does not execute a proxy, it will
effectively count as a vote against the adoption of the merger agreement.
Brokers who hold shares of CrossWorlds' common stock in street name for
customers who are the beneficial owners of such shares may not give a proxy to
vote those customers' shares in the absence of specific instructions from those
customers. These non-voted shares will effectively count as votes against the
adoption of the merger agreement.
The persons named as proxies by a stockholder may propose and vote for one
or more adjournments of the special meeting, including adjournments to permit
further solicitations of proxies. No proxy voted against the proposal to adopt
the merger agreement will be voted in favor of any such adjournment or
postponement.
CrossWorlds does not expect that any matter other than the proposal to
adopt the merger agreement will be brought before the special meeting. If,
however, the CrossWorlds board of directors properly presents other matters, the
persons named as proxies will vote in accordance with their judgment as to
matters that they believe to be in the best interests of the stockholders.
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed form of proxy does not preclude a
stockholder from voting in person at the special meeting. A stockholder may
revoke a proxy at any time prior to its exercise by (a) filing with the
Secretary of CrossWorlds a duly executed revocation of proxy, (b) submitting a
duly executed proxy to the Secretary of CrossWorlds bearing a later date or (c)
appearing at the special meeting and voting in person. Attendance at the special
meeting will not in and of itself constitute revocation of a proxy. If you have
instructed your broker to vote your shares, you must follow directions received
from your broker to change these instructions.
SOLICITATION OF PROXIES
All costs of solicitation of proxies will be borne by CrossWorlds.
CrossWorlds has retained Georgeson Shareholder to aid in the solicitation of
proxies and to verify records relating to the solicitation. Georgeson
Shareholder will receive customary fees and expense reimbursement for these
services. The extent to which these proxy soliciting efforts will be necessary
depends entirely upon how promptly proxies are received. You should send in your
proxy by mail without delay. CrossWorlds also reimburses brokers and other
custodians, nominees and fiduciaries for their expenses in sending these
materials to you and getting your voting instructions.
Stockholders should not send stock certificates with their proxies. A
letter of transmittal with instructions for the surrender of CrossWorlds' common
stock certificates will be mailed to CrossWorlds' stockholders as soon as
practicable after completion of the merger.
11
THE COMPANIES
CROSSWORLDS
CrossWorlds provides business integration software to extend and unite a
company's evolving business processes. CrossWorlds' products help companies
streamline and improve internal operations and trading relationships through a
cohesive business process management approach. With a patented, unified
architecture for integrating processes within the enterprise and across the
Internet to trading partners, CrossWorlds' products reduce information
technology costs, increase productivity and improve responsiveness to customer
demands.
CrossWorlds was incorporated in Delaware in March 1996. CrossWorlds'
principal executive offices are located at 577 Airport Boulevard, Burlingame,
California 94010, and its telephone number is (650) 685-9000. Additional
information regarding CrossWorlds is contained in CrossWorlds' filings with the
Securities and Exchange Commission. See "Where You Can Find More Information" on
page 48.
IBM
IBM, a New York corporation, develops and manufactures advanced information
technologies, including computer systems, software, networking systems, storage
drives and microelectronics. IBM translates these advanced technologies into
value for its customers through its professional solutions and services
worldwide. IBM's principal executive offices are located at One New Orchard
Road, Armonk, New York 10504 and its telephone number is (914) 499-1900.
Additional information regarding IBM is contained in IBM's filings with the
Securities and Exchange Commission. See "Where You Can Find More Information" on
page 48.
IBM MERGER SUBSIDIARY
Duke Acquisition Corp. is a Delaware corporation and a wholly-owned
subsidiary of IBM. Duke was organized solely for the purpose of entering into
the merger agreement with CrossWorlds and completing the merger and has not
conducted any business operations.
12
THE MERGER
The following discussion summarizes the material terms of the merger, the
merger agreement and the stockholders agreement. Stockholders should read the
merger agreement and the stockholders agreement, which are attached as Annexes A
and B to this proxy statement.
BACKGROUND TO THE MERGER
Beginning in March 2001 the CrossWorlds board of directors held a series of
meetings to discuss how best to competitively position CrossWorlds following the
consolidation that had occurred in the enterprise application integration
industry over the previous year. Through consolidation in the enterprise
application integration industry, several competitors of CrossWorlds had become
much larger companies able to offer a broader array of services to their
customers. At the same time, the industry began to experience a migration of
customers from smaller companies, such as CrossWorlds, to these larger companies
due to customer perception that the larger companies were more financially
stable and would, therefore, be more likely to provide better continuity of
service and continued resources for investment in product development than their
smaller competitors. This consolidation trend was furthered by the emergence of
technological standards such as J2EE and .NET which converged the application
server and integration server functionalities. In response to this changing
environment in the enterprise application integration industry, the board of
directors began considering various strategies, including, among others: (i)
CrossWorlds could continue to operate as an independent company; (ii)
CrossWorlds could merge with another company of approximately equal size and, by
becoming a larger entity, attract new customers; or (iii) CrossWorlds could be
acquired by a larger corporation competing in the infrastructure software
market.
On April 2, 2001, the CrossWorlds board of directors held a meeting to
continue its deliberations regarding the strategic options available to
CrossWorlds. Following these deliberations, the CrossWorlds board of directors
determined that the best course of action for CrossWorlds was to maximize
shareholder value by leveraging the assets and capabilities that it had created
to those industry participants who it believed inevitably would be building
enterprise application integration solutions to achieve a time-to-market
advantage or to catch up to their competitors in the industry. Accordingly, the
CrossWorlds board determined that it would be in the best interests of
CrossWorlds and its stockholders to canvas the market to determine what
possibility, if any, existed for CrossWorlds to be acquired by one of the larger
infrastructure software corporations. The board then authorized and directed
Alfred J. Amoroso, the President and chief executive officer of CrossWorlds, to
begin making inquiries of possible acquiror candidates with the objective of
maximizing the possible price paid by an acquiror and thereby maximizing the
value for CrossWorlds stockholders. In addition, after deliberation by the board
as to various alternatives, it was determined that it would be appropriate to
engage Thomas Weisel Partners LLC to provide strategic and financial advice in
connection with a potential sale of CrossWorlds and to assist Mr. Amoroso with
the canvassing process.
On April 2, 2001, following the CrossWorlds board meeting, Terence J.
Garnett, a director and principal stockholder of CrossWorlds, contacted Thomas
Weisel Partners to communicate the board's interest in engaging them to provide
strategic and financial advice in connection with a potential sale of
CrossWorlds.
On April 3, 2001, Mr. Garnett and Mr. Amoroso met with representatives of
Thomas Weisel Partners to discuss the terms of their engagement and to discuss
possible strategies for commencing a sale process.
On April 5, 2001, CrossWorlds executed an engagement letter with Thomas
Weisel Partners, to provide strategic and financial advice in connection with
the potential sale of CrossWorlds, and CrossWorlds and Thomas Weisel Partners
agreed to jointly begin making inquiries of potential candidates to purchase
CrossWorlds. Over the course of this process, CrossWorlds and Thomas Weisel
Partners contacted a total of 25 potential acquirors (including IBM), of which
six (including IBM) held management meetings and conducted varying levels of due
diligence evaluation of CrossWorlds.
13
Also during the first week of April 2001, Mr. Amoroso began contacting a
number of large infrastructure corporations to ascertain their potential
interest in initiating discussions regarding a possible acquisition of
CrossWorlds. In the course of such calls, Mr. Amoroso made a telephone call to
Steven Mills, Senior Vice President and Group Executive of IBM Software Group,
to ascertain whether IBM might be interested in acquiring CrossWorlds. Mr.
Amoroso and Mr. Mills agreed to meet in person on April 13, 2001.
During early April 2001, CrossWorlds and its representatives prepared
materials to use as marketing documents with potential acquirors. Following such
preparation, the materials were delivered to a potential acquiror (referred to
as Company A), with whom CrossWorlds had conducted preliminary discussions
regarding a potential merger transaction in November 2000, which preliminary
discussions had been terminated by Company A in December 2000. Although Company
A indicated that it did not have an interest in discussing a potential merger
transaction with CrossWorlds when approached in early April 2001, in early
August 2001, CrossWorlds contacted Company A to see whether Company A might have
re-evaluated its decision. On August 7, 2001, Company A requested that it be
allowed to conduct a technical due diligence of CrossWorlds. From August 7, 2001
through September 13, 2001, the management of Company A conducted its due
diligence review. Following preliminary discussions with the management of
CrossWorlds, management of Company A concluded that, due to a significant
overlap in technologies and the lack of other synergies, Company A was not
interested in a merger transaction.
On April 13, 2001, Mr. Amoroso, Steven Mills, Senior Vice President and
Group Executive of IBM Software Group, John Swainson, General Manager of the
Application and Integration Middleware Division of IBM Software Group, Bill
Reedy, VP of Business Development of IBM Websphere Division and other IBM
representatives met and engaged in discussions concerning whether an acquisition
by IBM of CrossWorlds made commercial, strategic and financial sense. In
addition, IBM indicated that it would be interested in beginning a due diligence
investigation of CrossWorlds' business.
On April 18, 2001, a meeting was held at the offices of Thomas Weisel
Partners in Menlo Park, California at which CrossWorlds presented its technology
capabilities and product offerings to IBM. Attendees at the meetings included
representatives of both IBM and CrossWorlds.
On April 19, 2001, Mr. Amoroso contacted another potential acquiror
(referred to as Company B) regarding a merger transaction. Company B, a major
infrastructure company, responded to this inquiry by requesting that CrossWorlds
present an overview of CrossWorlds and its architecture and products.
CrossWorlds presented the requested materials on May 7, 2001. Several days
following this presentation, Company B indicated that it was not interested in a
merger transaction. In September 2001, Thomas Weisel Partners again contacted
Company B and was told by Company B that it was still not interested in a merger
transaction with CrossWorlds.
On April 23, 2001, CrossWorlds' board of directors held a special
telephonic meeting to discuss IBM's interest in CrossWorlds. Following an
extended discussion, the board of directors authorized and directed senior
management to continue discussions with IBM as well as to continue to pursue
alternative transactions.
From May 3, 2001 through May 31, 2001, IBM engaged in discussions with
CrossWorlds and Thomas Weisel Partners.
On May 15, 2001, the CrossWorlds board of directors held a meeting to
continue its deliberations regarding the options currently available to the
company and discuss inquiries by, and approaches to, potential acquirors of
CrossWorlds. Following a discussion of the status of the possible alternatives
by management, Thomas Weisel Partners presented an update as to the results of
their efforts to locate a potential acquiror for CrossWorlds, the timing and
accounting treatment of a potential acquisition and other related matters.
In May 2001, Thomas Weisel Partners contacted another potential acquiror
(referred to as Company C) with respect to a potential merger transaction. In
late June 2001, Mr. Amoroso was approached by a financial advisor representing
Company C with respect to a potential merger transaction and Mr. Amoroso agreed
to meet with Company C. On August 16, 2001, Mr. Amoroso met with the chief
executive officer of Company C, as well as Company C's financial advisor. At
this meeting, the parties engaged in a discussion regarding a potential merger
14
transaction between the companies and valuation issues. At the conclusion of
this meeting, discussions between the parties with respect to a potential merger
transaction were terminated.
In mid-June 2001, Mr. Amoroso contacted another potential acquiror
(referred to as Company D) with respect to a potential merger transaction. From
mid-June 2001 to late-June 2001, representatives of CrossWorlds and Company D
exchanged several telephone calls and agreed to hold a meeting among the
management of both parties. On July 2, 2001, senior management of Company D and
CrossWorlds' management met to discuss the potential synergies between the two
companies. On July 6, 2001, Mr. Amoroso had a discussion with Company D's chief
executive officer to discuss possible next steps and, on July 12, 2001,
CrossWorlds' management and senior management of Company D continued discussions
regarding the potential synergies between the two parties. Following these
further discussions, senior management of Company D began to question the value
of the potential synergies between the two companies and began discussions with
respect to valuation issues. On July 18, 2001, Mr. Amoroso met in person with
Company D's chief executive officer, and it became clear during these
discussions that it was unlikely that Company D and CrossWorlds could reach
agreement because of the lack of sufficient synergies between the companies and
the potential negative impact of the merger on Company D's existing business.
Accordingly, discussions between the parties with respect to a possible merger
transaction were terminated.
On July 11, 2001, IBM delivered a due diligence request list to CrossWorlds
and representatives of IBM and CrossWorlds exchanged telephone calls with a view
towards preparing for subsequent due diligence meetings.
On July 11, 2001, IBM delivered a letter to CrossWorlds indicating that all
discussions regarding the acquisition of CrossWorlds by IBM were preliminary and
not binding, that any exchanged terms would not be definitive unless included in
definitive agreements, and that each of them remained free to negotiate with
others. CrossWorlds agreed and countersigned this letter.
On July 13, 2001, IBM and CrossWorlds entered into a Supplement to the
Agreement for Exchange of Confidential Information dated as of March 23, 1998
between IBM and CrossWorlds (which agreement governed the existing business
relationship of IBM and CrossWorlds) in which the parties agreed to keep
confidential any information received in the course of conducting their
respective due diligence investigations and negotiating the proposed
transaction.
On July 17 and July 18, 2001, further CrossWorlds management presentations
were made to IBM at the Embassy Suites hotel in Burlingame, California.
Attendees at the meetings included representatives of both IBM and CrossWorlds.
On August 8, 2001, Mr. Amoroso met in person at CrossWorlds' Burlingame
office with Jeffrey J. Doyle, Corporate Development Executive of IBM, discussed
the status of IBM's due diligence of CrossWorlds and engaged in discussions
concerning the potential terms of a transaction between the two companies. On
the same date, Mr. Doyle discussed with Thomas Weisel Partners IBM's preliminary
interest in a transaction at a price between $5.50 and $5.60 per share for all
of the outstanding shares of common stock of CrossWorlds, contingent on detailed
due diligence investigations of CrossWorlds. Mr. Amoroso responded that he did
not accept the price indicated, and left open the price discussion pending
review by the CrossWorlds board.
From mid-May 2001 through mid-August 2001, Mr. Amoroso kept the members of
the CrossWorlds board of directors apprised of his discussions with various
companies including IBM, as well as the progress made by Thomas Weisel Partners
with respect to other potential buyers of CrossWorlds.
On August 23, 2001, at a regular meeting of CrossWorlds' board of
directors, the board, together with certain members of the company's senior
management and representatives of Thomas Weisel Partners, discussed the status
of the inquiries and negotiations with the potential acquirors. The board also
discussed possible alternatives to a sale of the company, including remaining as
an independent company. After management apprised the members of the CrossWorlds
board of directors of the status of the discussions with IBM, Thomas Weisel
Partners presented additional information with respect to the current status of
CrossWorlds' and Thomas Weisel Partners' inquiries of various prospective
acquirors, including IBM, and, in particular, IBM's preliminary interest in a
transaction at a price between $5.50 and $5.60 per share for all of the
outstanding shares of common stock of CrossWorlds.
15
At this regular meeting of the board of directors, CrossWorlds' board
established an executive management retention plan with the purpose of providing
incentives to certain key employees to continue their service prior to and
following the occurrence of certain change of control transactions. The board
considered this action necessary, under the circumstances, to retain key
personnel in order to protect CrossWorlds' franchise and to maximize shareholder
value. A retention bonus pool in an amount of between $3,400,000 and $5,500,000
based on the value of CrossWorlds in a merger transaction was established.
Awards as to percentage of the ultimate pool under the plan were made by the
board of CrossWorlds on August 24, 2001 to certain CrossWorlds' employees. The
plan provided, among other things, for the payment of such awards on, and 90
days after, a change of control transaction.
On August 27, 2001, IBM delivered an additional due diligence request list
to CrossWorlds seeking to expand their original due diligence inquiries, and IBM
continued its investigations. Mr. Doyle and Mr. Amoroso exchanged telephone
calls with a view towards preparing for subsequent due diligence meetings.
On August 27, 2001, at a meeting of the CrossWorlds board of directors,
management updated the board on the status of discussions with IBM and potential
alternative transactions, including a status report on Company A's due diligence
efforts.
From September 11, 2001 through September 14, 2001, additional due
diligence meetings were held at the offices of Thomas Weisel Partners in Menlo
Park, California to review and discuss the materials produced as a result of
IBM's August 27 additional due diligence request. Attendees at the meetings
included representatives of both IBM and CrossWorlds.
From September 17, 2001 through October 29, 2001, IBM continued to make
various due diligence inquiries of CrossWorlds' personnel regarding CrossWorlds
and its business.
On September 28, 2001, Mr. Amoroso met with Mr. Doyle and David L. Johnson,
Vice President of Corporate Development of IBM, at the executive offices of IBM
in White Plains, New York. At that meeting, Mr. Johnson presented the
preliminary proposed terms for an acquisition of CrossWorlds by IBM for cash. In
this discussion, Mr. Johnson indicated that the due diligence investigation was
only partially complete. He then indicated that based on such investigation and
on market uncertainty related to the global economic downturn, IBM's view on
value had changed and, subject to completion of due diligence, IBM would be
willing to acquire all of the outstanding shares of common stock of CrossWorlds
for a price of $4.60 per share in cash. After further negotiations, IBM
increased its offered price to $4.80 per share, in cash. Mr. Johnson also
indicated that IBM would be willing to increase the price from $4.80 per share
to $5.00 per share if certain principal stockholders of CrossWorlds would be
willing to set aside $5.5 million of the purchase price proceeds of their
CrossWorlds shares to be placed in an escrow account that would be drawn upon to
satisfy any potential post-closing claims of IBM for breaches of
representations, warranties and covenants of CrossWorlds that would be included
in the definitive acquisition agreement to be executed by the parties. He also
indicated that IBM would insist upon stockholder agreements from certain of the
larger CrossWorlds stockholders in which they would agree to vote in favor of,
and provide further support for, the transaction as ultimately agreed upon, and
upon the execution of non-competition agreements from certain CrossWorlds
principal stockholders and members of management. Mr. Amoroso agreed to present
these terms to the CrossWorlds board of directors.
On October 1, 2001, a telephonic meeting of the CrossWorlds board of
directors was convened to discuss the terms of the potential acquisition as
proposed by Mr. Johnson. Representatives of Thomas Weisel Partners were present
at the meeting and led a discussion regarding the proposed terms of the
transaction, including an extended analysis of the $4.80 per share offer by IBM,
as well as a summary of the status of their contacts with other potential
acquirors, including that none of such other parties contacted remained engaged
in evaluating a potential acquisition and no other discussions were ongoing at
that time. Representatives of Venture Law Group, legal counsel to CrossWorlds,
reviewed with the board their fiduciary duties in considering a cash transaction
such as the one proposed by IBM. After an extended discussion, the board
determined that the prices that were proposed by IBM were within an acceptable
range and
16
authorized management to communicate back to IBM that discussions should
continue and that the terms associated with the two proposed pricing scenarios
should be explored further.
During the period from October 2, 2001 through October 11, 2001,
CrossWorlds and IBM engaged in various discussions regarding the terms of the
proposed transaction. Specifically, IBM again communicated the fact that it
viewed the execution of non-competition agreements from certain CrossWorlds
principal stockholders and key members of CrossWorlds' management to be a
condition to the transaction and indicated that the stockholder agreement to be
executed by certain of the CrossWorlds directors and management would include,
in addition to a voting commitment, an option to acquire the principal
stockholders' CrossWorlds shares and provisions requiring the principal
stockholders to disgorge to IBM profits, if any, obtained by the stockholders in
connection with a competing proposal.
On October 11, 2001, attorneys for IBM prepared and provided to attorneys
for CrossWorlds initial drafts of the merger agreement, an escrow and
indemnification agreement and a stockholder agreement. Discussions between the
parties and their representatives regarding the terms presented in the draft
agreements continued over the following week. At the conclusion of the initial
negotiations, it was mutually determined that IBM and the relevant stockholders
would be unable to agree upon mutually acceptable terms for the stockholder
post-closing escrow and indemnification that had been proposed by IBM and
therefore that portion of the proposal was dropped, which left the proposed
price at $4.80 per share.
Also, during this period, the respective legal counsel for the various
stockholders that were being asked to execute the stockholder agreement
communicated to counsel for IBM that the portions of such agreement that
contemplated an option to acquire their shares and require them to disgorge to
IBM profits, if any, obtained by the stockholders in connection with a competing
proposal, were not acceptable terms.
On October 17, 2001, at a meeting of the CrossWorlds board, Thomas Weisel
Partners made a presentation to the board with respect to the terms and
conditions of IBM's currently proposed $4.80 offer, including the principal
stockholder voting, option and profit disgorgement agreements. The board
considered the proposal and possible alternatives to the proposal including
remaining as a stand-alone company and exploring a possible alternative
transaction with Company E (described below). The board then authorized
management to continue discussions with IBM and to explore a possible
alternative transaction with Company E.
On October 18, 2001, representatives of IBM contacted Mr. Amoroso to
indicate that IBM no longer believed the originally offered price of $4.80 per
share to be a viable price due to, among other reasons, IBM's analysis of
CrossWorlds' weakness in third quarter bookings and CrossWorlds' weakened
working capital position resulting therefrom and therefore CrossWorlds should
view that price as being withdrawn. IBM indicated that the price to be offered
subsequently would be below $4.50 per share. Numerous discussions regarding this
topic continued over the following weekend. Several informal discussions among
CrossWorlds' board members also occurred to consider the appropriate next steps
for CrossWorlds in light of the withdrawn offer, including exploring a possible
alternative transaction with Company E (described below). After extended
negotiations, CrossWorlds and IBM agreed to proceed on the basis of a revised
price of $4.65 per share on October 22, 2001, but IBM communicated that its
other transaction terms that had been proposed by IBM would have to be accepted
by CrossWorlds and its principal stockholders for the revised price to hold.
While the IBM price negotiations were continuing, Mr. Amoroso contacted the
chief executive officer of another potential acquiror (referred to as Company E)
regarding a proposed merger transaction, at which time Company E requested that
the parties hold a conference call to discuss the financial impact of a proposed
merger transaction.
On October 22, 2001, the CrossWorlds board met twice. In its morning
meeting, among other items discussed, the board reviewed the status of the
potential IBM transaction and Mr. Amoroso updated the board on his conversations
with Company E. After the review, the board authorized Mr. Amoroso to continue
to explore a possible transaction with Company E, and to continue to negotiate
with IBM. In its afternoon meeting, following a lunch meeting between Mr.
Amoroso and the chief executive officer of Company E, the board authorized Mr.
Amoroso to continue to negotiate with IBM while continuing discussions with
Company E.
17
On October 24, 2001, CrossWorlds held a conference call with Company E
during which CrossWorlds presented its views on certain transaction and due
diligence matters, including with respect to CrossWorlds' third quarter
bookings. Following the presentation, Company E indicated it would not be
interested in pursuing a potential merger transaction with CrossWorlds.
From October 22, 2001 through October 29, 2001, representatives of
CrossWorlds and IBM, together with their respective advisors, held a series of
discussions concerning mutually acceptable terms for the proposed merger
agreement and stockholder agreement.
During the week of October 22, 2001, representatives of CrossWorlds
initiated contact with Georgeson Shareholder, a nationally recognized firm of
proxy solicitors, to discuss various potential stockholder voting and trading
scenarios following announcement of the merger, in light of the stockholder
agreement that had been proposed by IBM, assuming such agreement applied only to
shares currently owned by principal stockholders, and not to shares which might
thereafter be acquired by them.
On October 26, 2001, IBM reiterated, through its counsel, that all
remaining proposed transaction terms that had been proposed by IBM would have to
be accepted by CrossWorlds and the principal stockholders for the revised price
of $4.65 to hold, and communicated a deadline for completion of negotiations of
early the following week. After extended discussions during this period, the
CrossWorlds principal stockholders that were asked to execute the stockholder
agreement ultimately agreed to grant to IBM an option to acquire their shares
and to disgorge to IBM profits, if any, obtained by the stockholders in
connection with competing proposal. IBM, in turn, agreed that the stockholder
voting and support agreement and option applied only to shares currently owned
by the principal stockholders, and not to shares which might thereafter be
acquired by them. IBM, together with its legal representatives, also engaged in
discussions with various employees of CrossWorlds with respect to the terms of
the employment arrangements that would govern their employment upon and after
the consummation of the merger.
On October 29, 2001, CrossWorlds' board of directors met with senior
management and CrossWorlds' legal and financial advisors at a special telephonic
meeting of the board of directors to discuss the status of the negotiations with
IBM and the directors' comments on the draft of the proposed merger agreement.
CrossWorlds' management then provided its view of the proposed merger, after
which representatives of Thomas Weisel Partners presented its analysis of
various information to serve as the basis for evaluating the proposed merger
consideration and delivered its written opinion to the CrossWorlds board of
directors that, based upon certain assumptions and qualifications, the merger
consideration to be received by the stockholders of CrossWorlds pursuant to the
merger was fair to such stockholders from a financial point of view as of
October 29, 2001. See "-- Opinion of Thomas Weisel Partners LLC" on page and
the full text of the written opinion of Thomas Weisel Partners attached hereto
as Annex C. Representatives of Thomas Weisel Partners also responded to
questions raised by members of CrossWorlds' board of directors regarding its
analysis and opinion. Specifically, Thomas Weisel Partners confirmed that they
and CrossWorlds had contacted a total of 25 potential acquirors and only IBM had
elected to continue with their discussions with CrossWorlds to the point of
making a formal offer to acquire CrossWorlds. Following their presentation,
representatives of Venture Law Group, CrossWorlds' legal advisors, then
presented a detailed review of the terms of the merger agreement and the related
documents and reviewed for the CrossWorlds' board of directors the issues
related to the board's fiduciary duties with respect to the proposed
transaction. Included in this discussion was a summary of the advice that
CrossWorlds had received from Georgeson Shareholder, the company's proxy
solicitation firm, regarding various potential stockholder voting and trading
scenarios following announcement of the merger, in light of the stockholder
support arrangements that had been proposed by IBM. CrossWorlds' board of
directors then engaged in a full discussion of the terms of the proposed merger
agreement and related documents, the factors described under "Reasons for the
Merger" on page , and the analysis and opinion of Thomas Weisel Partners.
CrossWorlds' board of directors concluded that the merger was in the best
interests of, and favorable to, CrossWorlds and its stockholders, and that the
merger consideration was fair to the CrossWorlds stockholders from a financial
point of view as of the date of the board meeting. Accordingly, the CrossWorlds
board of directors approved the merger and the merger agreement and related
documents and authorized management to proceed with the execution of the merger
agreement and the related documents.
18
In the evening of October 29, 2001, CrossWorlds and IBM entered into the
merger agreement, and certain CrossWorlds principal stockholders entered into
the stockholders agreement with IBM.
Prior to the opening of the market on October 30, 2001, IBM and CrossWorlds
issued a joint press release announcing the execution of the merger agreement.
REASONS FOR THE MERGER AND BOARD OF DIRECTORS' RECOMMENDATION
In the course of reaching its decision to approve and adopt the merger and
the merger agreement, the board of directors of CrossWorlds consulted with
senior management, legal counsel to CrossWorlds and the financial advisor to
CrossWorlds, reviewed a significant amount of information and considered a
number of factors, including the following factors:
- the value of the consideration to be received by CrossWorlds'
stockholders in the merger pursuant to the merger agreement, as well as
the fact that stockholders would receive the consideration in cash with
no financing condition;
- CrossWorlds' prospects if it were to remain independent, the relative
size of CrossWorlds and its competitors and CrossWorlds' future prospects
as an independent company in light of weakness in third quarter bookings,
decreases in deferred revenue amounts in the third quarter, fears of
continued customer delays or deferrals of purchases in the fourth quarter
and beyond, risks of personnel retention and a weak and uncertain current
and anticipated worldwide economic environment;
- the fact that the companies operating in the application server market
were beginning to adopt standards that included integration capabilities,
thereby creating an inevitable convergence between the integration and
application server markets, thus reducing the potential market for the
products of CrossWorlds;
- the current status of the integration server market and the perceived
competitive advantage in the industry of large infrastructure software
players with significant distribution capacity, compatible product and
service offerings and substantial financial resources;
- possible alternatives to the merger (including the possibility of
continuing to operate CrossWorlds as an independent entity, and the
perceived risks thereof), the range of possible benefits to CrossWorlds'
stockholders of such alternatives and the timing and the likelihood of
accomplishing the goal of any of such alternatives, and the board of
directors' assessment that none of such alternatives were reasonably
likely to present superior opportunities for CrossWorlds, or reasonably
likely to create greater value for CrossWorlds' stockholders, than the
merger;
- the financial condition, historical results of operations and business
and strategic objectives of CrossWorlds, as well as the risks involved in
achieving those objectives;
- other historical information concerning CrossWorlds' business, prospects,
financial performance and condition, operations, technology, management
and competitive position;
- the fact that the $4.65 per share to be paid as the consideration in the
merger represents a premium of approximately 62.0% over the one-month
trailing average of $2.87 per share, a premium of approximately 37.6%
over the one-week trailing average of $3.38 per share, and a premium of
approximately 31.4% over the $3.54 closing sale price for the shares on
The Nasdaq National Market on October 29, 2001, the last trading day
prior to the public announcement of the execution of the merger
agreement;
- the fact that Thomas Weisel Partners and members of CrossWorlds'
management had contacted 25 selected companies (including IBM) in the
application server, enterprise application integration, application
vendor and other infrastructure software segments of the market regarding
their interest in a possible acquisition transaction with CrossWorlds
and, although each party was afforded ample time and information to
submit an offer, of those contacted only IBM had made a formal offer to
acquire CrossWorlds;
20
- the then current financial market conditions, and historical market
prices, volatility and trading information with respect to the common
stock of CrossWorlds;
- the opinion of Thomas Weisel Partners, dated October 29, 2001, that, as
of that date, the merger consideration to be received by CrossWorlds'
stockholders pursuant to the merger was fair to such stockholders from a
financial point of view. A copy of the Thomas Weisel Partners opinion is
attached to this proxy statement as Annex C. Such opinion should be read
in its entirety for a description of the procedures followed, assumptions
and qualifications made, matters considered and limitations of the review
undertaken by Thomas Weisel Partners;
- the likelihood that the proposed acquisition would be consummated, in
light of the experience, reputation and financial capabilities of IBM;
- the likely impact of the merger on CrossWorlds' employees and customers;
- the expected effect of the merger on CrossWorlds' existing relationships
with third parties;
- the interests that certain directors and executive officers of
CrossWorlds may have with respect to the merger in addition to their
interests as stockholders of CrossWorlds generally as described in
"-- Interests of CrossWorlds' Directors and Management in the Merger" on
page 25;
- the terms of the merger agreement and related documents, including the
parties' representations, warranties and covenants, and the conditions to
their respective obligations; and
- the fact that pursuant to the merger agreement, CrossWorlds is not
prohibited from responding in the manner provided in the merger agreement
to any unsolicited takeover proposal (as described below in "The Merger
Agreement and The Stockholders Agreement -- No Solicitation" on page 34)
that CrossWorlds' board of directors reasonably determines in good faith
constitutes or is reasonably likely to lead to a superior proposal (as
described below in "The Merger Agreement and The Stockholders
Agreement -- No Solicitation" on page 34).
The preceding discussion of the information and factors considered by the
board of directors of CrossWorlds is not, and is not intended to be, exhaustive.
In light of the variety of factors considered in connection with its evaluation
of the merger and the complexity of these matters the board of directors of
CrossWorlds did not find it practicable to, and did not, quantify or otherwise
attempt to assign relative weights to the various factors considered in reaching
its determination. In addition, the board of directors of CrossWorlds did not
undertake to make any specific determination as to whether any particular
factor, or any aspect of any particular factor, was favorable or unfavorable to
the ultimate determination of the board of directors, but rather, the board of
directors of CrossWorlds conducted an overall analysis of the factors described
above, including discussions with and questioning of CrossWorlds' senior
management and legal and financial advisors.
CrossWorlds' board of directors recognized that, while the consummation of
the merger gives CrossWorlds' stockholders the opportunity to realize a premium
over the price at which the shares were traded during the period prior to the
public announcement of the merger, consummation of the merger would eliminate
the opportunity for such stockholders to participate in the future growth and
profits of CrossWorlds. CrossWorlds' board of directors believes that the loss
of this opportunity was fully reflected in the merger price of $4.65 per share.
CrossWorlds' board of directors recognized that there could be no assurance as
to the level of growth or profits to be attained by CrossWorlds, if it remained
independent, or by CrossWorlds as the surviving corporation in the merger in the
future.
OPINION OF THOMAS WEISEL PARTNERS LLC
A copy of the Thomas Weisel Partners LLC opinion is attached as Annex C to
this Proxy Statement. You are urged to read the Thomas Weisel Partners opinion
carefully in its entirety for the assumptions made, the procedures followed, the
matters considered and the limits of the review made by Thomas Weisel Partners
in connection with its opinion.
20
On April 5, 2001, CrossWorlds' board of directors engaged Thomas Weisel
Partners to act as its exclusive financial advisor concerning the possible sale
of CrossWorlds based on its qualifications, expertise and reputation. Thomas
Weisel Partners is a nationally recognized merchant bank specializing in
advising and investing in companies participating in the growth sectors of the
economy including: health care, technology, consumer, business services and
telecommunications. On October 29, 2001, Thomas Weisel Partners delivered to the
board of directors its verbal opinion that, as of that date, the consideration
to be received by CrossWorlds' stockholders was fair to the stockholders from a
financial point of view. This opinion was confirmed in writing in an opinion
letter dated October 29, 2001.
CrossWorlds' board of directors determined the consideration CrossWorlds'
stockholders would receive in the transaction through negotiations with IBM. The
board did not impose any limitations on Thomas Weisel Partners with respect to
the investigations made or procedures followed in rendering its opinion.
The full text of the written opinion, which sets forth, among other things,
the assumptions made, procedures followed, matters considered and limitations on
the scope of the review undertaken by Thomas Weisel Partners in delivering its
opinion to CrossWorlds' board of directors is attached as Annex C. You should
read this opinion carefully and in its entirety. However, a summary of the
Thomas Weisel Partners opinion is included below.
Thomas Weisel Partners directed its opinion to CrossWorlds' board of
directors. The opinion does not constitute a recommendation to you as to how you
should vote with respect to the merger. The opinion addresses only the fairness
of the consideration to be received by CrossWorlds' stockholders from a
financial point of view. It does not address the relative merits of the merger
or any alternatives to the merger. Further, it does not address CrossWorlds'
underlying decision to proceed with or effect the merger or any other aspect of
the merger. In furnishing its opinion, Thomas Weisel Partners did not admit that
it is an expert within the meaning of the term "expert" as used in the
Securities Act, nor did it admit that its opinion constitutes a report or
valuation within the meaning of the Securities Act of 1933 and the rules and
regulations promulgated thereunder. The Thomas Weisel Partners opinion includes
statements to these effects.
In connection with its opinion, Thomas Weisel Partners, among other things:
- reviewed certain publicly available financial and other data with respect
to CrossWorlds, including the consolidated financial statements for
recent years and interim periods to September 30, 2001, and certain other
relevant financial and operating data relating to CrossWorlds made
available to us from published sources and from the internal records of
CrossWorlds;
- reviewed the financial terms and conditions of a draft of the merger
agreement dated October 27, 2001 and drafts of other related agreements;
- reviewed certain publicly available information concerning the trading
of, and the trading market for, the common stock of CrossWorlds;
- compared CrossWorlds from a financial point of view with certain other
companies in the enterprise application integration industry and the
software industry generally which Thomas Weisel Partners deemed to be
relevant;
- considered the financial terms, to the extent publicly available, of
selected recent business combinations of companies in the enterprise
application integration industry and the software industry generally
which Thomas Weisel Partners deemed to be relevant, in whole or in part,
to the merger;
- reviewed and discussed with representatives of CrossWorlds' management
certain information of a business and financial nature regarding
CrossWorlds, furnished by CrossWorlds' management, including financial
forecasts and related assumptions of CrossWorlds;
- reviewed publicly available financial forecasts regarding CrossWorlds;
- made inquiries regarding and discussed the merger and a draft of the
merger agreement dated October 27, 2001, other related agreements and
other matters related thereto with CrossWorlds' counsel; and
22
- performed other analyses and examinations as it deemed appropriate.
In preparing its opinion, Thomas Weisel Partners did not assume any
responsibility to independently verify the information referred to above and
relied on its being accurate and complete in all material respects. Thomas
Weisel Partners made the following assumptions, in each case with CrossWorlds'
consent:
- with respect to the financial forecasts for CrossWorlds provided to
Thomas Weisel Partners by CrossWorlds' management, Thomas Weisel Partners
assumed for purposes of its opinion, upon the advice of CrossWorlds'
management, that the forecasts for CrossWorlds have been reasonably
prepared on bases reflecting the best available estimates and judgments
of CrossWorlds' management at the time of preparation as to the future
financial performance of CrossWorlds, and these forecasts provide a
reasonable basis upon which Thomas Weisel Partners could form its
opinion;
- that the merger will be consummated in a manner that complies in all
respects with all applicable federal and state statutes, rules and
regulations; and
- that the merger will be consummated in accordance with the terms
described in the October 27, 2001 draft of the merger agreement and other
related agreements, without further amendment thereto, and without any
waiver by CrossWorlds of any of the conditions to any party's obligations
thereunder.
In addition, for purposes of its opinion:
- Thomas Weisel Partners relied on advice of CrossWorlds' counsel and
independent accountants as to all legal and financial reporting matters
with respect to CrossWorlds, the merger and the merger agreement.
- Thomas Weisel Partners did not assume responsibility for making an
independent evaluation, appraisal or physical inspection of the assets or
liabilities (contingent or otherwise) of CrossWorlds, nor was Thomas
Weisel Partners furnished with any of these appraisals.
- CrossWorlds informed Thomas Weisel Partners, and Thomas Weisel Partners
assumed, that the transaction would be recorded as a purchase transaction
under generally accepted accounting principles.
The Thomas Weisel Partners opinion was based on economic, monetary, market
and other conditions as in effect on, and the information made available to
Thomas Weisel Partners, as of the date of its opinion. Accordingly, although
subsequent developments may affect its opinion, Thomas Weisel Partners has not
assumed any obligation to update, revise or reaffirm its opinion.
The following represents a brief summary of the material financial analyses
performed by Thomas Weisel Partners in connection with providing its opinion to
CrossWorlds' board of directors. Some of the summaries of financial analyses
performed by Thomas Weisel Partners include information presented in tabular
format. In order to fully understand the financial analyses performed by Thomas
Weisel Partners, you should read the tables together with the text of each
summary. The tables alone do not constitute a complete description of the
financial analyses. Considering the data in the tables without considering the
full narrative description of the financial analyses, including the
methodologies and assumptions underlying the analyses, could create a misleading
or incomplete view of the financial analyses performed by Thomas Weisel
Partners.
Comparable Companies Analysis. Based on public and other available
information, Thomas Weisel Partners calculated the multiples of aggregate value,
which Thomas Weisel Partners defined as equity value plus debt less cash and
cash equivalents, to estimated revenues for 2001 and 2002, and price to
estimated earnings for 2002 for relevant companies in the software industry.
Thomas Weisel Partners believes that the following seven companies listed below
have operations similar to some of the operations of CrossWorlds, but noted that
none of these companies have the same management, composition, size or
combination of businesses as CrossWorlds: BEA Systems, Inc., Mercator Software,
Inc., SeeBeyond Technology Corporation, Talarian Corporation, TIBCO Software,
Inc., Vitria Technology, Inc. and webMethods, Inc.
22
The following table sets forth multiples indicated by the analysis and the
implied share price range resulting from such analysis.
<Table>
<Caption>
IMPLIED SHARE
METRIC CROSSWORLDS VALUATION RANGE PRICE RANGE
------ -------------- --------------- -------------
Aggregate Value / 2001 Estimated Revenue $86.0 million 0.8x-2.2x $3.27-$6.97
Aggregate Value / 2002 Estimated Revenue $111.5 million 0.5x-2.0x $2.82-$7.88
Price / 2002 Estimated Earnings $.10 12.5x-48.0x $1.31-$5.04
</Table>
Thomas Weisel Partners noted that the per share value of the consideration
to be received by CrossWorlds' stockholders in connection with the merger,
$4.65, fell within these ranges.
While the comparable company analysis compared CrossWorlds to seven public
companies in the software industry, Thomas Weisel Partners did not include every
company that could be deemed to be a participant in this same industry, or in
the specific sectors of this industry.
Comparable Transactions Analysis. Based on public and other available
information, Thomas Weisel Partners calculated the multiples of aggregate value
to Last Twelve Months (LTM) (defined as the estimated 12 months ended September
30, 2001) and Next Twelve Months (NTM) (defined as the estimated 12 months ended
September 30, 2002) revenues, and equity value to NTM net income, for
CrossWorlds implied in the following 19 comparable transactions of comparable
software companies that have been announced since May 1, 2000:
<Table>
<Caption>
ANNOUNCEMENT DATE NAME OF ACQUIROR NAME OF TARGET COMPANY
- ----------------- ------------------------- -----------------------------------
9/18/01 divine, Inc. Eprise Corporation
6/11/01 Peregrine Systems, Inc. Remedy Corporation
4/24/01 IBM Corporation Informix Corp.'s Database Unit
4/9/01 Kana Communications, Inc. Broadbase Software, Inc.
3/21/01 Citrix Systems, Inc. Sequoia Software, Inc.
3/12/01 Novell, Inc. Cambridge Technology Partners, Inc.
3/12/01 Peregrine Systems, Inc. Extricity, Inc.
2/20/01 Sybase Inc. New Era of Networks, Inc.
2/15/01 IONA Technologies PLC Netfish Technologies, Inc.
1/29/01 Ariba, Inc. Agile Software Corporation
1/17/01 NetIQ Corporation WebTrends Corporation
1/16/01 Macromedia, Inc. Allaire Corporation
1/8/01 Chordiant Software, Inc. Prime Response, Inc.
12/21/00 Microsoft Corporation Great Plains Software, Inc.
11/27/00 Agilent Technologies, Objective Systems Integrators, Inc.
Inc.
11/2/00 Software AG SAGA Systems, Inc.
10/24/00 Hewlett-Packard Company BlueStone Software, Inc.
5/22/00 Vignette Corporation OnDisplay, Inc.
5/22/00 webMethods, Inc. Active Software, Inc.
</Table>
The following table shows the multiples indicated by this analysis and the
multiples implied share price of the proposed merger.
<Table>
<Caption>
IMPLIED SHARE
METRIC CROSSWORLDS VALUATION RANGE PRICE RANGE
- ------ -------------- --------------- -------------
Aggregate Value / LTM Revenue $80.6 million 0.7x-4.3x $2.84-$11.13
Aggregate Value / NTM Estimated Revenue $102.0 million 0.6x-2.2x $3.01-$7.92
Equity Value / NTM Estimated Net Income $0.6 million 14.4x-98.2x $0.34-$2.33
</Table>
23
Thomas Weisel Partners noted that the per share value of the consideration
to be received by CrossWorlds' stockholders in connection with the merger,
$4.65, fell within or exceeded these ranges.
No company or transaction used in the comparable company or comparable
transactions analyses is identical to CrossWorlds or the merger. Accordingly, an
analysis of the results of the foregoing is not mathematical; rather, it
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the companies and other factors that
could affect the public trading value of the companies to which CrossWorlds and
the transaction are being compared.
Premiums Paid Analysis. Thomas Weisel Partners reviewed the premiums paid
by acquirors in selected technology and software transactions to the closing
stock price one day, average stock price one week and average stock price one
month prior to the announcement of each transaction. The transactions selected
were those with an aggregate value of at least $50 million and announced since
January 1, 1998.
The following tables set forth premiums indicated by this analysis and the
implied share price range resulting from such analysis.
<Table>
<Caption>
TECHNOLOGY VALUATION RANGE IMPLIED SHARE
TRANSACTIONS CROSSWORLDS PREMIUMS PRICE RANGE
------------ ----------- --------------- -------------
1 Day $3.33 16.0%-50.0% $3.86-$5.00
1 Week $3.38 19.0%-55.0% $4.02-$5.24
1 Month $2.87 23.0%-63.0% $3.53-$4.67
</Table>
<Table>
<Caption>
SOFTWARE VALUATION RANGE IMPLIED SHARE
TRANSACTIONS CROSSWORLDS PREMIUMS PRICE RANGE
------------ ----------- --------------- -------------
1 Day $3.33 19.0%-54.0% $3.96-$5.13
1 Week $3.38 21.0%-58.0% $4.09-$5.34
1 Month $2.87 23.0%-68.0% $3.53-$4.81
</Table>
Thomas Weisel Partners noted that the per share value of the consideration
to be received by CrossWorlds' stockholders in connection with the merger,
$4.65, fell within these ranges.
The foregoing description is only a summary of the analyses and
examinations that Thomas Weisel Partners deems material to its opinion. It is
not a comprehensive description of all analyses and examinations actually
conducted by Thomas Weisel Partners. The preparation of a fairness opinion
necessarily is not susceptible to partial analysis or summary description.
Thomas Weisel Partners believes that its analyses and the summary set forth
above must be considered as a whole and that selecting portions of its analyses
and of the factors considered, without considering all analyses and factors,
would create an incomplete view of the process underlying the analyses set forth
in its presentation to CrossWorlds. In addition, Thomas Weisel Partners may have
given various analyses more or less weight than other analyses, and may have
deemed various assumptions more or less probable than other assumptions. The
fact that any specific analysis has been referred to in the summary above is not
meant to indicate that this analysis was given greater weight than any other
analysis. Accordingly, the ranges of valuations resulting from any particular
analysis described above should not be taken to be the view of Thomas Weisel
Partners with respect to the actual value of CrossWorlds.
In performing its analyses, Thomas Weisel Partners made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of
CrossWorlds. The analyses performed by Thomas Weisel Partners are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than those suggested by these analyses.
These analyses were prepared solely as part of the analysis performed by Thomas
Weisel Partners with respect to the financial fairness of the consideration to
be received by CrossWorlds' stockholders pursuant to the transaction, and were
provided to CrossWorlds in connection with the delivery of the Thomas Weisel
Partners opinion. The analyses do not purport to be appraisals or to reflect the
prices at which a company might actually be sold or the prices at which any
securities may trade at any time in the future.
24
As described above, Thomas Weisel Partners' opinion and presentation were
among the many factors that the board of directors of CrossWorlds took into
consideration in making its determination to approve, and to recommend that
CrossWorlds' stockholders approve, the merger.
CrossWorlds has agreed to pay Thomas Weisel Partners a customary fee for
its financial advisory services, including delivery of its opinion, a majority
of which is contingent upon the consummation of the merger and the remainder of
which is a fixed fee. Further, CrossWorlds has agreed to indemnify Thomas Weisel
Partners, its affiliates, and their respective, directors, officers, agents,
consultants, employees and controlling persons against specific liabilities,
including liabilities under the federal securities laws. During the two years
prior to its engagement, Thomas Weisel Partners also acted as an underwriter in
connection with offerings of securities of CrossWorlds and performed various
investment banking services for CrossWorlds and has received customary fees for
such services.
In the ordinary course of its business, Thomas Weisel Partners may actively
trade the equity securities of CrossWorlds or IBM for its own account and for
the accounts of customers and, accordingly, may at any time hold a long or short
position in these securities.
INTERESTS OF CROSSWORLDS' DIRECTORS AND MANAGEMENT IN THE MERGER
In considering the recommendation of the CrossWorlds board of directors in
favor of the merger, stockholders of CrossWorlds should be aware that members of
the CrossWorlds board of directors and executive officers of CrossWorlds have
interests in the merger that are different from, or in addition to, the
interests of stockholders of CrossWorlds. Such interests relate to or arise
from, among other things:
- the terms of the merger agreement providing for the continued
indemnification of current directors and officers of CrossWorlds;
- officers and employees with options to acquire CrossWorlds' common stock
will have these options converted to options to acquire IBM common stock;
- officers and employees with shares of CrossWorlds' common stock that are
subject to a right of repurchase by CrossWorlds will have those shares
converted into a right to receive $4.65 in cash per share on a delayed
basis. See "-- Restricted Shares" on page 24;
- Alfred J. Amoroso is party to certain agreements that provide for a
continuing consulting relationship with IBM following the merger. See
"-- Amoroso Resignation and Release Letter and Consulting Agreement" on
page 24;
- certain executives are eligible to receive payments under the executive
management retention plan adopted by CrossWorlds in August 2001. See
"-- CrossWorlds' Retention Plan" on page 24; and
- certain executive officers are parties to agreements that provide for
bonus payments if such executive officers remain employed by IBM
following the merger and certain performance milestones are achieved. See
"-- IBM Retention Plan and Agreement" on page .
All such additional interests are described below, to the extent material,
and except as described below such persons have, to the knowledge of
CrossWorlds, no material interest in the merger apart from those of stockholders
generally. The CrossWorlds board of directors was aware of, and considered the
interests of, their directors and executive officers in approving the merger
agreement and the merger.
Indemnification and Insurance. The merger agreement provides that all
rights of indemnification and exculpation from liabilities for acts or omissions
occurring prior to the effective time of the merger existing in favor of the
current and former directors or officers of CrossWorlds and its subsidiaries as
provided in their respective certificates of incorporation or by-laws (or other
comparable organizational documents) and existing indemnification agreements of
CrossWorlds as of the date of the merger agreement shall be assumed by the
surviving corporation in the merger, and will continue in full force and effect
in accordance with their terms. The merger agreement provides that for six years
after the effective time of the merger, IBM will maintain directors' and
officers' liability insurance for acts or omissions occurring prior to the
effective time of
25
the merger covering those persons who were, as of the date of the merger
agreement, covered by CrossWorlds' directors' and officers' liability insurance
policies, on terms no less favorable in any material respect than those in
effect on the date of the merger agreement. IBM's obligation to provide this
insurance coverage is subject to a cap of 150% of the current annual premium
paid by CrossWorlds for its existing insurance coverage. If IBM cannot maintain
the existing or equivalent insurance coverage without exceeding the 150% cap,
IBM is required to maintain only that amount of insurance coverage that can be
obtained by paying an annual premium equal to the 150% cap.
Employee Benefits. IBM has agreed to honor all obligations of CrossWorlds
under CrossWorlds' employee benefit plans and programs. See "-- Continuation of
CrossWorlds' Employee Benefits" on page 34.
Stock Options. Under the merger agreement, at the effective time of the
merger, each stock option granted under CrossWorlds' stock option plans will be
assumed by IBM and converted into an option to acquire, on the same terms and
conditions as were applicable under such stock option (other than the exercise
price, which is described below), the number of shares of IBM common stock
determined by multiplying the number of shares of CrossWorlds' common stock
subject to such stock option by an "option exchange ratio." The option exchange
ratio is a fraction, the numerator of which is $4.65 and the denominator of
which is the average closing price of IBM common stock on the New York Stock
Exchange Composite Transactions Tape on the ten trading days immediately
preceding the date on which the completion of the merger occurs. The exercise
price per share of IBM common stock under the converted stock option will be
equal to (a) the per share exercise price for the shares of CrossWorlds' common
stock otherwise purchasable pursuant to such stock option divided by (b) the
option exchange ratio. As soon as practicable after the completion of the
merger, but in any event within 30 days of completion of the merger, IBM will
prepare and file with the Securities and Exchange Commission an appropriate
registration statement registering the shares of IBM common stock subject to the
assumed CrossWorlds' stock options. That registration statement will be kept
effective, and the current status of the prospectus or prospectuses required by
the SEC shall be maintained, for so long as any assumed CrossWorlds' stock
options remain outstanding. See "-- Effect on Awards Outstanding Under
CrossWorlds' Stock Plans" on page 34.
Restricted Shares. Under the merger agreement, at the effective time of
the merger, each share of CrossWorlds' common stock that is subject to a right
of repurchase by CrossWorlds will be canceled and the holder will be eligible to
receive $4.65 in cash per share, without interest. The payment for each such
share will be made as of the time CrossWorlds' right to repurchase that share
would have lapsed under the terms of the applicable equity program, except that
no payment will be made if the holder of the share is not employed by IBM or its
affiliates on the date payment would otherwise have been made.
CrossWorlds' Retention Plan. In August 2001, CrossWorlds adopted an
executive management retention plan that provides cash retention bonuses to
certain designated employees of CrossWorlds in connection with certain
qualifying transactions involving CrossWorlds. Under the executive management
retention plan, a retention bonus pool in an amount of between $3,400,000 and
$5,500,000 based on the value of CrossWorlds in a merger transaction was
established. The merger with IBM will be a qualifying transaction under the
executive management retention plan, so that designated employees may become
eligible for payments. Under the merger agreement, to be eligible for payments,
the designated employees of CrossWorlds must be employed by IBM or its
affiliates on the six-month anniversary of the effective time of the merger.
Amoroso Resignation and Release Letter and Consulting Agreement. In
connection with the execution of the merger agreement, Alfred J. Amoroso, the
President and Chief Executive Officer of CrossWorlds, has entered into a
resignation and release letter and a consulting agreement with IBM. The
resignation and release letter, which will take effect upon the completion of
the merger, provides that Mr. Amoroso will tender his resignation as the
President and Chief Executive Officer of CrossWorlds on such date within six
months following the consummation of the merger as is selected by IBM or on such
later date as agreed in writing between IBM and Mr. Amoroso. Upon the acceptance
by IBM of such resignation, Mr. Amoroso will be entitled to certain severance
payments and the acceleration of all outstanding stock options pursuant to his
employment agreement with CrossWorlds. In addition, if Mr. Amoroso's resignation
is accepted prior to 180 days following the completion of the merger, Mr.
Amoroso will be entitled to receive the benefits he would
26
have been paid under the CrossWorlds' executive management retention plan if he
had been employed by IBM or its affiliates on the six-month anniversary of the
effective time of the merger. See "-- CrossWorlds' Retention Plan" on page 26.
In addition, Mr. Amoroso and IBM have entered into a consulting agreement
pursuant to which Mr. Amoroso will, at the option of IBM, provide consulting
services to IBM for a period of up to 18 months following termination of Mr.
Amoroso's employment with CrossWorlds for a fee of $41,667 per month. The
consulting agreement also provides that Mr. Amoroso will observe certain
noncompetition and nonsolicitation of customer and employee restrictions during
the consulting period and for specified periods thereafter up to a maximum of 12
months.
IBM Retention Plan and Agreement. IBM has adopted a retention plan for key
senior CrossWorlds employees and entered into related retention agreements
providing benefits to certain CrossWorlds employees, including certain
CrossWorlds executive officers. The retention agreements, which will take effect
upon completion of the merger, provide for retention bonus payments if certain
business milestones (which milestones are to be established at the beginning of
each period) are achieved during each 6-month measuring period, ending on each
date that is 6 months, 12 months, 18 months and 24 months from the completion of
the merger. If the business milestones under the retention plan are met, the
aggregate retention payments to the Plan Participants, as a group, will be
approximately as follows:
<Table>
<Caption>
MEASURING PERIOD POTENTIAL PAYMENTS
- ---------------- ------------------
6 Month..................................................... $ 375,000
12 Month.................................................... $ 750,000
18 Month.................................................... $1,125,000
24 Month.................................................... $1,500,000
Total....................................................... $3,750,000
</Table>
In addition to retention payments, the retention agreements provide for the
conversion, in accordance with the merger agreement, of all vested and unvested
options to purchase shares of CrossWorlds' common stock held by the executive
officers into options to purchase shares of IBM common stock. See "-- Stock
Options" on page 26 or "-- Effect on Awards Outstanding Under CrossWorlds' Stock
Plans" on page 34. As part of the transaction, these executive officers agreed
to terminate their existing employment agreements with CrossWorlds and waive
their rights thereunder to severance or termination benefits, stock acceleration
and lapse of repurchase rights as to restricted common stock of CrossWorlds held
by them which would otherwise have vested in connection with the merger or upon
termination following the merger.
Non-Compete Agreements. As a condition to IBM's willingness to enter into
the merger agreement, each executive officer who entered into a retention
agreement has agreed that:
- subject to certain exceptions, for two years following the completion of
the merger, he or she will not have a "relationship" with any business in
connection with which such executive officer shall engage in or assist
such business with respect to the development, marketing, sales, delivery
or distribution of enterprise application integration or business process
integration middleware software, including enterprise application
integration or business process integration middleware software
integrated with an application server, or services principally
implementing the foregoing middleware software, but excluding services
principally implementing CrossWorlds or IBM software. The executive
officer will be deemed to have a "relationship" with a business (other
than holding less than 5% of the publicly traded securities of that
business) if such executive officer (a) owns, manages, operates, joins or
is employed by such business, (b) is a director, member, agent,
stockholder, owner or general partner of such business, (c) acts as a
consultant or advisor to such business, or (d) controls or participates
in ownership, management or operation of such business. The
noncompetition restrictions automatically will terminate if the executive
officer resigns his or her employment during the first 12 months
following the merger due to either a reduction in base salary or a
relocation of such executive officer's work location by more than 50
miles from its current location;
- during his or her employment and until the later of (a) one year after
the termination of such employment or (b) two years following the
completion of the merger, he or she will not, directly or
27
indirectly, provide enterprise application integration or business
process integration middleware software integrated with an application
server product, or services principally implementing the foregoing
middleware software, but excluding services principally implementing
CrossWorlds or IBM software to any entity that is then, or during the
one-year period prior was, a customer or active prospective customer of
CrossWorlds or the related business unit of IBM unless (i) the executive
officer is employed by IBM or a subsidiary thereof and such product is
provided to the customer on behalf of such employer or the payment for
such services is made by the customer to such employer or (ii) the
executive officer has previously obtained a written release from an
authorized representative of IBM specifically permitting the executive
officer to provide such products or services;
- during his or her employment and until the later of (a) one year after
the termination of such employment or (b) two years following the
completion of the merger, he or she will not, directly or indirectly, (i)
solicit the employment of any employee or consultant of IBM or its
subsidiaries or affiliates (or any person who had been such an employee
or consultant in the past year) or (ii) hire or attempt to hire, or
permit a business of which he or she is a director or executive officer
to hire or attempt to hire, any employee or consultant of CrossWorlds or
the related business unit of IBM (or any person who had been such an
employee or consultant in the past year); and
- during his or her employment and until the later of (a) one year after
the termination of such employment or (b) two years following the
completion of the merger, he or she will not, directly or indirectly,
interfere with, disrupt or attempt to disrupt any past, present or
prospective relationship, contractual or otherwise, between CrossWorlds
or the related business unit of IBM and any of their respective
customers, suppliers or employees.
Key Shareholder Agreements. As a condition to IBM's willingness to enter
into the merger agreement, Terry and Katrina Garnett, key stockholders of
CrossWorlds have agreed that:
- subject to certain exceptions, for three years following the effective
time of the merger he or she will not have a "relationship" with any
business in which such stockholder shall engage in or assist such
business with respect to the development, marketing, sales, delivery or
distribution of enterprise application integration or business process
integration middleware software, including enterprise application
integration or business process integration middleware software
integrated with an application server, or services principally
implementing the foregoing middleware software, but excluding services
principally implementing CrossWorlds or IBM software. Subject to certain
exceptions, the stockholder will be deemed to have a "relationship" with
a business (other than holding less than 5% of the publicly traded
securities of that business) if such shareholder (a) owns, manages,
operates, joins or is employed by such business, (b) is a director,
member, agent, stockholder, owner or general partner of such business,
(c) acts as a consultant or advisor to such business, or (d) controls or
participates in ownership, management or operation of such business;
- for three years following the effective time of the merger he or she will
not, directly or indirectly, provide enterprise application integration
or business process integration middleware software integrated with
application server products, or services principally implementing the
foregoing middleware software, but excluding services principally
implementing CrossWorlds or IBM software to any entity that is, or at any
time in the 12 month period prior to such time was, a customer of
CrossWorlds or the related business unit of IBM unless the stockholder
has previously obtained a written release from an authorized
representative of IBM specifically permitting the stockholder to provide
such products or services;
- for the three years following the completion of the merger he or she will
not, directly or indirectly, (a) solicit any employee or consultant of
CrossWorlds or the related business unit of IBM (or any person who had
been such an employee or consultant in the 12 month period prior to such
time) to cease or curtail his or her relationship therewith or (b) hire
or attempt to hire any employee or consultant of CrossWorlds or the
related business unit of IBM (or any person who had been such an employee
or consultant in the 12 month period prior to such time); and
28
- for the three years following the completion of the merger he or she will
not tortiously, directly or indirectly interfere with, disrupt or attempt
to disrupt any past, present or prospective relationship, contractual or
otherwise, between CrossWorlds or the related business unit of IBM and
any of their customers, suppliers or employees.
APPRAISAL RIGHTS
The discussion of the provisions set forth below is not a complete summary
regarding your appraisal rights under Delaware law and is qualified in its
entirety by reference to the text of the relevant provisions of Delaware law,
which are attached to this proxy statement as Annex D. Stockholders intending to
exercise appraisal rights should carefully review Annex D. Failure to follow
precisely any of the statutory procedures set forth in Annex D may result in a
termination or waiver of these rights.
If the merger is consummated, dissenting holders of CrossWorlds' common
stock who follow the procedures specified in Section 262 of the Delaware General
Corporate Law within the appropriate time periods will be entitled to have their
shares of CrossWorlds' common stock appraised by a court and to receive the
"fair value" of such shares in cash as determined by the Delaware Court of
Chancery in lieu of the consideration that such stockholder would otherwise be
entitled to receive pursuant to the merger agreement.
The following is a brief summary of Section 262, which sets forth the
procedures for dissenting from the merger and demanding statutory appraisal
rights. Failure to follow the procedures set forth in Section 262 precisely
could result in the loss of appraisal rights. This proxy statement constitutes
notice to holders of CrossWorlds' common stock concerning the availability of
appraisal rights under Section 262. A stockholder of record wishing to assert
appraisal rights must hold the shares of stock on the date of making a demand
for appraisal rights with respect to such shares and must continuously hold such
shares through the effective time of the merger.
Stockholders who desire to exercise their appraisal rights must satisfy all
of the conditions of Section 262. A written demand for appraisal of shares must
be filed with CrossWorlds before the special meeting on January , 2002. This
written demand for appraisal of shares must be in addition to and separate from
a vote against the merger. Stockholders electing to exercise their appraisal
rights must not vote "for" the merger. Any proxy or vote against the merger will
not constitute a demand for appraisal within the meaning of Section 262.
A demand for appraisal must be executed by or for the stockholder of
record, fully and correctly, as such stockholder's name appears on the share
certificate. If the shares are owned of record in a fiduciary capacity, such as
by a trustee, guardian or custodian, this demand must be executed by or for the
fiduciary. If the shares are owned by or for more than one person, as in a joint
tenancy or tenancy in common, such demand must be executed by or for all joint
owners. An authorized agent, including an agent for two or more joint owners,
may execute the demand for appraisal for a stockholder of record; however, the
agent must identify the record owner and expressly disclose the fact that, in
exercising the demand, he is acting as agent for the record owner. A person
having a beneficial interest in CrossWorlds' common stock held of record in the
name of another person, such as a broker or nominee, must act promptly to cause
the record holder to follow the steps summarized below and in a timely manner to
perfect whatever appraisal rights the beneficial owners may have.
A CrossWorlds stockholder who elects to exercise appraisal rights should
mail or deliver his, her or its written demand to CrossWorlds at its address at
577 Airport Boulevard, Burlingame, California 94010, Attention: President. The
written demand for appraisal should specify the stockholder's name and mailing
address, and that the stockholder is thereby demanding appraisal of his or her
CrossWorlds common stock. Within ten days after the effective time of the
merger, CrossWorlds must provide notice of the effective time of the merger to
all of its stockholders who have complied with Section 262 and have not voted
for the merger.
Within 120 days after the effective time of the merger (but not
thereafter), any stockholder who has satisfied the requirements of Section 262
may deliver to CrossWorlds a written demand for a statement listing
29
the aggregate number of shares not voted in favor of the merger and with respect
to which demands for appraisal have been received and the aggregate number of
holders of such shares. CrossWorlds, as the surviving corporation in the merger,
must mail such written statement to the stockholder no later than the later of
10 days after the stockholders' request is received by CrossWorlds or 10 days
after the latest date for delivery of a demand for appraisal under Section 262.
Within 120 days after the effective time of the merger (but not
thereafter), either CrossWorlds or any stockholder who has complied with the
required conditions of Section 262 and who is otherwise entitled to appraisal
rights may file a petition in the Delaware Court of Chancery demanding a
determination of the fair value of the CrossWorlds shares of stockholders
entitled to appraisal rights. CrossWorlds has no present intention to file such
a petition if demand for appraisal is made.
Upon the filing of any petition by a stockholder in accordance with Section
262, service of a copy must be made upon CrossWorlds, which must, within 20 days
after service, file in the office of the Register in Chancery in which the
petition was filed, a duly verified list containing the names and addresses of
all stockholders who have demanded payment for their shares and with whom
agreements as to the value of their shares have not been reached by CrossWorlds.
If a petition is filed by CrossWorlds, the petition must be accompanied by the
verified list. The Register in Chancery, if so ordered by the court, will give
notice of the time and place fixed for the hearing of such petition by
registered or certified mail to CrossWorlds and to the stockholders shown on the
list at the addresses therein stated, and notice will also be given by
publishing a notice at least one week before the day of the hearing in a
newspaper of general circulation published in the City of Wilmington, Delaware,
or such publication as the court deems advisable. The forms of the notices by
mail and by publication must be approved by the court, and the costs thereof
will be borne by CrossWorlds. The Delaware Court of Chancery may require the
stockholders who have demanded an appraisal for their shares (and who hold stock
represented by certificates) to submit their stock certificates to the Register
in Chancery for notation of the pendancy of the appraisal proceedings and the
Delaware Court of Chancery may dismiss the proceedings as to any stockholder
that fails to comply with such direction.
If a petition for an appraisal is filed in a timely fashion, after a
hearing on the petition, the court will determine which stockholders are
entitled to appraisal rights and will appraise the shares owned by these
stockholders, determining the fair value of such shares, exclusive of any
element of value arising from the accomplishment or expectation of the merger,
together with a fair rate of interest to be paid, if any, upon the amount
determined to be the fair value.
CrossWorlds stockholders considering seeking appraisal of their shares
should note that the fair value of their shares determined under Section 262
could be more, the same or less than the consideration they would receive
pursuant to the merger agreement if they did not seek appraisal of their shares.
The costs of the appraisal proceeding may be determined by the court and taxed
against the parties as the court deems equitable under the circumstances. Upon
application of a dissenting stockholder, the court may order that all or a
portion of the expenses incurred by any dissenting stockholder in connection
with the appraisal proceeding, including reasonable attorneys' fees and the fees
and expenses of experts, be charged pro rata against the value of all shares
entitled to appraisal. In the absence of a determination or assessment, each
party bears his, her or its own expenses. The exchange of shares for cash
pursuant to the exercise of appraisal rights will be a taxable transaction for
United States federal income tax purposes and possibly state, local and foreign
income tax purposes as well. See "Material United States Federal Income Tax
Consequences of the Merger" on page 32.
Any stockholder who has duly demanded appraisal in compliance with Section
262 will not, after the effective time of the merger, be entitled to vote for
any purpose the shares subject to demand or to receive payment of dividends or
other distributions on such shares, except for dividends or distributions
payable to stockholders of record at a date prior to the effective time of the
merger.
At any time within 60 days after the effective time of the merger, any
stockholder will have the right to withdraw his demand for appraisal and to
accept the terms offered in the merger agreement. After this period, a
stockholder may withdraw his demand for appraisal and receive payment for his
shares as provided in the merger agreement only with the consent of CrossWorlds.
If no petition for appraisal is filed with the court
30
within 120 days after the effective time of the merger, stockholders' rights to
appraisal (if available) will cease. Inasmuch as CrossWorlds has no obligation
to file such a petition, any stockholder who desires a petition to be filed is
advised to file it on a timely basis. No petition timely filed in the court
demanding appraisal may be dismissed as to any stockholder without the approval
of the court, which approval may be conditioned upon such terms as the court
deems just.
Failure by any CrossWorlds stockholder to comply fully with the procedures
described above and set forth in Annex D to this proxy statement may result in
termination of such stockholder's appraisal rights.
ACCOUNTING TREATMENT
The merger will be accounted for as a purchase for accounting purposes.
FORM OF THE MERGER
Subject to the terms and conditions of the merger agreement and in
accordance with Delaware law, at the effective time of the merger, Duke
Acquisition Corp., a wholly-owned subsidiary of IBM and a party to the merger
agreement, will merge with and into CrossWorlds. CrossWorlds will survive the
merger as a wholly-owned Delaware subsidiary of IBM.
MERGER CONSIDERATION
At the effective time of the merger, each outstanding share of CrossWorlds'
common stock, other than treasury shares, shares held by IBM or Duke Acquisition
Corp., those shares held by stockholders who perfect their appraisal rights (as
described in "-- Appraisal Rights" on page 29) and certain restricted shares (as
described in "-- Interest of CrossWorlds' Directors and Management in the
Merger -- Restricted Shares" on page 26), will be converted into the right to
receive $4.65 in cash, without interest. Treasury shares and shares held by IBM
or Duke Acquisition Corp. will be canceled immediately prior to the effective
time of the merger. Restricted shares will be canceled and converted into the
right to receive $4.65 per share in cash, without interest, on the basis
described in "-- Interest of CrossWorlds' Directors and Management in the
Merger -- Restricted Shares" on page 26. As of the effective time of the merger,
all shares of CrossWorlds' common stock will no longer be outstanding and will
automatically be canceled and will cease to exist and each holder of a
certificate representing any shares of CrossWorlds' common stock (other than
stockholders who have perfected their appraisal rights) will cease to have any
rights as a stockholder, except the right to receive $4.65 per share in cash.
The price of $4.65 per share was determined through arm's-length negotiations
between IBM and CrossWorlds.
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES
The conversion of CrossWorlds' common stock into the right to receive $4.65
per share in cash, without interest, will occur automatically at the effective
time of the merger. As soon as reasonably practicable after the effective time
of the merger, EquiServe Trust Company, the paying agent, will send a
transmittal letter to each former CrossWorlds stockholder. The transmittal
letter will contain instructions for obtaining cash in exchange for shares of
CrossWorlds common stock. CrossWorlds' stockholders should not return stock
certificates with the enclosed proxy.
In the event of a transfer of ownership of CrossWorlds' common stock that
is not registered in the records of CrossWorlds' transfer agent, the cash
consideration for shares of CrossWorlds' common stock may be paid to a person
other than the person in whose name the certificate so surrendered is registered
if:
- the certificate is properly endorsed or otherwise is in proper form for
transfer; and
- the person requesting such payment (a) pays any transfer or other taxes
resulting from the payment to a person other than the registered holder
of the certificate or (b) establishes to CrossWorlds, the surviving
corporation in the merger, that the tax has been paid or is not
applicable.
31
The cash paid upon conversion of shares of CrossWorlds' common stock will
be issued in full satisfaction of all rights relating to the shares of
CrossWorlds' common stock.
EFFECTIVE TIME OF THE MERGER
The merger will become effective upon the filing of a certificate of merger
with the Delaware Secretary of State or at such later time as is agreed upon by
IBM and CrossWorlds and specified in the certificate of merger. The filing of
the certificate of merger will occur not later than the second business day
after satisfaction or waiver of the conditions to the completion of the merger
described in the merger agreement.
DELISTING AND DEREGISTRATION OF CROSSWORLDS' COMMON STOCK
If the merger is completed, CrossWorlds' common stock will be delisted from
The Nasdaq National Market and will be deregistered under the Securities
Exchange Act of 1934.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
This section discusses the material United States federal income tax
consequences of the merger to CrossWorlds' stockholders whose shares of
CrossWorlds' common stock are surrendered in the merger in exchange for the
right to receive cash consideration of $4.65 per share or who receive cash in
respect of dissenting shares of CrossWorlds' common stock. The discussion below
applies only to CrossWorlds' stockholders that hold CrossWorlds' common stock as
capital assets at the time of the merger, and the discussion may not apply to
(a) stockholders that are subject to special tax rules, such as financial
institutions, insurance companies, dealers in securities, persons that
mark-to-market their securities, or persons that hold common stock as part of a
"straddle," "hedge" or "synthetic security transaction" (including a
"conversion" transaction), (b) persons with a "functional currency" other than
the U.S. dollar, (c) investors in pass-through entities, (d) retirement plans
and tax-exempt organizations, (e) stockholders who acquired CrossWorlds common
stock pursuant to the exercise of stock options, pursuant to participation in an
employee stock purchase plan or otherwise as compensation or (f) stockholders
that are nonresident alien individuals, foreign corporations, foreign
partnerships, foreign trusts or foreign estates. The discussion below is based
upon United States federal income tax laws as now in effect and interpreted and
does not take into account possible changes in these tax laws or
interpretations, any of which may be applied retroactively. The discussion does
not include any description of the tax laws of any state, local or foreign
government that may be applicable to CrossWorlds' stockholders.
For United States federal income tax purposes, a CrossWorlds stockholder
generally will recognize capital gain or capital loss equal to the difference
between the cash received by the stockholder pursuant to the merger or in
respect of, a dissenting share, as the case may be and the stockholder's
adjusted tax basis in the shares of CrossWorlds common stock surrendered. Gain
or loss will be calculated separately for each block of shares converted in the
merger or surrendered pursuant to the exercise of appraisal rights, as the case
may be (i.e., shares acquired at the same cost in a single transaction). If at
the time of the merger a non-corporate stockholder's holding period for the
shares of CrossWorlds' common stock is more than one year, any gain recognized
generally will be subject to United States federal income tax at a maximum rate
of 20%. If the non-corporate stockholder's holding period for the shares of
common stock is one year or less at the time of the merger, any gain will be
subject to United States federal income tax at the same rate as ordinary income.
There are limits on the deductibility of capital losses. However, gain
recognized in the merger by a CrossWorlds stockholder who owns or has previously
owned (actually or constructively, taking into account certain stock ownership
attribution rules) more than 5% by value of CrossWorlds' stock could be treated
as ordinary income if CrossWorlds were determined to be a "collapsible
corporation" under Section 341(a) of the Internal Revenue Code of 1986.
For corporations, capital gain is taxed at the same rate as ordinary
income, and capital loss in excess of capital gain is not deductible.
Corporations, however, generally may carry back capital losses up to three
taxable years and carry forward capital losses up to five taxable years.
32
Cash consideration received by CrossWorlds' non-corporate stockholders in
the merger or in respect of a dissenting share of CrossWorlds' common stock, as
the case may be, may be subject to backup withholding at a 30.5% rate (declining
to 30% after the end of 2001). Backup withholding generally will apply only if
the stockholder fails to furnish a correct social security number or other
taxpayer identification number, or otherwise fails to comply with applicable
backup withholding rules and certification requirements. Corporations generally
are exempt from backup withholding. Each non-corporate stockholder should
complete and sign the substitute Form W-9 that will be part of the letter of
transmittal to be returned to the paying agent in order to provide the
information and certification necessary to avoid backup withholding, unless an
applicable exemption exists and is otherwise proved in a manner satisfactory to
the paying agent.
Any amounts withheld under the backup withholding rules will be allowed as
a credit against the stockholder's United States federal income tax liability
and may entitle the stockholder to a refund, provided the stockholder furnishes
specified required information to the Internal Revenue Service.
Holders of CrossWorlds' common stock are strongly urged to consult their
tax advisors as to the specific tax consequences to them of the merger,
including the applicability and effect of United States federal, state, local
and foreign income and other tax laws in their particular circumstances.
REGULATORY MATTERS
United States Antitrust. Under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 and the rules thereunder, certain transactions,
including the merger, may not be completed unless certain waiting period
requirements have been satisfied. On November 20, 2001, IBM and CrossWorlds each
filed a notification and report form pursuant to the Hart-Scott-Rodino Act with
the Antitrust Division of the Department of Justice and the Federal Trade
Commission, and expect the waiting period to expire at 11:59 p.m. on December
20, 2001, unless earlier terminated, or extended by a request for additional
information and materials, by the Antitrust Division or the Federal Trade
Commission. At any time before or after the effective time of the merger, the
Antitrust Division, the Federal Trade Commission or others could take action
under the antitrust laws with respect to the merger, including seeking to enjoin
the completion of the merger, to rescind the merger or to conditionally approve
the merger upon the divestiture of substantial assets of IBM or CrossWorlds.
There can be no assurance that a challenge to the merger on antitrust grounds
will not be made or, if such a challenge is made, that it would not be
successful.
General. It is possible that any of the governmental entities with which
filings are made may seek, as conditions for granting approval of the merger,
various regulatory concessions. There can be no assurance that IBM or
CrossWorlds will be able to satisfy or comply with these conditions or be able
to cause their respective subsidiaries to satisfy or comply with these
conditions, or that compliance or noncompliance will not have adverse
consequences for IBM after completion of the merger, or that the required
regulatory approvals will be obtained within the time frame contemplated by IBM
and CrossWorlds and referred to in this proxy statement or on terms that will be
satisfactory to IBM and CrossWorlds. See "The Merger Agreement and Stockholders
Agreement -- The Merger Agreement -- Conditions to the Completion of the Merger"
on page 35.
LITIGATION
On November 2, 2001, two actions, Neil Macklin vs. CrossWorlds Software,
Inc. et al. and Carl Rongo vs. CrossWorlds Software, Inc. et al., were filed in
the Superior Court of the State of California for the County of San Mateo. In
these actions the plaintiffs named as defendants CrossWorlds and the directors
of CrossWorlds. Each complaint purports to assert claims on behalf of all public
stockholders of CrossWorlds who are similarly situated with the plaintiff. Each
complaint alleges, among other things, that CrossWorlds and the members of
CrossWorlds' board of directors have breached their fiduciary duties to
CrossWorlds' public stockholders, that the directors engaged in self-dealing in
connection with their approval of the merger and that the directors failed to
take steps to maximize the value of CrossWorlds to its public stockholders. Each
complaint seeks class certification and certain forms of equitable relief,
including enjoining the consummation of the merger. CrossWorlds believes that
the allegations are without merit and intends to
33
vigorously contest each action. There can, however, be no assurance that
CrossWorlds or the other defendants will be successful in their defense of
either action.
CONTINUATION OF CROSSWORLDS' EMPLOYEE BENEFITS
IBM has agreed that the surviving corporation after the merger will honor
all CrossWorlds obligations under current employee benefit plans. IBM may,
however, amend or terminate any employee benefit plans in accordance with the
terms thereof and with applicable law.
CrossWorlds has agreed to amend its employee stock purchase plan to provide
that (a) any ongoing offer periods as of October 31, 2001 will be terminated,
(b) no new offering periods will be begun after that date, (c) each
participant's outstanding rights to purchase shares of CrossWorlds' common stock
will terminate on November 1, 2001, and (d) CrossWorlds' employee stock purchase
plan will terminate at the completion of the merger.
EFFECT ON AWARDS OUTSTANDING UNDER CROSSWORLDS' STOCK PLANS
Under the merger agreement, at the effective time of the merger, each stock
option granted to CrossWorlds' employees under CrossWorlds' stock option plans
will be assumed by IBM and converted into an option to acquire, on the same
terms and conditions as were applicable under the stock option (other than the
exercise price, which is described below), the number of shares of IBM common
stock determined by multiplying the number of shares of CrossWorlds' common
stock subject to such stock option by an "option exchange ratio." The option
exchange ratio is a fraction, the numerator of which is $4.65 and the
denominator of which is the average closing price of IBM common stock on the New
York Stock Exchange Composite Transactions Tape for the ten trading days
immediately preceding the date on which the completion of the merger occurs. The
exercise price per share of IBM common stock under the converted stock option
will be equal to (a) the per share exercise price for the shares of CrossWorlds'
common stock otherwise purchasable pursuant to such stock option divided by (b)
the option exchange ratio. As soon as practicable after the completion of the
merger, but in any event within 30 days of completion of the merger, IBM will
prepare and file with the Securities and Exchange Commission an appropriate
registration statement registering the shares of IBM common stock subject to the
assumed CrossWorlds' stock options. That registration statement will be kept
effective, and the current status of the prospectus required by the SEC shall be
maintained for so long as any assumed CrossWorlds' stock options remain
outstanding.
Under the merger agreement, at the effective time of the merger, each share
of CrossWorlds' common stock that is subject to a right of repurchase by
CrossWorlds will be canceled and the holder will be eligible to receive $4.65 in
cash per share, without interest. The payment for each such share will be made
as of the time CrossWorlds' right to repurchase that share would have lapsed
under the terms of the applicable equity program, except that no payment will be
made if the holder of the share is not employed by IBM or its affiliates on the
date payment would otherwise have been made.
34
THE MERGER AGREEMENT AND STOCKHOLDERS AGREEMENT
The following description summarizes the material provisions of the merger
agreement and the stockholders agreement. Stockholders should read carefully the
merger agreement and the stockholders agreement, which are attached as Annexes A
and B to this proxy statement.
THE MERGER AGREEMENT
Conditions to the Completion of the Merger. IBM and CrossWorlds are
obligated to complete the merger only if they satisfy or, in some cases, waive
several conditions which include the following:
- the holders of a majority of the outstanding shares of CrossWorlds'
common stock must have voted in favor of adopting the merger agreement;
- the waiting period required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 or any other applicable competition, merger
control, antitrust or similar law must have expired or been terminated;
- no temporary restraining order, preliminary or permanent injunction or
other or decree issued by any court of competent jurisdiction or other
legal restraint or prohibition which has the effect of preventing the
completion of the merger may be in effect;
- certain consents, approvals, authorizations, qualifications and orders
must have been obtained by CrossWorlds (as further discussed below); and
- IBM and CrossWorlds must not have breached in any material respect any of
the representations, warranties and covenants contained in the merger
agreement (as further discussed below).
In addition, IBM will be obligated to complete the merger only if there is
no pending suit, action or proceeding by any governmental entity or third party,
or any such suit, action or proceeding threatened by a governmental entity (in
each case, other than a suit, claim, action, investigation or proceeding brought
by a third party based on state law fiduciary duty claims related to the
transactions contemplated by the merger agreement):
- challenging or seeking to restrain or prohibit the completion of the
merger;
- seeking to prohibit or limit in any material respect the ownership or
operation by CrossWorlds or IBM (or their respective affiliates) of a
material portion of the respective businesses or assets of CrossWorlds
and its subsidiaries (taken as a whole) or IBM and its subsidiaries
(taken as a whole) or to require any of them to dispose of or hold
separate any material portion of the respective businesses or assets of
CrossWorlds and its subsidiaries (taken as a whole) or IBM and its
subsidiaries (taken as a whole) as a result of the merger;
- seeking to impose limitations on the ability of IBM (or its affiliates)
to acquire or hold, or exercise full rights or ownership of, any shares
of CrossWorlds' common stock (including the right to vote those shares);
or
- seeking to prohibit IBM (or any of its affiliates) from effectively
controlling in any material respect a substantial portion of the business
or operations of CrossWorlds or its subsidiaries.
IBM's obligation to complete the merger is subject to the further condition
that there not be any restraining order, injunction or other court order or
decree or legal restraint or prohibition in effect that could reasonably be
expected to result in any of the effects described in the immediately preceding
bullet points.
35
In addition, each party's obligation to complete the merger is further
subject to the satisfaction or waiver of the following additional conditions:
- the representations and warranties of each other party set forth in the
merger agreement that are qualified as to materiality being true and
correct, and the representations and warranties that are not qualified as
to materiality being true and correct in all material respects, in each
case as of the date of the merger agreement and as of the date on which
the merger is to be completed with the same effect as though made on and
as of the date on which the merger is to be completed, or, if such
representations and warranties expressly relate to an earlier date, then
as of such date; and
- each other party to the merger agreement having performed in all material
respects all obligations required to be performed by it under the merger
agreement on or prior to the date on which the merger is to be completed.
Several of the representations and warranties of CrossWorlds contained in
the merger agreement are qualified by reference to whether the item in question
would have a "material adverse effect" on CrossWorlds. The merger agreement
provides that a "material adverse effect" means, when used in connection with
CrossWorlds, any state of facts, change, development, effect or occurrence that
is, or could reasonably be expected to become, materially adverse to the
business, assets, condition (financial or otherwise) or results of operations of
CrossWorlds and its subsidiaries, taken as a whole.
CrossWorlds can provide no assurance that all of the conditions precedent
to the merger will be satisfied or waived by the party permitted to do so.
CrossWorlds cannot at this point determine whether it would resolicit proxies in
the event that it decides to waive any of the items listed above. This decision
would depend upon the facts and circumstances leading to CrossWorlds' decision
to complete the merger and whether CrossWorlds believes there has been a
material change in the terms of the merger and such change's effect on
CrossWorlds' stockholders. In making its determination, CrossWorlds would
consider, among other factors, the reasons for the waiver, the effect of the
waiver on the terms of the merger, whether the requirement being waived was
necessary in order to make the deal fair to the stockholders from a financial
point of view, the availability of alternative transactions and the prospects of
CrossWorlds as an independent entity. If CrossWorlds determines that a waiver of
a condition would materially change the terms of the merger, it will resolicit
proxies.
No Solicitation. The merger agreement provides that CrossWorlds will not,
nor will it permit any of its subsidiaries to, nor will it authorize any of its
directors, officers or employees or any investment banker, attorney, accountant
or other advisor or representative retained by it or any of its subsidiaries to,
directly or indirectly:
- solicit, initiate or encourage, or take any other action knowingly to
facilitate, any takeover proposal, as described below, or any inquiries
or the making of any proposal that constitutes or could reasonably be
expected to lead to a takeover proposal; or
- enter into, continue or otherwise participate in any discussions or
negotiations regarding, or furnish to any person any information with
respect to, or cooperate in any way with, any takeover proposal.
The merger agreement permits the board of directors of CrossWorlds, at any
time prior to the adoption of the merger agreement at the special meeting, in
response to a bona fide written takeover proposal that the board of directors
reasonably determines in good faith constitutes or is reasonably likely to lead
to a superior proposal, as described below, and which takeover proposal was
unsolicited and did not otherwise result from a breach of the relevant
provisions of the merger agreement, to participate in discussions or
negotiations with the person making such takeover proposal (and its
representatives) regarding such takeover proposal and furnish information with
respect to CrossWorlds and its subsidiaries to the person making such takeover
proposal (and its representatives) pursuant to a customary confidentiality
agreement, so long as all such information is provided to IBM on a prior or
substantially concurrent basis. CrossWorlds is also required to notify IBM in
writing of any inquiries or takeover proposals and the identity of the person
making such inquiry or takeover proposal, and to keep IBM informed of the status
and details of any such inquiry or takeover proposal.
36
The merger agreement further allows the CrossWorlds board of directors to
make any disclosure to CrossWorlds' stockholders if, in the good faith judgment
of the CrossWorlds board of directors, after consultation with outside legal
counsel, failure to disclose would be inconsistent with applicable law.
The merger agreement provides that the term "takeover proposal" means any
inquiry, proposal or offer from any person relating to, or reasonably likely to
lead to, any direct or indirect acquisition or purchase, in one transaction or a
series of transactions, of (a) assets or businesses that constitute or represent
15% or more of the total revenue, operating income, EBITDA or assets of
CrossWorlds and its subsidiaries, taken as a whole, or (b) 15% or more of the
outstanding securities of CrossWorlds, or 15% or more of the outstanding
securities of any subsidiary of CrossWorlds directly or indirectly holding,
individually or taken together, the assets or businesses referred to in clause
(a).
The merger agreement provides that the term "superior proposal" means any
bona fide binding written offer not solicited by or on behalf of CrossWorlds or
any of its subsidiaries made by a third party that if consummated would result
in such third party (or in the case of a direct merger between such third party
and CrossWorlds, the stockholders of such third party) acquiring, directly or
indirectly, more than 50% of the voting power of the common stock of CrossWorlds
or all or substantially all the assets of CrossWorlds and its subsidiaries,
taken as a whole, for consideration consisting of cash and/or securities that
the board of directors of CrossWorlds determines in its good faith judgment
(after consultation with a financial advisor of nationally recognized
reputation) to have a higher value than the consideration to be received by
CrossWorlds' stockholders in connection with the merger, taking into account,
among other things, any changes to the terms of the merger agreement proposed by
IBM in response to such superior proposal or otherwise.
The merger agreement provides that neither the CrossWorlds board of
directors nor any committee of the board will:
- withdraw or propose publicly to withdraw, or modify or propose publicly
to modify in a manner adverse to IBM, the recommendation or declaration
of advisability of the merger agreement or the merger of the CrossWorlds
board of directors or such committee, or resolve or agree to take any
such action, unless the board of directors or such committee reasonably
determines in good faith that the failure to take such action would be
reasonably likely to result in a breach of its fiduciary duties under
applicable law;
- recommend, adopt or approve, or propose publicly to recommend, adopt or
approve, any takeover proposal or withdraw its approval of the merger, or
resolve or agree to take any such action; or
- cause or permit CrossWorlds to enter into any letter of intent,
memorandum of understanding, agreement in principle, acquisition
agreement, merger agreement, option agreement, joint venture agreement,
partnership agreement or other agreement constituting or relating to, or
that is intended to or is reasonably likely to lead to, a takeover
proposal, or resolve or agree to take any such action.
Termination. The merger agreement may be terminated at any time prior to
the effective time of the merger, whether before or after the adoption of the
merger agreement by the stockholders of CrossWorlds:
- by mutual written consent of IBM, Duke Acquisition Corp. and CrossWorlds;
- by IBM or CrossWorlds, if the merger has not been completed by March 31,
2002 for any reason; provided, however, that this right to terminate the
merger agreement will not be available to a party whose action or failure
to act was a principal cause or resulted in the failure of the merger to
be completed by that date and such action or failure constituted a breach
of the merger agreement;
- by IBM or CrossWorlds, if any restraining order, injunction or other
order or decree issued by any court of competent jurisdiction or other
legal restraint or prohibition is in effect which would prevent
completion of the merger, and which has become final and nonappealable;
37
- by either IBM or CrossWorlds, if the stockholders of CrossWorlds do not
adopt the merger agreement at a stockholders' meeting duly convened
therefor or at any adjournment or postponement of such meeting;
- by IBM or CrossWorlds, if the other party has breached or failed to
perform in any material respect any of its representations, warranties,
covenants or other agreements contained in the merger agreement, which
breach or failure to perform would give rise to the failure of a
condition to the merger and cannot be cured or has not been cured within
25 days after written notice of such breach or failure;
- by IBM if any restraining order, injunction or other order or decree
issued by any court of competent jurisdiction or other legal restraint or
prohibition having the effects described in any of the bullet points in
the second paragraph under "-- Conditions to the Completion of the
Merger" (on page 35) above has become final and non-appealable; or
- by IBM in the event that CrossWorlds' board of directors or any committee
thereof (a) withdraws or proposes publicly to withdraw, or modifies or
proposes publicly to modify in a manner adverse to IBM, the
recommendation or declaration of advisability by such board of directors
or any such committee of the merger agreement or the merger, or resolves
or agrees to take any such action or (b) fails to confirm its
recommendation and declaration of advisability of the merger agreement
and the merger within ten business days after a written request by IBM
that it do so.
Conduct of Business Pending the Merger. Under the merger agreement,
CrossWorlds has agreed that, prior to the effective time of the merger, except
with the prior consent of IBM, it will, and will cause its subsidiaries to,
carry on their respective businesses in the ordinary course consistent with past
practice and use their reasonable best efforts to (a) comply with all applicable
laws, rules and regulations, (b) keep available the services of their present
officers and employees, (c) preserve their assets and technology and (d)
preserve their relationships with customers, suppliers, licensors, licensees,
distributors and others having business dealings with them. In addition,
CrossWorlds has agreed that, among other things and subject to certain
exceptions, neither it nor any of its subsidiaries may, without IBM's written
consent:
- declare, set aside or pay any dividends or make any other distributions
(whether in cash, stock or property) on any of its capital stock, other
than dividends and distributions by a wholly-owned subsidiary to its
parent, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in substitution for
shares of its capital stock, or purchase, redeem or otherwise acquire any
shares of capital stock of CrossWorlds or its subsidiaries or any other
of its securities or any options, warrants, calls, or rights to acquire
any such securities, other than repurchases of CrossWorlds' common stock
in connection with the termination of the services of any employee of
CrossWorlds or any of its subsidiaries to the extent such repurchase is
required by the CrossWorlds employee stock plans;
- issue, deliver, sell, pledge or otherwise encumber any shares of capital
stock, any other voting securities or any securities convertible into, or
exchangeable for, or any options, warrants, calls, or rights to acquire,
any such securities, other than the issuance of shares of CrossWorlds'
common stock upon the exercise of stock options, warrants or rights under
CrossWorlds' employee stock purchase plan outstanding on the date of the
merger agreement or the grant of rights under CrossWorlds' employee stock
purchase plan;
- amend or propose to amend the certificate of incorporation of
CrossWorlds, the by-laws of CrossWorlds or other comparable
organizational documents of any of its subsidiaries;
- acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the assets of, or by purchasing all
of or a substantial equity interest in, or by any other manner, any
business or any entity (or any division thereof), or any assets other
than inventory, components, raw materials or other immaterial assets in
the ordinary course of business consistent with past practice;
38
- sell, lease, license, sell and leaseback, mortgage or otherwise encumber
or subject to any lien or otherwise dispose of any of its properties or
assets, including securities, other than sales of inventory or used
equipment and licenses of CrossWorlds' intellectual property rights to
end-user customers for their internal use or solely as necessary for such
customers to use CrossWorlds' products and services, in each case in the
ordinary course of business consistent with past practice;
- repurchase, prepay or incur any indebtedness or guarantee any
indebtedness of another person, issue or sell any debt securities,
options, warrants, calls or other rights to acquire any debt securities
of CrossWorlds or any of its subsidiaries, guarantee any debt securities
of another person, enter into any "keep well" or other agreement to
maintain any financial statement condition of another person or enter
into any arrangement having the economic effect of any of the foregoing,
or make any loans, advances or capital contributions to, or investments
in, any other person (other than CrossWorlds or any of its wholly-owned
subsidiaries);
- make any new capital expenditures, or incur any obligations or
liabilities in connection therewith, individually in excess of $5,000 or
in the aggregate in excess of $50,000;
- pay, discharge, settle or satisfy any claims, liabilities, or
obligations, other than the payment, discharge or satisfaction in the
ordinary course of business consistent with past practice or as required
in accordance with their terms, of claims, liabilities or obligations
reflected or reserved against in the most recent audited financial
statements or the notes thereto of CrossWorlds included in the documents
filed by CrossWorlds with the Securities and Exchange Commission or
incurred since the date of such financial statements in the ordinary
course of business consistent with past practice, or waive, release,
grant or transfer any right of material value, or waive any material
benefits of, or agree to modify in any adverse respect, or fail to
enforce any confidentiality, standstill or similar agreement to which
CrossWorlds or any of its subsidiaries is a party;
- modify, amend or terminate any contract (including any contract with any
major customer) to which CrossWorlds (or a subsidiary) is a party,
including any arrangements involving material intellectual property, or
waive, release or assign any material rights or claims thereunder that
are materially adverse to CrossWorlds with respect to such contract, in
each case in any manner which is in any way outside the ordinary course
of business or inconsistent with past practice or which in any way could
have an effect that is material and adverse to CrossWorlds and its
subsidiaries, taken as a whole;
- enter into any contract (including any contract with a major customer and
any arrangements involving material intellectual property) which is in
any way outside the ordinary course of business or inconsistent with past
practice or which could in any way have an effect that is material and
adverse to CrossWorlds and its subsidiaries, taken as a whole;
- enter into any contract, or extend the term of any contract to which
CrossWorlds or any of its subsidiaries is a party that (a) provides for
any use restrictions on CrossWorlds or its subsidiaries with respect to
confidential information, (b) includes any arbitration or similar dispute
resolution provision, (c) does not contain a waiver of incidental,
consequential, punitive, indirect and special damages in favor of
CrossWorlds and its subsidiaries in all circumstances, (d) does not
include a reasonable limitation on the payment of direct damages by
CrossWorlds or any of its subsidiaries in connection therewith, (e)
contains any non-competition, non-solicitation or similar provision that
restricts CrossWorlds or any of its subsidiaries, (f) provides for
exclusivity or any similar requirement or under which CrossWorlds or any
of its subsidiaries is restricted, or under which IBM or any of its
subsidiaries would after the completion of the merger be restricted, with
respect to distribution, licensing, marketing, development or
manufacturing or (g) provides for the assignment, sale or other transfer
of any material rights in any intellectual property owned or used by
CrossWorlds or any of its subsidiaries to any third party, in each of
cases (a) to (g) in a manner that is not reasonably satisfactory to IBM;
- except as required to comply with applicable law or any contract or
benefit plan or benefit agreement of CrossWorlds or any of its
subsidiaries existing on the date of the merger agreement (a) increase
the
39
compensation or fringe benefits of, or pay any bonus to, any current or
former director, officer, employee or consultant, (b) pay to any current
or former director, officer, employee or consultant any benefit not
provided for under any contract, benefit plan or benefit agreement other
than the payment of cash compensation in the ordinary course of business
consistent with past practice, (c) grant any awards under any benefit
plan (including the grant of stock options, stock appreciation rights,
other stock based or stock related awards, performance units or
restricted stock or the removal of existing restrictions in any contract,
benefit plan or benefit agreement or awards made thereunder), (d) take
any action to fund or in any other way secure compensation or benefits
under any contract, benefit plan or benefit agreement or (e) take any
action to accelerate the vesting or payment of any compensation or
benefit under any contract, benefit plan or benefit agreement;
- form any subsidiary;
- enter into any contract if consummation of the merger or compliance with
the provisions of the merger agreement will violate or conflict with, or
result in any violation or breach of, or default under, or give rise to a
right of, or result in, termination, cancellation or acceleration of any
obligation or to loss of a material benefit under, any provision of such
contract or will result in the creation of any lien in or upon any of the
properties or assets of CrossWorlds or IBM (or any of their respective
subsidiaries) or give rise to any increased, additional, accelerated or
guaranteed rights or entitlements under, any provision of such contract;
- enter into any contract containing any restriction on the ability of
CrossWorlds or any of its subsidiaries to assign its rights, interests or
obligations thereunder;
- take or fail to take any action that would, or could reasonably be
expected to, result in (a) any representation or warranty made by
CrossWorlds in the merger agreement that is qualified as to materiality
becoming untrue, (b) any representation or warranty that is not so
qualified becoming untrue in any material respect or (c) any condition to
the completion of the merger not being satisfied;
- adopt or enter into any collective bargaining agreement or other labor
union contract applicable to the employees of CrossWorlds or any of its
subsidiaries or terminate, whether expressly or constructively, the
employment of any employee of CrossWorlds or any of its subsidiaries that
has an employment, severance or similar agreement or arrangement with
CrossWorlds or any of its subsidiaries;
- maintain insurance at less than current levels or otherwise in a manner
inconsistent with past practice;
- commence any suit, claim, action or proceeding;
- change its fiscal year, revalue any of its material assets or, except as
required by generally accepted accounting principles, make any changes in
accounting methods, principles or practices;
- engage in (a) any trade loading practices or any other promotional sales
or discount activity with any customers or distributors with the effect
of accelerating to periods prior to the consummation of the merger sales
to the trade or otherwise that would otherwise be expected to occur in
periods following the consummation of the merger, (b) any practice which
would have the effect of accelerating to periods prior to the
consummation of the merger collections of receivables that would
otherwise be expected to be made in periods following the consummation of
the merger, (c) any practice which would have the effect of postponing to
periods following the consummation of the merger payments by CrossWorlds
or any of its subsidiaries that would otherwise be expected to be made in
periods prior to the consummation of the merger or (d) any other
promotional sales, discount activity or inventory overstocking or
understocking, in each case in a manner outside the ordinary course of
business; or
- authorize any of, or commit, resolve or agree to take any of, the
foregoing actions.
40
Reasonable Best Efforts.
Except as otherwise limited by the merger agreement, CrossWorlds and IBM
have each agreed to use its reasonable best efforts to take actions necessary to
complete the merger, including:
- satisfying the conditions to the merger;
- obtaining all necessary consents and approvals and the making of all
necessary registrations, declarations and filings; and
- taking steps to avoid any law or ruling preventing the merger.
Neither CrossWorlds or IBM are bound under the merger agreement, however,
to:
- agree to divest or hold separate any assets or portion of the business of
CrossWorlds or IBM; or
- litigate any proceeding that:
- challenges or seeks to restrain the completion of the merger;
- seeks to prohibit or limit in any material respect the ownership or
operation by CrossWorlds or IBM of a material portion of its
businesses or assets; or
- seeks to prohibit IBM from controlling in any material respect a
substantial portion of the business or operations of CrossWorlds.
Amendment; Extension and Waiver. Subject to applicable law:
- the merger agreement may be amended by the parties in writing at any
time, except that after the merger agreement has been adopted by the
stockholders of CrossWorlds, no amendment may be entered into which
requires further approval by CrossWorlds' stockholders unless such
further approval is obtained; and
- at any time prior to the effective time of the merger, the parties may,
by written instrument signed on behalf of each party, extend the time for
performance of the obligations of any other party to the merger
agreement, waive inaccuracies in representations and warranties of any
other party contained in the merger agreement or in any related document
and waive compliance by any other party with any agreements or conditions
in the merger agreement, except that after the merger agreement has been
adopted by the stockholders of CrossWorlds, no waiver may be made which
requires further approval by CrossWorlds' stockholders or the approval of
IBM stockholders unless such approval is obtained.
Expenses. Whether or not the merger is completed, all fees and expenses
incurred in connection with the merger, the merger agreement, the stockholders
agreement and related transactions will be paid by the party incurring such fees
or expenses.
Termination Fee. The merger agreement requires that CrossWorlds pay IBM a
termination fee of $4.8 million if, among other things:
- the merger agreement is terminated by either IBM or CrossWorlds because
the merger has not been consummated by March 31, 2002 and (i) at or prior
to such termination, another takeover proposal from a third party has
been made, announced or become known to the CrossWorlds stockholders, or
any person or group has acquired ownership of 10% or more of CrossWorlds'
common stock, and (ii) within 12 months following such termination
CrossWorlds or any of its subsidiaries enters into an agreement with
respect to, or consummates, any takeover proposal;
- the merger agreement is terminated by either IBM or CrossWorlds because
the special meeting of CrossWorlds stockholders was held and the
CrossWorlds stockholders have failed to adopt the merger agreement and
(i) at or prior to such termination, another takeover proposal from a
third party has been made, announced or become known to the CrossWorlds
stockholders, or any person or group has acquired ownership of 10% or
more of CrossWorlds' common stock, and (ii) within 12 months
41
following such termination CrossWorlds or any of its subsidiaries enters
into an agreement with respect to, or consummates, any takeover proposal;
or
- the merger agreement is terminated by IBM because the board of directors
or a committee thereof of CrossWorlds has (i) withdrawn or adversely
modified or publicly proposed to withdraw or adversely modify the
recommendation or declaration of advisability of the board of directors
or such committee in favor of the merger or (ii) failed to confirm its
recommendation and declaration of advisability of the merger agreement
and the merger within 10 business days of a written request by IBM that
it do so.
Representations and Warranties. The merger agreement contains customary
representations and warranties relating to, among other things:
- corporate organization and similar corporate matters of each of IBM and
CrossWorlds;
- subsidiaries of CrossWorlds;
- the capital structure of CrossWorlds, including outstanding indebtedness;
- authorization, execution, delivery, performance and enforceability of,
and required consents, approvals, orders and authorizations of
governmental authorities relating to, the merger agreement and related
matters of each of IBM and CrossWorlds;
- documents filed by CrossWorlds with the Securities and Exchange
Commission, the accuracy of the financial statements and other
information contained in such documents and the absence of undisclosed
liabilities of CrossWorlds;
- the accuracy of information supplied by each of IBM and CrossWorlds in
connection with this proxy statement;
- absence of certain changes or events concerning CrossWorlds;
- outstanding and pending litigation of CrossWorlds;
- certain contracts of CrossWorlds;
- compliance with applicable laws by CrossWorlds;
- absence of changes in benefit plans and employment agreements, and labor
relations, of CrossWorlds;
- environmental matters that might have material adverse effects on
CrossWorlds;
- matters relating to the Employee Retirement Income Security Act for
CrossWorlds and other employee benefits matters;
- filing of material tax returns and payment of material taxes by
CrossWorlds;
- title to material properties and assets of CrossWorlds;
- intellectual property of CrossWorlds;
- insurance policies of CrossWorlds;
- disclosures made by CrossWorlds;
- satisfaction of certain state takeover statutes' requirements for
CrossWorlds;
- required stockholder vote of CrossWorlds;
- engagement and payment of fees of brokers, investment bankers, finders
and financial advisors by CrossWorlds and amount of fees of other
advisors to CrossWorlds in connection with the merger agreement and the
merger;
42
- receipt of fairness opinion by CrossWorlds from its financial advisor;
and
- interim operations of Duke Acquisition Corp.
Restated Certificate of Incorporation. The merger agreement provides that,
after the effective time of the merger, the certificate of incorporation of
CrossWorlds, as in effect immediately prior to the effective time of the merger,
will be the certificate of incorporation of the surviving corporation.
By-Laws. The merger agreement provides that the by-laws of Duke
Acquisition Corp., as in effect immediately prior to the effective time of the
merger, will be the by-laws of the surviving corporation following the merger
until changed or amended.
THE STOCKHOLDERS AGREEMENT
General. Simultaneously with the execution and delivery of the merger
agreement, IBM entered into a stockholders agreement with the directors and
certain stockholders of CrossWorlds, who on the record date together held
approximately % of the outstanding CrossWorlds common stock.
Voting. The stockholders signing the stockholders agreement agreed, among
other things, to vote their shares of CrossWorlds' common stock in favor of the
adoption of the merger agreement and of the approval of the terms thereof and of
the merger at any meeting of CrossWorlds' stockholders at which such matters are
considered and at every adjournment thereof. The stockholders signing the
agreement also agreed to vote against any takeover proposal or amendment to
CrossWorlds' certificate of incorporation or bylaws or other proposal, action or
transaction involving CrossWorlds that could reasonably be expected to prevent,
materially impede or delay the completion of the merger, or dilute in any
material respects the benefits to IBM of the merger or change in any manner the
voting rights of holders of CrossWorlds' common stock. In order to secure these
obligations, the stockholders signing the stockholders agreement granted a proxy
and power of attorney with respect to any of their CrossWorlds shares with
respect to such matters to certain officers of IBM or a person designated by
IBM.
Restrictions on Transfer and Other Voting Arrangements. The stockholders
party to the stockholders agreement have agreed not to sell, transfer, pledge,
assign, tender or otherwise transfer any CrossWorlds shares subject to the
stockholders agreement prior to the date of the stockholder meeting to consider
adoption of the merger agreement, unless the transferee enters into a
stockholder agreement with IBM that is substantially identical to the
stockholders agreement. In addition, the stockholders have agreed not to enter
into any other voting agreement or arrangement in connection with a takeover
proposal or other transaction of a nature described above under the caption
"Voting".
No Solicitation. The stockholders have agreed that they will not, nor will
they permit any of the directors, officers, employees or partners or any
investment banker, attorney, accountant or other advisor or representative
retained by him, her or it, in his, her or its capacity as a stockholder to,
directly or indirectly solicit, initiate, encourage or otherwise facilitate any
takeover proposal, as described in "-- The Merger Agreement -- No Solicitation"
on page 36, or other transaction involving CrossWorlds that would prevent or
delay the completion of the merger or enter into any agreement, or engage in or
continue any discussions, relating to any of the foregoing, except in his or her
capacity as a member of the board of directors of CrossWorlds.
Option. The stockholders have granted IBM an option, exercisable at any
time, to purchase their shares of CrossWorlds' common stock for $4.65 per share.
Profit Disgorgement. The stockholders have agreed that, if (i) the merger
agreement is terminated, CrossWorlds is obligated to pay IBM a termination fee
of $4.8 million and a takeover proposal is consummated, or (ii) a takeover
proposal for CrossWorlds is made and consummated by IBM which provides for
merger consideration in excess of $4.65 per share, then the stockholders must
pay to IBM an amount of cash for each share of CrossWorlds' common stock owned
by them equal to the excess of the per share merger consideration received by
such stockholder in the takeover proposal over $4.65, less certain taxes.
43
Termination. The stockholders agreement provides that it will terminate
upon the earlier of the completion of the merger or the termination of the
merger agreement; provided, that, if:
- the merger agreement is terminated by either IBM or CrossWorlds because
the merger has not been consummated by March 31, 2002 and (i) at or prior
to such termination, another takeover proposal from a third party has
been made, announced or become known to the CrossWorlds stockholders, or
any person or group has acquired ownership of 10% or more of CrossWorlds'
common stock, and (ii) within 12 months following such termination
CrossWorlds or any of its subsidiaries enters into an agreement with
respect to, or consummates, any takeover proposal;
- the merger agreement is terminated by either IBM or CrossWorlds because
the special meeting of CrossWorlds' stockholders was held and the
CrossWorlds stockholders have failed to adopt the merger agreement and
(i) at or prior to such termination, another takeover proposal from a
third party has been made, announced or become known to the CrossWorlds
stockholders, or any person or group has acquired ownership of 10% or
more of CrossWorlds' common stock, and (ii) within 12 months following
such termination CrossWorlds or any of its subsidiaries enters into an
agreement with respect to, or consummates, any takeover proposal; or
- the merger agreement is terminated by IBM because the board of directors
or a committee thereof of CrossWorlds has (i) withdrawn or adversely
modified or publicly proposed to withdraw or adversely modify the
recommendation or declaration of advisability of the board of directors
or such committee in favor of the merger or (ii) failed to confirm its
recommendation and declaration of advisability of the merger agreement
and the merger within 10 business days of a written request by IBM that
it do so.
then (i) the provision that such stockholders disgorge any profits made in
connection with the completion of a takeover proposal will terminate 12 months
following the termination of the merger agreement, and (ii) the option will
terminate 6 months following the termination of the merger agreement.
44
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the common stock beneficially owned by (i) each
person who is known by us to beneficially own 5% or more of our outstanding
common stock, (ii) each of the executive officers of CrossWorlds, (iii) each of
our directors and (iv) all officers and directors as a group, as of October 31,
2001. The following table does not show the common stock beneficially owned by
IBM pursuant to the stockholders agreement. Beneficial ownership is determined
in accordance with SEC rules. In computing the number of shares beneficially
owned by a person, we have included shares for which the named person has sole
or shared power over voting or investment decisions. The number of shares
beneficially owned includes common stock which the named person has the right to
acquire, through conversion, option or warrant exercise, or otherwise, within 60
days after October 31, 2001. Percentage of beneficial ownership is based on
27,023,627 shares outstanding as of October 31, 2001. Beneficial ownership
calculations for 5% stockholders are based solely on publicly-filed Schedule
13D's or 13G's, which 5% stockholders are required to file with the SEC, and
which generally set forth ownership interests as of October 31, 2001. Except as
otherwise noted, the address of each person listed in the table is c/o
CrossWorlds Software, Inc., 577 Airport Boulevard, Burlingame, CA 94010.
<Table>
<Caption>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
NAME AND ADDRESS OWNERSHIP COMMON STOCK
---------------- ---------- ------------
Weiss, Peck & Greer LLC..................................... 1,955,300 7.24%
One New York Plaza
New York, NY 10004
Entities affiliated with Soros Private Equity Partners...... 1,478,345 5.47%
c/o Soros Fund Management LLC
Attn: Michael C. Neus, Esq.
888 Seventh Avenue
New York, NY 10106(1)
Alfred J. Amoroso(2)........................................ 2,141,720 7.35%
Mark Bishof(3).............................................. 340,231 1.24%
James W. Budge(4)........................................... 146,470 0.54%
Buff Jones(5)............................................... 36,458 0.13%
Arthur R. Matin(6).......................................... 445,370 1.02%
Katrina A. Garnett(7)....................................... 7,407,810 27.41%
Terence J. Garnett(8)....................................... 6,074,478 22.47%
Andrew K. Ludwick(9)........................................ 440,205 1.63%
Albert A. Pimentel(10)...................................... 146,248 0.54%
Colin F. Raymond(11)........................................ 5,000 0.02%
All directors and executive officers as a group (10
Persons).................................................. 11,114,512 36.83%
</Table>
- ---------------
(1) Includes 1,321,586 shares held by Quantum Industrial Partners LDC, 146,843
shares held by SFM Domestic Investments, LLC, 8,925 shares issuable upon
exercise of a warrant issued to Quantum Industrial Partners LDC, and 991
shares issuable upon exercise of a warrant issued to SFM Domestic
Investments LLC.
(2) Beneficial ownership for Mr. Amoroso is comprised of 16,528 shares of
common stock and 2,125,192 shares issuable upon the exercise of stock
options held by Mr. Amoroso that are exercisable within 60 days of October
31, 2001. Excludes 100,000 shares of common stock held in trust for the
benefit of Mr. Amoroso's children. Mr. Amoroso does not possess voting or
dispositive power over the excluded shares.
(3) Beneficial ownership from Mr. Bishof is comprised of 3,773 shares of common
stock and 336,456 shares issuable upon the exercise of stock options held
by Mr. Bishof that are exercisable within 60 days of October 31, 2001.
45
(4) Beneficial ownership for Mr. Budge is comprised of 146,470 shares issuable
upon the exercise of stock options held by Mr. Budge that are exercisable
within 60 days of October 31, 2001.
(5) Beneficial ownership for Ms. Jones is comprised of 36,458 shares issuable
upon the exercise of stock options held by Ms. Jones that are exercisable
within 60 days of October 31, 2001.
(6) Beneficial ownership for Mr. Matin is comprised of 3,703 shares of common
stock and 441,667 shares issuable upon the exercise of stock options held
by Mr. Matin that are exercisable within 60 days of October 31, 2001.
(7) Includes 6,069,478 shares held by a family trust, 1,333,332 shares held
directly by Ms. Garnett and 5,000 shares issuable upon the exercise of
stock options that are exercisable within 60 days of October 31, 2001.
Excludes 333,332 shares of common stock held in trust for the benefit of
Mr. and Ms. Garnett's children. Ms. Garnett does not possess voting or
dispositive power over the excluded shares.
(8) Includes 6,069,478 shares held by a family trust and 5,000 shares issuable
upon the exercise of stock options that are exercisable within 60 days of
October 31, 2001. Excludes 1,333,332 shares of common stock held by Ms.
Garnett and 333,332 shares held in trust for the benefit of Mr. and Ms.
Garnett's children. Mr. Garnett does not possess voting or dispositive
power over the excluded shares.
(9) Beneficial ownership for Mr. Ludwick is comprised of 393,539 shares of
common stock and 46,666 shares issuable upon the exercise of stock options
held by Mr. Ludwick that are exercisable within 60 days of October 31,
2001.
(10) Includes 5,000 shares issuable upon the exercise of stock options that are
exercisable within 60 days of October 31, 2001. Excludes 6,408 shares of
common stock held in trust for the benefit of Mr. Pimentel's children.
(11) Includes 5,000 shares issuable upon the exercise of stock options that are
exercisable within 60 days of October 31, 2001. Excludes 1,321,586 shares
held by Quantum Industrial Partners LDC, 146,843 shares held by SFM
Domestic Investments, LLC, 8,925 shares issuable upon exercise of a warrant
issued to Quantum Industrial Partners LDC, and 991 shares issuable upon
exercise of a warrant issued to SFM Domestic Investments LLC. Mr. Raymond
disclaims beneficial ownership of these shares except for his pecuniary
interest in Quantum Industrial Partners, LDC and SFM Domestic Investments
LLC.
46
STOCKHOLDER PROPOSALS
CrossWorlds will hold a 2002 annual meeting of CrossWorlds' stockholders
only if the merger is not completed.
Proposals of stockholders intended to be presented at the regular annual
meeting of CrossWorlds' stockholders for the fiscal year ended December 31, 2001
pursuant to SEC Rule 14a-8 must be received no later than the close of business
on December 24, 2001 at CrossWorlds' principal executive offices in order to be
included in CrossWorlds' proxy statement for that meeting. In order to curtail
controversy as to the date on which a proposal was received by CrossWorlds, it
is suggested that proponents submit their proposals by Certified Mail, Return
Receipt Requested to CrossWorlds Software, Inc., 577 Airport Boulevard,
Burlingame, California 94010, Attention: Secretary.
Under CrossWorlds' by-laws, stockholders who wish to make a proposal at the
annual meeting of CrossWorlds' stockholders for the fiscal year ended December
31, 2001, must notify CrossWorlds no later than the close of business on
February 21, 2002. If a stockholder who wishes to present a proposal fails to
notify CrossWorlds by February 21, 2002, the stockholder would not be entitled
to present the proposal at the meeting. If, however, notwithstanding the
requirements of CrossWorlds' by-laws, the proposal is brought before the annual
meeting of CrossWorlds' stockholders, then under the proxy rules of the
Securities and Exchange Commission, the proxies solicited by management with
respect to the next annual meeting of stockholders will confer discretionary
voting authority with respect to the stockholder's proposal on the persons
selected by management to vote the proxies. If a stockholder makes a timely
notification, the persons appointed as proxies may still exercise discretionary
voting authority under circumstances consistent with the SEC's proxy rules.
OTHER MATTERS
As of the date of this proxy statement, the CrossWorlds board of directors
knows of no matters that will be presented for consideration at the special
meeting other than as described in this proxy statement.
47
WHERE YOU CAN FIND MORE INFORMATION
CrossWorlds and IBM file annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any reports, statements or other information that IBM and
CrossWorlds file with the Securities and Exchange Commission at the Securities
and Exchange Commission's public reference room at the following location:
Public Reference Room
450 Fifth Street, N.W., Room 1024
Washington, D.C. 20549
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the public reference room. These Securities and Exchange
Commission filings are also available to the public from commercial document
retrieval services and at the Internet world wide web site maintained by the
Securities and Exchange Commission at "http://www.sec.gov." Reports, proxy
statements and other information concerning CrossWorlds may also be inspected at
the offices of The Nasdaq Stock Market at 1735 K Street, N.W., Washington, D.C.
20006.
IBM has supplied all information contained in this proxy statement relating
to IBM and CrossWorlds has supplied all such information relating to
CrossWorlds.
CrossWorlds' stockholders should not send in their CrossWorlds certificates
until they receive the transmittal materials from the paying agent. CrossWorlds'
stockholders of record who have further questions about their share certificates
or the exchange of their CrossWorlds common stock for cash should call the
paying agent.
You should rely only on the information contained in this proxy statement.
We have not authorized anyone to provide you with information that is different
from what is contained in this proxy statement. This proxy statement is dated
December , 2001. You should not assume that the information contained in this
proxy statement is accurate as of any date other than that date. Neither the
mailing of this proxy statement to stockholders nor the issuance of cash in the
merger creates any implication to the contrary.
48
ANNEX A
EXECUTION COPY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
INTERNATIONAL BUSINESS MACHINES CORPORATION
DUKE ACQUISITION CORP.
AND
CROSSWORLDS SOFTWARE, INC.
DATED AS OF OCTOBER 29, 2001
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
ARTICLE I
THE MERGER
<Table>
SECTION 1.01 Effective Time of the Merger................................ A-1
SECTION 1.02 Closing..................................................... A-1
SECTION 1.03 Effect of the Merger........................................ A-1
SECTION 1.04 Certificate of Incorporation and By-laws.................... A-1
SECTION 1.05 Directors................................................... A-2
SECTION 1.06 Officers.................................................... A-2
ARTICLE II
CONVERSION OF SECURITIES
SECTION 2.01 Conversion of Capital Stock................................. A-2
SECTION 2.02 Exchange of Certificates.................................... A-3
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01 Representations and Warranties of the Company............... A-4
SECTION 3.02 Representations and Warranties of Parent and Sub............ A-21
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.01 Conduct of Business......................................... A-22
SECTION 4.02 No Solicitation............................................. A-25
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01 Preparation of the Proxy Statement; Stockholders Meeting.... A-27
SECTION 5.02 Access to Information; Confidentiality...................... A-27
SECTION 5.03 Reasonable Efforts; Notification............................ A-28
SECTION 5.04 Stock Options; Restricted Shares; Warrants.................. A-29
SECTION 5.05 Indemnification, Exculpation and Insurance.................. A-30
SECTION 5.06 Fees........................................................ A-31
SECTION 5.07 Employee Matters............................................ A-32
SECTION 5.08 Public Announcements........................................ A-33
SECTION 5.09 Closing Date Balance Sheet.................................. A-33
</Table>
A-i
<Table>
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.01 Conditions to Each Party's Obligation to Effect the
Merger...................................................... A-33
SECTION 6.02 Conditions to Obligations of Parent and Sub................. A-34
SECTION 6.03 Conditions to Obligation of the Company..................... A-34
SECTION 6.04 Frustration of Closing Conditions........................... A-35
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.01 Termination................................................. A-35
SECTION 7.02 Effect of Termination....................................... A-35
SECTION 7.03 Amendment................................................... A-36
SECTION 7.04 Extension; Waiver........................................... A-36
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01 Nonsurvival of Representations and Warranties............... A-36
SECTION 8.02 Notices..................................................... A-36
SECTION 8.03 Definitions................................................. A-37
SECTION 8.04 Interpretation.............................................. A-38
SECTION 8.05 Counterparts................................................ A-38
SECTION 8.06 Entire Agreement; No Third-Party Beneficiaries.............. A-38
SECTION 8.07 Governing Law............................................... A-38
SECTION 8.08 Assignment.................................................. A-38
SECTION 8.09 Consent to Jurisdiction..................................... A-38
SECTION 8.10 Waiver of Jury Trial........................................ A-39
SECTION 8.11 Enforcement................................................. A-39
</Table>
A-ii
AGREEMENT AND PLAN OF MERGER dated as of October 29, 2001 (this
"Agreement"), by and among INTERNATIONAL BUSINESS MACHINES CORPORATION, a New
York corporation ("Parent"), DUKE ACQUISITION CORP., a Delaware corporation and
a wholly owned subsidiary of Parent ("Sub"), and CROSSWORLDS SOFTWARE, INC., a
Delaware corporation (the "Company").
WHEREAS the Board of Directors of each of the Company and Sub deems it in
the best interests of their respective stockholders to consummate the merger
(the "Merger"), on the terms and subject to the conditions set forth in this
Agreement, of Sub with and into the Company in which the Company would become a
wholly owned subsidiary of Parent, and such Boards of Directors have approved
this Agreement and declared its advisability (and, in the case of the Board of
Directors of the Company, recommended that this Agreement be adopted by the
Company's stockholders);
WHEREAS, simultaneously with the execution and delivery of this Agreement
and as a condition and inducement to the willingness of Parent and Sub to enter
into this Agreement, Parent and certain stockholders of the Company are entering
into a stockholders agreement (the "Stockholders Agreement") pursuant to which,
among other things, such stockholders have agreed to vote to adopt this
Agreement and to take certain other actions in furtherance of the Merger, in
each case upon the terms and subject to the conditions set forth therein;
WHEREAS Parent, Sub and the 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 foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01 Effective Time of the Merger. As soon as practicable on or
after the Closing Date (as defined in Section 1.02), the parties shall (i) file
a certificate of merger (the "Certificate of Merger") in such form as is
required by, and executed and acknowledged in accordance with, the relevant
provisions of the General Corporation Law of the State of Delaware (the "DGCL")
and (ii) make all other filings or recordings required under the DGCL to effect
the Merger. The Merger shall become effective at such time as the Certificate of
Merger is duly filed with the Secretary of State of the State of Delaware or at
such subsequent time as Parent and the Company shall agree and specify in the
Certificate of Merger (the date and time the Merger becomes effective being the
"Effective Time").
SECTION 1.02 Closing. The closing of the Merger (the "Closing") will take
place at 11:00 a.m., New York time, on a date to be specified by the parties,
which shall be not later than the second business day after satisfaction or
waiver of the conditions set forth in Article VI that by their terms are not to
be satisfied or waived at the Closing (the "Closing Date"), at the offices of
Cravath, Swaine & Moore, 825 Eighth Avenue, New York, New York 10019, unless
another time, date or place is agreed to in writing by Parent and the Company.
SECTION 1.03 Effect of the Merger. At the Effective Time, Sub shall be
merged with and into the Company, the separate corporate existence of Sub shall
cease and the Company shall continue as the surviving corporation (the
"Surviving Corporation"). The Merger shall have the effects set forth in Section
259 of the DGCL.
SECTION 1.04 Certificate of Incorporation and By-laws. (a) The Amended
and Restated Certificate of Incorporation of the Company, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter changed or amended
as provided therein or by applicable law.
(b) The By-laws of Sub, as in effect immediately prior to the Effective
Time, shall be the By-laws of the Surviving Corporation until thereafter changed
or amended as provided therein or by applicable law.
A-1
SECTION 1.05 Directors. The directors of Sub immediately prior to the
Effective Time shall be the directors of the Surviving Corporation until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
SECTION 1.06 Officers. The officers of the Company immediately prior to
the Effective Time shall be the officers of the Surviving Corporation 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
CONVERSION OF SECURITIES
SECTION 2.01 Conversion of Capital Stock. At the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
shares of Common Stock, par value $0.001 per share, of the Company (the "Company
Common Stock"), or any shares of capital stock of Sub:
(a) Capital Stock of Sub. Each issued and outstanding share of common
stock of Sub shall be converted into and become one fully paid and
nonassessable share of common stock of the Surviving Corporation.
(b) Cancelation of Treasury Stock and Parent-Owned Stock. All shares of
Company Common Stock that are owned by the Company, as treasury stock,
Parent or Sub immediately prior to the Effective Time shall automatically
be canceled and retired and shall cease to exist and no consideration shall
be delivered in exchange therefor.
(c) Conversion of Company Common Stock. Each share of Company Common
Stock issued and outstanding immediately prior to the Effective Time (other
than shares to be canceled and retired in accordance with Section 2.01(b),
the Appraisal Shares (as defined in Section 2.01(d)) and Restricted Shares
(as defined in Section 3.01(c) and which shall be cancelled in the manner
set forth in Section 5.04(a)(i)(B))) shall be converted into the right to
receive $4.65 in cash, without interest (the "Merger Consideration"). At
the Effective Time all such shares shall no longer be outstanding and shall
automatically be cancelled and shall cease to exist, and each holder of a
certificate that immediately prior to the Effective Time represented any
such shares (a "Certificate") shall cease to have any rights with respect
thereto, except the right to receive the Merger Consideration. The right of
any holder of any share of Company Common Stock to receive the Merger
Consideration shall be subject to and reduced by the amount of any
withholding that is required under applicable tax law.
(d) Appraisal Rights. Notwithstanding anything in this Agreement to the
contrary, shares (the "Appraisal Shares") of Company Common Stock issued
and outstanding immediately prior to the Effective Time that are held by
any holder who is entitled to demand and properly demands appraisal of such
shares pursuant to, and who complies in all respects with, the provisions
of Section 262 of the DGCL ("Section 262") shall not be converted into the
right to receive the Merger Consideration as provided in Section 2.01(c),
but instead such holder shall be entitled to payment of the fair value of
such shares in accordance with the provisions of Section 262. At the
Effective Time, the Appraisal Shares shall no longer be outstanding and
shall automatically be canceled and shall cease to exist, and each holder
of Appraisal Shares shall cease to have any rights with respect thereto,
except the right to receive the fair value of such shares in accordance
with the provisions of Section 262. Notwithstanding the foregoing, if any
such holder shall fail to perfect or otherwise shall waive, withdraw or
lose the right to appraisal under Section 262 or a court of competent
jurisdiction shall determine that such holder is not entitled to the relief
provided by Section 262, then the right of such holder to be paid the fair
value of such holder's Appraisal Shares under Section 262 shall cease and
such Appraisal Shares shall be deemed to have been converted at the
Effective Time into, and shall have become, the right to receive the Merger
Consideration as provided in Section 2.01(c). The Company shall serve
prompt notice to Parent of any demands for appraisal of any shares of
Company Common Stock, withdrawals of such demands and any other instruments
served pursuant to the DGCL received by the Company, and Parent shall have
the right to participate in and direct all negotiations and proceedings
with respect to such demands.
A-2
The Company shall not, without the prior written consent of Parent, make
any payment with respect to, or settle or offer to settle, any such
demands, or agree to do or commit to do any of the foregoing.
SECTION 2.02 Exchange of Certificates. (a) Paying Agent. Prior to the
Effective Time, Parent shall designate a bank or trust company reasonably
acceptable to the Company to act as agent for the payment of the Merger
Consideration upon surrender of Certificates (the "Paying Agent"), and, from
time to time after the Effective Time, Parent shall make available, or cause the
Surviving Corporation to make available, to the Paying Agent funds in amounts
and at the times necessary for the payment of the Merger Consideration pursuant
to Section 2.01(c) upon surrender of Certificates, it being understood that any
and all interest earned on funds made available to the Paying Agent pursuant to
this Agreement shall be turned over to Parent.
(b) Exchange Procedure. As soon as reasonably practicable after the
Effective Time, the Paying Agent shall mail to each holder of record of a
Certificate (i) a form of letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates held
by such person shall pass, only upon proper delivery of the Certificates to the
Paying Agent and shall be in a 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 the Merger Consideration. Upon surrender of a
Certificate for cancelation to the Paying Agent or to such other agent or agents
as may be appointed by Parent, together with such letter of transmittal, duly
completed and validly executed, and such other documents as may reasonably be
required by the Paying Agent, the holder of such Certificate shall be entitled
to receive in exchange therefor the amount of cash into which the shares
formerly represented by such Certificate shall have been converted pursuant to
Section 2.01(c), and the Certificate so surrendered shall forthwith be canceled.
In the event of a transfer of ownership of shares that is not registered in the
stock transfer books of the Company, payment may be made to a person other than
the person in whose name the Certificate so surrendered is registered if such
Certificate shall be properly endorsed or otherwise be in proper form for
transfer and 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 such Certificate or establish to the satisfaction of the Surviving
Corporation that such tax has been paid or is not applicable. No interest shall
be paid or shall accrue on the cash payable upon surrender of any Certificate.
(c) No Further Ownership Rights in Company Common Stock. All cash paid
upon the surrender of a Certificate in accordance with the terms of this Article
II shall be deemed to have been paid in full satisfaction of all rights
pertaining to the shares of Company Common Stock formerly represented by such
Certificate. At the close of business on the day on which the Effective Time
occurs the stock transfer books of the Company shall be closed, and there shall
be no further registration of transfers on the stock transfer books of the
Surviving Corporation of the shares that were outstanding immediately prior to
the Effective Time. If, after the Effective Time, Certificates are presented to
the Surviving Corporation or the Paying Agent for transfer or any other reason,
they shall be canceled and exchanged as provided in this Article II.
(d) No Liability. None of Parent, Sub, the Company or the Paying Agent
shall be liable to any person in respect of any cash 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 two years after the
Effective Time (or immediately prior to such earlier date on which any Merger
Consideration would otherwise escheat to or became the property of any
Governmental Entity (as defined in Section 3.01(d)), any such Merger
Consideration in respect thereof 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.
(e) 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
shall pay in respect of such lost, stolen or destroyed Certificate the Merger
Consideration.
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(f) Withholding Rights. Parent, the Surviving Corporation or the Paying
Agent shall be entitled to deduct and withhold from the Merger Consideration
otherwise payable pursuant to this Agreement to any holder of shares of Company
Common Stock such amounts as Parent, the Surviving Corporation or the Paying
Agent is required to deduct and withhold with respect to the making of such
payment under the Internal Revenue Code of 1986, as amended (the "Code"), or any
provision of state, local or foreign tax law. To the extent that amounts are so
withheld and paid over to the appropriate taxing authority by Parent, the
Surviving Corporation or the Paying Agent, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the holder of
the shares of Company Common Stock in respect of which such deduction and
withholding was made by Parent, the Surviving Corporation or the Paying Agent.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01 Representations and Warranties of the Company. Except as set
forth on the disclosure schedule (each section of which qualifies the
correspondingly numbered representation and warranty or covenant to the extent
expressly specified therein and such other representations and warranties or
covenants to the extent a matter in such section is disclosed in such a way as
to make its relevance to the information called for by such other representation
and warranty or covenant readily apparent) delivered by the Company to Parent
prior to the execution of this Agreement (the "Company Disclosure Schedule") or,
with respect to actions and matters arising after the date of this Agreement, as
expressly and specifically provided for by this Agreement or the Company
Disclosure Schedule, the Company represents and warrants to Parent and Sub as
follows:
(a) Organization, Standing and Corporate Power. Each of the Company and
its subsidiaries (as defined in Section 8.03) (i) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, (ii) has all requisite corporate, company
or partnership power and authority to carry on its business as now being
conducted and (iii) 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, leasing or operation of its properties makes such
qualification or licensing necessary, other than where the failure to be so
organized, existing, qualified or licensed or in good standing (except in
the case of clause (i) above with respect to the Company) individually or
in the aggregate could not reasonably be expected to have a material
adverse effect (as defined in Section 8.03) on the Company. The Company has
delivered to Parent complete and correct copies of its Amended and Restated
Certificate of Incorporation and its Amended and Restated By-laws and the
certificate of incorporation and by-laws (or similar organizational
documents) of each of its subsidiaries, in each case as amended to the date
of this Agreement. The Company has made available to Parent and its
representatives true and complete copies of the minutes (or in the case of
draft minutes, the most recent drafts thereof) of all meetings of the
stockholders, the Board of Directors and each committee of the Board of
Directors of the Company and each of its subsidiaries held since June 1,
2000 (it being understood and agreed that, in respect of minutes (or draft
minutes) of meetings held after the date of this Agreement, the portions of
such minutes (or drafts thereof) that relate to any Takeover Proposal (as
defined in Section 4.02(a)) made after the date of this Agreement have been
redacted).
(b) Subsidiaries. Section 3.01(b) of the Company Disclosure Schedule
lists each subsidiary of the Company. All the outstanding shares of capital
stock of or other equity or voting interests in each such subsidiary are
owned by the Company, by another wholly owned subsidiary of the Company or
by the Company and another wholly owned subsidiary of the Company, free and
clear of all pledges, claims, liens, charges, encumbrances and security
interests of any kind or nature whatsoever (collectively, "Liens"), and are
duly authorized, validly issued, fully paid and nonassessable. Except for
the capital stock of or other equity or voting interests in its
subsidiaries, the Company does not own, directly or indirectly, any capital
stock of or other equity or voting interests in any corporation,
partnership, joint venture, association or other entity.
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(c) Capital Structure. (i) The authorized capital stock of the Company
consists of 150,000,000 shares of Company Common Stock. At the close of
business on October 29, 2001, (A) 26,775,214 shares of Company Common Stock
(excluding treasury shares) were issued and outstanding, none of which were
held by any subsidiary of the Company, (B) no shares of Company Common
Stock were held by the Company in its treasury, (C) options to acquire
10,599,897 shares of Company Common Stock from the Company pursuant to the
1996 Stock Option Plan (as amended), the 1997 Stock Plan (as amended), the
1999 Executive Stock Plan, the 2000 Directors' Stock Option Plan and the
2000 Non-Executive Stock Plan (collectively, the "Company Stock Plans")
were issued and outstanding, (D) stock purchase rights to acquire 6,666
shares of Company Common Stock pursuant to the Company Stock Plans were
issued and outstanding, (E) 13,069 shares of Company Common Stock subject
to a right of repurchase by the Company were held by service providers to
the Company or its subsidiaries ("Restricted Shares"), (F) warrants to
acquire 201,612 shares of Company Common Stock from the Company pursuant to
the warrant agreements set forth on Schedule 3.01(c) of the Company
Disclosure Schedule and previously provided in true and complete form to
Parent or its counsel (the "Warrants") were issued and outstanding and (G)
804,301 shares of Company Common Stock were reserved and available for
issuance pursuant to the 2000 Employee Stock Purchase Plan (the "ESPP").
The Company has delivered to Parent a complete and correct list, as of the
close of business on October 29, 2001, of all outstanding stock options or
other rights to purchase or acquire Company Common Stock granted under the
Company Stock Plans or otherwise (collectively, the "Stock Options"),
including all Restricted Shares and all outstanding Warrants, the number of
shares of Company Common Stock subject to each such Stock Option or
Warrant, the grant dates and exercise prices and vesting schedule of each
such Stock Option or Warrant, the repurchase price of each Restricted Share
and the names of the holders of each Stock Option, Warrant or Restricted
Share. Other than the Stock Options, the Warrants and rights under the
ESPP, there are no outstanding rights of any person to receive Company
Common Stock under the Company Stock Plans or otherwise, or on a deferred
basis or otherwise. As of the close of business on October 29, 2001, there
were outstanding Stock Options and Warrants to purchase 4,025,526 shares of
Company Common Stock with exercise prices on a per share basis lower than
the Merger Consideration, and the weighted average exercise price of such
Stock Options and Warrants was equal to $3.7304. As of the close of
business on October 29, 2001, there were outstanding rights to purchase no
more than 303,000 shares of Company Common Stock under the ESPP. For the
most recent bi-weekly payroll period ending prior to October 29, 2001, the
aggregate amount of accumulated payroll deductions pursuant to the ESPP was
$828,313.50 and the aggregate amount actually deducted for that payroll
period was $68,972.40).
(ii) Except as set forth above, as of the close of business on October
29, 2001, no shares of capital stock of or other equity or voting interests
in the Company, or options, warrants or other rights to acquire or receive
any such stock or interests were issued, reserved for issuance or
outstanding. Since October 29, 2001, until the date of this Agreement, (x)
there have been no issuances by the Company of shares of capital stock of
or other equity or voting interests in the Company other than issuances of
shares of Company Common Stock pursuant to the exercise of Stock Options,
Warrants or rights under the ESPP, in each case outstanding on such date as
required by their terms as in effect on the date of this Agreement and (y)
there have been no issuances by the Company of options, warrants or other
rights to acquire shares of capital stock or other equity or voting
interests from the Company, other than for rights that may have arisen
under the ESPP. There are no outstanding stock appreciation rights or other
rights (other than rights that may have arisen under the ESPP) that are
linked in any way to the price of the Company Common Stock or the value of
the Company or any part thereof that were not granted in tandem with a
related Stock Option.
(iii) All outstanding shares of capital stock of the Company are, and
all shares that may be issued pursuant to the Company Stock Plans, the
Warrants and the ESPP will be, when issued in accordance with the terms
thereof, duly authorized, validly issued, fully paid and nonassessable and
not subject to preemptive rights. There are no bonds, debentures, notes or
other indebtedness of the Company or any of it subsidiaries, and no
securities or other instruments or obligations of the Company or any of its
subsidiaries the value of which is in any way based upon or derived from
any capital or voting stock of
A-5
the Company, having the right to vote (or convertible into, or exchangeable
for, securities having the right to vote) on any matters on which
stockholders of the Company may vote. Except as set forth above and except
as expressly permitted under Section 4.01(a), there are no securities,
options, warrants, calls, rights, contracts, commitments, agreements,
instruments, arrangements, understandings, obligations or undertakings of
any kind to which the Company or any of its subsidiaries is a party, or by
which the Company or any of its subsidiaries is bound, obligating the
Company or any of its subsidiaries to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of capital stock of, or
other equity or voting interests in, or securities convertible into, or
exchangeable or exercisable for, shares of capital stock of or other equity
or voting interests in the Company or any of its subsidiaries or obligating
the Company or any of its subsidiaries to issue, grant, extend or enter
into any such security, option, warrant, call, right, contract, commitment,
agreement, instrument, arrangement, understanding, obligation or
undertaking. Each Stock Option intended to qualify as an "incentive stock
option" under Section 422 of the Code so qualifies and the exercise price
of each other Stock Option is no less than the fair market value of a share
of Company Common Stock as determined on the date of grant of such Stock
Option. As of the date of this Agreement, the Subject Shares (as such term
is defined in the Stockholders Agreement) represent approximately 35.19% of
the shares of Company Common Stock outstanding. There are not any
outstanding contractual obligations of the Company or any of its
subsidiaries to (i) repurchase, redeem or otherwise acquire any shares of
capital stock of the Company or any of its subsidiaries or (ii) vote or
dispose of any shares of the capital stock of any of its subsidiaries. The
Company is not a party to any voting agreements with respect to any shares
of the capital stock of or other equity or voting securities in the Company
or any of its subsidiaries and, to the knowledge of the Company, as of the
date of this Agreement, there are no irrevocable proxies and no voting
agreements with respect to any shares of the capital stock of or other
equity or voting interests in the Company or any of its subsidiaries.
(iv) All Stock Options may, by their terms, be converted into an option
to acquire Parent Common Stock (as defined in Section 5.04(a)) in
accordance with and to the extent required by Section 5.04(a).
(v) The information set forth on Section 3.01(c)(v) of the Company
Disclosure Schedule with respect to the Warrants is true and complete and
each Warrant either (A) terminates automatically, without the need for any
action by any person, upon the consummation of the Merger or (B) has an
exercise price that is more than the Merger Consideration and becomes
exercisable on or after the Effective Time solely for the Merger
Consideration (the Warrants having the terms described in this clause (B),
the "Surviving Warrants").
(vi) The outstanding indebtedness of the Company and its subsidiaries is
as set forth on Section 3.01(c)(vi) of the Company Disclosure Schedule.
There are no outstanding guarantees (or any similar instruments or
contracts) of indebtedness by the Company or any of its subsidiaries.
(d) Authority; Noncontravention. The Company has the requisite
corporate power and authority to execute and deliver this Agreement, to
consummate the transactions contemplated by this Agreement, subject, in the
case of the Merger, to obtaining the Stockholder Approval (as defined in
Section 3.01(r)), and to comply with the provisions of this Agreement. The
execution and delivery of this Agreement by the Company, the consummation
by the Company of the transactions contemplated by this Agreement and the
Stockholders Agreement and the compliance by the Company with the
provisions of this Agreement have been duly authorized by all necessary
corporate action on the part of the Company and no other corporate
proceedings on the part of the Company are necessary to authorize this
Agreement or to consummate the transactions contemplated by this Agreement,
subject, in the case of the Merger, to obtaining the Stockholder Approval.
This Agreement has been duly executed and delivered by the Company and,
assuming the due authorization, execution and delivery by Parent and Sub,
constitutes a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms (except as enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws). The Board of Directors of the Company, at a meeting
duly called and held at which all but one of the directors of the Company
were present either in person or by telephone, duly and with the unanimous
approval of those directors in attendance adopted resolutions
A-6
(i) approving and declaring advisable the Merger, this Agreement and the
transactions contemplated by this Agreement, (ii) declaring that it is in
the best interests of the Company's stockholders that the Company enter
into this Agreement and consummate the Merger on the terms and subject to
the conditions set forth in this Agreement, (iii) declaring that the
consideration to be paid to the Company's stockholders in the Merger is
fair to such stockholders, (iv) directing that this Agreement be submitted
to a vote at a meeting of the Company's stockholders to be held as promptly
as reasonably practicable following the date of this Agreement, (v)
recommending that such stockholders adopt this Agreement and (vi) approving
the Stockholders Agreement and the transactions contemplated thereby, which
resolutions have not been subsequently rescinded, modified or withdrawn in
any way except as is expressly and specifically permitted under Section
4.02(b). The execution and delivery of this Agreement and the Stockholders
Agreement and the consummation of the transactions contemplated hereby and
thereby and compliance by the Company with the provisions of this Agreement
do not and will not conflict with, or result in any violation or breach of,
or default (with or without notice or lapse of time, or both) under, or
give rise to a right of, or result in, termination, cancelation or
acceleration of any obligation or to a loss of a material benefit under, or
result in the creation of any Lien in or upon any of the properties or
assets of the Company or any of its subsidiaries under, or give rise to any
increased, additional, accelerated or guaranteed rights or entitlements
under, any provision of (i) the Amended and Restated Certificate of
Incorporation or Amended and Restated By-laws of the Company or the
certificate of incorporation or by-laws (or similar organizational
documents) of any of its subsidiaries, (ii) any loan or credit agreement
(including the Amended and Restated Loan and Security Agreement dated as of
September 18, 2000, as amended to the date hereof, between the Company and
Silicon Valley Bank), bond, debenture, note, mortgage, indenture,
guarantee, lease or other contract, commitment, agreement, instrument,
arrangement, understanding, obligation, undertaking, permit, concession,
franchise or license, whether oral or written (each, including all
amendments thereto, a ' 'Contract") to which the Company or any of its
subsidiaries is a party or any of their respective properties or assets is
subject or (iii) subject to the governmental filings and other matters
referred to in the following sentence, any (A) statute, law, ordinance,
rule or regulation or (B) judgment, order or decree, in each case
applicable to the Company or any of its subsidiaries or their respective
properties or assets, other than, in the case of clauses (ii) and (iii),
any such conflicts, violations, breaches, defaults, rights, losses, Liens
or entitlements that individually or in the aggregate could not reasonably
be expected to (x) have a material adverse effect on the Company, (y)
impair in any material respect the ability of the Company to perform its
obligations under this Agreement or (z) prevent or materially impede,
interfere with, hinder or delay the consummation of any of the transactions
contemplated by this Agreement. No consent, approval, order or
authorization of, or registration, declaration or filing with any Federal,
state or local, domestic or foreign, government or any court,
administrative agency or commission or other governmental or regulatory
authority or agency, domestic or foreign (a "Governmental Entity"), is
required by or with respect to the Company or any of its subsidiaries in
connection with the execution and delivery of this Agreement by the
Company, the consummation by the Company of the transactions contemplated
by this Agreement or the compliance by the Company with the provisions of
this Agreement, except for (1) the filing of a premerger notification and
report form by the Company under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act") or any other
applicable competition, merger control, antitrust or similar law, (2) the
filing with the Securities and Exchange Commission (the "SEC") of a proxy
statement relating to the adoption of this Agreement by the Company's
stockholders (as amended or supplemented from time to time, the "Proxy
Statement") and such reports under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as may be required in connection with this
Agreement, the Stockholders Agreement and the transactions contemplated
hereby and thereby, (3) the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware and appropriate documents with
the relevant authorities of other states in which the Company or any of its
subsidiaries is qualified to do business, (4) any filings required under
the rules and regulations of The Nasdaq Stock Market Inc. and (5) such
other consents, approvals, orders, authorizations, registrations,
declarations and filings the failure of which to be obtained or made
individually or in the aggregate could not reasonably be expected to (x)
have a material adverse effect on the Company, (y) impair in any material
respect the ability of the Company to perform its obligations
A-7
under this Agreement or (z) prevent or materially impede, interfere with,
hinder or delay the consummation of any of the transactions contemplated by
this Agreement.
(e) SEC Documents. The Company has filed with the SEC, and has
heretofore made available to Parent true and complete copies of, all
reports, schedules, forms, statements and other documents required to be
filed with the SEC by the Company since June 1, 2000 (together with all
information incorporated therein by reference, the "SEC Documents"). No
subsidiary of the Company is required to file any report, schedule, form,
statement or other document with the SEC. As of their respective dates,
each of 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 at the time they were filed
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. Except to the extent that information contained in
any SEC Document filed and publicly available prior to the date of this
Agreement (a "Filed SEC Document") has been revised or superseded by a
later filed Filed SEC Document, none of the SEC Documents contains any
untrue statement of a material fact or omits 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 financial statements (including the related notes) of the
Company included in the SEC Documents complied, as of the date filed, or
will comply when filed, as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
with respect thereto, have been or will be prepared in accordance with
generally accepted accounting principles ("GAAP") (except, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly presented or will present in all material
respects the consolidated financial position of the Company and its
consolidated subsidiaries as of the dates thereof and their consolidated
results of operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal and recurring year-end audit
adjustments and the absence of footnotes). Except as set forth in the Filed
SEC Documents, the Company and its subsidiaries have no liabilities or
obligations of any nature (whether accrued, absolute, contingent or
otherwise) which are or could reasonably be expected to become material to
the Company and its subsidiaries, taken as a whole.
(f) Information Supplied. None of the information included or
incorporated by reference in the Proxy Statement will, at the date it is
first mailed to the Company's stockholders or at the time of the
Stockholders Meeting (as defined in Section 5.01(b)) or at the time of any
amendment or supplement thereof, 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, except that no
representation is made by the Company with respect to statements made or
incorporated by reference therein based on information supplied by Parent
or Sub specifically for inclusion or incorporation by reference in the
Proxy Statement. The Proxy Statement will comply as to form in all material
respects with the requirements of the Exchange Act and the rules and
regulations promulgated thereunder.
(g) Absence of Certain Changes or Events. (i) Since the date of the
most recent audited financial statements included in the Filed SEC
Documents, the Company and its subsidiaries have conducted their respective
businesses only in the ordinary course consistent with past practice, and
there has not been (A) any material adverse effect on the Company or any
state of facts, change, development, effect or occurrence that could
reasonably be expected to result in a material adverse effect on the
Company, (B) any declaration, setting aside or payment of any dividend on,
or other distribution (whether in cash, stock or property) in respect of,
any of the Company's or any of its subsidiaries' capital stock, except for
dividends by a wholly owned subsidiary of the Company to its parent, (C)
any split, combination or reclassification of any of the Company's or any
of its subsidiaries' capital stock or any issuance or the authorization of
any issuance of any other securities in respect of, in lieu of or in
substitution for shares of
A-8
capital stock or other securities of the Company or any of its
subsidiaries, (D) (w) any granting by the Company or any of its
subsidiaries of any increase in compensation or benefits, except for normal
increases of cash compensation prior to the date of this Agreement in the
ordinary course of business consistent with past practice, or any payment
by the Company or any of its subsidiaries of any bonus, except for bonuses
made prior to the date of this Agreement in the ordinary course of business
consistent with past practice, in each case to any current or former
director, officer, employee or consultant, (x) any granting by the Company
or any of its subsidiaries to any current or former director, officer,
employee or consultant of any increase in severance or termination pay, (y)
any entry by the Company or any of its subsidiaries into, or any amendment
of, (1) any employment, deferred compensation, severance, termination,
employee benefit, loan, indemnification, stock repurchase, stock option,
consulting or similar agreement between the Company or any of its
subsidiaries, on the one hand, and any current or former director, officer,
employee or consultant of the Company or any of its subsidiaries, on the
other hand, or (2) any agreement between the Company or any of its
subsidiaries, on the one hand, and any current or former director, officer,
employee or consultant of the Company or any of its subsidiaries, on the
other hand, the benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction involving the
Company of the nature contemplated by this Agreement or the Stockholders
Agreement (all such agreements under this clause (y), collectively,
"Benefit Agreements"), or (z) any amendment to, or modification of, any
Company Stock Plan, any Stock Option, any Restricted Share award, any
Warrant or the ESPP, (E) any damage, destruction or loss, whether or not
covered by insurance, that individually or in the aggregate could
reasonably be expected to have a material adverse effect on the Company,
(F) any change in financial or tax accounting methods, principles or
practices by the Company, except insofar as may have been required by a
change in GAAP or applicable law, (G) any tax election that individually or
in the aggregate could reasonably be expected to have a material adverse
effect on the Company or any of its tax attributes or any settlement or
compromise of any material income tax liability, (H) any revaluation by the
Company of any of its material assets or (I) any licensing or other
agreement with regard to the acquisition or disposition of any material
Intellectual Property (as defined in Section 3.01(p)) or rights thereto.
(ii) Since December 31, 2000, each of the Company and its subsidiaries
has continued all pricing, sales, receivables and payables production
practices in accordance with the ordinary course of business consistent
with past practice and has not engaged in (A) any trade loading practices
or any other promotional sales or discount activity with any customers or
distributors with the effect of accelerating to pre-Closing periods sales
to the trade or otherwise that would otherwise be expected (based on past
practice) to occur in post-Closing periods, (B) any practice which would
have the effect of accelerating to pre-Closing periods collections of
receivables that would otherwise be expected (based on past practice) to be
made in post-Closing periods, (C) any practice which would have the effect
of postponing to post-Closing periods payments by the Company or any of its
subsidiaries that would otherwise be expected (based on past practice) to
be made in pre-Closing periods or (D) any other promotional sales, discount
activity or inventory overstocking or understocking, in each case in this
clause (D) in a manner outside the ordinary course of business.
(h) Litigation. There is no suit, claim, action, investigation or
proceeding pending or, to the knowledge of the Company, threatened against
or affecting the Company or any of its subsidiaries (other than, in respect
of suits, claims, actions, investigations or proceedings arising after the
date of this Agreement, those that individually or in the aggregate could
not reasonably be expected to be material to the Company and its
subsidiaries, taken as a whole), nor is there any statute, law, ordinance,
rule, regulation, judgment, order or decree, of any Governmental Entity or
arbitrator outstanding against, or, to the knowledge of the Company,
investigation by any Governmental Entity involving, the Company or any of
its subsidiaries (other than statutes, laws, ordinances, rules,
regulations, judgments, orders or decrees arising after the date of this
Agreement that individually or in the aggregate could not reasonably be
expected to be material to the Company and its subsidiaries, taken as a
whole).
A-9
(i) Contracts. (i) None of the Company or any of its subsidiaries is a
party to or bound by, and none of their properties or assets are bound by
or subject to, any written or oral:
(A) Contract not made in the ordinary course of business entered into
prior to the date of this Agreement;
(B) Contract pursuant to which the Company or any of its subsidiaries
has agreed not to compete with any person or to engage in any activity
or business, or pursuant to which any benefit is required to be given or
lost as a result of so competing or engaging;
(C) Contract pursuant to which the Company or any of its subsidiaries
is restricted in any material respect in the development, marketing or
distribution of their respective products or services;
(D) Contract with (i) any stockholder of the Company or any of its
subsidiaries, (ii) any affiliate of the Company or any of its
subsidiaries, (iii) any current or former director, officer, employee or
consultant of the Company or any of its subsidiaries or of any affiliate
of the Company or any of its subsidiaries (other than employment
agreements referred to in Section 3.01(k));
(E) license or franchise granted by the Company or any of its
subsidiaries pursuant to which the Company or any such subsidiary has
agreed to refrain from granting license or franchise rights to any other
person;
(F) Contract under which the Company or any of its subsidiaries has
incurred any indebtedness (other than payables in the ordinary course of
business) that is currently owing or given any guarantee in respect of
indebtedness;
(G) Contract creating or granting a Lien (including Liens upon
properties acquired under conditional sales, capital leases or other
title retention or security devices);
(H) material Contract (except for this Agreement) that requires
consent, approval or waiver of, or notice to, a Governmental Entity or
other third party in the event of or with respect to the Merger or the
transactions contemplated by the Stockholders Agreement, including in
order to avoid termination of or loss of a material benefit under any
such Contract;
(I) Contract providing for future performance by the Company or such
subsidiary in consideration of amounts previously paid to the Company or
such subsidiary;
(J) as of the date hereof, Contract providing for future performance
by the Company or such subsidiary with less than the standard or usual
Company or subsidiary charges to be due for such performance;
(K) Contract of a nature for which the Company or such subsidiary has
a standard form agreement but that materially deviates from such
standard form agreement;
(L) Contract containing (whether in the Contract itself or by
operation of law) any provisions (w) dealing with a "change of control"
or similar event with respect to the Company or such subsidiary, (x)
prohibiting or imposing any restrictions on the assignment of all or any
portion thereof by the Company or any of its subsidiaries to any other
person (without regard to any exception permitting assignments to
subsidiaries or affiliates), or (y) having the effect of providing that
the consummation of any of the transactions contemplated by this
Agreement or the Stockholder Agreement or the execution, delivery or
effectiveness of this Agreement or the Stockholder Agreement will
conflict with, result in a violation or breach of, or constitute a
default under (with or without notice or lapse of time or both), such
Contract or give rise under such Contract to any right of, or result in,
a termination, right of first refusal, amendment, revocation,
cancelation or acceleration, or loss of material benefit, or to any
increased, guaranteed, accelerated or additional rights or entitlements
or any person or (z) having the effect of providing that the
consummation of any of the transactions contemplated by this Agreement
or the Stockholder Agreement or the execution, delivery or effectiveness
of this Agreement or the Stockholder
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Agreement will require that a third party be provided with access to
source code or that any source code be released from escrow and provided
to any third party (any such provision of the nature described in
clauses (w), (x), (y) or (z), a "Restrictive Provision");
(M) Contract providing for payments of royalties or other license
fees to third parties;
(N) Contract granting a third party any license to Intellectual
Property that is not limited to the internal use of such third party;
(O) as of the date hereof, Contract pursuant to which the Company or
any of its subsidiaries has been granted any license to Intellectual
Property;
(P) Contract providing confidential treatment by the Company or any
of its subsidiaries of third party information other than non-disclosure
agreements entered into by the Company in the ordinary course of
business consistent with past practice;
(Q) Contract granting the other party to such Contract or a third
party "most favored nation" status that, following the Merger, would in
any way apply to Parent or any of its subsidiaries (other than the
Company and its subsidiaries and their products or services (other than
any similar products or services produced or offered by Parent or its
subsidiaries (other than the Company and its subsidiaries)));
(R) as of the date hereof, Contract that guarantees or warrants that
any of the products or services of the Company are fit for any
particular purpose or that guarantees a result or commits to performance
levels; or
(S) Contract providing for any license or franchise granted by the
Company or any of its subsidiaries pursuant to which the Company or any
of its subsidiaries has agreed to provide any third party with access to
source code or to provide for source code to be put in escrow or to
refrain from granting license or franchise rights to any other person
(any such Contract, an "Escrow Agreement");
(T) Contract containing any "non-solicitation" or similar provision
that restricts the Company or any of its subsidiaries;
(U) Contract providing for "exclusivity" or any similar requirement
or under which the Company or any of its subsidiaries is restricted, or
which after the Closing would restrict Parent or any of its
subsidiaries, with respect to distribution, licensing, marketing,
development or manufacture;
(V) Contract providing for arbitration or any similar dispute
resolution process;
(W) Contract not containing a waiver of incidental, consequential,
punitive and special damages in favor of the Company and its
subsidiaries (and their respective assignees) in all circumstances;
(X) Contract not containing a reasonable limitation on the payment of
direct damages by the Company or any of its subsidiaries in connection
herewith;
(Y) Contract entered into in the last five years in connection with
the settlement or other resolution of any suit, claim, action,
investigation or proceeding; and (Z) Contract which (A) has aggregate
future sums due from the Company or any of its subsidiaries in excess of
$50,000 and is not terminable by the Company or any such subsidiary for
no cost or (B) is entered into prior to the date of this Agreement and
is otherwise material to the business of the Company and its
subsidiaries, taken as a whole, as presently conducted or as proposed to
be conducted.
Each Contract of the Company and its subsidiaries is in full force and
effect and is a legal, valid and binding agreement of the Company or such
subsidiary and, to the knowledge of the Company or such subsidiary, of each
other party thereto, enforceable against the Company or any of its
subsidiaries, as the case may be, and, to the knowledge of the Company,
against the other party or parties thereto, in each
A-11
case, in accordance with its terms, except for such failures to be in full
force and effect, to be legal valid and binding or to be enforceable that
individually or in the aggregate could not reasonably be expected to have a
material adverse effect on the Company, and except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium and other
similar laws. Each of the Company and its subsidiaries has performed or is
performing all material obligations required to be performed by it under
its Contracts and is not (with or without notice or lapse of time or both)
in breach or default in any material respect thereunder, and, to the
knowledge of the Company or such subsidiary, no other party to any of its
Contracts is (with or without notice or lapse of time or both) in breach or
default in any material respect thereunder except, in each case, for such
breaches or defaults that individually or in the aggregate could not
reasonably be expected to have a material adverse effect on the Company.
Neither the Company nor any of its subsidiaries knows of any circumstances
that are reasonably likely to occur that could reasonably be expected to
materially adversely affect its ability to perform its obligations under
any material Contract.
(ii) The Company has delivered to Parent true and complete copies of all
material Contracts of the Company and its subsidiaries, including copies of
any (A) Escrow Agreements and (B) Contracts between the Company or any of
its subsidiaries and any of the ten largest customers of the Company and
its subsidiaries (determined on the basis of revenues received by the
Company or any of its subsidiaries in the four consecutive fiscal quarter
period ended September 30, 2001) (the "Major Customers"). The Company has
disclosed to Parent the material terms and status of all negotiations in
respect of any proposed Contracts with any Major Customer. None of the
Major Customers has terminated, failed to renew or requested any material
amendment to any of its Contracts, or any of its existing relationships,
with the Company or any of its subsidiaries.
(iii) Each Contract between the Company or any of its subsidiaries, on
the one hand, and any affiliate of the Company (excluding any subsidiaries
of the Company), on the other hand, was entered into in the ordinary course
of business consistent with past practice on an arm's-length basis.
(j) Compliance with Laws. The Company and its subsidiaries are, and
since December 31, 1998, have been, in compliance with all statutes, laws,
ordinances, rules, regulations, judgments, orders and decrees of any
Governmental Entity applicable to their businesses or operations, except
for instances of possible noncompliance that individually or in the
aggregate could not reasonably be expected to (i) have a material adverse
effect on the Company, (ii) impair in any material respect the ability of
the Company to perform its obligations under this Agreement or (iii)
prevent or materially impede, interfere with, hinder or delay the
consummation of any of the transactions contemplated by this Agreement.
None of the Company or any of its subsidiaries has received, since December
31, 1998, a notice or other written communication alleging a possible
violation of any statute, law, ordinance, rule, regulation, judgment, order
or decree of any Governmental Entity applicable to its businesses or
operations, except for such violations that individually or in the
aggregate could not reasonably be expected to have a material adverse
effect on the Company. The Company and its subsidiaries have in effect all
Federal, state and local, domestic and foreign, governmental consents,
approvals, orders, authorizations, certificates, filings, notices, permits,
concessions, franchises, licenses and rights (collectively "Permits")
necessary for them to own, lease or operate their properties and assets and
to carry on their businesses as now conducted and there has occurred no
violation of, or default under, any such Permit, except for the lack of
Permits and for violations of, or defaults under, Permits, which lack of
Permits, violations or defaults individually or in the aggregate could not
reasonably be expected to have a material adverse effect on the Company.
The Merger, in and of itself, could not reasonably be expected to cause the
revocation, cancelation, non-renewal or adverse modification of any such
Permit, which revocation, cancelation, non-renewal or adverse modification
could reasonably be expected to have a material adverse effect on the
Company.
(k) Absence of Changes in Benefit Plans; Employment Agreements; Labor
Relations. Except as disclosed in the Filed SEC Documents, since the date
of the most recent audited financial statements included in the Filed SEC
Documents, none of the Company or any of its subsidiaries has terminated,
adopted, amended or agreed to amend in any material respect any collective
bargaining agreement or
A-12
any bonus, pension, profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock appreciation,
restricted stock, stock option, phantom stock, performance, retirement,
thrift, savings, stock bonus, paid time off, perquisite, fringe benefit,
vacation, severance, disability, death benefit, hospitalization, medical or
other welfare benefit or other material plan, program, arrangement or
understanding (whether or not legally binding) maintained, contributed to
or required to be maintained or contributed to by the Company, its
subsidiaries or any other person or entity that, together with the Company,
is treated as a single employer under Section 414(b), (c), (m) or (o) of
the Code (each, a "Commonly Controlled Entity"), in each case providing
benefits to any current or former director, officer, employee or
independent contractor of the Company or any of its subsidiaries and
whether or not subject to United States law (collectively, "Benefit
Plans"), unless such amendment or agreement to amend is required under
applicable law, or has made any material change in any actuarial or other
assumption used to calculate funding obligations with respect to any
Benefit Plan that is a Pension Plan (as defined in Section 3.01(m)), or any
material change in the manner in which contributions to any such Pension
Plan are made or the basis on which such contributions are determined.
Except as disclosed in the Filed SEC Documents, neither the Company nor any
of its subsidiaries is party to any Benefit Agreement. There are no
collective bargaining or other labor union agreements to which the Company
or any of its subsidiaries is a party or by which it is bound. Since
December 31, 1998, neither the Company nor any of its subsidiaries has
encountered any labor union organizing activity, or had any actual or
threatened employee strikes, work stoppages, slowdowns or lockouts.
(l) Environmental Matters. Except to the extent that the inaccuracy of
any of the following (or the circumstances giving rise to such inaccuracy)
could not reasonably be expected to have a material adverse effect on the
Company, (i) the Company and each of its subsidiaries are in compliance
with all applicable Environmental Laws (as defined below); and (ii) there
are no facts, circumstances or conditions that are reasonably likely to
give rise to any liability of, or form the basis of a claim against, the
Company or any of its Subsidiaries in connection with any Environmental
Law. As used in this Agreement, the term "Environmental Laws" shall mean
any applicable Federal, state or local, domestic or foreign, statutes,
laws, regulations, ordinances, rules, codes, enforceable requirements,
agreements, orders, decrees, judgments or injunctions issued, promulgated
or entered into by any Governmental Entity relating to protection of the
environment, natural resources or human health and safety.
(m) Employee Benefits Matters. (i) Section 3.01(m)(i) of the Company
Disclosure Schedule contains a list of all Benefit Plans and all material
Benefit Agreements, including without limitation each "employee welfare
benefit plan" (as defined in Section 3(1) of the Employee Retirement Income
Security Act of 1974, as amended "ERISA")) and "employee pension benefit
plan" (as defined in Section 3(2) of ERISA) (a "Pension Plan"). The Company
has provided to Parent true, complete and correct copies of (1) each
Benefit Plan and each material Benefit Agreement (or, in the case of any
unwritten Benefit Plans or Benefit Agreements, descriptions thereof), (2)
the two most recent annual reports required to be filed with respect to
each Benefit Plan (including reports filed on Form 5500), (3) the most
recent summary plan description prepared for each Benefit Plan, (4) each
trust agreement and group annuity contract relating to any Benefit Plan and
(5) the most recent determination or qualification letter issued by any
Government Entity for each Benefit Plan intended to qualify for favorable
tax treatment. Each Benefit Plan has been administered in accordance with
its terms, except where the failure so to be administered individually or
in the aggregate could not reasonably be expected to have a material
adverse effect on the Company. The Company and its subsidiaries and all the
Benefit Plans are in compliance with all applicable provisions of ERISA,
the Code, and all other applicable laws, whether Federal, state or local,
domestic or foreign, except for instances of possible noncompliance that
individually or in the aggregate could not reasonably be expected to have a
material adverse effect on the Company. All Pension Plans intended to be
tax-qualified have been the subject of determination letters from the IRS
to the effect that such Pension Plans are qualified and exempt from United
States Federal income taxes under Sections 401(a) and 501(a), respectively,
of the Code or have remaining a period of time under applicable Treasury
regulations or IRS pronouncements in which to apply for such a letter and
make any amendments necessary to obtain such a favorable determination as
to the qualified status of each such Pension Plan; no such determination
letter has been revoked (or, to the knowledge
A-13
of the Company, has revocation been threatened); in the event any Pension
Plan has not applied for such a determination letter, the Company is in the
process of preparing an application for such determination letter and the
Company is not aware of any reason why such determination letter would not
be issued by the IRS; no event occurred relating to any such Pension Plan
that would adversely affect the qualification of such Pension Plan or
materially increase the costs relating thereto or require security under
Section 307 of ERISA.
(ii) Neither the Company nor any Commonly Controlled Entity has
maintained, contributed to or been obligated to maintain or contribute to,
or has any actual or contingent liability under, any Benefit Plan that is
subject to Title IV of ERISA.
(iii) With respect to any Benefit Plan that is an employee welfare
benefit plan (each, a "Welfare Plan"), there are no understandings,
agreements or undertakings, written or oral, that would prevent any such
plan (including any such plan covering retirees or other former employees)
from being amended or terminated without material liability to the Company
or any of its subsidiaries on or at any time after the Effective Time. No
Welfare Plan provides benefits after termination of employment except where
the cost thereof is borne entirely by the former employee (or his eligible
dependents or beneficiaries) or as required by Section 4980B(f) of the
Code. The Company and its subsidiaries comply in all material respects with
the applicable requirements of Section 4980B(f) of the Code with respect to
each Benefit Plan that is a group health plan, as such term is defined in
Section 5000(b)(1) of the Code.
(iv) No current or former director, officer, employee or independent
contractor of the Company or any of its subsidiaries will be entitled to
any additional compensation or benefits or any acceleration of the time of
payment or vesting of any compensation or benefits under any Benefit Plan
or Benefit Agreement as a result of the transactions contemplated by this
Agreement or the Stockholders Agreement or any benefits under any Benefit
Plan or Benefit Agreement the value of which will be calculated on the
basis of any of the transactions contemplated by this Agreement or the
Stockholders Agreement.
(v) The deduction of any amount payable pursuant to the terms of the
Benefit Plans, Benefit Agreements or any other employment contracts or
arrangements will not be subject to disallowance under Section 162(m) of
the Code.
(vi) All reports, returns and similar documents with respect to all
Benefit Plans required to be filed with any Governmental Entity or
distributed to any Benefit Plan participant have been duly and timely filed
or distributed, except for failures to file or distribute that individually
or in the aggregate have not had and could not reasonably be expected to
have a material adverse effect on the Company. The Company has received no
notice of and, to the knowledge of the Company there are no, pending
investigations by any Governmental Entity with respect to, or pending
termination proceedings or other claims (except claims for benefits payable
in the normal operation of the Benefit Plans), suits or proceedings against
or involving any Benefit Plan or asserting any rights or claims to benefits
under, any Benefit Plan that could give rise to any material liability,
and, to the knowledge of the Company, there are not any facts that
individually or in the aggregate have had or could reasonably be expected
to have a material adverse effect on the Company.
(vii) All contributions, premiums and benefit payments under or in
connection with the Benefit Plans that are required to have been made by
the Company or any of its subsidiaries as of the date of this Agreement in
accordance with the terms of the Benefit Plans have been timely made or
have been reflected on the most recent consolidated balance sheet filed or
incorporated by reference into the Filed Company SEC Documents. Neither the
Company nor any of its subsidiaries has incurred, or would reasonably be
expected to incur, any unfunded liabilities in relation to any Benefit
Plan. No Pension Plan has an "accumulated funding deficiency" (as such term
is defined in Section 302 of ERISA or Section 412 of the Code), whether or
not waived.
(viii) With respect to each Benefit Plan, (A) there has not occurred any
prohibited transaction in which the Company, any of its subsidiaries or any
of their employees has engaged that could subject the
A-14
Company, its subsidiaries or any of their employees, or, to the knowledge
of the Company, a trustee, administrator or other fiduciary of any trust
created under any Benefit Plan, to the tax or penalty on prohibited
transactions imposed by Section 4975 of the Code or the sanctions imposed
under Title I of ERISA and (B) neither the Company nor, to the knowledge of
the Company, any trustee, administrator or other fiduciary of any Benefit
Plan nor any agent of any of the foregoing has engaged in any transaction
or acted in a manner that could, or failed to act so as to, subject the
Company or, to the knowledge of the Company, any trustee, administrator or
other fiduciary to any liability for breach of fiduciary duty under ERISA
or any other applicable law. No Benefit Plan or related trust has been
terminated, nor has there been any "reportable event" (as that term is
defined in Section 4043 of ERISA) for which the 30-day reporting
requirement has not been waived with respect to any Benefit Plan during the
last five years, and no notice of a reportable event will be required to be
filed in connection with the transactions contemplated hereby.
(ix) The Company and its subsidiaries do not have any material liability
or obligations, including under or on account of a Benefit Plan or Benefit
Agreement, arising out of the hiring of persons to provide services to the
Company or any of its subsidiaries and treating such persons as consultants
or independent contractors and not as employees of the Company or its
subsidiaries.
(x) There are no grievances, unfair labor practices, employment
discrimination charges, wrongful dismissal, pay equity or employment equity
complaints or claims against the Company or any of its subsidiaries pending
or threatened before any Governmental Entity, except those that would not
reasonably be expected to lead to material liability on the part of the
Company or any of its subsidiaries. The Company and its subsidiaries are in
material compliance with all labor, employment and workplace safety laws.
(xi) On or prior to the date of this Agreement, the Company has taken
all such actions with respect to the Company's Executive Management
Retention Plan (such plan with an effective date of August 23, 2001) (as
set forth in Section 3.01(m)(xi) of the Company Disclosure Schedule, the
"Retention Plan") necessary (including amending the Retention Plan pursuant
to Section 10 thereof or obtaining any required consents) to provide that,
except to the extent required by Section 6(c) of the Retention Plan, no
Participant (as defined in the Retention Plan) shall be eligible to receive
any payments under the Retention Plan unless and until such Participant is
continuously employed by the Company or its successor during the 180 day
period following the Effective Time.
(n) Taxes. (i) Each of the Company and its subsidiaries and each
Company Affiliated Group (as defined in clause (x) below) has timely filed
all Federal, state and local, domestic and foreign, income and franchise
tax returns and reports and all other tax returns and reports required to
be filed by it and all such returns and reports are complete and correct,
except for such failures to file or to be complete and correct that
individually or in the aggregate could not reasonably be expected to result
in a material liability on the part of the Company or any of its
subsidiaries. Each of the Company and its subsidiaries and each Company
Affiliated Group has timely paid all taxes due with respect to the taxable
periods covered by such returns and reports and all other taxes, except
where the failures so to pay individually or in the aggregate could not
reasonably be expected to result in a material liability on the part of the
Company or any of its subsidiaries, and the most recent financial
statements contained in the Filed SEC Documents reflect an adequate reserve
for all taxes payable by the Company and its subsidiaries for all taxable
periods and portions thereof through the date of such financial statements.
(ii) No Federal, state or local, domestic or foreign, income or
franchise tax return or report or any other material tax return or report
of the Company or any of its subsidiaries or any Company Affiliated Group
is currently under audit or examination by any taxing authority, and no
written or unwritten notice of such an audit or examination has been
received by the Company or any of its subsidiaries, except for such audits
or examinations that individually or in the aggregate could not reasonably
be expected to result in a material liability on the part of the Company or
any of its subsidiaries. There is no deficiency, refund litigation,
proposed adjustment or matter in controversy with respect to any taxes due
and owing by the Company, any of its subsidiaries or any Company Affiliated
Group, except for those
A-15
that individually or in the aggregate could not reasonably be expected to
result in a material liability on the part of the Company or any of its
subsidiaries. Each deficiency resulting from any audit or examination or
any concluded litigation relating to taxes by any taxing authority has been
timely paid, except where the failures so to pay individually or in the
aggregate could not reasonably be expected to result in a material
liability on the part of the Company or any of its subsidiaries. No issues
relating to taxes were raised by the relevant taxing authority during any
presently pending audit or examination, and no issues relating to taxes
were raised by the relevant taxing authority in any completed audit or
examination that could reasonably be expected to recur in a later taxable
period, in each case except for those that individually or in the aggregate
could not reasonably be expected to result in a material liability on the
part of the Company or any of its subsidiaries. All assessments for taxes
due and owing by the Company, any of its subsidiaries or any Company
Affiliated Group with respect to completed and settled audits or
examinations or concluded litigation have been paid. No Federal, state or
other material local, domestic or foreign, tax return or report of the
Company or any of its subsidiaries or any Company Affiliated Group has ever
been under audit or examination by any taxing authority.
(iii) There is no currently effective agreement or other document
extending, or having the effect of extending, the period of assessment or
collection of any material taxes, and no power of attorney with respect to
any taxes has been executed or filed with any taxing authority.
(iv) No material Liens for taxes exist with respect to any assets or
properties of the Company or any of its subsidiaries, except for statutory
Liens for taxes not yet due.
(v) None of the Company or any of its subsidiaries is a party to or
bound by any tax sharing agreement, tax indemnity obligation or similar
agreement, arrangement or practice with respect to taxes (including any
advance pricing agreement, closing agreement or other agreement relating to
taxes with any taxing authority).
(vi) None of the Company or any of its subsidiaries will be required to
include in a taxable period ending after the Effective Time taxable income
attributable to income that accrued in a prior taxable period but was not
recognized in any prior taxable period as a result of the installment
method of accounting, the completed contract method of accounting, the
long-term contract method of accounting, the cash method of accounting or
Section 481 of the Code or comparable provisions of state or local,
domestic or foreign, tax law or for any other reason, except where the
inclusions of such income in a taxable period ending after the Effective
Time individually or in the aggregate could not reasonably be expected to
result in a material liability on the part of the Company or any of its
subsidiaries.
(vii) No amount or other entitlement that could be received (whether in
cash or property or the vesting of property) as a result of any of the
transactions contemplated by this Agreement or the Stockholders Agreement
by any director, officer, employee or independent contractor of the Company
or any of its affiliates who is a "disqualified individual" (as such term
is defined in proposed Treasury Regulation Section 1.280G-1) under any
Benefit Plan, Benefit Agreement or other compensation arrangement currently
in effect would be characterized as an "excess parachute payment" (as such
term is defined in Section 280G(b)(1) of the Code) and no such disqualified
individual is entitled to receive any additional payment from the Company,
the Surviving Corporation or any other person in the event that the excise
tax required by Section 4999(a) of the Code is imposed on such disqualified
individual.
(viii) The Company and its subsidiaries have complied with all
applicable statutes, laws, ordinances, rules and regulations relating to
the payment and withholding of taxes (including withholding of taxes
pursuant to Sections 1441, 1442, 3121 and 3402 of the Code or similar
provisions under any Federal, state or local, domestic or foreign, laws)
and have, within the time and the manner prescribed by law, withheld from
and paid over to the proper governmental authorities all amounts required
to be so withheld and paid over under applicable laws, except where the
failures to so comply, withhold and pay over individually or in the
aggregate could not reasonably be expected to result in a material
liability on the part of the Company or any of its subsidiaries.
A-16
(ix) Neither the Company nor any of its subsidiaries has constituted
either a "distributing corporation" or a "controlled corporation" in a
distribution of stock qualifying for tax-free treatment under Section 355
of the Code (i) in the two years prior to the date of this Agreement or
(ii) in a distribution that could otherwise constitute part of a "plan" or
"series of related transactions" (within the meaning of Section 355(e) of
the Code) in conjunction with the Merger.
(x) Each of the Company and its subsidiaries has disclosed on its
Federal income tax returns and reports all positions taken therein that
could give rise to a substantial understatement of Federal income tax
within the meaning of Code Section 6662.
(xi) Each of the Company and its subsidiaries has delivered, or will
deliver prior to Closing, to Parent and Sub complete and correct copies of
all resale certificates required to claim an exemption from sales and use
taxes by the taxing authority of any state in which the Company or any of
its subsidiaries has claimed an exemption from sales and use taxes.
(xii) All related-party transactions involving the Company or any of its
subsidiaries are at arm's-length and in compliance with Code Section 482
and the Treasury Regulations promulgated thereunder. Each of the Company
and its subsidiaries has maintained all necessary documentation in
connection with such related-party transactions in accordance with Code
Sections 482 and 6662 and the Treasury Regulations promulgated thereunder.
(xiii) As used in this Agreement, "taxes" shall include all (i) Federal,
state and local, domestic and foreign, income, franchise, property, sales,
excise, employment, payroll, social security, value-added, ad valorem,
transfer, withholding and other taxes, including taxes based on or measured
by gross receipts, profits, sales, use or occupation, tariffs, levies,
impositions, assessments or governmental charges of any nature whatsoever,
including any interest penalties or additions with respect thereto, and any
obligations under any agreements or arrangements with any other person with
respect to such amounts, (ii) liability for the payment of any amounts of
the type described in clause (i) as a result of being a member of an
affiliated, consolidated, combined, unitary or aggregate group and (iii)
liability for the payment of any amounts as a result of an express or
implied obligation to indemnify any other person with respect to the
payment of any amounts of the type described in clause (i) or (ii). As used
in this Agreement, "Company Affiliated Group" shall mean each affiliated,
combined, consolidated or unitary group of which the Company or any of its
subsidiaries is or has been a member.
(o) Title to Properties. (i) The Company and each of its subsidiaries
has good and marketable title to, or valid leasehold interests in, all of
its material properties and assets except for such material properties and
assets as are no longer used or useful in the conduct of its businesses or
as have been disposed of in the ordinary course of business and except for
defects in title, easements, restrictive covenants and similar encumbrances
that individually or in the aggregate could not reasonably be expected to
have a material adverse effect on the Company. All such material assets and
properties, other than assets and properties in which the Company or any of
its subsidiaries has a leasehold interest, are free and clear of all Liens,
except for Liens that individually or in the aggregate could not reasonably
be expected to have a material adverse effect on the Company.
(ii) Each of the Company and its subsidiaries has complied in all
material respects with the terms of all material leases to which it is a
party and under which it is in occupancy, and all such leases are in full
force and effect, except for such instances of noncompliance or failures to
be in full force and effect that individually or in the aggregate could not
reasonably be expected to have a material adverse effect on the Company.
The Company and its subsidiaries enjoy peaceful and undisturbed possession
under all such material leases, except for failures to do so that
individually or in the aggregate could not reasonably be expected to have a
material adverse effect on the Company.
(iii) Neither the Company nor any of its subsidiaries holds any fee or
other ownership interest in any real property. Section 3.01(o)(iii) of the
Company Disclosure Schedule sets forth a complete list of all real property
and interests in real property leased by the Company.
A-17
(p) Intellectual Property. (i) Section 3.01(p)(i) of the Company
Disclosure Schedule lists all patents, patent applications, trademarks,
trademark applications, tradenames, service marks, registered copyrights
and applications therefor and unregistered copyrightable works of
authorship, if any, owned by or licensed to the Company or any of its
subsidiaries as of the date of this Agreement. The Company has made
available to Parent true and correct copies of, and Section 3.01(p)(i) of
the Company Disclosure Schedule lists, all license agreements relating to
Intellectual Property (as defined below in clause (iv)) to which the
Company or any of its subsidiaries is a party as of the date of this
Agreement.
(ii) Except to the extent that the inaccuracy of any of the following
(or the circumstances giving rise to such inaccuracy) could not reasonably
be expected to have a material adverse effect on the Company:
(A) the Company and each of its subsidiaries owns, or is licensed or
otherwise has the right to use (in each case, without payments to third
parties and free and clear of any Liens), all Intellectual Property used
in or necessary to carry on its business as now being conducted;
(B) all issued patents, patent applications, trademarks, trademark
applications, tradenames, service marks and copyrights of the Company or
any of its subsidiaries have been duly registered and/or filed, as
applicable, with or issued by each appropriate Governmental Entity in
each appropriate jurisdiction, all necessary affidavits of continuing
use have been filed, and all necessary maintenance fees have been paid
to continue all such rights in effect;
(C) none of the Company or any of its subsidiaries or any of its or
their products or services has infringed upon or otherwise violated, or
is infringing on or otherwise violating, the rights of any person with
regard to any Intellectual Property owned by, licensed to or otherwise
used by the Company or any of its subsidiaries;
(D) there is no suit, written claim, action, investigation or
proceeding pending or, to the knowledge of the Company, threatened with
respect to, and the Company has not been notified of, any possible
infringement or other violation by the Company or any of its
subsidiaries of the rights of any person with regard to any Intellectual
Property;
(E) to the knowledge of the Company, no person is infringing on or
otherwise violating any right of the Company or any of its subsidiaries
with respect to any Intellectual Property owned by, licensed to and/or
otherwise used by the Company or any of its subsidiaries;
(F) each of the former or current members of management or key
personnel of the Company or any of its subsidiaries, including all
former and current employees, agents, consultants and contractors who
have contributed to or participated in the conception and development of
Intellectual Property owned or used by the Company or any of its
subsidiaries, have assigned or otherwise transferred to the Company all
ownership and other rights of any nature whatsoever (to the extent
permitted by law) of such person in any Intellectual Property owned or
used by the Company or any of its subsidiaries and none of the former or
current members of management or key personnel of the Company or any of
its subsidiaries, including all former and current employees, agents,
consultants and contractors who have contributed to or participated in
the conception and development of Intellectual Property owned or used by
the Company or any of its subsidiaries, have a valid claim against the
Company or any of its subsidiaries in connection with the involvement of
such persons in the conception and development of Intellectual Property
owned or used by the Company or any of its subsidiaries, and no such
claim has been asserted or threatened;
(G) 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, conflict
with, or result in any violation of, or default (with or without notice
or lapse of time, or both) under, or give rise to any right, license or
encumbrance relating to, Intellectual Property owned by the Company or
any of its subsidiaries or with respect to which the Company or any of
its subsidiaries now has or has had any agreement with any third party,
or any right of
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termination, cancelation or acceleration of any material Intellectual
Property right or obligation set forth in any agreement to which the
Company or any of its subsidiaries is a party, or the loss or
encumbrance of any Intellectual Property or benefit related thereto, or
result in the creation of any Lien in or upon any Intellectual Property
or right;
(H) to the extent third party software is marketed to customers of
the Company or any of its subsidiaries together with the Intellectual
Property of the Company or any of its subsidiaries, (x) the third party
rights have been identified in Section 3.01(p) of the Company Disclosure
Schedule, (y) all necessary licenses have been obtained and (z) no
royalties or payments are due (or such royalties and payments are
identified in Section 3.01(p) of the Company Disclosure Schedule);
(I) none of the trade secrets of the Company or any of its
subsidiaries has been published or disclosed by the Company or any of
its subsidiaries except pursuant to a non-disclosure agreement that is
in the standard form used by the Company that has been provided to
Parent prior to the date of this Agreement, or, to the knowledge of the
Company or any of its subsidiaries, by any other person to any person
except pursuant to licenses or Contracts requiring such other persons to
keep such trade secrets confidential;
(J) no person has any marketing rights to the Intellectual Property
of the Company or any of its subsidiaries;
(K) neither the Company nor any of its subsidiaries has assigned,
sold or otherwise transferred ownership of any issued patent, patent
application, trademark, trademark application, service mark, copyright
or application therefor;
(L) except in the ordinary course of business consistent with past
practice, no licenses or rights have been granted to a third party to
distribute the source code of, or to use the source code to create
Derivative Works (as defined below in clause (iii)) of, any product
currently marketed by, commercially available from or under development
by the Company or any of its subsidiaries for which the Company legally
owns the source code; and
(M) the Company and each of its subsidiaries has taken all reasonable
and necessary steps to protect their Intellectual Property and their
rights thereunder, and to the knowledge of the Company no material
rights to Intellectual Property have been lost or are in jeopardy of
being lost through failure to act by the Company or any of its
subsidiaries.
(iii) As used in this Agreement, "Derivative Work" shall have the
meaning set forth in 17 U.S.C. Section 101.
(iv) As used in this Agreement, "Intellectual Property" shall mean
trademarks (registered or unregistered), service marks, brand names,
certification marks, trade dress, assumed names, trade names and other
indications of origin, the goodwill associated with the foregoing and
registrations in any jurisdiction of, and applications in any jurisdiction
to register, the foregoing, including any extension, modification or
renewal of any such registration or application; inventions, discoveries
and ideas, whether patented, patentable or not in any jurisdiction;
computer programs and software (including source code, object code and
data), know-how and any other technology; trade secrets and confidential
information and rights in any jurisdiction to limit the use or disclosure
thereof by a third party; writings and other works, whether copyrighted,
copyrightable or not in any jurisdiction; registrations or applications for
registration of copyrights in any jurisdiction, and any renewals or
extensions thereof; any similar intellectual property or proprietary rights
similar to any of the foregoing; licenses, immunities, covenants not to sue
and the like relating to any of the foregoing; and any claims or causes of
action arising out of or related to any infringement, misuse or
misappropriation of any of the foregoing.
(q) Insurance. Section 3.01(q) of the Company Disclosure Schedule sets
forth a complete and accurate list of all policies of fire, liability,
product liability, workmen's compensation, health and other forms of
insurance presently in effect with respect to the Company's and its
subsidiaries' business, true
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and complete copies of which have been delivered to, or made available for
review by, Parent. All such policies are valid, outstanding and enforceable
policies and provide insurance coverage for the properties, assets and
operations of the Company and each of its subsidiaries, of the kinds, in
the amounts and against the risks required to comply with applicable law.
Neither the Company nor any of its subsidiaries has been refused any
insurance with respect to any aspect of the operations of its business, nor
has its coverage been limited by any insurance carrier to which it has
applied for insurance or with which it has carried insurance. No notice of
cancelation or termination has been received with respect to any such
policy. The activities and operations of the Company and each of its
subsidiaries have been conducted in a manner so as to conform in all
material respects to all applicable provisions of such insurance policies.
(r) Disclosure. Neither the Company nor any of its subsidiaries has
knowingly failed to disclose to Parent any fact (other than those generally
affecting the lines of business in which the Company or any of its
subsidiaries operates) that could reasonably be expected to have a material
adverse effect on the Company or on the ability of the Company to perform
its obligations under this Agreement. No representation or warranty of the
Company contained in this Agreement contains or will contain any untrue
statement of a material fact, or omits or will omit to state any material
fact necessary, in light of the circumstances under which it was or will be
made, in order to make the statements herein or therein not misleading in
any material respect.
(s) State Takeover Statutes. The approval of the Merger and the
Stockholders Agreement and the transactions contemplated thereby by the
Board of Directors of the Company referred to in Section 3.01(d)
constitutes approval of the Merger and the Stockholders Agreement and the
transactions contemplated thereby for purposes of Section 203 of the DGCL
and represents the only action necessary to ensure that Section 203 of the
DGCL does not and will not apply to the execution and delivery of this
Agreement or the Stockholders Agreement or the consummation of the Merger
or the other transactions contemplated hereby or thereby. No other state
takeover or similar statute or regulation is applicable to this Agreement,
the Merger or the other transactions contemplated by this Agreement.
(t) Voting Requirements. The affirmative vote at the Stockholders
Meeting or any adjournment or postponement thereof of the holders of a
majority of the outstanding shares of Company Common Stock in favor of
adopting this Agreement (the "Stockholder Approval") is the only vote of
the holders of any class or series of the Company's capital stock necessary
to approve or adopt this Agreement, the Stockholders Agreement or the
consummation of the transactions contemplated hereby and thereby.
(u) Brokers; Schedule of Fees and Expenses. No broker, investment
banker, financial advisor or other person, other than Thomas Weisel
Partners LLC, the fees and expenses of which will be paid by the Company,
is entitled to any broker's, finder's, financial advisor's or other similar
fee or commission, or the reimbursement of expenses, in connection with the
transactions contemplated by this Agreement or the Stockholders Agreement
based upon arrangements made by or on behalf of the Company. The Company
has delivered to Parent true and complete copies of all agreements under
which any such fees or expenses are payable and all indemnification and
other agreements related to the engagement of the persons to whom such fees
are payable. The fees and expenses of any accountant, broker, financial
advisor, consultant, legal counsel or other person retained by the Company
in connection with this Agreement or the transactions contemplated hereby
incurred or to be incurred by the Company in connection with this Agreement
and the transactions contemplated by this Agreement will not exceed the
fees and expenses set forth and identified by category of advisor in
Section 3.01(u) of the Company Disclosure Schedule.
(v) Opinion of Financial Advisor. The Company has received the written
opinion of Thomas Weisel Partners LLC, in customary form and based on
customary assumptions, to the effect that the Merger Consideration to be
received by the stockholders of the Company pursuant to the Merger is fair
to such stockholders from a financial point of view as of the date hereof,
a copy of which opinion has been delivered to Parent.
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SECTION 3.02 Representations and Warranties of Parent and Sub. Parent and
Sub represent and warrant to the Company as follows:
(a) Organization. Each of Parent and Sub is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and has all requisite corporate power and
authority to carry on its business as now being conducted.
(b) Authority; Noncontravention. Parent and Sub have the requisite
corporate power and authority to execute and deliver this Agreement, to
consummate the transactions contemplated by this Agreement and to comply
with the provisions of this Agreement. The execution and delivery of this
Agreement by Parent and Sub, the consummation by Parent and Sub of the
transactions contemplated by this Agreement and the compliance by Parent
and Sub with the provisions of this Agreement have been duly authorized by
all necessary corporate action on the part of Parent and Sub and no other
corporate proceedings on the part of Parent or Sub are necessary to
authorize this Agreement or to consummate the transactions contemplated by
this Agreement. This Agreement has been duly executed and delivered by
Parent and Sub, as applicable, and, assuming the due authorization,
execution and delivery by the Company, constitutes a valid and binding
obligation of Parent and Sub, as applicable, enforceable against Parent and
Sub, as applicable, in accordance with its terms, except as enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws. The execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement and
compliance by Parent and Sub with the provisions of this Agreement do not
and will not conflict with, or result in any violation or breach of, or
default (with or without notice or lapse of time, or both) under, or give
rise to a right of, or result in, termination, cancelation or acceleration
of any obligation or to a loss of a material benefit under, or result in
the creation of any Lien in or upon any of the properties or assets of
Parent or Sub under, or give rise to any increased, additional, accelerated
or guaranteed rights or entitlements under, any provision of (i) the
Certificate of Incorporation or By-laws of Parent or Sub, (ii) any Contract
to which Parent or Sub is party or any of their respective properties or
assets is subject or (iii) subject to the governmental filings and other
matters referred to in the following sentence, any (A) statute, law,
ordinance, rule or regulation or (B) judgment, order or decree, in each
case, applicable to Parent or Sub or any of their respective properties or
assets, other than, in the case of clauses (ii) and (iii), any such
conflicts, violations, breaches, defaults, rights, losses, Liens or
entitlements that individually or in the aggregate could not reasonably be
expected to impair in any material respect the ability of each of Parent
and Sub to perform its obligations under this Agreement or prevent or
materially impede, interfere with, hinder or delay the consummation of any
of the transactions contemplated by this Agreement. No consent, approval,
order or authorization of, or registration, declaration or filing with, any
Governmental Entity is required by or with respect to Parent or Sub in
connection with the execution and delivery of this Agreement by Parent and
Sub, the consummation by Parent and Sub of the transactions contemplated by
this Agreement or the compliance by Parent or Sub with the provisions of
this Agreement, except for (1) the filing of a premerger notification and
report form under the HSR Act or any other applicable competition, merger
control, antitrust or similar law, (2) the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware and appropriate
documents with the relevant authorities of other states in which the
Company or any of its subsidiaries is qualified to do business and (3) such
other consents, approvals, orders, authorizations, registrations,
declarations and filings the failure of which to be obtained or made
individually or in the aggregate could not reasonably be expected to impair
in any material respect the ability of each of Parent and Sub to perform
its obligations under this Agreement or prevent or materially impede,
interfere with, hinder or delay the consummation of any of the transactions
contemplated by this Agreement.
(c) Information Supplied. None of the information supplied or to be
supplied by Parent or Sub specifically for inclusion or incorporation by
reference in the Proxy Statement will (except to the extent revised or
superseded by amendments or supplements contemplated hereby), at the date
the Proxy Statement is first mailed to the Company's stockholders or at the
time of the Stockholders Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
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therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading.
(d) Interim Operations of Sub. Sub was formed solely for the purpose of
engaging in the transactions contemplated by this Agreement, and Sub has
engaged in no business other than in connection with the transactions
contemplated by this Agreement.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.01 Conduct of Business. (a) Conduct of Business by the
Company. During the period from the date of this Agreement to the Effective
Time, except with the prior consent of Parent or as expressly and specifically
contemplated by this Agreement, the Company shall, and shall cause its
subsidiaries to, carry on their respective businesses in the ordinary course
consistent with past practice and use their reasonable best efforts to comply
with all applicable laws, rules and regulations and, to the extent consistent
therewith, use their reasonable best efforts to keep available the services of
their present officers and employees and to preserve their assets and technology
and preserve their relationships with customers, suppliers, licensors,
licensees, distributors and others having business dealings with them. Without
limiting the generality of the foregoing, during the period from the date of
this Agreement to the Effective Time, except as consented to in writing by
Parent, as expressly and specifically contemplated by this Agreement or as
expressly and specifically set forth in Section 4.01 of the Company Disclosure
Schedule, the Company shall not, and shall not permit any of its subsidiaries
to:
(i)(x) 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 capital stock, except for dividends by a direct or indirect wholly
owned subsidiary of the Company to its parent, (y) split, combine or
reclassify any of its 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 capital stock or (z) purchase, redeem or otherwise acquire
any shares of capital stock or any other securities of the Company or its
subsidiaries or any options, warrants, calls or rights to acquire any such
shares or other securities (including any Stock Option or Warrant), other
than repurchases of Company Common Stock in connection with the termination
of the services of any employee of the Company or any of its subsidiaries
to the extent such repurchase is required by the Company Stock Plans;
(ii) issue, deliver, sell, pledge or otherwise encumber any shares of
its capital stock, any other voting securities or any securities
convertible into, or exchangeable for, or any options, warrants, calls or
rights to acquire, any such shares, voting securities or convertible
securities (other than (A) the issuance of shares of Company Common Stock
upon the exercise of Stock Options, Warrants or rights under the ESPP
outstanding on the date of this Agreement and in accordance with their
present terms and (B) the granting of rights that may arise under the terms
of the ESPP, as modified by Section 5.07(b));
(iii) amend or propose to amend its certificate of incorporation or
by-laws (or similar organizational documents);
(iv) acquire or agree to acquire (x) by merging or consolidating with,
or by purchasing a substantial portion of the assets of, or by purchasing
all of or a substantial equity interest in, or by any other manner, any
business or any corporation, partnership, limited liability company, joint
venture, association or other entity or division thereof or (y) any assets
other than acquisitions in the ordinary course of business consistent with
past practice of inventory, components, raw materials or other immaterial
assets;
(v) sell, lease, license, sell and leaseback, mortgage or otherwise
encumber or subject to any Lien or otherwise dispose of any of its
properties or assets (including any shares of capital stock, voting
securities or other rights, instruments or securities), except sales of
inventory or used equipment and licenses of Intellectual Property to
end-user customers for their internal use or solely as necessary for such
customers to use the Company's products and services, in each case in the
ordinary course of business consistent with past practice;
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(vi) (x) repurchase, prepay or incur any indebtedness or guarantee any
indebtedness of another person or issue or sell any debt securities or
options, warrants, calls or other rights to acquire any debt securities of
the Company or any of its subsidiaries, guarantee any debt securities of
another person, enter into any "keep well" or other agreement to maintain
any financial statement condition of another person or enter into any
arrangement having the economic effect of any of the foregoing or (y) make
any loans, advances or capital contributions to, or investments in, any
other person, other than the Company or any direct or indirect wholly owned
subsidiary of the Company;
(vii) make any new capital expenditure or expenditures, or incur any
obligations or liabilities in connection therewith, which, individually is
in excess of $5,000 or, in the aggregate, are in excess of $50,000;
(viii) (x) pay, discharge, settle or satisfy any claims (including
claims of stockholders), liabilities or obligations (whether absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction in the ordinary course of business
consistent with past practice or as required by their terms as in effect on
the date of this Agreement, of claims, liabilities or obligations reflected
or reserved against in the most recent audited financial statements (or the
notes thereto) of the Company included in the Filed SEC Documents (for
amounts not in excess of such reserves) or incurred since the date of such
financial statements in the ordinary course of business consistent with
past practice, (y) waive, release, grant or transfer any right of material
value or (z) waive any material benefits of, or agree to modify in any
adverse respect, or fail to enforce, any confidentiality, standstill or
similar agreement to which the Company or any of its subsidiaries is a
party;
(ix) modify, amend or terminate any Contract (including any Contract
with any Major Customer) to which the Company or such subsidiary is a
party, including any arrangements involving material Intellectual Property,
or waive, release or assign any material rights or claims thereunder, in
each case in any manner which is in any way outside the ordinary course of
business or inconsistent with past practice or which in any way could have
an effect that is material and adverse to the Company and its subsidiaries,
taken as a whole;
(x) enter into any Contract (including any Contract with any Major
Customer), including any arrangements involving material Intellectual
Property, which is in any way outside the ordinary course of business or
inconsistent with past practice or which could in any way have an effect
that is material and adverse to the Company and its subsidiaries, taken as
a whole;
(xi) enter into any Contract, or extend the term of any Contract to
which the Company or any of its subsidiaries is a party as of the date
hereof, that (A) provides for any use restrictions on the Company or any of
its subsidiaries with respect to confidential information, (B) includes any
arbitration or similar dispute resolution provision, (C) does not contain a
waiver of incidental, consequential, punitive, indirect and special damages
in favor of the Company and its subsidiaries (and their respective
assignees) in all circumstances, (D) does not include a reasonable
limitation on the payment of direct damages by the Company or any of its
subsidiaries in connection therewith, (E) contains any non-competition,
non-solicitation or similar provision that restricts the Company or any of
its subsidiaries, (F) provides for "exclusivity" or any similar requirement
or under which the Company or any of its subsidiaries is restricted, or
under which Parent or any of its subsidiaries would after the Closing be
restricted, with respect to distribution, licensing, marketing, development
or manufacturing, or (G) provides for the assignment, sale or other
transfer of any material rights in any Intellectual Property owned or used
by the Company or any of its subsidiaries to any third party, in each of
cases (A) to (G) in a manner that is not reasonably satisfactory to Parent;
(xii) except as required to comply with applicable law or any Contract,
Benefit Plan or Benefit Agreement existing on the date of this Agreement,
(A) increase in any manner the compensation or fringe benefits of, or pay
any bonus to, any current or former director, officer, employee or
consultant of the Company or any of its subsidiaries, (B) pay to any
current or former director, officer, employee or consultant of the Company
or any of its subsidiaries any benefit not provided for under any Contract,
Benefit Plan or Benefit Agreement other than the payment of cash
compensation in the ordinary course
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of business consistent with past practice, (C) grant any awards under any
Benefit Plan (including the grant of stock options, stock appreciation
rights, stock based or stock related awards, performance units or
restricted stock or the removal of existing restrictions in any Contract,
Benefit Plan or Benefit Agreement or awards made thereunder), (D) take any
action to fund or in any other way secure the payment of compensation or
benefits under any Contract, Benefit Plan or Benefit Agreement or (E) take
any action to accelerate the vesting or payment of any compensation or
benefit under any Contract, Benefit Plan or Benefit Agreement;
(xiii) form any subsidiary of the Company;
(xiv) enter into any Contract if consummation of the transactions
contemplated hereby or compliance by the Company with the provisions of
this Agreement will violate or conflict with, or result in any violation or
breach of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of, or result in, termination, cancelation
or acceleration of any obligation or to loss of a material benefit under,
or result in the creation of any Lien in or upon any of the properties or
assets of the Company or Parent or any of their respective subsidiaries
under, or give rise to any increased, additional, accelerated or guaranteed
rights or entitlements under, any provision of such Contract;
(xv) enter into any Contract containing any restriction on the ability
of the Company or any of its subsidiaries to assign its rights, interests
or obligations thereunder, unless such restriction expressly excludes any
assignment to Parent or any of its subsidiaries in connection with or
following the consummation of the Merger and the other transactions
contemplated by this Agreement;
(xvi) take any action (or omit to take any action) if such action (or
omission) would or could reasonably be expected to result in (A) any
representation and warranty of the Company set forth in this Agreement that
is qualified as to materiality becoming untrue, (B) any such representation
and warranty that is not so qualified becoming untrue in any material
respect or (C) any condition to the Merger set forth in Article VI not
being satisfied;
(xvii) adopt or enter into any collective bargaining agreement or other
labor union contract applicable to the employees of the Company or any
subsidiary thereof or terminate, either expressly or constructively, the
employment of any employee of the Company or any subsidiary thereof that
has an employment, severance or similar agreement or arrangement with the
Company or any of its subsidiaries;
(xviii) maintain insurance at less than current levels or otherwise in a
manner inconsistent with past practice;
(xix) commence any suit, claim, action or proceeding (other than a suit,
claim, action or proceeding in connection with the collection of accounts
receivable, to enforce the terms of this Agreement or as a result of a
suit, action or proceeding commenced against the Company or any of its
subsidiaries);
(xx) change its fiscal year, revalue any of its material assets or,
except as required by GAAP, make any changes in accounting methods,
principles or practices;
(xxi) engage in (A) any trade loading practices or any other promotional
sales or discount activity with any customers or distributors with the
effect of accelerating to pre-Closing periods sales to the trade or
otherwise that would otherwise be expected (based on past practice) to
occur in post-Closing periods, (B) any practice which would have the effect
of accelerating to pre-Closing periods collections of receivables that
would otherwise be expected (based on past practice) to be made in
post-Closing periods, (C) any practice which would have the effect of
postponing to post-Closing periods payments by the Company or any of its
subsidiaries that would otherwise be expected (based on past practice) to
be made in pre-Closing periods or (D) any other promotional sales, discount
activity or inventory overstocking or understocking, in each case in this
clause (D) in a manner outside the ordinary course of business; or
(xxii) authorize any of, or commit, resolve or agree to take any of, the
foregoing actions.
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(b) Certain Tax Matters. During the period from the date of this Agreement
to the Effective Time, (i) the Company and each of its subsidiaries shall timely
file all Federal, state and local, domestic and foreign, income and franchise
tax returns and reports and all other material tax returns and reports ("Post-
Signing Returns") required to be filed by each such entity (after taking into
account any extensions) and all Post-Signing Returns shall be complete and
correct; (ii) the Company and each of its subsidiaries will timely pay all taxes
due and payable in respect of such Post-Signing Returns that are so filed; (iii)
the Company will accrue a reserve in its books and records and financial
statements in accordance with past practice for all taxes payable by the Company
or any of its subsidiaries for which no Post-Signing Return is due prior to the
Effective Time; (iv) the Company and each of its subsidiaries will promptly
notify Parent of any suit, claim, action, investigation, proceeding or audit
(collectively, "Actions") pending against or with respect to the Company or any
of its subsidiaries in respect of any tax and will not settle or compromise any
such Action without Parent's consent; and (v) none of the Company or any of its
subsidiaries will make or change any material tax election without Parent's
consent, which consent shall not be unreasonably withheld.
(c) Advice of Changes; Filings. The Company and each of its subsidiaries
shall (i) confer on a regular and frequent basis with Parent to report on
operational matters and other matters requested by Parent and (ii) promptly
advise Parent orally and in writing of any change or event that could reasonably
be expected to have a material adverse effect on the Company. Upon obtaining
knowledge thereof, the Company shall give prompt notice to Parent of any
representation or warranty made by it contained in this Agreement becoming
untrue or inaccurate such that the condition set forth in Section 6.02(a) would
not be satisfied; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement. The Company
and Parent shall each promptly provide the other copies of all filings made by
such party with any Governmental Entity in connection with this Agreement and
the transactions contemplated hereby, other than the portions of such filings
that include confidential information not directly related to the transactions
contemplated by this Agreement.
(d) Litigation. The Company shall provide to Parent immediate written
notice and copies of all pleadings and correspondence in connection with any
suit, claim, action, investigation or proceeding before or by a Governmental
Entity against the Company, any of its subsidiaries and/or any of their
respective directors relating to the transactions contemplated by this
Agreement.
(e) Other Actions. Neither the Company nor its Board of Directors shall
take any action that would, or that could reasonably be expected to, prevent or
materially impede, interfere with, hinder or delay the consummation of any of
the transactions contemplated by this Agreement, the Stockholders Agreement
(including pursuant to the option to purchase Subject Shares granted under
Section 3(h) thereof) or have the effective result, directly or indirectly, of
depriving Parent of any material right or benefit to which it is entitled under
the Stockholders Agreement. The covenants and agreements of the Company relating
to the Stockholders Agreement contained in this Section 4.01(e) shall survive
termination of this Agreement.
SECTION 4.02 No Solicitation. (a) The Company shall not, nor shall it
permit any of its subsidiaries to, or authorize or permit any director, officer
or employee of the Company or any of its subsidiaries or any investment banker,
attorney, accountant or other advisor or representative of the Company or any of
its subsidiaries to, directly or indirectly, (i) solicit, initiate or encourage,
or take any other action knowingly to facilitate, any Takeover Proposal (as
defined below) or any inquiries or the making of any proposal that constitutes
or could reasonably be expected to lead to a Takeover Proposal or (ii) enter
into, continue or otherwise participate in any discussions or negotiations
regarding, or furnish to any person any information with respect to, or
otherwise cooperate in any way with, any Takeover Proposal; provided, however,
that at any time prior to obtaining the Stockholder Approval, the Board of
Directors of the Company may, in response to a bona fide written Takeover
Proposal that such Board of Directors reasonably determines in good faith
constitutes or is reasonably likely to lead to a Superior Proposal (as defined
below), and which Takeover Proposal was unsolicited and did not otherwise result
from a breach of this Section 4.02, and subject to compliance with Section
4.02(c) and (d), (A) furnish information with respect to the Company and its
subsidiaries to the person making such Takeover Proposal (and its
representatives) pursuant to a customary
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confidentiality agreement, provided that all such information is provided on a
prior or substantially concurrent basis to Parent, and (B) participate in
discussions or negotiations with the person making such Takeover Proposal (and
its representatives) regarding such Takeover Proposal. Without limiting the
foregoing, it is understood that any violation in any material respect of the
restrictions set forth in the preceding sentence by any director, officer or
employee of the Company or any of its subsidiaries or any investment banker,
attorney, accountant or other advisor or representative of the Company or any of
its subsidiaries shall be deemed to be a breach of this Section 4.02(a) by the
Company.
The term "Takeover Proposal" means any inquiry, proposal or offer from any
person (other than by Parent or Sub) relating to, or that is reasonably likely
to lead to, any direct or indirect acquisition, in one transaction or a series
of transactions, including any merger, consolidation, tender offer, exchange
offer, stock acquisition, asset acquisition, binding share exchange, business
combination, recapitalization, liquidation, dissolution, joint venture or
similar transaction, of (A) assets or businesses that constitute or represent
15% or more of the total revenue, operating income, EBITDA or assets of the
Company and its subsidiaries, taken as a whole, or (B) 15% or more of the
outstanding shares of Company Common Stock or capital stock of, or other equity
or voting interests in, any of the Company's subsidiaries directly or indirectly
holding, individually or taken together, the assets or businesses referred to in
clause (A) above, in each case other than the transactions contemplated by this
Agreement or the Stockholders Agreement.
(b) Neither the Board of Directors of the Company nor any committee thereof
shall (i) withdraw (or modify in a manner adverse to Parent or Sub) or propose
publicly to withdraw (or modify in a manner adverse to Parent or Sub) the
recommendation or declaration of advisability by such Board of Directors or any
such committee of this Agreement or the Merger, or resolve or agree to take any
such action (any such action or any such resolution or agreement to take such
action being referred to herein as an "Adverse Recommendation Change"), unless
the Board of Directors or a committee thereof reasonably determines in good
faith that the failure to take such action would be reasonably likely to result
in a breach of its fiduciary duties under applicable law, (ii) recommend, adopt
or approve, or propose publicly to recommend, adopt or approve, any Takeover
Proposal, or withdraw its approval of the Merger, or resolve or agree to take
any such action, or (iii) cause or permit the Company to enter into any letter
of intent, memorandum of understanding, agreement in principle, acquisition
agreement, merger agreement, option agreement, joint venture agreement,
partnership agreement or other agreement (each, an "Acquisition Agreement")
constituting or related to, or which is intended to or is reasonably likely to
lead to, any Takeover Proposal (other than a confidentiality agreement referred
to in Section 4.02(a)) or resolve or agree to take any such action.
The term "Superior Proposal" means any bona fide binding written offer not
solicited by or on behalf of the Company or any of its subsidiaries made by a
third party that if consummated would result in such third party (or in the case
of a direct merger between such third party and the Company, the stockholders of
such third party) acquiring, directly or indirectly, more than 50% of the voting
power of the Company Common Stock or all or substantially all the assets of the
Company and its subsidiaries, taken as a whole, for consideration consisting of
cash and/or securities that the Board of Directors of the Company determines in
its good faith judgment (after consultation with a financial advisor of
nationally recognized reputation) to have a higher value than the consideration
to be received by the Company's stockholders in connection with the Merger,
taking into account, among other things, any changes to the terms of this
Agreement proposed by Parent in response to such Superior Proposal or otherwise.
(c) In addition to the obligations of the Company set forth in paragraphs
(a) and (b) of this Section 4.02, the Company promptly shall advise Parent in
writing of any request for information that the Company reasonably believes
could lead to or contemplates a Takeover Proposal or of any Takeover Proposal,
or any inquiry the Company reasonably believes could lead to any Takeover
Proposal, the terms and conditions of such request, Takeover Proposal or inquiry
(including any subsequent material amendment or modification to such terms and
conditions) and the identity of the person making any such request, Takeover
Proposal or inquiry. The Company shall keep Parent informed on a current basis
in all material respects of the status and details (including material
amendments or proposed amendments) of any such request, Takeover Proposal or
inquiry.
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(d) Nothing contained in this Section 4.02 or elsewhere in this Agreement
shall prohibit the Company from (i) taking and disclosing to its stockholders a
position contemplated by Rule 14e-2(a) promulgated under the Exchange Act or
(ii) making any disclosure to the Company's stockholders if, in the good faith
judgment of the Board of Directors of the Company, after consultation with
outside counsel, failure so to disclose would be inconsistent with applicable
law; provided, however, that in no event shall the Company or its Board of
Directors or any committee thereof take, agree or resolve to take any action
prohibited by Section 4.02(b)(i) (after giving effect to the final clause
thereof) or 4.02(b)(ii).
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01 Preparation of the Proxy Statement; Stockholders
Meeting. (a) As promptly as reasonably practicable following the date of this
Agreement, the Company shall prepare and file with the SEC the Proxy Statement
and the Company shall use its reasonable best efforts to respond as promptly as
practicable to any comments of the SEC with respect thereto and to cause the
Proxy Statement to be mailed to the Company's stockholders as promptly as
reasonably practicable following the date of this Agreement. The Company shall
promptly notify Parent upon the receipt of any comments from the SEC or its
staff or any request from the SEC or its staff for amendments or supplements to
the Proxy Statement and shall provide Parent with copies of all correspondence
between the Company and its representatives, on the one hand, and the SEC and
its staff, on the other hand. Notwithstanding anything to the contrary stated
above, prior to filing or mailing the Proxy Statement (or any amendment or
supplement thereto) or responding to any comments of the SEC with respect
thereto, the Company shall (i) provide Parent an opportunity to review, comment
on and approve (which approval shall not be unreasonably withheld or delayed)
such document or response, (ii) include in such document or response all
comments reasonably proposed by Parent and (iii) not file or mail such document
or respond to the SEC prior to receiving Parent's approval, which approval shall
not be unreasonably withheld or delayed.
(b) The Company shall, as promptly as reasonably practicable following the
date of this Agreement, establish a record date (which will be as promptly as
reasonably practicable following the date of this Agreement) for, duly call,
give notice of, convene and hold a meeting of its stockholders (the
"Stockholders Meeting") for the purpose of obtaining the Stockholder Approval,
regardless of whether the Board of Directors of the Company determines at any
time that this Agreement is no longer advisable and recommends that the
stockholders of the Company reject it or any other Adverse Recommendation Change
has occurred. The Company shall cause the Stockholders Meeting to be held as
promptly as reasonably practicable after the date of this Agreement. Subject to
Section 4.02(b)(i), the Company shall, through its Board of Directors, recommend
to its stockholders that they adopt this Agreement, and shall include such
recommendation in the Proxy Statement. Without limiting the generality of the
foregoing, the Company agrees that its obligations pursuant to this Section
5.01(b) shall not be affected by the commencement, public proposal, public
disclosure or communication to the Company or any other person of any Takeover
Proposal.
SECTION 5.02 Access to Information; Confidentiality. The Company shall,
and shall cause each of its subsidiaries to, afford to Parent, and to Parent's
officers, employees, investment bankers, attorneys, accountants and other
advisors and representatives, full access during normal business hours during
the period prior to the Effective Time or the termination of this Agreement to
all their respective properties, books, contracts, commitments, directors,
officers, employees, attorneys, accountants, auditors (and, to the extent within
the Company's control, former auditors), other advisors and representatives and
records and, during such period, the Company shall, and shall cause each of its
subsidiaries to, make available to Parent (a) a copy of each report, schedule,
form, statement and other document filed or received by it during such period
pursuant to the requirements of Federal, state or local, domestic or foreign,
laws and (b) all other information concerning its business, properties and
personnel as Parent may reasonably request (including the work papers of KPMG
LLP). Except as required by law, Parent will hold, and will direct its officers,
employees, investment bankers, attorneys, accountants and other advisors and
representatives to hold, any and all information received from the Company,
directly or indirectly, in confidence in accordance with the
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Agreement for Exchange of Confidentiality Information dated March 23, 1998, as
supplemented on July 13, 2001, between Parent and the Company (as it may be
amended from time to time, the "Confidentiality Agreement").
SECTION 5.03 Reasonable Efforts; Notification. (a) Upon the terms and
subject to the conditions set forth in this Agreement, each of the parties
agrees to use its reasonable efforts to take, or cause to be taken, all actions
that are necessary, proper or advisable to consummate and make effective the
Merger and the other transactions contemplated by this Agreement and the
Stockholders Agreement, including using its reasonable efforts to accomplish the
following: (i) the taking of all reasonable acts necessary to cause the
conditions precedent set forth in Article VI to be satisfied, (ii) the obtaining
of all necessary actions or nonactions, waivers, consents, approvals, orders and
authorizations from Governmental Entities and the making of all necessary
registrations, declarations and filings (including filings under the HSR Act and
other registrations, declarations and filings with Governmental Entities, if
any), (iii) the taking of all reasonable steps as may be necessary to avoid any
suit, claim, action, investigation or proceeding by any Governmental Entity and
(iv) the obtaining of all necessary consents, approvals or waivers from third
parties. In connection with and without limiting the foregoing, the Company and
its Board of Directors shall, if any state takeover statute or similar statute
or regulation is or becomes applicable to this Agreement, the Stockholders
Agreement, the Merger or any of the other transactions contemplated hereby or
thereby, use their reasonable efforts to ensure that the Merger and the other
transactions contemplated hereby or thereby may be consummated as promptly as
practicable on the terms contemplated by this Agreement and otherwise to
minimize the effect of such statute or regulation on this Agreement, the
Stockholders Agreement, the Merger and the other transactions contemplated
hereby or thereby. Notwithstanding the foregoing or any other provision of this
Agreement to the contrary, in no event shall any party hereto be obligated to
(A) agree to, or proffer to, divest or hold separate, or enter into any
licensing or similar arrangement with respect to, any assets (whether tangible
or intangible) or any portion of any business of Parent, the Company or any of
their respective subsidiaries or (B) litigate any suit, claim, action,
investigation or proceeding, whether judicial or administrative, (1) challenging
or seeking to restrain or prohibit the consummation of the Merger; (2) seeking
to prohibit or limit in any material respect the ownership or operation by the
Company, Parent or any of their respective affiliates of a material portion of
the business or assets of the Company and its subsidiaries, taken as a whole, or
Parent and its subsidiaries, taken as a whole, or to require any such person to
dispose of or hold separate any material portion of the business or assets of
the Company and its subsidiaries, taken as a whole, or Parent and its
subsidiaries, taken as a whole, as a result of the Merger; or (3) seeking to
prohibit Parent or any of its affiliates from effectively controlling in any
material respect a substantial portion of the business or operations of the
Company or its subsidiaries. The Company and Parent will provide such
assistance, information and cooperation to each other as is reasonably required
to obtain any such nonactions, waivers, consents, approvals, orders and
authorizations and, in connection therewith, will notify the other person
promptly following the receipt of any comments from any Governmental Entity and
of any request by any Governmental Entity for amendments, supplements or
additional information in respect of any registration, declaration or filing
with such Governmental Entity and will supply the other person with copies of
all correspondence between such person or any of its representatives, on the one
hand, and any Governmental Entity, on the other hand.
(b) The Company shall give prompt notice to Parent of any representation or
warranty made by it contained in this Agreement becoming untrue or inaccurate
such that the condition set forth in Section 6.02(a) would not be satisfied;
provided, however, that no such notification shall affect the representations,
warranties, covenants or agreements of the parties or the conditions to the
obligations of the parties under this Agreement.
(c) Parent shall give prompt notice to the Company of any representation or
warranty made by it or Sub contained in this Agreement becoming untrue or
inaccurate such that the condition set forth in Section 6.03(a) would not be
satisfied; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
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(d) Without limiting the generality of the foregoing, the Company shall
give Parent the opportunity to participate in the defense of any litigation
against the Company and/or its directors relating to the transactions
contemplated by this Agreement at the sole expense of Parent.
SECTION 5.04 Stock Options; Restricted Shares; Warrants. (a) Stock
Options; Restricted Shares. (i) As soon as practicable following the date of
this Agreement, the Company agrees that the Board of Directors of the Company
(or, if appropriate, any committee administering the Company Stock Plans) shall
adopt such resolutions or take such other actions (including obtaining any
required consents) as may be required to effect the following:
(A) The terms of each outstanding Stock Option, whether vested or
unvested, shall be adjusted as necessary to provide that, at the Effective
Time, each such Stock Option outstanding immediately prior to the Effective
Time shall be converted into an option to acquire, on the same terms and
conditions as were applicable under such Stock Option, the number of shares
of Parent common stock, par value $0.20 per share ("Parent Common Stock")
(rounded down to the nearest whole share), determined by multiplying the
number of shares of Company Common Stock subject to such Stock Option by a
fraction (the "Option Exchange Ratio"), the numerator of which is the
Merger Consideration and the denominator of which is the average closing
price of Parent Common Stock on the New York Stock Exchange Composite
Transactions Tape on the ten trading days immediately preceding the date on
which the Effective Time occurs, at an exercise price per share of Parent
Common Stock equal to (A) the per share exercise price for the shares of
Company Common Stock otherwise purchasable pursuant to such Stock Option
divided by (B) the Option Exchange Ratio (each, as so adjusted, an
"Adjusted Option"); provided that such exercise price shall be rounded up
to the nearest whole cent.
(B) At the Effective Time, each Restricted Share shall be canceled and
shall cease to exist. In lieu of payment of the Merger Consideration for
each Restricted Share, Parent agrees to pay the Applicable Amount (as
defined below) to each holder of Restricted Shares promptly after each
Lapse Date (as defined below); provided that if such holder is not employed
by Parent or its affiliates on a Lapse Date, Parent shall not be required
to make, and such holder shall not be entitled to receive, the Applicable
Amount. For purposes hereof, (i) "Applicable Amount" means, in respect of a
holder of Restricted Shares, an amount equal to the product of the Merger
Consideration and the number of Restricted Shares held by such holder with
respect to which the Company's right to repurchase would have lapsed on the
applicable Lapse Date if such Restricted Shares had remained outstanding
and (ii) "Lapse Date" means, in respect of any Restricted Shares, each date
on which the Company's right to repurchase such Restricted Shares would
have lapsed if such Restricted Shares had remained outstanding. Both the
Applicable Amount and the Lapse Date shall be determined (i) after giving
effect to Section 5.07(c) and Section 5.07(d) and (ii) with respect to each
CIC Employee (as defined below), without giving effect to the lapse of any
Company repurchase rights that would not have occurred (or would have
occurred on a later date) if the transactions contemplated by this
Agreement had not occurred. For purposes hereof, a "CIC Employee" means any
employee of the Company or its subsidiaries who, as of the date hereof, (A)
participates in the Retention Plan or (B) is party to a contract with the
Company or its subsidiaries that provides benefits or eligibility for
enhanced severance payments in connection with a corporate transaction
involving the Company.
(C) Such other changes to the Company Stock Plans as Parent and the
Company may agree are appropriate to give effect to the Merger shall be
made.
(D) The adjustments provided in Section 5.04(a)(i)(A) with respect to
any Stock Options that are "incentive stock options" as defined in Section
422 of the Code shall be and are intended to be effected in a manner which
is consistent with Section 424(a) of the Code.
(ii) At the Effective Time, by virtue of the Merger and without the need of
any further corporate action, Parent shall assume the Company Stock Plans, with
the result that all obligations of the Company under the Company Stock Plans,
including with respect to Stock Options outstanding at the Effective Time, shall
be obligations of Parent following the Effective Time.
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(iii) As soon as reasonably practicable after the Effective Time, but in
any event within 30 business days thereof, Parent shall prepare and file with
the SEC a registration statement on Form S-8 (or another appropriate form)
registering a number of shares of Parent Common Stock equal to the number of
shares subject to the Adjusted Options. Such registration statement shall be
kept effective (and the current status of the prospectus or prospectuses
required thereby shall be maintained) as long as any Adjusted Options may remain
outstanding.
(iv) As soon as reasonably practicable after the Effective Time, Parent
shall deliver to the holders of Stock Options appropriate notices setting forth
such holders' rights pursuant to the respective Company Stock Plans and the
agreements evidencing the grants of such Stock Options and that such Stock
Options and related agreements shall be assumed by Parent and shall continue in
effect on the same terms and conditions (subject to the adjustments required by
this Section 5.04 after giving effect to the Merger).
(v) A holder of an Adjusted Option may exercise such Adjusted Option in
whole or in part in accordance with its terms by delivering a properly executed
notice of exercise to Parent, together with the consideration therefor and the
Federal withholding tax information, if any, required in accordance with the
related Company Stock Plan.
(vi) The Company agrees to take all actions (if any) necessary to ensure
that (except as otherwise expressly and specifically contemplated by this
Section 5.04 and Section 5.07(c) and (d), and except to the extent required
under the respective terms of the Stock Options or Company Stock Plans which
terms are expressly and specifically disclosed in Section 5.04(a)(vi) of the
Company Disclosure Schedule) all restrictions or limitations on transfer and
vesting and all repurchase rights with respect to Stock Options awarded under
the Company Stock Plans or any other plan, program or arrangement of the
Company, to the extent that such restrictions or limitations shall not have
already lapsed, shall remain in full force and effect with respect to such
options in accordance with their terms after giving effect to the Merger and the
assumption by Parent as set forth above.
(b) Warrants. As soon as practicable following the date of this Agreement,
the Company shall use its reasonable efforts to take such actions as may be
required to amend each outstanding Surviving Warrant such that, immediately
prior to the Effective Time, each such Surviving Warrant shall be cancelled.
(c) Rule 16b-3 Exemption. The Company shall take all reasonable steps as
may be required to cause the transactions contemplated by this Section 5.04 and
any other dispositions of Company equity securities (including derivative
securities) in connection with this Agreement by each individual who is a
director or officer of the Company to be exempt under Rule 16b-3 promulgated
under the Exchange Act, such steps to be taken in accordance with the
Interpretive Letter dated January 12, 1999, issued by the SEC to Skadden, Arps,
Slate, Meagher & Flom LLP.
SECTION 5.05 Indemnification, Exculpation and Insurance. (a) Parent and
Sub agree that all rights to indemnification and exculpation from liabilities
for acts or omissions occurring at or prior to the Effective Time (and rights
for advancement of expenses) now existing in favor of the current or former
directors or officers of the Company and its subsidiaries as provided in their
respective certificates of incorporation or by-laws (or comparable
organizational documents) and any indemnification or other agreements of the
Company and/or its subsidiaries as in effect on the date of this Agreement shall
be assumed by the Surviving Corporation in the Merger, without further action,
at the Effective Time and shall survive the Merger and shall continue in full
force and effect in accordance with their terms, and Parent shall ensure that
the Surviving Corporation complies with and honors the foregoing obligations.
(b) In the event that the Surviving Corporation or any of its successors or
assigns (i) consolidates with or merges into any other person and is not the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers or conveys all or substantially all its properties and assets to
any person, or if Parent dissolves the Surviving Corporation, then, and in each
such case, Parent shall cause proper provision to be made so that the successors
and assigns of the Surviving Corporation assume the obligations set forth in
this Section 5.05.
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(c) For six years after the Effective Time, Parent shall maintain in effect
either (i) the Company's current directors' and officers' liability insurance
covering each person currently covered by the Company's directors' and officers'
liability insurance policy for acts or omissions occurring prior to the
Effective Time on terms with respect to such coverage and amounts no less
favorable in any material respect to such directors and officers than those of
such policy in effect on the date of this Agreement (provided that Parent may
substitute therefor policies of a reputable insurance company the material terms
of which, including coverage and amount, are no less favorable in any material
respect to such directors and officers than the insurance coverage otherwise
required under this Section 5.05(c)(i)); provided, however,that in no event
shall Parent be required to pay annualized aggregate premiums for insurance
under this Section 5.05(c)(i) in excess of 150% of the amount of the aggregate
premiums paid by the Company for the period from May 31, 2001, to May 31, 2002,
for such purpose (which premiums for such period are hereby represented and
warranted by the Company to be $619,725) (such 150% amount, the "Maximum
Premium"), provided that Parent shall nevertheless be obligated to provide such
coverage as may be obtained for the Maximum Premium, or (ii) policies of a
reputable insurance company for the entirety of such six year period (or if any
insurance maintained under Section 5.05(c)(i) expires or is terminated or
canceled during such six-year period, for the remainder of such six year period)
the material terms of which, including coverage and amount, are no less
favorable in any material respect to such directors and officers than the
insurance coverage otherwise required under Section 5.05(c)(i), provided,
however, that in no event shall Parent be required to pay aggregate premiums for
insurance under this Section 5.05(c)(ii) in respect of such entire six year
period in excess of the maximum amount that Parent is obligated to pay under
Section 5.05(c)(i) in respect of directors' and officers' liability insurance.
(d) The provisions of this Section 5.05 (i) are intended to be for the
benefit of, and will be enforceable by, each indemnified party, his or her heirs
and his or her representatives and (ii) are in addition to, and not in
substitution for, any other rights to indemnification or contribution that any
such person may have by contract or otherwise.
SECTION 5.06 Fees. (a) Except as expressly set forth in this Section
5.06, all fees and expenses incurred in connection with this Agreement, the
Stockholder Agreement, the Merger and the other transactions contemplated hereby
and thereby shall be paid by the party incurring such fees or expenses, whether
or not the Merger is consummated.
(b) In the event that (i) (A) a Takeover Proposal has been made to the
Company or its stockholders or any person has announced an intention (whether or
not conditional and whether or not withdrawn) to make a Takeover Proposal or a
Takeover Proposal otherwise becomes known to the stockholders of the Company or
any person or group (within the meaning of the Exchange Act and the rules of the
SEC thereunder as in effect on the date hereof) acquires ownership, directly or
indirectly, beneficially or of record of 10% or more of the Company Common
Stock, (B) thereafter this Agreement is terminated by either Parent or the
Company pursuant to Section 7.01(b)(i) or 7.01(b)(iii) and (C) within 12 months
after such termination, the Company or any of its subsidiaries enters into any
Acquisition Agreement with respect to, or consummates, any Takeover Proposal
(solely for purposes of this Section 5.06(b)(i)(C), the term "Takeover Proposal"
shall have the meaning set forth in the definition of Takeover Proposal
contained in Section 4.02(a) except that all references to 10% shall be deemed
references to 40%), or (ii) this Agreement is terminated by Parent pursuant to
Section 7.01(c), then the Company shall pay Parent a fee equal to $4,800,000
(the "Termination Fee") by wire transfer of same day funds to an account
designated by Parent (x) in the case of a termination by Parent pursuant to
Section 7.01(c), within two business days after such termination and (y) in the
case of a payment as a result of any event referred to in Section 5.06(b)(i)(C),
upon the first to occur of such events. The Company acknowledges that the
agreements contained in this Section 5.06(b) are an integral part of the
transactions contemplated by this Agreement, and that, without these agreements,
Parent would not enter into this Agreement; accordingly, if the Company fails
promptly to pay the amounts due pursuant to this Section 5.06(b), and, in order
to obtain such payment, Parent commences a suit that results in a judgment
against the Company for the amounts set forth in this Section 5.06(b), the
Company shall pay to Parent its reasonable costs and expenses (including
attorneys' fees and expenses) in connection with such suit and any appeal
relating thereto, together with interest on the
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amounts set forth in this Section 5.06(b) at the prime rate of Citibank, N.A. in
effect on the date such payment was required to be made.
SECTION 5.07 Employee Matters. (a) Following the Effective Time, the
Surviving Corporation shall honor, or cause to be honored, all obligations of
the Company and its subsidiaries under Benefit Agreements and Benefit Plans in
accordance with the terms thereof. Nothing herein shall be construed to prohibit
the Surviving Corporation from amending or terminating such Benefit Agreements
and Benefit Plans in accordance with the terms thereof and with applicable law
or from terminating the employment of any employee of the Company or its
subsidiaries at any time following the Effective Time.
(b) The Company shall amend the ESPP on or prior to the date of this
Agreement, or take such other actions with respect to the ESPP (including making
any required determination under Section 20(a) of the ESPP) as are necessary,
(i) to terminate any ongoing Offering Periods (as defined in the ESPP) effective
as of the October 31, 2001 Purchase Date (as defined in the ESPP) after the
purchase scheduled to occur on such date, (ii) to ensure that no Offering Period
or Purchase Period (as defined in the ESPP) commences or continues between
October 31, 2001 and the date of termination of this Agreement (if any such
termination occurs), (iii) to ensure that on and after November 1, 2001, there
are no rights outstanding under the ESPP to acquire Common Stock, and (iv) to
terminate, contingent on the occurrence of the Closing, the ESPP effective as of
the Closing Date.
(c) The Company shall take all necessary actions (including obtaining all
required consents but, except as consented to in writing by Parent, excluding
the payment of any money or the provision of any other benefit) so that (i) each
employment, severance, termination or change in control agreement between the
Company or its affiliates and the individuals listed in Section 5.07(c) of the
Company Disclosure Schedule (each, an "Executive") is terminated immediately
prior to the Closing Date and (ii) each Executive irrevocably waives any right
or entitlement such Executive has to (A) severance or termination benefits under
existing agreements with, or plans or programs of, the Company or its affiliates
or (B) any other payment or benefit that is related to, or contingent upon, the
consummation of the transactions contemplated by this Agreement, including,
without limitation, the accelerated vesting of Stock Options, the lapse of
rights to repurchase shares of Company Common Stock held by such Executive or
the forgiveness of indebtedness owed by such Executive; provided that (i) the
Executives may participate in the Retention Plan, (ii) any Executive party to an
expatriate employment agreement shall not be required to waive the provisions of
such agreement regarding tax equalization obligations for calendar years 2000
and 2001 and (iii) any Executive party to an employment contract subject to
German law shall terminate such contract as of the effective time of the merger
of the Company or its subsidiaries with and into Parent or the Subsidiary. The
effectiveness of any waiver required above shall be contingent on the Closing,
so that in the event of termination of this Agreement, such waiver shall have no
force and effect. For the avoidance of doubt, if any Executive has received any
benefit or payment described above prior to the date the Company obtained the
Executive's consent to the foregoing, the Company shall be required to take all
necessary actions (including obtaining any required consents) to have such
Executive relinquish or refund such benefit or payment immediately prior to the
Effective Time.
(d) The Company shall take all necessary actions (including obtaining
required consents but, except as consented to in writing by Parent, excluding
the payment of any money or the provision of any other benefit) to amend any
contract, agreement or plan that the Company sponsors or to which it is a party
to provide that no "Good Reason Trigger" (as defined below) included in such
contract, agreement or plan may be exercised by any CIC Employee for any reason
during the period beginning on the date hereof and ending on the six-month
anniversary of the Effective Time (the "Suspension Period"), provided that as of
the end of the Suspension Period, any event occurring without the CIC Employee's
consent during such the Suspension Period that would have allowed such CIC
Employee to exercise a Good Reason Trigger shall be treated as if such event had
occurred on the last day of the Suspension Period. For this purpose, a "Good
Reason Trigger" is any provision or agreement that permits an CIC Employee to
unilaterally terminate his or her relationship with the Company or its
subsidiaries (or otherwise claim that the CIC Employee has been constructively
terminated) and receive severance or other benefits or payments.
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(e) Notwithstanding anything to the contrary contained herein, in the event
that (i) either (A) an Executive does not consent to each of the actions
described in Section 5.07(c) and Section 5.07(d) or (B) the consent of an
Executive to any of the actions described in Section 5.07(c) and Section 5.07(d)
would be invalid under the law of any jurisdiction applicable to such Executive
and (ii) Parent and Sub elect to proceed with the transactions contemplated by
this Agreement, then (I) the Company shall take promptly after the date hereof
all necessary actions to exclude such Executive from participation in the
Retention Plan and (II) such Executive shall not be entitled to participate in
any program or plan established or maintained by Parent to provide additional
compensation to Executives in connection with the transactions contemplated by
this Agreement.
SECTION 5.08 Public Announcements. Parent and Sub, on the one hand, and
the Company, on the other hand, will, to the extent reasonably practicable,
consult with each other before issuing, and give each other a reasonable
opportunity to review and comment upon, any press release or other public
statements with respect to this Agreement, the Stockholders Agreement, the
Merger and the other transactions contemplated hereby and thereby, and shall not
issue any such press release or make any such public statement prior to such
consultation, except as may be required by applicable law, court process or by
obligations pursuant to any listing agreement with any national securities
exchange or national securities quotation system. The parties agree that the
initial press release to be issued with respect to the transactions contemplated
by this Agreement and the Stockholders Agreement shall be in the form heretofore
agreed to by the parties.
SECTION 5.09 Closing Date Balance Sheet. The Company shall prepare and
deliver to Parent prior to Closing (i) an unaudited consolidated balance sheet
of the Company as of the last business day of the most recently completed full
month ending immediately preceding the Closing Date (or, if the Closing Date is
before the 15th day of the month, as of the last business day of the month
immediately preceding the most recently completed full month ending immediately
preceding the Closing Date), which balance sheet shall be prepared in accordance
with GAAP (except as permitted by Form 10-Q of the SEC) and on a basis
consistent with the unaudited balance sheets of the Company included in the SEC
Documents and shall fairly present in all material respects the consolidated
financial position of the Company and its consolidated subsidiaries as of the
date thereof, and (ii) the Company's best estimate (using actual data through at
least the end of the third business day immediately preceding the Closing Date)
of closing account information for all line items that would appear on a
consolidated balance sheet of the Company other than deferred revenue and line
items relating to stockholders' equity (deficit) as of the business day
immediately preceding the Closing Date. The Company shall provide to Parent any
information and back-up materials (including bank account information)
reasonably requested by Parent with respect thereto.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.01 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. The Stockholder Approval shall have been
obtained.
(b) Antitrust. Any waiting period (and any extension thereof)
applicable to the Merger under the HSR Act or any other applicable
competition, merger control, antitrust or similar law shall have been
terminated or shall have expired.
(c) No Injunctions or Legal Restraints. No temporary restraining order,
preliminary or permanent injunction or other order or decree issued by any
court of competent jurisdiction or other legal restraint or prohibition
(collectively, "Legal Restraints") which has the effect of preventing the
consummation of the Merger shall be in effect.
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SECTION 6.02 Conditions to Obligations of Parent and Sub. The obligations
of Parent and Sub to effect the Merger are further subject to the satisfaction
or waiver on or prior to the Closing Date of the following conditions:
(a) Representations and Warranties. The representations and warranties
of the Company contained herein that are qualified as to materiality shall
be true and correct, and the representations and warranties of the Company
contained herein that are not so qualified shall be true and correct in all
material respects, in each case as of the date of this Agreement and as of
the Closing Date with the same effect as though made as of the Closing Date
except that the accuracy of representations and warranties that by their
terms speak as of a specified date will be determined as of such date.
Parent shall have received a certificate signed on behalf of the Company by
the chief executive officer and chief financial officer of the Company to
such effect.
(b) Performance of Obligations of the Company. The 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
shall have received a certificate signed on behalf of the Company by the
chief executive officer and the chief financial officer of the Company to
such effect.
(c) No Litigation. There shall not be pending any suit, action or
proceeding brought by any Governmental Entity or any other third party (or
any such suit, action or proceeding threatened by any Governmental Entity)
(i) challenging or seeking to restrain or prohibit the consummation of the
Merger; or (ii) seeking to prohibit or limit in any material respect the
ownership or operation by the Company, Parent or any of their respective
affiliates of a material portion of the business or assets of the Company
and its subsidiaries, taken as a whole, or Parent and its subsidiaries,
taken as a whole, or to require any such person to dispose of or hold
separate any material portion of the business or assets of the Company and
its subsidiaries, taken as a whole, or Parent and its subsidiaries, taken
as a whole, as a result of the Merger; or (iii) seeking to impose
limitations on the ability of Parent or any of its affiliates to acquire or
hold, or exercise full rights of ownership of, any shares of Company Common
Stock, including the right to vote the Company Common Stock on all matters
properly presented to the stockholders of the Company; or (iv) seeking to
prohibit Parent or any of its affiliates from effectively controlling in
any material respect a substantial portion of the business or operations of
the Company or its subsidiaries, in each case other than any suit, action
or proceeding referred to on Section 6.02(c) of the Company Disclosure
Schedule.
(d) Legal Restraint. No Legal Restraint that could reasonably be
expected to result, directly or indirectly, in any of the effects referred
to in clauses (i) through (iv) of paragraph (c) of this Section 6.02 shall
be in effect.
(e) Consents. Parent shall have received evidence, in form and
substance reasonably satisfactory to it, that Parent or the Company shall
have obtained (i) all consents, approvals, authorizations, qualifications
and orders of all Governmental Entities or third parties required in
connection with this Agreement and the transactions contemplated by this
Agreement, except for those set forth in Section 6.02(e)(i) of the Company
Disclosure Schedule, and (ii) waivers of all Restrictive Provisions, except
for those set forth in Section 6.02(e)(ii) of the Company Disclosure
Schedule.
SECTION 6.03 Conditions to Obligation of the Company. The obligation of
the Company to effect the Merger is further subject to the satisfaction or
waiver on or prior to the Closing Date of the following conditions:
(a) Representations and Warranties. The representations and warranties
of Parent and Sub contained herein that are qualified as to materiality
shall be true and correct, and the representations and warranties of Parent
and Sub contained herein that are not so qualified shall be true and
correct in all material respects, in each case as of the date of this
Agreement and as of the Closing Date with the same effect as though made as
of the Closing Date except that the accuracy of representations and
warranties that by their terms speak as of a specified date will be
determined as of such date. The
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Company shall have received a certificate signed on behalf of Parent by an
authorized signatory of Parent to such effect.
(b) Performance of Obligations of Parent and Sub. Parent and Sub shall
have performed in all material respects all obligations required to be
performed by them under this Agreement at or prior to the Closing Date, and
the Company shall have received a certificate signed on behalf of Parent by
an authorized signatory of Parent to such effect.
SECTION 6.04 Frustration of Closing Conditions. None of the Company,
Parent or Sub may rely on the failure of any condition set forth in Section
6.01, 6.02 or 6.03, as the case may be, to be satisfied if such failure was
caused by such party's failure to use reasonable best efforts to consummate the
Merger and the other transactions contemplated by this Agreement and the
Stockholders Agreement, as required by and subject to Section 5.03.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.01 Termination. This Agreement may be terminated, and the
Merger contemplated hereby may be abandoned, at any time prior to the Effective
Time, whether before or after the Stockholder Approval has been obtained:
(a) by mutual written consent of Parent, Sub and the Company;
(b) by either Parent or the Company:
(i) if the Merger shall not have been consummated by March 31, 2002
for any reason; provided, however, that the right to terminate this
Agreement under this Section 7.01(b)(i) shall not be available to any
party whose action or failure to act has been a principal cause of or
resulted in the failure of the Merger to occur on or before such date
and such action or failure to act constitutes a breach of this
Agreement;
(ii) if any Legal Restraint having the effect set forth in Section
6.01(c) shall be in effect and shall have become final and
nonappealable; or
(iii) if the Stockholder Approval shall not have been obtained at the
Stockholders Meeting duly convened therefor or at any adjournment or
postponement thereof;
(c) by Parent in the event (i) an Adverse Recommendation Change has
occurred or (ii) the Board of Directors of the Company or any committee
thereof shall have failed to confirm its recommendation and declaration of
advisability of this Agreement and the Merger within ten business days
after a written request by Parent that it do so;
(d) by Parent (i) if the Company shall have breached in any material
respect any of its representations, warranties, covenants or other
agreements contained in this Agreement, which breach or failure to perform
(A) would give rise to the failure of a condition set forth in Section
6.02(a) or 6.02(b), and (B) has not been or is incapable of being cured by
the Company within 25 days after its receipt of written notice thereof from
Parent; (ii) if any Legal Restraint having any of the effects referred to
in clauses (i) through (iv) of Section 6.02(c) shall be in effect and shall
have become final and nonappealable; or
(e) by the Company, if Parent shall have breached in any material
respect any of its representations, warranties, covenants or other
agreements contained in this Agreement, which breach or failure to perform
(i) would give rise to the failure of a condition set forth in Section
6.03(a) or 6.03(b), and (ii) has not been or is incapable of being cured by
Parent within 25 days after its receipt of written notice thereof from the
Company.
SECTION 7.02 Effect of Termination. In the event of termination of this
Agreement by either the Company or Parent as provided in Section 7.01, this
Agreement shall forthwith become void and have no
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effect, without any liability or obligation on the part of Parent, Sub or the
Company, other than the provisions of Section 3.01(u), Section 4.01(e), the last
sentence of Section 5.02, Section 5.06, this Section 7.02 and Article VIII,
which shall survive any such termination, and except to the extent that such
termination results from a material breach by a party of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
SECTION 7.03 Amendment. This Agreement may be amended by the parties
hereto at any time, whether before or after the Stockholder Approval has been
obtained; provided, however, that, after the Stockholder Approval has been
obtained, there shall be made no amendment that by law requires further approval
by stockholders of the parties without the further approval of such
stockholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
SECTION 7.04 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 contained herein or in any document delivered
pursuant hereto or (c) waive compliance with any of the agreements or conditions
contained herein; provided, however, that, after the Stockholder Approval has
been obtained, there shall be made no waiver that by law requires further
approval by stockholders of the parties without the further approval of such
stockholders. 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 or delay by any party to this Agreement to
assert any of its rights under this Agreement or otherwise shall not constitute
a waiver of such rights nor shall any single or partial exercise by any party to
this Agreement of any of its rights under this Agreement preclude any other or
further exercise of such rights or any other rights under this Agreement.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01 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 8.01
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
SECTION 8.02 Notices. All notices, requests, claims, demands and other
communications hereunder 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):
if to Parent or Sub, to:
International Business Machines Corporation
New Orchard Road Avenue
Armonk, NY 10504
Attention: David L. Johnson
Telecopy: (914) 499-7802
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with a copy to:
International Business Machines Corporation
New Orchard Road Avenue
Armonk, NY 10504
Attention: Gregory C. Bomberger, Esq.
Telecopy: (914) 499-7392
and with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Attention: Scott A. Barshay, Esq.
Telecopy: (212) 474-3700
if to the Company, to:
CrossWorlds Software, Inc.
577 Airport Boulevard
Suite 800
Burlingame, CA 94010
Attention: Alfred J. Amoroso
Telecopy: (650) 685-3353
with a copy to:
CrossWorlds Software, Inc.
577 Airport Boulevard
Suite 800
Burlingame, CA 94010
Attention: Stacey A. Giamalis
Telecopy: (650) 685-9960
and with a copy to:
Venture Law Group
2775 Sand Hill Road
Menlo Park, CA 94025
Attention: Jon E. Gavenman, Esq.
Telecopy: (650) 233-8386
and with a copy to:
Venture Law Group
Pier 1, Bay 3
The Embarcadero
San Francisco, CA 94111
Attention: Steven J. Tonsfeldt, Esq.
Telecopy: (415) 315-4700
SECTION 8.03 Definitions. As used in 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;
A-37
(b) as it relates to the Company, "knowledge" means, with respect to any
matter in question, that any officer of the Company has actual knowledge of
such matter;
(c) "material adverse effect" on or with respect to the Company means
any state of facts, change, development, effect or occurrence that is, or
could reasonably be expected to become, materially adverse to the business,
assets, condition (financial or otherwise) or results of operations of the
Company and its subsidiaries, taken as a whole;
(d) "person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, Governmental Entity,
unincorporated organization or other entity; and
(e) a "subsidiary" of any person means another person of which more than
50% of any class of capital stock, voting securities or other equity
interests are owned or controlled, directly or indirectly, by such first
person.
SECTION 8.04 Interpretation. When a reference is made in this Agreement
to an Article or to a Section, Subsection, Exhibit or Schedule, such reference
shall be to an Article of, a Section or Subsection of, or an Exhibit or Schedule
to, 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". The words
"hereof", "herein" and "hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement. The words "date hereof" shall refer to the date of
this Agreement. The term "or" is not exclusive. The word "extent" in the phrase
"to the extent" shall mean the degree to which a subject or other thing extends,
and such phrase shall not mean simply "if". The definitions contained in this
Agreement are applicable to the singular as well as the plural forms of such
terms. Any agreement or instrument defined or referred to herein or in any
agreement or instrument that is referred to herein means such agreement or
instrument as from time to time amended, modified or supplemented. References to
a person are also to its permitted successors and assigns.
SECTION 8.05 Counterparts. This Agreement may be executed in one or more
counterparts (including by telecopy), 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.
SECTION 8.06 Entire Agreement; No Third-Party Beneficiaries. This
Agreement (a) 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 Confidentiality
Agreement and any agreement entered into by the parties on the date of this
Agreement, and (b) except for the provisions of Section 5.05, is not intended to
confer upon any person other than the parties hereto any rights or remedies.
SECTION 8.07 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 8.08 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder 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, except that Sub may assign, in its sole
discretion, any of or all its rights, interests and obligations under this
Agreement to Parent or to any direct or indirect wholly owned subsidiary of
Parent, but no such assignment shall relieve Sub of any of its obligations
hereunder. 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 8.09 Consent to Jurisdiction. Each of the parties hereto
irrevocably and unconditionally submits to the exclusive jurisdiction of (a) any
Delaware State court and (b) any Federal court of the United States of America
sitting in the State of Delaware, for the purposes of any suit, action or other
proceeding arising out of this Agreement or any transaction contemplated hereby
(and each agrees that no such action, suit or proceeding relating to this
Agreement shall be brought by it or any of its affiliates except in such
A-38
courts). Each of the parties hereto further agrees that, to the fullest extent
permitted by applicable law, service of any process, summons, notice or document
by U.S. registered mail to such person's respective address set forth above
shall be effective service of process for any action, suit or proceeding in
Delaware with respect to any matters to which it has submitted to jurisdiction
as set forth above in the immediately preceding sentence. Each of the parties
hereto irrevocably and unconditionally waives (and agrees not to plead or claim)
any objection to the laying of venue of any action, suit or proceeding arising
out of this Agreement or the transactions contemplated hereby in (a) any
Delaware State court or (b) any Federal court of the United State of America
sitting in the State of Delaware, or that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient forum.
SECTION 8.10 Waiver of Jury Trial. Each party hereto hereby waives, to
the fullest extent permitted by applicable law, any right it may have to a trial
by jury in respect of any suit, action or other proceeding directly or
indirectly arising out of, under or in connection with this Agreement. Each
party hereto (a) certifies that no representative, agent or attorney of any
other party has represented, expressly or otherwise, that such party would not,
in the event of any action, suit or proceeding, seek to enforce the foregoing
waiver and (b) acknowledges that it and the other parties hereto have been
induced to enter into this Agreement, by, among other things, the mutual waiver
and certifications in this Section 8.10.
SECTION 8.11 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 or in any Delaware state court, this being in
addition to any other remedy to which they are entitled at law or in equity.
A-39
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
INTERNATIONAL BUSINESS MACHINES
CORPORATION,
By: /s/ DAVID L. JOHNSON
------------------------------------
Name: David L. Johnson
Title: Vice President, Corporate
Development
DUKE ACQUISITION CORP.,
By: /s/ JEFFREY J. DOYLE
------------------------------------
Name: Jeffrey J. Doyle
Title: President
CROSSWORLDS SOFTWARE, INC.,
By: /s/ ALFRED J. AMOROSO
------------------------------------
Name: Alfred J. Amoroso
Title: President and CEO
A-40
ANNEX B
EXECUTION COPY
STOCKHOLDER AGREEMENT dated as of October 29, 2001 (this "Agreement"),
between INTERNATIONAL BUSINESS MACHINES CORPORATION, a New York corporation
("Parent") and each of THE INDIVIDUALS AND OTHER PARTIES LISTED ON SCHEDULE A
ATTACHED HERETO (each, a "Stockholder" and, collectively, the "Stockholders").
WHEREAS Parent, Duke Acquisition Corp., a Delaware corporation and a wholly
owned subsidiary of Parent ("Sub"), and CrossWorlds Software Inc., a Delaware
corporation (the "Company"), have contemporaneously with the execution of this
Agreement entered into an Agreement and Plan of Merger dated as of the date
hereof (as the same may be amended or supplemented, the "Merger Agreement";
terms used but not defined herein shall have the meanings set forth in the
Merger Agreement) providing for the merger of Sub with and into the Company (the
"Merger") upon the terms and subject to the conditions set forth in the Merger
Agreement;
WHEREAS each Stockholder owns (of record or beneficially) the number of
shares of capital stock of the Company set forth opposite such Stockholder's
name on Schedule A hereto (such shares of capital stock of the Company being
referred to herein as such Stockholder's "Subject Shares"); and
WHEREAS as a condition to its willingness to enter into the Merger
Agreement, Parent has required that each Stockholder enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements set forth herein and in the Merger
Agreement, each party hereto agrees as follows:
SECTION 1. Representations and Warranties of Each Stockholder. Each
Stockholder hereby, severally and not jointly, only as to itself, represents and
warrants to Parent as follows:
(a) Organization; Authority; Execution and Delivery;
Enforceability. With respect to each Stockholder that is not a natural
person, such Stockholder (i) is duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization and (ii)
has all requisite corporate or other power and authority to execute and
deliver this Agreement, to consummate the transactions contemplated hereby
and to comply with the terms hereof. The execution and delivery of this
Agreement by such Stockholder, the consummation by such Stockholder of the
transactions contemplated hereby and the compliance by such Stockholder
with the terms hereof have been duly authorized by all necessary corporate
or other action on the part of such Stockholder and no other corporate or
other proceedings on the part of such Stockholder are necessary to
authorize this Agreement or to consummate the transactions contemplated by
this Agreement. This Agreement has been duly executed and delivered by such
Stockholder and, assuming due execution by Parent, constitutes a valid and
binding obligation of such Stockholder, enforceable against such
Stockholder in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby and compliance with
the provisions hereof do not and will not conflict with, or result in any
violation or breach of, or default (with or without notice or lapse of
time, or both) under, or give rise to a right of, or result in termination,
cancelation or acceleration of any obligation or to loss of a material
benefit under, or result in the creation of any Lien in or upon any of the
properties or assets of such Stockholder under, or give rise to any
increased, additional, accelerated or guaranteed rights or entitlements
under, any provision of (i) any certificate of incorporation or by-laws,
partnership agreement or limited liability company agreement (or similar
organizational documents) of such Stockholder, (ii) any Contract to which
such Stockholder is a party or any of the properties or assets of such
Stockholder is subject or (iii) subject to the governmental filings and
other matters referred to in the following sentence, any (A) statute, law,
ordinance, rule or regulation or (B) judgment, order or decree, in each
case, applicable to such Stockholder or its properties or assets. No
consent, approval, order or authorization of, or registration, declaration
or filing with, any Governmental Entity is required by or with respect to
such Stockholder in connection with the execution and delivery of this
Agreement
B-1
by such Stockholder or the consummation by such Stockholder of the
transactions contemplated by this Agreement or the compliance by such
Stockholder with the provisions of this Agreement, except for (1) filings
under the HSR Act and any other applicable competition, merger control,
antitrust or similar law or regulation, (2) filings with the SEC of such
reports under the Exchange Act as may be required in connection with this
Agreement and the transactions contemplated hereby.
(b) The Subject Shares. Such Stockholder is the record and beneficial
owner of the Subject Shares of such Stockholder set forth opposite his or
her or its name on Schedule A hereto, and if such Stockholder is a record
owner of Subject Shares such Stockholder has good and marketable title to
such Subject Shares, free and clear of any Liens. Such Stockholder does not
own of record any shares of capital stock of the Company other than the
Subject Shares as set forth opposite his or her or its name on Schedule A
hereto. Such Stockholder has the sole right to vote and Transfer (as
defined in Section 3(c)) the Subject Shares owned (of record or
beneficially) by such Stockholder, and none of the Subject Shares owned (of
record or beneficially) by such Stockholder is subject to any voting trust
or other agreement, arrangement or restriction with respect to the voting
or the Transfer of the Subject Shares, except as set forth in Sections 3
and 4 of this Agreement.
(c) Private Offering. Such Stockholder has not, nor has any affiliate
of such Stockholder nor has anyone acting on behalf of such Stockholder
issued, sold or offered any security of the Company to any person under
circumstances that would cause the sale, if any, of the Subject Shares of
any Stockholder to Parent (or its designee or assignee) as contemplated by
Section 3(h) of this Agreement, to be subject to the registration
requirements of the Securities Act. Assuming the representations of Parent
contained in the last sentence of Section 2 are true and correct, the sale
and delivery, if any, of the Subject Shares of such Stockholder hereunder
are exempt from the registration and prospectus delivery requirements of
the Securities Act.
SECTION 2. Representations and Warranties of Parent. Parent hereby
represents and warrants to each Stockholder as follows: Parent has all requisite
corporate power and authority to execute and deliver this Agreement, to
consummate the transactions contemplated hereby and to comply with the terms
hereof. The execution and delivery of this Agreement by Parent, consummation by
Parent of the transactions contemplated hereby and compliance by Parent with the
terms hereof have been duly authorized by all necessary corporate action on the
part of Parent and no other corporate proceedings on the part of Parent are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Parent and, assuming due execution by each Stockholder, constitutes a valid and
binding obligation of Parent, enforceable against Parent in accordance with its
terms. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby do not and will not conflict with, or result in
any violation or breach of, or default (with or without notice or lapse of time,
or both) under, or give rise to a right of, or result in termination,
cancelation or acceleration of any obligation or to loss of a material benefit
under, or result in the creation of any Lien upon any of the properties or
assets of Parent under, or give rise to any increased, additional, accelerated
or guaranteed rights or entitlements under, any provision of (i) the Certificate
of Incorporation or By-laws of Parent, (ii) any Contract applicable to Parent or
its properties or assets or (iii) subject to the governmental filings and other
matters referred to in the following sentence, any (A) statute, law, ordinance,
rule or regulation or (B) judgment, order or decree, in each case, applicable to
Parent or its properties or assets. No consent, approval, order or authorization
of, or registration, declaration or filing with, any Governmental Entity is
required by or with respect to Parent in connection with the execution and
delivery of this Agreement by Parent or the consummation by Parent of the
transactions contemplated hereby, except for (1) filings under the HSR Act and
any other applicable competition, merger control, antitrust or similar law or
regulation and (2) filings with the SEC of such reports under the Exchange Act
as may be required in connection with this Agreement and the transactions
contemplated hereby. Any Subject Shares purchased by Parent pursuant to this
Agreement will be acquired for investment only and not with a view to any public
distribution thereof, and Parent shall not offer to sell or otherwise dispose of
any Subject Shares so acquired by it in violation of any of the registration
requirements of the Securities Act.
B-2
SECTION 3. Covenants of Each Stockholder. Each Stockholder, severally and
not jointly, only as to itself, covenants and agrees as follows:
(a) At any meeting of the stockholders of the Company called to vote
upon the Merger Agreement, the Merger or any of the other transactions
contemplated by the Merger Agreement, or at any adjournment thereof, or in
any other circumstances upon which a vote, consent, adoption or other
approval (including by written consent solicitation) with respect to the
Merger Agreement, the Merger or any of the other transactions contemplated
by the Merger Agreement is sought, such Stockholder shall vote (or cause to
be voted) all the Subject Shares of such Stockholder (owned of record or
beneficially) in favor of, and shall consent to (or cause to be consented
to), the adoption of the Merger Agreement and the approval of the terms
thereof and of the Merger and each of the other transactions contemplated
by the Merger Agreement.
(b) At any meeting of the stockholders of the Company or at any
adjournment thereof or in any other circumstances upon which a vote,
consent, adoption or other approval (including by written consent
solicitation) is sought, such Stockholder shall vote (or cause to be voted)
all the Subject Shares of such Stockholder (owned of record or
beneficially) against, and shall not consent to (and shall cause not to be
consented to), any of the following (or any agreement to enter into,
effect, facilitate or support any of the following): (i) any Takeover
Proposal or (ii) any amendment of the Company's Amended and Restated
Certificate of Incorporation or Amended and Restated By-laws or other
proposal, action or transaction involving the Company or any of its
subsidiaries or any of its stockholders, which amendment or other proposal,
action or transaction could reasonably be expected to prevent or materially
impede or delay the consummation of the Merger or the other transactions
contemplated by the Merger Agreement or the consummation of the
transactions contemplated by this Agreement or to dilute in any material
respect the benefits to Parent of the Merger and the other transactions
contemplated by the Merger Agreement or the transactions contemplated by
this Agreement, or change in any manner the voting rights of the Company
Common Stock (collectively, "Frustrating Transactions").
(c) Such Stockholder shall not (i) prior to the Stockholders Meeting,
sell, transfer, pledge, assign, tender or otherwise dispose of (including
by gift) (collectively, "Transfer"), or consent to or permit any Transfer
of, any Subject Shares or any interest therein, or enter into any Contract,
option or other arrangement with respect to the Transfer (including any
profit sharing or other derivative arrangement) of any Subject Shares or
any interest therein, to any person other than pursuant to this Agreement
or the Merger Agreement, unless prior to any such Transfer the transferee
of such Subject Shares enters into a stockholder agreement with Parent on
terms substantially identical to the terms of this Agreement or (ii) enter
into any voting arrangement, whether by proxy, voting agreement or
otherwise, in connection with, directly or indirectly, any Takeover
Proposal or Frustrating Transaction with respect to any Subject Shares,
other than pursuant to this Agreement.
(d) Such Stockholder shall not, nor shall such Stockholder permit any of
its subsidiaries to, or authorize or permit any director, officer, employee
or partner of such Stockholder or any of its subsidiaries, or any
investment banker, attorney or other advisor or representative of such
Stockholder or any of its subsidiaries to, directly or indirectly, (i)
solicit, initiate or encourage, or take any other action knowingly to
facilitate, any Takeover Proposal or Frustrating Transaction, (ii) enter
into any agreement with respect to any Takeover Proposal or Frustrating
Transaction or (iii) enter into, continue or otherwise participate in any
discussions or negotiations regarding, or furnish to any person any
information with respect to, or otherwise cooperate in any way with, or
assist or participate in any effort or attempt by any person with respect
to, any Takeover Proposal or Frustrating Transaction. Notwithstanding the
foregoing and notwithstanding Section 3(e), nothing in this Agreement shall
limit or restrict a Stockholder that is a director of the Company or limit
or restrict a partner or an employee or agent of a Stockholder that is a
director of the Company from acting in his or her or its capacity as a
member of the Board of Directors of the Company to the extent that such
Board of Directors is engaging in activities expressly and specifically
permitted under the proviso to Section 4.02(a) of the Merger Agreement.
B-3
(e)(i) Such Stockholder shall use his or her or its best efforts to
take, or cause to be taken, all actions, and to do, or cause to be done,
and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the
most expeditious manner practicable, the transactions contemplated by this
Agreement and the Merger Agreement. Such Stockholder shall not commit or
agree to take any action inconsistent with the transactions contemplated by
this Agreement or the transactions contemplated by the Merger Agreement.
(ii) Such Stockholder shall not, and such Stockholder shall not permit
any of its subsidiaries to, or authorize or permit any director, officer,
employee or partner of such Stockholder or any of its subsidiaries or any
investment banker, attorney or other advisor or representative of such
Stockholder or any of its subsidiaries to, directly or indirectly, issue
any press release or make any other public statement with respect to the
Merger Agreement, this Agreement, the Merger or any of the other
transactions contemplated by the Merger Agreement or any of the
transactions contemplated by this Agreement without the prior written
consent of Parent, except as may be required by applicable law.
(f) Such Stockholder hereby waives any rights of appraisal, or rights to
dissent from the Merger, that such Stockholder may have.
(g)(i) If (A) the Termination Fee becomes payable pursuant to Section
5.06(b) of the Merger Agreement and a Takeover Proposal is consummated or
(B) a Takeover Proposal made by Parent (including any amendment of the
Merger Agreement) which provides for Transaction Consideration in excess of
$4.65 (the "Deal Price") per share is consummated (any Takeover Proposal
referred to in clause (A) or (B)above is referred to herein as a
"Transaction"), then such Stockholder shall pay to Parent an amount in cash
equal to such Stockholder's Profit; provided, however, that if all or any
part of the Transaction Consideration which such Stockholder is entitled to
receive is not cash, then such Stockholder's Profit shall be paid to Parent
in each type of consideration paid to such Stockholder and in the same
proportions as the types of consideration comprising the Transaction
Consideration which such Stockholder is entitled to receive, in each case
determined at the close of business on the date of the consummation of the
Transaction, such that (A) in respect of Transaction Consideration to be
paid to such Stockholder in cash, Parent shall be paid Profits by such
Stockholder in cash in an amount equal to the aggregate Transaction
Consideration to be paid to such Stockholder in cash multiplied by a
fraction (a) the numerator of which is equal to such Stockholder's Profit
and (b) the denominator of which is equal to the aggregate Transaction
Consideration to be received by such Stockholder (such fraction, the
"Profit Percentage"), (B) in respect of Transaction Consideration to be
paid to such Stockholder in the form of securities, Parent shall be paid
Profits by such Stockholder, for each type of securities to be so paid, in
the form of that number of such securities that is equal to the total
number of such securities to be paid to such Stockholder multiplied by the
Profit Percentage, and (C) in respect of Transaction Consideration to be
paid to such Stockholder in consideration of a type other than cash or
securities, Parent shall be paid Profits by such Stockholder in the form of
such type of consideration and in an amount equal to the aggregate fair
market value of such consideration to be paid to Stockholder, with such
fair market value determined as of the date of the consummation of the
Transaction, multiplied by the Profit Percentage; provided, however, that
all such determinations shall be made as of the close of business on the
date of the consummation of the relevant Transaction without any regard to
any events or circumstances occurring thereafter (such as changes in the
trading price of any securities). Such Profits shall be paid to Parent, for
each type of consideration, within five business days after the receipt by
such Stockholder of such consideration. Any payment of Profit under this
Section 3(g) shall (A) if paid in cash, be paid by wire transfer of same
day funds to an account designated by Parent, and (B) if paid through the
transfer of securities or other non-cash consideration, be paid through the
delivery of such securities or other non-cash consideration, suitably
endorsed or otherwise documented for transfer (if applicable), to Parent at
its address set forth in Section 8.02 of the Merger Agreement.
(ii) The "Profit" of each Stockholder shall mean, as of the close of
business on the date of consummation of a Transaction, the amount (if a
positive number) equal to (A) the product of (1) the Transaction
Consideration which such Stockholder is entitled to receive minus the Deal
Price (as determined at such time) multiplied by (2) the number of Subject
Shares held by such Stockholder on
B-4
the date of this Agreement (other than any Subject Shares sold, transferred
and delivered to Parent or its designee pursuant to Section 3(h) hereof),
minus (B) any Profit Taxes.
(iii) "Transaction Consideration" shall mean, with respect to any
Transaction, the fair market value of the consideration which such
Stockholder is entitled to receive (including any residual interest in the
Company retained immediately following consummation of a Transaction) in
respect of each share of Company Common Stock of such Stockholder in such
Transaction, determined as of the close of business on the date of the
consummation of such Transaction, provided that if different types or
amounts of consideration are to be paid (or retained) in a Transaction, the
"Transaction Consideration" shall be determined by dividing (1) the
aggregate fair market value of all the consideration (determined as of the
close of business on the date of the consummation of such Transaction) so
paid to (and retained by) such Stockholder by (2) the number of Subject
Shares held by such Stockholder on the date of this Agreement (other than
any Subject Shares sold, transferred and delivered to Parent or its
designee pursuant to Section 3(h) hereof).
(iv) For purposes of this Section 3(g), the "fair market value" of any
noncash consideration consisting of:
(A) securities listed on a national securities exchange or traded on
the NASDAQ shall be equal to the average closing price per share of such
security as reported on such exchange or NASDAQ for the 10 trading days
prior to the date of determination; and
(B) consideration which is other than securities of the form
specified in clause (A) of this clause (iv) shall be determined by a
nationally recognized independent investment banking firm mutually
selected, within three business days after the event requiring selection
of such investment banking firm, by Parent and the Stockholders, which
determination shall be made by such investment banking firm within 15
business days after the date of such event; provided, however, that if
Parent and the Stockholders do not agree within three business days
after the date of such event as to the selection of an investment
banking firm, then, by the end of the fifth business day after the date
of such event, each of Parent, on the one hand, and the Stockholders, on
the other hand, shall select an investment banking firm, which two
investment banking firms shall jointly make such determination within 20
business days after the date of such event, or, if such two investment
banking firms are unable to agree on such determination, the two
investment banking firms shall, by the end of the 20th business day
after the date of such event, select a third investment banking firm and
notify such third investment banking firm in writing (with a copy to
Parent and each Stockholder) of their respective determinations of the
fair market value of such noncash consideration, following which such
third investment banking firm shall, within 15 business days after the
date of its selection, notify Parent and each Stockholder in writing of
its selection of one or the other of the two original determinations of
the fair market value of such noncash consideration; provided further,
that the reasonable and customary fees and expenses of all such
investment banking firms shall be borne equally by Parent, on the one
hand, and the Stockholders, on the other hand. The determination of the
investment banking firm shall be binding upon the parties.
(v) The "Profit Taxes" of each Stockholder shall mean the net amount of
income taxes (U.S. federal, state and local) actually incurred by such
Stockholder solely as a result of either the receipt of Profits by such
Stockholder or the payment of Profits by such Stockholder to Parent in
accordance with the terms of this Agreement, in each case determined taking
into account any income, gain, deduction, loss or offset against income
taxes attributable to the payment of Profits by such Stockholder to Parent
in accordance with the terms of this Agreement; provided, however, that
solely for the purposes of calculating Profit Taxes, clause (B) of the
definition of Profits shall be disregarded. Solely for purposes of
calculating Profit Taxes, in the case of a Stockholder that is treated as a
pass-through entity for U.S. federal, state or local income tax purposes,
as the case may be, the term "Stockholder" shall mean any direct member of
such pass-through entity and any indirect member of such pass-through
entity that owns its interest in such pass-through entity to the extent it
owns such interest through one or more other pass-through entities. For the
purposes of this clause, a "pass-through entity" includes, without
B-5
limitation, a partnership, disregarded entity, trust, subchapter S
corporation, controlled foreign corporation, foreign person holding company
or a passive foreign investment company to the extent a qualifying electing
fund election has been made with respect to it.
(h) Such Stockholder agrees that, at the request of Parent (an "Option
Exercise"), such Stockholder shall sell, transfer and deliver or cause to
be sold, transferred and delivered to Parent (or its designees or
assignees), and Parent (or its designees or assignees) shall purchase from
such Stockholder, all or any portion (as specified by Parent) of the
Subject Shares of such Stockholder within three business days following the
later of (x) such request and (y) the last to occur of (i) the expiration
or termination of any waiting period (and any extension thereof) applicable
to such sale and purchase under the HSR Act or any other applicable
competition, merger control, antitrust or similar law or regulation and
(ii) the receipt of any other regulatory approvals applicable to such sale
and purchase, for a purchase price per share equal to the Deal Price.
SECTION 4. Grant of Irrevocable Proxy; Appointment of Proxy. (a) Each
Stockholder hereby irrevocably grants to, and appoints, Parent and David S.
Hershberg, its Vice President -- Assistant General Counsel, Andrew Bonzani, its
Assistant Secretary and Senior Counsel, and David L. Johnson, its Vice President
of Corporate Development, in their respective capacities as designees of Parent,
and any individual who shall hereafter succeed to any such office of Parent, and
each of them individually, such Stockholder's proxy and attorney-in-fact (with
full power of substitution), for and in the name, place and stead of such
Stockholder, to vote all of such Stockholder's Subject Shares (owned of record
or beneficially), or grant a consent or approval in respect of such Subject
Shares, (i) in favor of the adoption of the Merger Agreement and the approval of
the terms thereof and of the Merger and each of the other transactions
contemplated by the Merger Agreement, (ii) against any Takeover Proposal or any
Frustrating Transaction and (iii) otherwise in accordance with Section 3 of this
Agreement. The proxy granted in this Section 4 shall expire upon the termination
of this Agreement.
(b) Each Stockholder represents that any proxies heretofore given in
respect of such Stockholder's Subject Shares are not irrevocable, and that all
such proxies are hereby revoked.
(c) Each Stockholder hereby affirms that the irrevocable proxy set forth in
this Section 4 is given in connection with the execution of the Merger
Agreement, and that such irrevocable proxy is given to secure the performance of
the duties of such Stockholder under this Agreement. Each Stockholder hereby
further affirms that the irrevocable proxy is coupled with an interest and may
under no circumstances be revoked. Each Stockholder hereby ratifies and confirms
all that such irrevocable proxy may lawfully do or cause to be done by virtue
hereof. Each such irrevocable proxy is executed and intended to be irrevocable
in accordance with the provisions of Section 212(e) of the DGCL.
SECTION 5. Further Assurances. Each Stockholder shall, from time to time,
execute and deliver, or cause to be executed and delivered, such additional or
further consents, documents and other instruments as Parent may request for the
purpose of effectuating the matters covered by this Agreement, including the
grant of the proxies set forth in Section 4 of this Agreement.
SECTION 6. Certain Events. Each Stockholder agrees that this Agreement
and the obligations hereunder shall attach to such Stockholder's Subject Shares
and shall be binding upon any person or entity to which legal or beneficial
ownership of such Subject Shares shall pass, whether by operation of law or
otherwise, including such Stockholder's heirs, guardians, administrators or
successors, and each Stockholder further agrees to take all actions necessary to
effectuate the foregoing. In the event of any stock split, stock dividend,
reclassification, merger, reorganization, recapitalization or other change in
the capital structure of the Company affecting the capital stock of the Company,
the number of Subject Shares listed on Schedule A hereto opposite the name of
each Stockholder shall be adjusted appropriately and the Deal Price will be
adjusted appropriately.
SECTION 7. 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 hereto without the
prior written consent of the other parties hereto, except that Parent may in its
sole
B-6
discretion assign, in whole or in one or more parts, (x) any or all of its
rights, interests or obligations under this Agreement to any direct or indirect
wholly owned subsidiary of Parent and (y) any of or all its rights, interests
and obligations under Section 3(g) or Section 3(h) to one or more of third
parties, but no such assignment shall relieve Parent of any of its obligations
under this Agreement. Any purported assignment in violation of this Section 7
shall be void. Subject to the preceding sentences of this Section 7, this
Agreement shall be binding upon, inure to the benefit of and be enforceable by,
the parties hereto and their respective successors and assigns.
SECTION 8. Termination. This Agreement shall terminate upon the earlier
of (i) the Effective Time and (ii) the termination of the Merger Agreement in
accordance with its terms; provided, however, that if the Merger Agreement is
terminated under any of the circumstances described in Section 5.06(b) of the
Merger Agreement, then (A) Section 3(g) of this Agreement (and any other
provisions of this Agreement related thereto (including Section 6 hereof)) shall
continue in full force and effect during the 12 month period described in
Section 5.06(b)(i) of the Merger Agreement and (B) Section 3(h) of this
Agreement (and any other provisions of this Agreement related thereto (including
Sections 3(c) and 6 hereof)) shall continue in full force and effect for six
months following the termination of the Merger Agreement). Notwithstanding the
foregoing, this Agreement shall not terminate with respect to any Option
Exercise until the sale, transfer and delivery of the Subject Shares with
respect to such Option Exercise have been effected. No termination of this
Agreement shall relieve any party hereto from any liability for any breach of
any provision of this Agreement prior to termination.
SECTION 9. General Provisions. (a) Amendments. This Agreement is between
each Stockholder and Parent severally and not jointly and may not be amended
except by an instrument in writing signed by Parent and such amending
Stockholder. Any such amendment shall be effective only as to Parent and such
amending Stockholder.
(b) Notices. All notices, requests, clauses, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, telecopied (with confirmation) or sent by
overnight or same-day courier (providing proof of delivery) to Parent in
accordance with Section 8.02 of the Merger Agreement and to the Stockholders at
their respective addresses set forth on Schedule A hereto (or at such other
address for a party as shall be specified by like notice), with a copy to:
John M. Newell
Latham & Watkins
505 Montgomery Street
Suite 1900
San Francisco, CA 94111
(415) 395-8095 (fax)
Paul D. Ginsberg
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019
(212) 757-3990 (fax)
(c) Interpretation. When a reference is made in this Agreement to a
Section or a Schedule, such reference shall be to a Section of, or a Schedule
to, this Agreement unless otherwise indicated. The 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". The words "hereof", "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement. The term "or" is not exclusive. The definitions contained in this
Agreement are applicable to the singular as well as the plural forms of such
terms. Any agreement or instrument defined or referred to herein or in any
agreement or instrument that is referred to herein means such agreement or
instrument as from time to time amended, modified or supplemented. References to
a person are also to its permitted successors and assigns.
B-7
(d) Counterparts; Effectiveness. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each of the parties hereto and delivered to the other party. The effectiveness
of this Agreement shall be conditioned upon the execution and delivery of the
Merger Agreement by each of the parties thereto.
(e) Entire Agreement; No Third-Party Beneficiaries. This Agreement
(including the documents and instruments referred to herein) (i) constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties hereto with respect to the subject matter of
this Agreement and (ii) is not intended to confer upon any person other than the
parties hereto (and the persons specified as proxies in Section 4) any rights or
remedies.
(f) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO ANY
PRINCIPLES OF CONFLICTS OF LAWS OF SUCH STATE.
(g) Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible to the fullest extent
permitted by applicable law in an acceptable manner and to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
SECTION 10. 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 or in any Delaware state court, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of any court of the United States located in the State of
Delaware or of any Delaware state court in the event any dispute arises out of
this Agreement or the transactions contemplated by this Agreement, (b) agrees
that it will not attempt to deny or defeat such personal jurisdiction by motion
or other request for leave from any such court and (c) agrees that it will not
bring any action relating to this Agreement or the transactions contemplated by
this Agreement in any court other than a court of the United States located in
the State of Delaware or a Delaware state court.
SECTION 11. Waiver of Jury Trial. Each party hereto hereby waives, to the
fullest extent permitted by applicable law, any right it may have to a trial by
jury in respect of any suit, action or other proceeding directly or indirectly
arising out of, under or in connection with this Agreement. Each party hereto
(a) certifies that no representative, agent or attorney of any other party has
represented, expressly or otherwise, that such party would not, in the event of
any action, suit or proceeding, seek to enforce the foregoing waiver and (b)
acknowledges that it and the other parties hereto have been induced to enter
into this Agreement, by, among other things, the mutual waiver and
certifications in this Section 11.
IN WITNESS WHEREOF, Parent has caused this Agreement to be signed by its
officer thereunto duly authorized and each Stockholder has signed this
Agreement, all as of the date first written above.
INTERNATIONAL BUSINESS
MACHINES CORPORATION,
By /s/ DAVID L. JOHNSON
------------------------------------
Name: David L. Johnson
Title: Vice President, Corporate
Development
B-8
STOCKHOLDERS:
/s/ TERENCE J. GARNETT
--------------------------------------
Name: Garnett Family Trust
By: Terence J. Garnett, Trustee
/s/ KATRINA A. GARNETT
--------------------------------------
Name: Katrina A. Garnett
/s/ RICHARD D. HOLAHAN JR.
--------------------------------------
Name: Quantum Industrial Partners LDC
By: Richard D. Holahan Jr.
Position: Attorney-in-Fact
/s/ RICHARD D. HOLAHAN JR.
--------------------------------------
Name: SFM Domestic Investments LLC
By: Richard D. Holahan Jr.
Position: Attorney-in-Fact
/s/ ALFRED J. AMOROSO
--------------------------------------
Name: Alfred J. Amoroso
/s/ ANDREW LUDWICK
--------------------------------------
Name: Ludwick Family Trust
By: Ludwick Andrew, Trustee
/s/ ANDREW LUDWICK
--------------------------------------
Name: Ludwick Family Limited
Partnership
By: Andrew K. Ludwick
Position: General Partner
/s/ ALBERT A. PIMENTEL
--------------------------------------
Name: Albert A. Pimentel
/s/ ALBERT A. PIMENTEL
--------------------------------------
Name: Albert A. and Laurie J. Pimentel
Joint Trust
By: Pimentel, Albert A., Trustee
B-9
SCHEDULE A
<Table>
<Caption>
NUMBER OF SUBJECT SHARES OWNED
NAME AND ADDRESS OF STOCKHOLDER OF RECORD OR BENEFICIALLY
------------------------------- ------------------------------
Katrina A. Garnett.......................................... 1,333,332
c/o Bergeson Eliopoulos, LLP
55 Almaden Blvd., Suite 400
San Jose, California 95113
Attention: Daniel J. Bergeson
The Garnett Family Trust.................................... 6,069,478
c/o Bergeson Eliopoulos, LLP
55 Almaden Blvd., Suite 400
San Jose, California 95113
Attention: Daniel J. Bergeson
Quantum Industrial Partners LDC............................. 1,321,586
c/o Soros Fund Management LLC
888 Seventh Avenue
New York, NY 10106
Attention: Richard Holahan, Esq.
SFM Domestic Investments LLC................................ 146,843
c/o Soros Fund Management LLC
888 Seventh Avenue
New York, NY 10106
Attention: Richard Holahan, Esq.
Ludwick Family Trust........................................ 226,873
491 Santa Rita Avenue
Palo Alto, CA 94301
Ludwick Family Limited Partnership.......................... 166,666
491 Santa Rita Avenue
Palo Alto, CA 94301
Albert A. Pimentel.......................................... 139,646
c/o Red Point Ventures
3000 Sand Hill Road
Building 2, Suite 290
Menlo Park, CA 94025
Albert A. and Laurie J. Pimentel Joint Trust................ 1,602
c/o Red Point Ventures
3000 Sand Hill Road
Building 2, Suite 290
Menlo Park, CA 94025
Alfred J. Amoroso........................................... 16,528
20 Farmhill Court
Hillsborough, CA 94010
</Table>
B-10
ANNEX C
October 29, 2001
Board of Directors
CrossWorlds Software, Inc.
577 Airport Boulevard
Burlingame, CA 94010
Ladies and Gentlemen:
We understand that CrossWorlds Software, Inc., a Delaware corporation
("Seller"), International Business Machines Corporation, a New York corporation
("Buyer"), and Duke Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Buyer ("Sub") have entered into an Agreement and Plan of Merger
dated October 29, 2001 (the "Merger Agreement"), pursuant to which Sub will be
merged with and into Seller, which will be the surviving entity (the "Merger").
Pursuant to the Merger, as more fully described in the Merger Agreement and
other related agreements and as further described to us by management of Seller,
we understand that each outstanding share of the common stock, $0.001 par value
per share ("Seller Common Stock"), of Seller will be converted into the right to
receive $4.65 in cash without interest (the "Merger Consideration"). The terms
and conditions of the Merger are set forth in more detail in the Merger
Agreement and other related agreements.
You have asked for our opinion as investment bankers as to whether the
Merger Consideration to be received by the stockholders of Seller pursuant to
the Merger is fair to such stockholders from a financial point of view, as of
the date hereof.
In connection with our opinion, we have, among other things: (i) reviewed
certain publicly available financial and other data with respect to Seller,
including the consolidated financial statements for recent years and interim
periods to September 30, 2001, and certain other relevant financial and
operating data relating to Seller made available to us from published sources
and from the internal records of Seller; (ii) reviewed the financial terms and
conditions of a draft of the Merger Agreement, dated October 27, 2001 (the
"Draft Merger Agreement"), and drafts of other related agreements; (iii)
reviewed certain publicly available information concerning the trading of, and
the trading market for, Seller Common Stock; (iv) compared Seller from a
financial point of view with certain other companies in the Enterprise
Application Integration industry and the software industry generally which we
deemed to be relevant; (v) considered the financial terms, to the extent
publicly available, of selected recent business combinations of companies in the
Enterprise Application Integration industry and the software industry generally
which we deemed to be relevant, in whole or in part, to the Merger; (vi)
reviewed and discussed with representatives of the management of Seller certain
information of a business and financial nature regarding Seller, furnished to us
by them, including financial forecasts and related assumptions of Seller; (vii)
reviewed publicly available financial forecasts regarding Seller, (viii) made
inquiries regarding and discussed the Merger, the Draft Merger Agreement, other
related agreements and other matters related thereto with Seller's counsel; and
(ix) performed such other analyses and examinations as we have deemed
appropriate.
In connection with our review, we have not assumed any obligation
independently to verify the foregoing information and have relied on its being
accurate and complete in all material respects. With respect to the financial
forecasts for Seller provided to us by its management, upon its advice and with
your consent we have assumed for purposes of our opinion that the forecasts have
been reasonably prepared on bases reflecting the best available estimates and
judgments of its management at the time of preparation as to the future
financial performance of Seller and that they provide a reasonable basis upon
which we can form our opinion. We have relied on advice of counsel and
independent accountants to Seller as to all legal and financial reporting
matters with respect to Seller, the Merger, the Merger Agreement and other
related agreements. We have assumed that the Merger will be consummated in a
manner that complies in all respects with all applicable federal and state
statutes, rules and regulations. In addition, we have not assumed responsibility
for making an independent evaluation, appraisal or physical inspection of any of
the assets or
C-1
Board of Directors
CrossWorlds Software, Inc.
October 29, 2001
Page 2
liabilities (contingent or otherwise) of Seller or Buyer, nor have we been
furnished with any such appraisals. You have informed us, and we have assumed,
that the Merger will be accounted for as a purchase under generally accepted
accounting principles. We have also assumed that the definitive Merger Agreement
and other related agreements will not differ in any material respects from the
drafts thereof furnished to us. Our opinion is based on economic, monetary and
market and other conditions as in effect on, and the information made available
to us as of, the date hereof. Accordingly, although subsequent developments may
affect this opinion, we have not assumed any obligation to update, revise or
reaffirm this opinion.
We have further assumed with your consent that the Merger will be
consummated in accordance with the terms described in the Draft Merger Agreement
and other related agreements, without any further amendments thereto, and
without waiver by Seller of any of the conditions to its obligations thereunder.
We have acted as financial advisor to Seller in connection with the Merger
and will receive a fee for our services, including rendering this opinion, a
significant portion of which is contingent upon the consummation of the Merger.
In the ordinary course of our business, we may actively trade the equity
securities of Seller and Buyer for our own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities. We have also acted as an underwriter in connection with
offerings of securities of Seller and performed various investment banking
services for Seller and have received customary fees for such services.
Based upon the foregoing and in reliance thereon, it is our opinion as
investment bankers that the Merger Consideration to be received by the
stockholders of Seller pursuant to the Merger is fair to such stockholders from
a financial point of view, as of the date hereof.
This opinion is directed to the Board of Directors of Seller in its
consideration of the Merger and is not a recommendation to any stockholder as to
how such stockholder should vote with respect to the Merger. Further, this
opinion addresses only the financial fairness of the Merger Consideration to the
stockholders and does not address the relative merits of the Merger and any
alternatives to the Merger, Seller's underlying decision to proceed with or
effect the Merger, or any other aspect of the Merger. This opinion may not be
used or referred to by Seller, or quoted or disclosed to any person in any
manner, without our prior written consent, which consent is hereby given to the
inclusion of this opinion in any proxy statement filed with the Securities and
Exchange Commission in connection with the Merger. In furnishing this opinion,
we do not admit that we are experts within the meaning of the term "experts" as
used in the Securities Act and the rules and regulations promulgated thereunder,
nor do we admit that this opinion constitutes a report or valuation within the
meaning of Section 11 of the Securities Act.
Very truly yours,
THOMAS WEISEL PARTNERS LLC
C-2
ANNEX D
DELAWARE GENERAL CORPORATION LAW
SECTION 262
SEC.262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec.228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec.251 (other than a merger effected pursuant to
sec.251(g) of this title), sec.252, sec.254, sec.257, sec.258, sec.263 or
sec.264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec.251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depositary receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
D-1
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec.253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsection (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of (1) such stockholder's shares shall
deliver to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of (1) such stockholder's
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of (1) such stockholder's shares. A
proxy or vote against the merger or consolidation shall not constitute such
a demand. A stockholder electing to take such action must do so by a
separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation
who has complied with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to sec.228 or
sec.253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to
D-2
receive either notice, each constituent corporation may fix, in advance, a
record date that shall be not more than 10 days prior to the date the
notice is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be
such effective date. If no record date is fixed and the notice is given
prior to the effective date, the record date shall be the close of business
on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw (1) such stockholder's demand for appraisal and to accept the terms
offered upon the merger or consolidation. Within 120 days after the effective
date of the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after (1) such stockholder's written request for such a statement is received by
the surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted (1)
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that (1) such stockholder is not entitled to appraisal rights under
this section.
D-3
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall also be made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded 1 appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of (1) such
stockholder's demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding
in the Court of Chancery shall be dismissed as to any stockholder without the
approval of the Court, and such approval may be conditioned upon such terms as
the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
339, L. '98, eff. 7-1-98.)
D-4
CROSSWORLDS SOFTWARE, INC.
SPECIAL MEETING OF STOCKHOLDERS, JANUARY __, 2002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
CROSSWORLDS SOFTWARE, INC.
The undersigned hereby revokes all previous proxies, acknowledges receipt
of the Notice of Special Meeting of Stockholders to be held on January __, 2002
and the Proxy Statement, dated December __, 2001, and hereby appoints Alfred J.
Amoroso and Stacey Giamalis, and each of them, as proxies of the undersigned,
each with full power of substitution, with full authority to vote on behalf of
the undersigned at the Special Meeting of Stockholders of CrossWorlds Software,
Inc. to be held at the executive offices of CrossWorlds located at 577 Airport
Boulevard, Burlingame, California, on January __, 2002 at 9:00 a.m., local time,
and at any adjournment or postponement thereof, with the same force and effect
as the undersigned might or could do if personally present thereat. The shares
represented by this Proxy shall be voted in the following manner:
- --------------------------------------------------------------------------------
1. Adoption of the Agreement and Plan of Merger, dated as of October 29,
2001, by and among International Business Machines Corporation, Duke Acquisition
Corp. and CrossWorlds Software, Inc.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
It is not expected that any matters other than those described in the Proxy
Statement will be presented at the Special Meeting. If any other matters are
presented, the proxies are authorized to vote upon such other matters in
accordance with their discretion.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSAL 1. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 1.
Please date this proxy and sign your name exactly as it appears below. In the
case of shares owned in joint tenancy or as tenants in common, all should sign.
Fiduciaries should indicate their title and authority. In the case of shares
owned by a corporation, an authorized officer should sign and state his or her
title. In the case of shares owned by a partnership, an authorized partner or
other person should sign. Please return the signed proxy in the enclosed
envelope.
NUMBER OF SHARES BEING VOTED: _________________
Please be sure to sign and date this Proxy
____________________________________________________ ____________, 200_
Authorized Signature(s) Date
Name:
Title:
____________________________________________________
Authorized Signature(s)
Name:
Title:
Please print the name(s) appearing on each share certificate(s) over which you
have voting authority: (Print name(s) on certificate(s)).