1
CAERE CORPORATION
DECEMBER 20, 1995
Dear Stockholder:
A Special Meeting of Stockholders (the "Caere Meeting") of Caere
Corporation, a Delaware corporation ("Caere"), will be held at 11:00 a.m., local
time, on Tuesday, January 23, 1996, at the Red Lion Hotel, 2050 Gateway Place,
San Jose, California 95110.
At the Caere Meeting, you will be asked to consider and vote upon a
proposal to approve the Agreement and Plan of Merger and Reorganization dated as
of October 9, 1995, as amended and restated October 23, 1995 (the "Merger
Agreement"), among Caere, ViewStar Corporation, a California corporation
("ViewStar"), ViewStar Acquisition Corp., a newly-formed, wholly-owned
California subsidiary of Caere ("Sub"), and certain shareholders of ViewStar.
The Merger Agreement provides for the merger of Sub with and into ViewStar (the
"Merger"), with the result that ViewStar will become a wholly-owned subsidiary
of Caere. Assuming that the trading price of Caere Common Stock stays within the
range provided for in the Merger Agreement, a total of 3,418,496 shares of Caere
Common Stock will be issued pursuant to the Merger to ViewStar shareholders or
to ViewStar option holders upon exercise of vested ViewStar options being
assumed by Caere in the Merger. If the trading price of Caere Common Stock is
above or below the range provided for in the Merger Agreement, a lesser or
greater number of shares of Caere Common Stock may be issued, as provided in the
Merger Agreement. If more than 3,931,270 shares of Caere Common Stock would be
issued in the Merger or if each share of ViewStar Common Stock would convert
into fewer than 0.18860 shares of Caere Common Stock, then Caere would adjourn
the Caere Meeting and resolicit its stockholders on their approval of the
Merger. If 3,418,496 shares of Caere Common Stock were issued in the Merger,
holders of ViewStar Capital Stock and vested ViewStar options would hold
approximately 20.5% of the outstanding shares of Caere Common Stock (assuming
exercise of such options). If 3,931,270 shares of Caere Common Stock were issued
in the Merger, holders of ViewStar Capital Stock and vested Viewstar options
would hold approximately 22.8% of the outstanding shares of Caere Common Stock
(assuming exercise of such options).
After careful consideration, your Board of Directors has unanimously
approved the Merger Agreement and the transactions provided for therein and has
concluded that they are in the best interests of Caere and its stockholders.
Your Board of Directors unanimously recommends that the stockholders of Caere
approve the Merger.
At the Caere Meeting, you will also be asked to consider and vote upon a
proposal to approve an amendment to Caere's 1990 Employee Stock Purchase Plan
(the "Purchase Plan") to increase the number of shares that may be issued under
the Purchase Plan. Your Board of Directors has unanimously approved the
amendment to the Purchase Plan and unanimously recommends that the stockholders
of Caere approve the amendment to the Purchase Plan.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Stockholders, a Prospectus/Joint Proxy Statement relating to the
actions to be taken by Caere stockholders at the Caere Meeting (as well as the
actions to be taken by the ViewStar shareholders at their special meeting) and a
proxy. The Prospectus/Joint Proxy Statement more fully describes the proposed
Merger and includes information about Caere and ViewStar and about the
additional matter for consideration at the Caere Meeting.
All stockholders are cordially invited to attend the Caere Meeting in
person. However, whether or not you plan to attend the Special Meeting, please
complete, sign, date and return your proxy in the enclosed envelope. If you
attend the Caere Meeting, you may vote in person if you wish, even though you
have previously returned your proxy. It is important that your shares be
represented and voted at the Caere Meeting.
Sincerely,
ROBERT G. TERESI
Chairman of the Board of Directors
and Chief Executive Officer
2
CAERE CORPORATION
100 COOPER COURT
LOS GATOS, CALIFORNIA 95030
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
------------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Caere
Meeting") of Caere Corporation, a Delaware corporation ("Caere"), will be held
at 11:00 a.m., local time, on Tuesday, January 23, 1996, at the Red Lion Hotel,
2050 Gateway Place, San Jose, California 95110.
1. To consider and vote upon a proposal to approve and adopt (a) the
Agreement and Plan of Merger and Reorganization dated as of October 9,
1995, as amended and restated October 23, 1995 (the "Merger Agreement"),
among Caere, ViewStar Corporation, a California corporation ("ViewStar"),
ViewStar Acquisition Corp., a newly formed, wholly-owned California
subsidiary of Caere ("Sub"), and certain shareholders of ViewStar and (b)
the merger of Sub with and into ViewStar, whereby, among other things,
ViewStar will survive the Merger and become a wholly-owned subsidiary of
Caere.
2. To consider and vote upon a proposal to approve an amendment to
Caere's 1990 Employee Stock Purchase Plan (the "Purchase Plan") to increase
the number of shares that may be issued under the Purchase Plan from
350,000 to 500,000, an increase of 150,000 shares.
3. To transact such other business as may properly come before the
Caere Meeting or any adjournment thereof.
The foregoing items of business are more fully described in the
Prospectus/Joint Proxy Statement accompanying this Notice.
Only stockholders of record of Caere Common Stock at the close of business
on December 12, 1995 are entitled to notice of, and will be entitled to vote at,
the Caere Meeting or any adjournment thereof. Approval of the Merger Agreement
and the Merger and of the increase in the number of shares of Caere Common Stock
subject to the Purchase Plan will require the affirmative vote of the holders of
a majority of the shares of Caere Common Stock present in person or represented
by proxy and entitled to vote thereon.
BY ORDER OF THE BOARD OF DIRECTORS
BLANCHE M. SUTTER
Secretary
Los Gatos, California
December 20, 1995
TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE CAERE MEETING, YOU ARE
URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE
POSTAGE PAID ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE CAERE
MEETING IN PERSON. YOUR PROXY CAN BE WITHDRAWN BY YOU AT ANY TIME BEFORE IT IS
VOTED.
3
VIEWSTAR CORPORATION
1101 MARINA VILLAGE PARKWAY
ALAMEDA, CALIFORNIA 94501
DECEMBER 20, 1995
Dear Shareholder:
A Special Meeting of Shareholders (the "ViewStar Meeting") of ViewStar
Corporation ("ViewStar"), will be held at 9:00 a.m., local time, on Tuesday,
January 23, 1996, at the Red Lion Hotel, 2050 Gateway Place, San Jose,
California 95110.
At the ViewStar Meeting, you will be asked to consider and vote upon a
proposal to approve the Agreement and Plan of Merger and Reorganization dated as
of October 9, 1995, as amended and restated October 23, 1995 (the "Merger
Agreement"), among ViewStar, Caere Corporation ("Caere"), ViewStar Acquisition
Corp., a newly-formed, wholly-owned subsidiary of Caere ("Sub") and certain
shareholders of ViewStar, and the merger of Sub with and into ViewStar (the
"Merger"). The Merger will result in ViewStar becoming a wholly-owned subsidiary
of Caere. If the average of the closing prices of Caere Common Stock for the ten
consecutive trading days in the period ending on the third trading day before
the Merger Date (the "Designated Caere Stock Price") stays within the range of
$13.73 to $8.50, a total of 3,418,496 shares of Caere Common Stock will be
issued pursuant to the Merger to ViewStar shareholders or upon exercise of
ViewStar stock options that are vested on the Merger date. If the Designated
Caere Stock Price is below or above that range, a greater or lesser number of
shares of Caere Common Stock would be issued.
Each share of ViewStar Preferred Stock of each series (except those shares
converted into Common Stock prior to the Merger) will as a result of the Merger
be converted into a fractional share of Caere Common Stock determined by
dividing the per share liquidation preference for that series (as provided in
ViewStar's Articles of Incorporation) by the Designated Caere Stock Price. The
amount of the liquidation preference for each series of Preferred Stock depends
on the actual date of the Merger. Certain holders of ViewStar Preferred Stock
have agreed to convert an aggregate of 6,745,343 shares of their Preferred Stock
(approximately 72%) into Common Stock immediately prior to the Merger.
The fractional share of Caere Common Stock into which each share of
ViewStar Common Stock converts in the Merger (the "Applicable Fraction") will be
determined pursuant to a formula that depends on the Designated Caere Stock
Price and the amount of the aggregate liquidation preference of the Preferred
Stock outstanding at the time of the Merger. The formula for calculating the
Applicable Fraction is set forth in the Prospectus/Joint Proxy Statement under
the caption "The Merger and Related Transactions -- Conversion of Shares."
Although the Applicable Fraction cannot be calculated at this time, for
illustrative purposes only, and assuming the Merger occurs on January 23, 1996,
the Applicable Fraction would be as follows at the Designated Caere Stock Prices
shown below:
DESIGNATED CAERE APPLICABLE
STOCK PRICE FRACTION
---------------------------------- ----------
$14.00.......................... 0.23498
$13.73.......................... 0.23657
$13.00.......................... 0.23250
$12.00.......................... 0.22613
$11.00.......................... 0.21888
$10.00.......................... 0.20983
$ 9.00.......................... 0.19896
$ 8.50.......................... 0.19245
$ 8.00.......................... 0.19480
$ 7.00.......................... 0.20052
The closing price of Caere Common Stock on December 12, 1995 was $8 1/8.
If the Applicable Fraction would be less than 0.18860 (0.16408 excluding
the escrowed shares discussed below) or if more than 3,931,270 shares of Caere
Common Stock would be issued in the Merger (which would occur if the Designated
Caere Stock Price falls below $6.54), then ViewStar would adjourn the ViewStar
Meeting and resolicit all its shareholders on their approval of the Merger.
4
Pursuant to the Merger, each outstanding option to purchase ViewStar Common
Stock will be converted into an option to purchase a number of shares of Caere
Common Stock determined by multiplying the number of shares of ViewStar Common
Stock subject to the option by the Applicable Fraction, rounded down to the
nearest whole share, at an exercise price per share of Caere Common Stock equal
to the exercise price per share of such option divided by the Applicable
Fraction, rounded up to the nearest whole cent. Other terms of the option,
including the vesting schedule, will not be changed.
Of the total shares of Caere Common Stock issued in the Merger, 10% will be
retained for a period of time in escrow as security to Caere against any breach
of representations, warranties or covenants by ViewStar and 3% will be retained
in escrow to reimburse Caere for certain expenses related to the Merger beyond
those that Caere has agreed to assume. Any shares not required to satisfy such
obligations will be released from escrow to the shareholders. Holders of vested
options who exercise such options during the escrow periods will also have 10%
and 3% of such option shares withheld and escrowed on the same terms as the
shareholders.
If 3,418,496 shares of Caere Common Stock were issued in the Merger,
444,404 shares would be retained in such escrow and holders of ViewStar Capital
Stock and vested ViewStar options would hold approximately 20.5% of the
outstanding shares of Common Stock of Caere (approximately 18.3%, net of the
escrowed shares), assuming exercise of such options.
After careful consideration, your Board of Directors has unanimously
approved the Merger and the Merger Agreement and has concluded that they are in
the best interests of ViewStar and its shareholders. Your Board of Directors
unanimously recommends that the shareholders of ViewStar approve the Merger and
the Merger Agreement.
At the ViewStar Meeting, you will also be asked to consider and vote upon a
proposal to approve certain payments and benefits (the "Benefits") pursuant to
the employment agreements between ViewStar and, respectively, the President and
Chief Executive Officer of ViewStar and the Chairman of the Board of Directors
of ViewStar. Your Board of Directors has unanimously approved the Benefits and
unanimously recommends that the shareholders of ViewStar approve the Benefits.
Such executive officers are members of the ViewStar Board of Directors.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Shareholders, a Prospectus/Joint Proxy Statement relating to the
actions to be taken by ViewStar shareholders at the Special Meeting (as well as
the actions to be taken by the Caere stockholders at their special meeting) and
a proxy card. The Prospectus/Joint Proxy Statement includes information about
Caere and ViewStar and more fully describes the proposed Merger, the Merger
Agreement and Benefits.
Sincerely,
MARK W. PERRY
Chairman of the Board of Directors
KAMRAN KHEIROLOMOOM
President and Chief Executive Officer
5
VIEWSTAR CORPORATION
1101 MARINA VILLAGE PARKWAY
ALAMEDA, CALIFORNIA 94501
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
------------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
"ViewStar Meeting") of
ViewStar Corporation ("ViewStar"), will be held at 9:00 a.m., local time, on
Tuesday, January 23, 1996, at the Red Lion Hotel, 2050 Gateway Place, San Jose,
California 95110, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt (a) the
Agreement and Plan of Merger and Reorganization dated as of October 9,
1995, as amended and restated October 23, 1995, among ViewStar, Caere
Corporation ("Caere"), ViewStar Acquisition Corp., a newly formed, wholly-
owned subsidiary of Caere ("Sub"), and certain shareholders of ViewStar and
(b) the merger of Sub with and into ViewStar (the "Merger"), whereby, among
other things, ViewStar will survive the Merger and become a wholly-owned
subsidiary of Caere.
2. To consider and vote upon a proposal to approve certain payments
and benefits pursuant to the employment agreements between ViewStar and,
respectively, the President and Chief Executive Officer of ViewStar and the
Chairman of the Board of Directors of ViewStar.
3. To transact such other business as may properly come before the
ViewStar Meeting or any adjournment thereof.
The foregoing items of business are more fully described in the
Prospectus/Joint Proxy Statement accompanying this Notice.
Only shareholders of record of ViewStar Common Stock and Preferred Stock at
the close of business on December 12, 1995 (the "Record Date") will be entitled
to vote at the ViewStar Meeting or any adjournment thereof.
BY ORDER OF THE BOARD OF DIRECTORS
MARIO M. ROSATI
Secretary
Alameda, California
December 20, 1995
TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE VIEWSTAR MEETING, YOU ARE
URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE
POSTAGE PAID ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE VIEWSTAR
MEETING IN PERSON. YOUR PROXY CAN BE WITHDRAWN BY YOU AT ANY TIME BEFORE IT IS
VOTED.
6
CAERE CORPORATION VIEWSTAR CORPORATION
PROSPECTUS/JOINT PROXY STATEMENT
This Prospectus/Joint Proxy Statement is being furnished to the
stockholders of Caere Corporation ("Caere"), in connection with the solicitation
of proxies by the Caere Board of Directors for use at the Special Meeting of
Caere stockholders (the "Caere Meeting") to be held at 11:00 a.m., local time,
on Tuesday, January 23, 1996, at the Red Lion Hotel, 2050 Gateway Place, San
Jose, California 95110, and at any adjournments or postponements of the Caere
Meeting.
This Prospectus/Joint Proxy Statement is also being furnished to the
shareholders of ViewStar Corporation ("ViewStar"), in connection with the
solicitation of proxies by the ViewStar Board of Directors for use at the
Special Meeting of ViewStar shareholders (the "ViewStar Meeting") to be held at
9:00 a.m., local time, on Tuesday, January 23, 1996, at the Red Lion Hotel, 2050
Gateway Place, San Jose, California 95110, and at any adjournments or
postponements of the ViewStar Meeting.
This Prospectus/Joint Proxy Statement constitutes the Prospectus of Caere
for use in connection with the offer and issuance of shares of Common Stock of
Caere, $0.001 par value ("Caere Common Stock"), pursuant to the merger of
ViewStar Acquisition Corp., a newly formed, wholly-owned subsidiary of Caere
("Sub"), with and into ViewStar, whereby, among other things, ViewStar will
survive the Merger and become a wholly-owned subsidiary of Caere (referred to
herein as the "Merger") as provided under the Agreement and Plan of Merger and
Reorganization dated as of October 9, 1995, as amended and restated October 23,
1995 (the "Merger Agreement"), among Caere, ViewStar, Sub and certain
shareholders of ViewStar (the "Signing Shareholders"). Upon the effectiveness of
the Merger (a) each outstanding share of Common Stock of ViewStar, $.01 par
value per share ("ViewStar Common Stock"), will be converted into a fraction of
a share of Caere Common Stock (the "Applicable Fraction") pursuant to a formula
set forth under "The Merger and Related Transaction -- Conversion of Shares";
(b) each outstanding option to purchase ViewStar Common Stock (a "ViewStar
Option") will be converted into an option to purchase a number of shares of
Caere Common Stock determined by multiplying the number of shares subject to the
ViewStar Option by the Applicable Fraction, rounded down to the nearest whole
share, at an exercise price per share of Caere Common Stock equal to the
exercise price of such option on the date of the Merger (the "Merger Date")
divided by the Applicable Fraction, rounded up to the nearest whole cent; and
(iii) each outstanding share of each series of ViewStar Preferred Stock, $.01
par value ("ViewStar Preferred Stock") will be converted into a fraction of a
share of Caere Common Stock equal to the fraction obtained by dividing the per
share liquidation preference of such series under the ViewStar Articles of
Incorporation, as amended ("ViewStar Articles"), by the average of the closing
prices of Caere Common Stock as reported on the Nasdaq National Market for the
ten consecutive trading days in the period ending on the third trading date
preceding the Merger Date (the "Designated Caere Stock Price"). Certain holders
of ViewStar Preferred Stock have agreed to convert 6,745,343 of the outstanding
shares of ViewStar Preferred Stock (approximately 72%) into ViewStar Common
Stock prior to the Merger Date.
On December 12, 1995, the closing price on the Nasdaq National Market of
Caere Common Stock was $8 1/8.
This Prospectus/Joint Proxy Statement and the accompanying forms of proxy
are first being mailed to stockholders of Caere and shareholders of ViewStar on
or about December 20, 1995.
------------------------
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROSPECTUS/JOINT PROXY
STATEMENT. THE PROPOSED MERGER IS A COMPLEX TRANSACTION. STOCKHOLDERS ARE
STRONGLY URGED TO READ AND CONSIDER CAREFULLY THIS PROSPECTUS/JOINT PROXY
STATEMENT IN ITS ENTIRETY, PARTICULARLY THE MATTERS REFERRED TO UNDER "RISK
FACTORS."
------------------------
THE SECURITIES TO BE ISSUED IN THE MERGER HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS/JOINT PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this Prospectus/Joint Proxy Statement is December 20, 1995.
7
NO PERSON HAS BEEN AUTHORIZED BY CAERE OR VIEWSTAR TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS/JOINT PROXY
STATEMENT IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF
SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY CAERE OR VIEWSTAR. THIS
PROSPECTUS/JOINT PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SECURITIES OFFERED BY THIS PROXY
STATEMENT/PROSPECTUS OR A SOLICITATION OF A PROXY IN ANY JURISDICTION WHERE, OR
TO ANY PERSON TO WHOM, IT WOULD BE UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS/JOINT PROXY STATEMENT NOR ANY
DISTRIBUTION OF THE SECURITIES TO WHICH THIS JOINT PROXY STATEMENT/PROSPECTUS
RELATES SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE INFORMATION CONTAINED HEREIN SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
Caere is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). These materials can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549 and at the Commission's regional offices at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
Suite 1300, New York, New York 10048. Copies of these materials can also be
obtained from the Commission at prescribed rates by writing to the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549.
Under the rules and regulations of the Commission, the solicitation of
proxies from shareholders of ViewStar to approve and adopt the Merger Agreement
and the Merger constitutes an offering of the Caere Common Stock to be issued in
connection with the Merger. Accordingly, Caere has filed with the Commission a
Registration Statement on Form S-4 under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to such offering (the "Registration
Statement"). This Prospectus/Joint Proxy Statement constitutes the prospectus of
Caere that is filed as part of the Registration Statement. Other parts of the
Registration Statement are omitted from this Prospectus/Joint Proxy Statement in
accordance with the rules and regulations of the Commission. Copies of the
Registration Statement, including the exhibits to the Registration Statement and
other material that is not included herein, may be inspected, without charge, at
the regional offices of the Commission referred to above, or obtained at
prescribed rates from the Public Reference Section of the Commission at the
address set forth above.
Statements made in this Prospectus/Joint Proxy Statement concerning the
contents of any contract or other document are not necessarily complete. With
respect to each contract or other document filed as an exhibit to the
Registration Statement, reference is hereby made to that exhibit for a more
complete description of the matter involved, and each such statement is hereby
qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Caere incorporates herein by reference Caere's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994, Caere's Proxy Statement for its
annual meeting of stockholders held on May 5, 1995, Caere's Quarterly Reports on
Form 10-Q for the quarters ended March 31, 1995, June 30, 1995 and September 30,
1995, Caere's current report on Form 8-K filed April 19, 1991, Caere's current
report on Form 8-K filed December 29, 1994, the description of Caere Common
Stock set forth in Caere's Registration
ii
8
Statement on Form 8-A effective November 10, 1989 and the description of Caere
Preferred Share Purchase Rights set forth in Caere's Registration Statement on
Form 8-A effective April 22, 1991.
This Prospectus/Joint Proxy Statement incorporates documents by reference
that are not presented herein or delivered herewith. There will be provided
without charge to each person, including any beneficial owner, to whom a
Prospectus/Joint Proxy Statement is delivered, upon oral or written request of
any such person, a copy of any or all documents incorporated by reference herein
(excluding exhibits unless such exhibits are specifically incorporated by
reference herein). Requests should be directed to Caere Corporation, 100 Cooper
Court, Los Gatos, California 95030 (telephone (408) 395-7000). In order to
ensure timely delivery of the documents in advance of the special meeting to
which this Prospectus/Joint Proxy Statement relates, any such request should be
made by December 28, 1995.
All reports and definitive proxy or information statements filed by Caere
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date of this Prospectus/Joint Proxy Statement and prior to the date of the
Caere special meeting of stockholders shall be deemed to be incorporated by
reference into this Prospectus/Joint Proxy Statement from the date of filing of
such documents. Any statement contained in a document incorporated or deemed to
be incorporated herein shall be deemed to be modified or superseded for purposes
of this Prospectus/Joint Proxy Statement to the extent that a statement
contained herein or in any other subsequently filed document that also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this
Prospectus/Joint Proxy Statement.
All information contained in this Prospectus/Joint Proxy Statement relating
to Caere has been supplied by Caere, and all information relating to ViewStar
has been supplied by ViewStar.
Caere, OmniPage, OmniScan, PageKeeper, WordScan, Calera and M/Series are
trademarks of Caere; ViewStar, VS*Star, Policyworks, Process Architect and
Process Script are trademarks of ViewStar. This Prospectus/Joint Proxy Statement
also includes trade names and trademarks of companies other than Caere and
ViewStar. The use of any such third party trade name or trademark herein is an
editorial fashion only, and to the benefit of the owner thereof, with no
intention of commercial use or infringement of such trade name or trademark.
iii
9
TABLE OF CONTENTS
PAGE
----
AVAILABLE INFORMATION................................................................. ii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... ii
SUMMARY............................................................................... 1
The Companies....................................................................... 1
Meetings of Stockholders............................................................ 1
Opinion of Caere Financial Advisor.................................................. 3
Recommendations of Boards of Directors.............................................. 3
The Merger.......................................................................... 3
Additional Proposal for Caere Stockholders.......................................... 10
Additional Proposal for ViewStar Shareholders....................................... 11
Market Price Data................................................................... 11
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA...................................... 12
COMPARATIVE PER SHARE DATA............................................................ 15
RISK FACTORS.......................................................................... 16
ViewStar History of Operating Losses and Uncertainty of Future Operating Results.... 16
Transition of Caere Business Model.................................................. 16
Fluctuations in Operating Results................................................... 17
Competition and Price Erosion....................................................... 17
New Products and Technological Change............................................... 18
Combination of the Companies; Possible Adverse Effect on Financial Results.......... 18
Key Personnel....................................................................... 19
Dependence Upon Complex Service Delivery Model...................................... 19
Lack of Product Revenue Diversification............................................. 19
Dependence on Distribution Partners................................................. 19
Risk of Product Returns............................................................. 20
International Sales................................................................. 20
Mature Markets for Certain OCR Products............................................. 21
Dependence on Sole Source Suppliers................................................. 21
Dependence on Market Acceptance of Image Input Devices.............................. 21
Dependence on Proprietary Rights; Uncertainty of Obtaining Licenses................. 21
Possible Volatility of Caere Stock Price............................................ 22
Effect of Antitakeover Provisions of Delaware Law and Caere's Charter Documents..... 22
Shares Eligible for Future Sale..................................................... 23
THE CAERE MEETING..................................................................... 24
Date, Time and Place of Meeting..................................................... 24
Record Date and Outstanding Shares.................................................. 24
Voting of Proxies................................................................... 24
Vote Required....................................................................... 24
Quorum; Abstentions; Broker Non-Votes............................................... 24
Solicitation of Proxies and Expenses................................................ 25
Resolicitation...................................................................... 25
Board Recommendations............................................................... 25
THE VIEWSTAR MEETING.................................................................. 26
Date, Time and Place................................................................ 26
Solicitation of Proxies............................................................. 26
iv
10
TABLE OF CONTENTS (CONTINUED)
PAGE
----
Record Date and Outstanding Shares.................................................. 26
Vote Required....................................................................... 26
Quorum; Abstentions; Broker Non-Votes............................................... 26
Expenses of Solicitation............................................................ 27
Resolicitation...................................................................... 27
Board Recommendations............................................................... 27
THE MERGER AND RELATED TRANSACTIONS................................................... 28
General............................................................................. 28
Conversion of Shares................................................................ 28
Background of the Merger............................................................ 31
Reasons for the Merger.............................................................. 32
Board Recommendation................................................................ 35
Opinion of Caere's Financial Advisor................................................ 35
Related Agreements.................................................................. 39
Benefits to ViewStar Executives from the Merger..................................... 40
Representations and Covenants....................................................... 41
Escrow.............................................................................. 42
Conditions to the Merger............................................................ 42
Termination and Break-Up Fees....................................................... 43
Waivers and Amendments.............................................................. 43
Certain Federal Income Tax Matters.................................................. 43
Accounting Treatment................................................................ 45
Affiliates' Restrictions on Sale of Caere Common Stock.............................. 45
Dissenters' Rights.................................................................. 46
Merger Expenses and Fees and Other Costs............................................ 47
Regulatory Matters.................................................................. 48
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION.................................... 48
PRO FORMA COMBINED CONDENSED BALANCE SHEET............................................ 49
PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS................................. 50
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS............................ 51
MANAGEMENT OF CAERE................................................................... 54
BUSINESS OF VIEWSTAR.................................................................. 56
SELECTED FINANCIAL DATA OF VIEWSTAR................................................... 57
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF VIEWSTAR......................................................................... 58
Overview............................................................................ 58
Results of Operations............................................................... 58
Quarterly Information............................................................... 60
Variability of Operating Results.................................................... 61
Current Trends...................................................................... 61
Liquidity and Capital Resources..................................................... 61
v
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TABLE OF CONTENTS (CONTINUED)
PAGE
----
VIEWSTAR STOCK, OPTIONS AND DIVIDENDS................................................. 62
MANAGEMENT OF VIEWSTAR................................................................ 63
Executive Officers and Directors.................................................... 63
Executive Compensation.............................................................. 64
VIEWSTAR SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT.................. 66
COMPARISON OF RIGHTS OF STOCKHOLDERS OF CAERE AND VIEWSTAR............................ 70
ADDITIONAL MATTER FOR CONSIDERATION OF CAERE STOCKHOLDERS............................. 77
Vote Required....................................................................... 77
Description of the Purchase Plan.................................................... 77
Purpose............................................................................. 77
Administration...................................................................... 77
Offerings........................................................................... 77
Eligibility......................................................................... 78
Participation in the Plan........................................................... 78
Purchase Price...................................................................... 78
Payment of Purchase Price; Payroll Deductions....................................... 78
Purchase of Stock................................................................... 78
Withdrawal.......................................................................... 78
Termination of Employment........................................................... 79
Restrictions on Transfer............................................................ 79
Duration, Amendment and Termination................................................. 79
Effect of Certain Corporate Events.................................................. 79
Stock Subject to Purchase Plan...................................................... 79
Federal Income Tax Information...................................................... 80
Purchase Plan Participation......................................................... 80
ADDITIONAL MATTER FOR CONSIDERATION OF VIEWSTAR SHAREHOLDERS.......................... 81
Approval of Certain Terms of Employment Agreements.................................. 81
STOCKHOLDER PROPOSALS................................................................. 81
EXPERTS............................................................................... 81
LEGAL MATTERS......................................................................... 82
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF VIEWSTAR................................ F-1
CONSOLIDATED FINANCIAL STATEMENTS OF VIEWSTAR......................................... F-2
APPENDICES:
APPENDIX A -- Agreement and Plan of Merger and Reorganization
APPENDIX B -- Opinion of Robertson, Stephens & Co., L.P.
APPENDIX C -- Sections 1300-1312 of the California Corporations Code
vi
12
SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus/Joint Proxy Statement. The summary does not contain a complete
description of the terms of the Merger and is qualified in its entirety by
reference to the full text of this Prospectus/Joint Proxy Statement and the
Appendices hereto. Stockholders of Caere and shareholders of ViewStar are urged
to read this Prospectus/Joint Proxy Statement and the Appendices in their
entirety.
THE COMPANIES
CAERE
Caere designs, develops, manufactures, and markets optical character
recognition ("OCR") software and hardware for converting scanned and faxed
images into computer usable text, as well as computer desktop document
management products.
Caere was originally incorporated in California in September 1973 and
reincorporated in Delaware in August 1989. Unless otherwise indicated, "Caere"
refers to Caere Corporation, a Delaware corporation, and its wholly-owned
subsidiaries. Caere's principal executive offices are located at 100 Cooper
Court, Los Gatos, California 95030. Caere's telephone number is (408) 395-7000.
VIEWSTAR
ViewStar designs, develops and markets products that address
mission-critical, line-of-business workflow applications involving data,
electronic documents, images, text, multimedia and other formats in a
distributed, networked environment. ViewStar products are sold directly and
through system integrators and distributors to medium to large organizations in
many industries, including insurance, banking, financial services, oil and gas,
utilities, health care, manufacturing and transportation, as well as government
and education. ViewStar also provides significant implementation and support
services, both directly and through third parties, to ensure the successful
deployment and ongoing maintenance of ViewStar products.
ViewStar was incorporated in California in February 1986. Unless otherwise
indicated, "ViewStar" refers to ViewStar Corporation and its wholly-owned
subsidiaries. ViewStar's principal executive offices are located at 1101 Marina
Village Parkway, Alameda, California 94501. ViewStar's telephone number is (510)
337-2000.
SUB
Sub was incorporated in California as a wholly-owned subsidiary of Caere
formed solely for the purpose of the Merger. Sub's executive offices are located
at 100 Cooper Court, Los Gatos, California 95030. Its telephone number is (408)
395-7000.
MEETINGS OF STOCKHOLDERS
DATE, TIME AND PLACE
Caere. The Caere Meeting will be held on Tuesday, January 23, 1996, at
11:00 a.m., local time, at the Red Lion Hotel, 2050 Gateway Place, San Jose,
California 95110.
ViewStar. The ViewStar Meeting will be held on Tuesday, January 23, 1996,
at 9:00 a.m., local time, at the Red Lion Hotel, 2050 Gateway Place, San Jose,
California 95110.
PURPOSES OF THE MEETINGS
Caere Meeting. At the Caere Meeting, stockholders of Caere will be asked
to consider and vote upon (i) a proposal to approve the Merger Agreement, a copy
of which is attached hereto as Appendix A; and (ii) a proposal to approve an
amendment to Caere's 1990 Employee Stock Purchase Plan (the "Purchase Plan") to
increase the number of shares that may be issued under the Purchase Plan.
1
13
ViewStar Meeting. At the ViewStar Meeting, shareholders of ViewStar will
be asked to consider and vote upon (i) a proposal to approve and adopt the
Merger Agreement and the Merger; and (ii) a proposal to approve certain payments
and benefits pursuant to employment agreements between ViewStar and,
respectively, the President and Chief Executive Officer of ViewStar and the
Chairman of the Board of Directors of ViewStar.
RECORD DATE; SHARES ENTITLED TO VOTE
Caere. Holders of record of Caere Common Stock on December 12, 1995 (the
"Record Date") are entitled to notice of and to vote at the Caere Meeting. At
the close of business on the Record Date, there were outstanding and entitled to
vote 13,283,224 shares of Caere Common Stock, each of which will be entitled to
one vote on each matter to be acted upon. See "The Caere Meeting -- Record Date
and Outstanding Shares."
ViewStar. Holders of record of ViewStar Common Stock and ViewStar
Preferred Stock (collectively, "ViewStar Capital Stock") on the Record Date are
entitled to notice of and to vote at the ViewStar Meeting. At the close of
business on the Record Date, there were outstanding and entitled to vote
2,533,616 shares of ViewStar Common Stock and 9,330,487 shares of ViewStar
Preferred Stock, each of which will be entitled to one vote on each matter to be
acted upon. Shares of all series of ViewStar Preferred Stock will vote together
as a single class and shares of ViewStar Common Stock will vote as a separate
class on the approval of the Merger Agreement and the Merger. See "The ViewStar
Meeting -- Record Date and Outstanding Shares."
VOTES REQUIRED
Caere. Approval and adoption of the Merger Agreement and the Merger will
require the affirmative vote of a majority of the total votes cast at the Caere
Meeting. Approval and adoption of the amendment to the Purchase Plan will
require the affirmative vote of the holders of a majority of the shares of Caere
Common Stock present in person or represented by proxy and entitled to vote at
the Caere Meeting. The executive officers and directors of Caere have agreed to
vote all the shares of Caere Common Stock owned by them (approximately 1.2% in
the aggregate of all outstanding shares as of the Record Date) in favor of such
approvals and adoptions. See "The Merger and Related Transactions -- Related
Agreements" and "-- Affiliate Agreements."
ViewStar. Approval and adoption of the Merger Agreement and the Merger will
require the affirmative vote of the holders of (i) a majority of the shares of
ViewStar Common Stock outstanding on the Record Date, voting as a separate
class; and (ii) a majority of the shares of ViewStar Preferred Stock outstanding
on the Record Date, all series voting together as a separate class. Certain
shareholders and the executive officers and directors of ViewStar have agreed to
vote all the shares of ViewStar Capital Stock owned or controlled by them in
favor of such approval and adoption. On the Record Date, such shareholders and
such executive officers and directors owned approximately 27.3% and 80.4%,
respectively, of all then outstanding shares of ViewStar Common Stock and
Preferred Stock. See "The Merger and Related Transactions -- Related
Agreements -- Voting Agreements" and "-- Affiliate Agreements." Approval of
certain payments and benefits pursuant to the employment agreements between
ViewStar and, respectively, the President and Chief Executive Officer of
ViewStar and the Chairman of the Board of Directors of ViewStar (the "Employment
Agreements"), requires the affirmative vote of holders of more than 75% of the
shares of ViewStar Capital Stock outstanding immediately prior to the Merger,
voting together as a single class on an as-converted basis, excluding the shares
owned by the President and Chief Executive Officer of ViewStar and the Chairman
of the Board of Directors of ViewStar. Certain shareholders of ViewStar have
agreed to vote all of the shares of ViewStar Capital Stock owned or controlled
by them in favor of such approval. As of the Record Date, such shareholders
owned approximately 76.5% of the shares of ViewStar Capital Stock, voting
together as a single class, excluding the shares owned by the President and
Chief Executive Officer of ViewStar and the Chairman of the Board of Directors
of ViewStar. See "Additional Matter for Consideration of ViewStar Shareholders."
Resolicitation. Caere and ViewStar will resolicit their respective
shareholders regarding the proposals to approve the Merger Agreement prior to
the shareholder vote under the circumstances described in "Summary -- The
Merger -- Conversion of Shares."
2
14
OPINION OF CAERE FINANCIAL ADVISOR
Robertson, Stephens & Company, L.P. ("RS & Co.") has delivered its written
opinion dated October 8, 1995 to the effect that the consideration to be paid by
Caere in the Merger is fair to Caere as of such date and from a financial point
of view. The full text of the opinion of RS & Co., which sets forth the
assumptions made, matters considered and limitations on the review undertaken by
RS & Co., is attached as Appendix B to this Prospectus/Joint Proxy Statement.
Caere stockholders are urged to read the opinion in its entirety.
RECOMMENDATIONS OF BOARDS OF DIRECTORS
Caere's Board of Directors. The Board of Directors of Caere has unanimously
approved the Merger Agreement and the Merger and has determined that the Merger
is in the best interests of Caere and its stockholders. The Board of Directors
of Caere unanimously recommends approval and adoption of the Merger Agreement
and the Merger by the Caere stockholders. The primary factors considered and
relied upon by the Board of Directors of Caere in reaching its recommendation
are described in "The Merger and Related Transactions -- Reasons for the
Merger." The Board of Directors of Caere has also unanimously approved the
amendment to the Purchase Plan and unanimously recommends approval thereof by
the Caere stockholders.
ViewStar's Board of Directors. The Board of Directors of ViewStar has also
unanimously approved the Merger Agreement and the Merger and has determined that
the Merger is in the best interests of ViewStar and its shareholders. The Board
of Directors of ViewStar unanimously recommends approval and adoption of the
Merger Agreement and the Merger by the ViewStar shareholders. The primary
factors considered and relied upon by the Board of Directors of ViewStar in
reaching its recommendation are described in "The Merger and Related
Transactions -- Reasons for the Merger." The Board of Directors of ViewStar has
also unanimously approved the payments and benefits pursuant to the Employment
Agreements between ViewStar and, respectively, the President and Chief Executive
Officer of ViewStar and the Chairman of the Board of Directors of ViewStar and
unanimously recommends approval thereof by the ViewStar shareholders. Such
executive officers are members of the Board of Directors of ViewStar.
THE MERGER
GENERAL
Effects of the Merger. The Merger will be consummated promptly after Caere
stockholder and ViewStar shareholder approval and the satisfaction or waiver of
the other conditions to consummation of the Merger. Upon consummation of the
Merger, ViewStar will become a wholly-owned subsidiary of Caere. The
shareholders of ViewStar will become stockholders of Caere (as described below),
and their rights will be governed by Caere's Certificate of Incorporation, as
amended, and Bylaws.
Reasons for the Merger. In the discussions that led to the signing of the
Merger Agreement, Caere and ViewStar identified a number of potential joint
benefits resulting from the Merger, as well as a number of benefits accruing to
each of Caere and ViewStar, respectively. The benefits resulting from the Merger
accruing to both Caere and ViewStar include: (i) the ability to provide a more
complete solution for customers as a result of the companies' complementary
technologies and product strengths; (ii) improved sales performance as a result
of improved financial stability and better access to corporate customers; (iii)
an improved competitive position as a result of greater financial, technical and
marketing resources; and (iv) the opportunity to develop vertical customer
markets with information and paper intensive environments through the shared
customer bases of the combined company. In addition to the anticipated joint
benefits described above, the Board of Directors of Caere identified a number of
potential benefits which would accrue to Caere as a result of the Merger,
including: (i) the opportunity to develop technology and applications based on
the expertise of ViewStar in the Microsoft Windows NT platform; (ii) the ability
to diversify Caere's product base and in the process realize higher average
selling prices and higher margins; and (iii) the opportunity to establish a
significant presence in the workflow market sector as a result of ViewStar's
expertise in that area. The Board of Directors of ViewStar also identified a
number of potential benefits that would accrue to ViewStar as a result of the
Merger, including: (i) the opportunity to develop desktop capability and
technology as a result of Caere's expertise in that area; (ii) increased
operating flexibility and increased development capital as a result of Caere's
current resources and access to public markets; and (iii) the conversion of a
relatively illiquid investment into a liquid one. See "The Merger and Related
Transactions --
3
15
Joint Reasons for the Merger," "-- Caere's Reasons for the Merger," and
"-- ViewStar's Reasons for the Merger."
CONVERSION OF SHARES
ViewStar Shares. Upon the consummation of the Merger, (i) each then
outstanding share of ViewStar Common Stock will automatically be converted into
a fraction of a share of Caere Common Stock equal to the Applicable Fraction
(defined below) and (ii) each then outstanding share of each series of ViewStar
Preferred Stock will be converted into a fraction of a share of Caere Common
Stock equal to the fraction obtained by dividing the per share liquidation
preference of such series under the ViewStar Articles by the Designated Caere
Stock Price (as defined below). Certain holders of shares of ViewStar Preferred
Stock have agreed to convert an aggregate of approximately 72% of the
outstanding shares of ViewStar Preferred Stock into ViewStar Common Stock prior
to the consummation of the Merger. The effect of such conversion will be to
reduce by approximately $25,335,589 the amount of the liquidation preference of
outstanding ViewStar Preferred Stock on the Merger Date (assuming such date is
on or about January 23, 1996) and to increase the number of outstanding shares
of ViewStar Common Stock by approximately 6,745,343.
The Applicable Fraction will be the fraction: (a) having a numerator equal
to the amount by which the Aggregate Shares of Caere Common Stock to be Issued
(as defined below) exceeds the aggregate shares of Caere Common Stock issuable
with respect to ViewStar Preferred Stock as described in clause (ii) in the
preceeding paragraph; and (b) having a denominator equal to the sum of (i) the
number of shares of ViewStar Common Stock issued and outstanding immediately
prior to the Merger, and (ii) the number of shares of ViewStar Common Stock
subject to ViewStar stock options ("ViewStar Options") that are "vested" as of
the Merger Date. ViewStar Options will be considered "vested" to the extent they
are exercisable on the Merger Date, including ViewStar Options the
exercisability of which is accelerated as a result of the Merger or the vesting
of which will continue after the Merger without regard to the optionee's
continued status as an employee. The "Aggregate Shares of Caere Common Stock to
be Issued" will be 3,418,496 shares of Caere Common Stock; provided, however,
that if the Designated Caere Stock Price (as defined below) is less than $8.50,
the number of shares of Caere Common Stock in the Aggregate Shares of Caere
Common Stock to be Issued will be calculated by adding to the 3,418,496 shares
of Caere Common Stock the product of multiplying (x) a fraction, the numerator
of which is the difference between $8.50 and such Designated Caere Stock Price,
and the denominator of which is such Designated Caere Stock Price by (y)
1,709,248; and provided, further, that if the Designated Caere Stock Price is
greater than $13.73, the number of shares of Caere Common Stock in the Aggregate
Shares of Caere Common Stock to be Issued will be calculated by subtracting from
the 3,418,496 shares of Caere Common Stock the product of multiplying (x) a
fraction, the numerator of which is the difference between such Designated Caere
Stock Price and $13.73 and the denominator of which is such Designated Caere
Stock Price, by (y) 1,709,248. The "Designated Caere Stock Price" will be the
average of the closing prices of Caere Common Stock as reported on the Nasdaq
National Market for the ten consecutive trading days in the period ending on the
third trading date preceding the Merger Date. Although the Applicable Fraction
cannot be calculated at this time, for illustrative purposes only, and assuming
the Merger occurs on January 23, 1996, the Applicable Fraction would be as
follows at the Designated Caere Stock Prices shown below:
DESIGNATED CAERE APPLICABLE
STOCK PRICE FRACTION
---------------------------------- ----------
$14.00.......................... 0.23498
$13.73.......................... 0.23657
$13.00.......................... 0.23250
$12.00.......................... 0.22613
$11.00.......................... 0.21888
$10.00.......................... 0.20983
$ 9.00.......................... 0.19896
$ 8.50.......................... 0.19245
$ 8.00.......................... 0.19480
$ 7.00.......................... 0.20052
4
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From the day prior to the announcement of the Merger through December 12, 1995,
the closing prices per share of Caere Common Stock ranged from $7.75 to $10.375.
See "Summary -- Market Price Data." Within the range of $8.50 to $13.73, the
Aggregate Shares of Caere Common Stock to be Issued is fixed at 3,418,496. If
the Designated Caere Stock Price is less than $8.50, the Aggregate Shares of
Caere Common Stock to be Issued will increase in accordance with the formula
described above (and at a Designated Caere Stock Price of $6.54 would increase
by 15% to 3,931,270 shares). If the Designated Caere Stock Price is greater than
$13.73, the Aggregate Shares of Caere Common Stock to be Issued will decrease in
accordance with the formula described above.
For illustrative purposes only, if the Designated Caere Stock Price were
equal to $8.684375, the average of the closing prices of Caere Common Stock as
reported on the Nasdaq National Market for the ten consecutive trading days in
the period ended on December 12, 1995, the Applicable Fraction would be 0.19494
(the "Assumed Applicable Fraction"). Using the Assumed Applicable Fraction,
approximately 3,123,675 shares of Caere Common Stock would be issued in the
Merger to holders of ViewStar Capital Stock, representing approximately 19% of
the shares of Caere Common Stock outstanding immediately after consummation of
the Merger, and approximately 294,821 shares of Caere Common Stock would be
reserved for issuance upon the exercise of assumed vested ViewStar Options; and
an additional approximately 252,301 shares of Caere Common Stock would be
reserved for issuance upon the exercise of assumed, unvested ViewStar Options
outstanding on the Merger Date. The foregoing numbers are subject to change
based upon the granting, exercise, termination or expiration of ViewStar Options
at or prior to the Merger Date.
A recent price for Caere Common Stock is shown on the cover page of this
Prospectus/Joint Proxy Statement. Holders of Caere Common Stock and ViewStar
Capital Stock may obtain the daily closing prices of Caere Common Stock from the
Wall Street Journal or by calling Investor Relations at Caere at (408) 395-7000.
Of the total shares of Caere Common Stock issued in the Merger, 10% will be
retained for a period of time in escrow as security to Caere against any breach
of representations, warranties or covenants by ViewStar and 3% will be retained
in escrow to reimburse Caere for certain Merger related expenses beyond those
that Caere has agreed to assume. Any shares not required to satisfy such
obligations will be released from escrow to the ViewStar shareholders. See "The
Merger and Related Transactions -- Escrow."
No fractional shares of Caere Common Stock will be issued in the Merger.
Instead, each ViewStar shareholder who would otherwise be entitled to receive a
fraction of a share of Caere Common Stock will receive an amount of cash equal
to the per share market value of Caere Common Stock (based on the Designated
Caere Stock Price) multiplied by the fraction of a share of Caere Common Stock
to which the shareholder would otherwise be entitled. Caere intends to use its
current cash resources to fund the payments for fractional shares.
Resolicitation. If more than 3,931,270 shares of Caere Common Stock would
be issued in the Merger or if the Applicable Fraction would be less than
0.18860, then Caere and ViewStar will adjourn their respective shareholder
meetings and resolicit their respective shareholders on their approval of the
Merger. In the event of any such adjournment of the Caere Meeting, prior to such
adjournment the vote on the proposal to approve the amendment to Caere's 1990
Employee Stock Purchase Plan may be taken and completed.
ViewStar Options. Upon consummation of the Merger, each then outstanding
ViewStar Option will automatically be converted into an option to purchase a
number of shares of Caere Common Stock determined by multiplying the number of
shares of ViewStar Common Stock subject to the ViewStar Option by the Applicable
Fraction, at an exercise price per share of Caere Common Stock equal to the
exercise price per share of the ViewStar Option at the time of the Merger
divided by the Applicable Fraction, rounded up to the nearest whole cent. To
avoid fractional shares, the number of shares of Caere Common Stock subject to a
converted ViewStar Option will be rounded down to the nearest whole share, with
no cash being payable for such fractional share. The other terms of each
ViewStar Option, including status as an "incentive stock option" for federal
income tax purposes and vesting schedule, will remain unchanged. Caere will file
a Registration Statement on Form S-8 with the Commission within seven business
days of the Merger Date
5
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with respect to the issuance of shares of Caere Common Stock upon exercise of
the assumed ViewStar Options.
Holders of vested ViewStar Options who exercise such options during the
escrow periods described under "The Merger and Related Transactions -- Escrow"
will have 10% and 3% of such option shares withheld in escrow on the same terms
as ViewStar shareholders.
As of the Merger Date, approximately 1,512,401 shares of ViewStar Common
Stock will be subject to outstanding vested ViewStar Options and approximately
1,294,278 shares of ViewStar Common Stock will be subject to outstanding
unvested ViewStar Options. The foregoing numbers are subject to change based
upon the granting, exercise, termination or expiration of ViewStar Options at or
prior to the Merger Date. Based on the Assumed Applicable Fraction, if the same
number of shares are subject to ViewStar Options at the Merger Date, such
options would be converted into options to purchase an aggregate of
approximately 547,122 shares of Caere Common Stock.
ViewStar Warrants. As of the close of business on the Record Date, there
were outstanding warrants (the "ViewStar Warrants") to purchase an aggregate of
275,000 shares of ViewStar Common Stock and 51,282 shares of ViewStar Preferred
Stock at various exercise prices. All of the ViewStar Warrants will expire by
their terms on the Merger Date unless exercised. Holders of those ViewStar
Warrants having an exercise price below the result of the multiplication of the
applicable exchange ratio for the shares of ViewStar Capital Stock issuable upon
exercise thereof by the Designated Caere Stock Price may elect to exercise such
ViewStar Warrants on a "net exercise" basis by notifying ViewStar that, rather
than tendering the cash required to purchase the full number of shares subject
to the ViewStar Warrant, the holder elects to surrender the ViewStar Warrant in
exchange for a number of shares determined by dividing (a) the aggregate fair
market value of all the shares subject to the ViewStar Warrant (determined by
the value to be received for shares of such class in the Merger) minus the
aggregate cash exercise price of the ViewStar Warrant, by (b) the fair market
value of one share of the class subject to the ViewStar Warrant. Holders of
ViewStar warrants may submit notices of exercise that are conditional on the
consummation of the Merger.
Conversion of Sub Shares. Each share of Sub outstanding on the Merger Date
will convert in the Merger into one share of ViewStar Common Stock.
Surrender of Certificates. If the Merger becomes effective, Caere will
mail a letter of transmittal with instructions to all holders of record of
ViewStar Capital Stock as of the Merger Date for use in surrendering their stock
certificates in exchange for certificates representing Caere Common Stock and a
cash payment in lieu of fractional shares. Certificates representing shares of
ViewStar Capital Stock should not be surrendered until the letter of transmittal
is received.
COMPARATIVE STOCK PRICE AND BOOK VALUE PER SHARE
The following table sets forth the closing prices of Caere Common Stock on
the Nasdaq National Market on October 6, 1995, the last trading day before
announcement of the proposed Merger, and on December 12, 1995, the latest
practicable trading day before the printing of this Prospectus/Joint Proxy
Statement, and equivalent per share prices for ViewStar Common Stock based on
the application of the Assumed Applicable Fraction to the Caere Common Stock
prices at the dates indicated:
CAERE VIEWSTAR
COMMON STOCK EQUIVALENT(A)
------------ -------------
October 6, 1995.................................. $10.00 $1.95
December 12, 1995................................ $8.125 $1.58
- ---------------
(a) Represents the equivalent of one share of ViewStar Common Stock calculated
by multiplying the price per share of Caere Common Stock by the Assumed
Applicable Fraction.
At September 30, 1995, book values per share of Caere Common Stock and
ViewStar Common Stock, the pro forma combined book value per share and the book
value per share of ViewStar Common Stock based on the application of the Assumed
Applicable Fraction to the book value per share of Caere were as follows:
6
18
CAERE VIEWSTAR PRO FORMA VIEWSTAR
COMMON STOCK COMMON STOCK COMBINED EQUIVALENT(B)
------------ ------------ --------- -------------
September 30, 1995........... $ 4.62 $(0.71) $2.99 $0.60
- ---------------
(b) Represents the equivalent of one share of ViewStar Common Stock calculated
by multiplying the pro forma combined book value per share of Caere Common
Stock by the Assumed Applicable Fraction.
Accordingly, the Assumed Applicable Fraction resulted in a premium based on
the respective book values of the shares at September 30, 1995.
RELATED AGREEMENTS
Affiliate Agreements. To help ensure that the Merger will be accounted for
as a "pooling of interests," the executive officers and directors of Caere and
ViewStar and 10% shareholders of ViewStar have executed agreements that require
such persons to vote their shares of ViewStar Capital Stock or Caere Common
Stock, as the case may be, in favor of the Merger and prohibit such persons from
disposing of their shares during the period commencing 30 days prior to the
closing date of the Merger (the "Closing Date") and ending when Caere first
publicly releases its quarterly financial statements including the combined
financial results of ViewStar and Caere for a period of at least 30 days.
Pursuant to such agreements, ViewStar affiliates have also acknowledged the
resale restrictions imposed by Rule 145 promulgated under the Securities Act on
shares received by them in the Merger. In addition, certain shareholders of
ViewStar will also sign agreements making certain representations pertaining to
the "continuity of interest" requirements for a tax-free reorganization. See
"Certain Federal Income Tax Matters" below.
Conversion Agreements. Certain holders of ViewStar Preferred Stock have
agreed to convert not less than 78.5%, 78.1%, 98.1%, 70.4% and 35.0%,
respectively, of all shares of ViewStar Series A, B, C, D and E Preferred Stock
(representing approximately 72% in the aggregate of all shares of Preferred
Stock) into ViewStar Common Stock immediately prior to the Merger Date.
Voting Agreements. Pursuant to voting agreements executed concurrently
with the execution of the Merger Agreement, directors, executive officers and
certain major shareholders of ViewStar holding in the aggregate approximately
51.3% of the outstanding shares of ViewStar Preferred Stock and 22.3% of the
outstanding shares of ViewStar Common Stock have agreed to vote in favor of the
Merger and have granted Robert G. Teresi, Chairman and Chief Executive Officer
of Caere, and Blanche M. Sutter, Vice President, Finance, Chief Financial
Officer and Secretary of Caere, irrevocable proxies to vote their shares of
ViewStar Common Stock and ViewStar Preferred Stock in favor of the Merger.
Including directors, executive officers and certain major shareholders of
ViewStar who have entered into affiliate agreements, holders in the aggregate of
approximately 27.3% of the outstanding shares of ViewStar Common Stock and 80.4%
of the outstanding shares of ViewStar Preferred Stock have agreed to vote for
the Merger.
BENEFITS TO VIEWSTAR EXECUTIVES FROM THE MERGER
Kamran Kheirolomoom, President and Chief Executive Officer of ViewStar, and
Mark Perry, Chairman of the Board of Directors of ViewStar, have employment
agreements with ViewStar that provide significant benefits to them in connection
with their termination or any change of control of ViewStar, such as the Merger.
These benefits include substantial cash payments and the acceleration and
continued vesting of certain stock options. See "The Merger and Related
Transactions -- Benefits to ViewStar Executives from the Merger."
REPRESENTATIONS AND COVENANTS
Under the Merger Agreement, Caere and ViewStar made a number of
representations regarding their respective businesses, capital structures,
operations, financial condition and other matters, including their authority to
enter into the Merger Agreement and to consummate the Merger. Each party
covenanted that, until the consummation of the Merger or the termination of the
Merger Agreement, it will maintain its business, it will not take certain
actions outside the ordinary course of business without the other's consent and
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it will use its commercially reasonable efforts to consummate the Merger.
ViewStar has agreed not to initiate or solicit any proposals relating to the
possible acquisition of ViewStar or any material portion of its capital stock or
assets by any person other than Caere, and has further agreed not to enter into
any agreement providing for any such acquisition. Caere has agreed, if the
Merger is consummated, to maintain to the extent practicable ViewStar's current
employee benefit plans and arrangements until ViewStar's employees are allowed
to participate in comparable Caere plans or arrangements and to use reasonable
efforts to provide ViewStar employees the same or comparable benefits under
Caere's employee benefit plans and arrangements as are provided to similarly
situated employees of Caere. Caere also has agreed to provide employees of
ViewStar with the opportunity to participate in employee stock option or other
incentive compensation plans of Caere on substantially the same terms and
conditions as are available to Caere's similarly situated employees.
ESCROW
The Merger Agreement provides that 10% of the shares of Caere Common Stock
to be issued to ViewStar shareholders and to be issued to holders of vested
ViewStar Options when exercised will be placed in escrow to indemnify Caere for
damages arising from the following circumstances: (a) an inaccuracy in or breach
of a representation or warranty of ViewStar in the Merger Agreement or any
related agreement; (b) a breach of a covenant or obligation of ViewStar or any
of the Signing Shareholders; or (c) any legal proceeding in connection with
clauses (a) and (b). No claims may be asserted against shares in the escrow
after 135 days after the Closing Date. The Escrow Agent is presently expected to
be the State Street Bank and Trust Company. Subject to the retention of shares
in the escrow to cover claims made during the escrow period, any shares
remaining in the escrow after such 135 day period will be distributed pro rata
to the beneficial owners.
The Merger Agreement also provides that 3% of the shares of Caere Common
Stock to be issued to ViewStar shareholders and to be issued to holders of
vested ViewStar Options when exercised will be placed in escrow to compensate
Caere to the extent that (i) ViewStar's legal and accounting fees and the fees
and expenses payable to UBS exceed $750,000; (ii) the costs and expenses of Mr.
Kheirolomoom's employment agreement exceed or will exceed $500,000; (iii) the
costs and expenses of Mr. Perry's employment agreement exceed or will exceed
$400,000; (iv) any amounts are paid or will be paid to employees as severance;
or (v) amounts are paid to employees under the ViewStar employee retention
program in excess of $740,000. This escrow will terminate not later than 90 days
after the Closing Date and any remaining shares will be distributed pro rata to
their beneficial owners. See "The Merger and Related Transactions -- Escrow" and
"-- Benefits to ViewStar Executives from the Merger."
CONDITIONS TO THE MERGER
In addition to the requirement that the approval by the Caere stockholders
and ViewStar shareholders be received, consummation of the Merger is subject to
a number of other conditions that, if not satisfied or waived, may cause the
Merger not to be consummated and the Merger Agreement to be terminated. Each
party's obligation to consummate the Merger is conditioned on, among other
things, the accuracy of the other party's representations, the other party's
performance of its covenants, the absence of a material adverse change with
respect to the other party, favorable legal opinions (including opinions to the
effect that the Merger will be treated for federal income tax purposes as a
tax-free reorganization), and the absence of legal action preventing the
consummation of the Merger.
Caere's obligation to consummate the Merger will be further conditioned
upon (i) the receipt of a letter from KPMG Peat Marwick LLP ("KPMG") that the
Merger will be treated as a pooling of interests for accounting purposes; and
(ii) holders of not more than 10% of the ViewStar Common Stock and not more than
10% of the ViewStar Preferred Stock being eligible to exercise dissenters'
rights of appraisal under California law. See "The Merger and Related
Transactions -- Dissenters' Rights."
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TERMINATION AND BREAK-UP FEES
Termination. The Merger Agreement may be terminated by mutual agreement of
both parties or by either party (i) as a result of a material breach by the
other party of any covenant or agreement set forth in the Merger Agreement; (ii)
if the timely satisfaction of any of its conditions for closing the Merger has
become impossible; (iii) if any of its closing conditions have not been
satisfied at the "Scheduled Closing Time" (which is no later than third day
after the Caere Meeting); or (iv) if the Closing has not taken place or before
the Final Date (as defined below).
The term "Final Date" is defined in the Merger Agreement as March 31, 1996,
except that if a temporary, preliminary or permanent injunction or other order
by any federal or state court that would prohibit or otherwise restrain
consummation of the Merger is issued and in effect on such date, and such
injunction has not become final and nonappealable, either ViewStar or Caere may,
by giving the other written notice thereof on or prior to March 31, 1996, extend
the time for consummation of the Merger up to and including the earlier of the
date such injunction becomes final and nonappealable or June 30, 1996, so long
as ViewStar or Caere shall, at its own expense, use its best efforts to have
such injunction dissolved.
Break-up Fees. In the event of a termination by ViewStar of the Merger
Agreement due to the failure of certain closing conditions deemed by the parties
to be within Caere's reasonable control, Caere would be required to pay ViewStar
$1,200,000. In addition, Caere would be required to pay ViewStar $1,200,000 if
Caere's stockholders fail to approve the Merger and (i) Caere's Board of
Directors failed to recommend the Merger or withdrew its recommendation or (ii)
a third party announced its intention to acquire Caere prior to the Caere
stockholders' vote on the Merger.
In the event of a termination by Caere, due to the failure of any of
certain conditions deemed by the parties to be within ViewStar's reasonable
control, ViewStar would be required to pay Caere $1,200,000. In addition,
ViewStar would be required to pay Caere $1,200,000 if ViewStar's shareholders
fail to approve the Merger by sufficient votes to preclude the possibility of
more than 10% of the shares of ViewStar Common Stock or 10% of the shares of
ViewStar Preferred Stock becoming dissenting shares and (i) ViewStar's Board of
Directors' failed to recommend the Merger or withdrew its recommendation or (ii)
a third party announced its intention to acquire ViewStar prior to the ViewStar
shareholders' vote on the Merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is expected to be a tax-free reorganization for federal income
tax purposes, so that no gain or loss will be recognized by the ViewStar
shareholders on the exchange of ViewStar capital stock for Caere Common Stock,
except to the extent that ViewStar shareholders receive cash in lieu of
fractional shares or upon exercise of dissenters' or appraisal rights. The
Merger Agreement does not require the parties to obtain a ruling from the
Internal Revenue Service as to the tax consequences of the Merger. As a
condition to Caere's and ViewStar's obligations to consummate the Merger, Caere
and ViewStar are to receive opinions at the Merger Date from their respective
legal counsel that the Merger will be treated as a tax-free reorganization for
federal income tax purposes. ViewStar shareholders are urged to consult their
own tax advisors regarding such tax consequences. See "The Merger and Related
Transactions -- Certain Federal Income Tax Matters."
ACCOUNTING TREATMENT
The Merger is intended to be treated as a pooling of interests for
accounting purposes. As a condition to Caere's obligation to consummate the
Merger, Caere is to receive a letter to such effect from KPMG, the independent
auditors for Caere. See "The Merger and Related Transactions -- Accounting
Treatment."
APPRAISAL AND DISSENTERS' RIGHTS
If the Merger Agreement is approved by the required vote of ViewStar
shareholders and is not abandoned or terminated, holders of ViewStar Capital
Stock who did not vote in favor of the Merger may, by complying with the
California General Corporation Law (the "California Law"), Sections 1300 through
1312, be entitled to dissenters' rights as described therein. However, it is a
condition to Caere's obligation to consummate the
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Merger that not more than 10% of the shares of ViewStar Common Stock and 10% of
the shares of ViewStar Preferred Stock be eligible to exercise dissenters'
rights. Under the Delaware General Corporation Law (the "Delaware Law"), Caere
stockholders are not entitled to dissenters' rights or appraisal rights with
respect to the proposed Merger. See "The Merger and Related
Transactions -- Appraisal and Dissenters' Rights."
MERGER EXPENSES
Caere and ViewStar estimate that they will incur direct transaction costs
of approximately $2.1 million associated with the Merger. These nonrecurring
transaction costs will be charged to operations upon consummation of the Merger.
In addition, Caere anticipates incurring a charge upon consummation of the
Merger of $2.0 million to $2.2 million to reflect costs and expenses relating to
integrating the two companies. See "Pro Forma Combined Condensed Financial
Information" included elsewhere herein.
Whether or not the Merger is consummated, except as set forth below, each
party will bear its own costs and expenses in connection with the Merger and the
transactions provided for therein. Caere has agreed to pay RS & Co. a
transaction fee of $575,000 if the Merger is consummated, $200,000 of which was
payable upon delivery by RS & Co. of its fairness opinion and the balance of
which will be paid within ten days after the Merger Date. See "The Merger and
Related Transactions -- Opinion of Financial Advisor."
For services rendered to ViewStar in connection with the Merger, ViewStar
has agreed to pay UBS a fee of 1.5% percent of the value of the consideration
paid by Caere in the Merger (which consideration includes certain indebtedness
of ViewStar on the Merger Date) and has also agreed to reimburse UBS for
reasonable out-of-pocket expenses incurred in connection with this transaction.
Steven Brooks, a managing director of UBS, is a director of ViewStar.
WAIVERS AND AMENDMENTS
At any time at or prior to the Merger Date, to the extent legally allowed,
Caere or ViewStar, without approval of the stockholders or shareholders,
respectively, of such company, may waive compliance with any of the agreements
or conditions contained in the Merger Agreement for the benefit of that company.
Neither Caere nor ViewStar currently intends to waive compliance with any such
agreements or conditions.
The Merger Agreement may be amended by Caere and ViewStar at any time
before or after approval of the Caere stockholders or the ViewStar shareholders,
except that, after such approval, no amendment may be made that requires the
further approval of the Caere stockholders or the ViewStar shareholders under
applicable law, unless such approval is obtained.
REGULATORY MATTERS
Caere and ViewStar are not aware of any governmental or regulatory
approvals required for consummation of the Merger, other than compliance with
the federal securities laws and applicable securities and "blue sky" laws of the
various states.
ADDITIONAL MATTER FOR CAERE STOCKHOLDERS
In addition to the proposal to approve and adopt the Merger Agreement and
the Merger, Caere stockholders will be asked at the Caere Meeting to consider
and vote upon a proposal to approve an amendment to the Purchase Plan to
increase the number of shares of Caere Common Stock available under the Purchase
Plan from 350,000 to 500,000, an increase of 150,000 shares. See "Additional
Matter for Consideration of Caere Stockholders."
Caere's Board of Directors has unanimously approved the amendment to the
Purchase Plan and unanimously recommends that the stockholders of Caere approve
the amendment to the Purchase Plan.
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ADDITIONAL MATTER FOR VIEWSTAR SHAREHOLDERS
In addition to the proposal to approve the Merger Agreement and the Merger,
ViewStar shareholders will be asked at the ViewStar Meeting to consider and vote
upon a proposal to approve certain payments and benefits pursuant to the
Employment Agreements between ViewStar and, respectively, the President and
Chief Executive Officer of ViewStar and the Chairman of the Board of Directors
of ViewStar. If such proposal is approved, the full amount of payments and
benefits under the Employment Agreements will be paid without the adverse tax
consequences otherwise associated with "excess parachute payments" under Section
280G of the Internal Revenue Code, including loss of tax deductions to ViewStar
and imposition of a 20% excise tax on the recipients of such payments and
benefits. Certain shareholders of ViewStar have agreed to vote all of the shares
of ViewStar Capital Stock owned or controlled by them for such approval. As of
the Record Date, such shareholders owned approximately 76.5% of the shares of
ViewStar Capital Stock, voting together as a single class, excluding the shares
of ViewStar Capital Stock owned by the President and Chief Executive Officer of
ViewStar and the Chairman of the Board of Directors of ViewStar. See "Additional
Matter for Consideration for ViewStar Shareholders."
ViewStar's Board of Directors has unanimously approved such payments and
benefits pursuant to the Employment Agreements and unanimously recommends that
the shareholders of ViewStar approve such payments and benefits. The President
and Chief Executive Officer of ViewStar and the Chairman of the Board of
Directors of ViewStar are members of the Board of Directors of ViewStar.
MARKET PRICE DATA
The following table sets forth the range of high and low bid prices
reported on the Nasdaq National Market for Caere Common Stock for the periods
indicated:
HIGH LOW
------- -------
Fiscal Year Ended December 31, 1993:
First Quarter...................................... $24.50 $12.50
Second Quarter..................................... 13.50 6.50
Third Quarter...................................... 8.50 5.50
Fourth Quarter..................................... 10.00 5.50
Fiscal Year Ended December 31, 1994:
First Quarter...................................... 11.125 7.25
Second Quarter..................................... 9.625 6.25
Third Quarter...................................... 10.25 6.50
Fourth Quarter..................................... 19.625 9.125
Fiscal Year Ended December 31, 1995:
First Quarter...................................... 18.25 9.25
Second Quarter..................................... 10.25 7.875
Third Quarter...................................... 13.125 8.25
Fourth Quarter (through December 12, 1995)......... 10.625 7.50
As of the Record Date, December 12, 1995, there were approximately 569
stockholders of record who held shares of Caere Common Stock, as shown on the
records of Caere's transfer agent for such shares. As of that date, there were
approximately 263 shareholders of record who held shares of ViewStar Capital
Stock.
Caere has never paid any cash dividends on its stock, and anticipates that
for the foreseeable future it will continue to retain any earnings for use in
the operation of its business.
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SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following selected historical financial information of Caere and
ViewStar has been derived from their respective historical financial statements,
and should be read in conjunction with such consolidated financial statements
and the notes thereto, included or incorporated by reference herein. The
selected pro forma financial information is derived from the pro forma combined
condensed financial statements, which give effect to the Merger as a pooling of
interests and should be read in conjunction with such pro forma statements and
the notes thereto included in this Prospectus/Joint Proxy Statement. For
purposes of the pro forma operating data, Caere's consolidated financial
statements for the two fiscal years ended December 31, 1993 and 1994, and for
the nine months ended September 30, 1995 have been combined with the ViewStar
financial statements for the two fiscal years ended December 31, 1993 and 1994,
and for the nine months ended September 30, 1995. No dividends have been
declared or paid on Caere Common Stock or ViewStar Capital Stock. The pro forma
information is presented for illustrative purposes only and is not necessarily
indicative of the operating results or financial position that would have
occurred if the Merger had been consummated at the beginning of the periods
indicated, nor is it necessarily indicative of future operating results or
financial position.
CAERE SELECTED HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
----------------------------------------------- SEPTEMBER 30,
1990 1991 1992 1993 1994 1995
------- ------- ------- ------- ------- -------------
HISTORICAL CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net revenues....................... $44,248 $51,529 $57,093 $48,264 $59,130 $38,453
Operating earnings (loss).......... 4,652 8,580 7,784 (2,758) 2,612 981
Earnings (loss) before cumulative
effect of change in accounting
principle....................... 3,728 6,560 4,774 (608) 2,384 2,169
Earnings (loss) before cumulative
effect of change in accounting
principle per share............. $ 0.29 $ 0.51 $ 0.36 $ (0.05) $ 0.18 $ 0.16
Shares used in per share
calculation..................... 12,792 12,911 13,318 12,639 13,136 13,477
AS OF DECEMBER 31, AS OF
----------------------------------------------- SEPTEMBER 30,
1990 1991 1992 1993 1994 1995
------- ------- ------- ------- ------- -------------
HISTORICAL CONSOLIDATED BALANCE SHEET
DATA:
Cash and short-term investments.... $28,379 $33,998 $40,977 $39,325 $51,099 $45,414
Working capital.................... 35,470 42,557 47,340 46,552 53,729 54,535
Total assets....................... 45,260 55,134 63,001 58,684 67,902 67,371
Stockholders' equity............... 39,878 47,310 54,430 51,620 57,753 61,194
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VIEWSTAR SELECTED HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
------------------------------------------------ SEPTEMBER 30,
1990 1991 1992 1993 1994 1995
------- ------- ------- ------- -------- -------------
HISTORICAL STATEMENT OF OPERATIONS
DATA:
License fees...................... $ 6,898 $ 6,580 $10,790 $15,847 $ 10,436 $ 8,491
Services.......................... -- 3,381 6,616 10,205 11,857 8,517
Hardware sales and fees........... -- 2,489 5,725 2,044 519 70
------- ------- ------- ------- -------- -------
Net revenues.............. 6,898 12,450 23,131 28,096 22,812 17,078
Operating loss.................... (4,057) (893) (226) (1,876) (11,122) (7,119)
Loss before income taxes.......... (3,906) (841) (335) (2,196) (11,207) (7,408)
Net loss.......................... (3,906) (841) (412) (2,315) (11,262) (7,440)
Net loss per share................ $ (2.97) $ (.63) $ (.29) $ (1.46) $ (6.06) $ (3.19)
Shares used in per share
calculation.................... 1,316 1,325 1,425 1,591 1,857 2,329
AS OF DECEMBER 31, AS OF
------------------------------------------------ SEPTEMBER 30,
1990 1991 1992 1993 1994 1995
------- ------- ------- ------- -------- -------------
HISTORICAL BALANCE SHEET DATA:
Cash and cash equivalents......... $3,756 $3,832 $ 4,030 $ 5,914 $ 4,094 $ 750
Working capital(1)................ 1,066 5,119 4,666 5,800 (3,513 ) (10,462)
Total assets...................... 7,556 9,395 15,199 18,581 17,856 11,156
Shareholders' equity.............. 1,410 5,801 5,546 7,175 (978 ) (8,349)
THREE MONTH PERIOD ENDED
----------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30,
1995 1995 1995
--------- -------- -------------
License fees.............................................. $ 1,086 $ 2,977 $ 4,428
Services.................................................. 2,706 2,759 3,052
Hardware sales and fees................................... 27 45 (2)
------- ------- ------
Net revenues.................................... 3,819 5,781 7,478
Operating loss............................................ (4,338) (2,554) (227)
Loss before income taxes.................................. (4,372) (2,667) (369)
Net loss.................................................. (4,372) (2,699) (369)
Net loss per share........................................ (1.98) (1.14) (.15)
Shares used in per share calculation...................... 2,205 2,376 2,404
- ---------------
(1) Working capital as of September 30, 1995 includes $9,995,000 of deferred
revenues.
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SELECTED PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINE MONTHS
YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER
------------------- 30,
1993 1994 1995
------- ------- -----------
PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS DATA:
Net revenues.............................................. $76,360 $81,942 $55,531
Operating loss............................................ (4,634) (8,510) (6,138)
Loss before cumulative effect of change in accounting
principle.............................................. (2,923) (8,878) (5,271)
Loss before cumulative effect of change in accounting
principle per share.................................... $ (0.20) $ (0.58) $ (0.33)
Shares used in per share calculation...................... 14,934 15,381 16,176
AS OF
SEPTEMBER 30,
1995
-------------
PRO FORMA COMBINED CONDENSED BALANCE SHEET DATA:
Working capital............................................................... $40,023
Total assets.................................................................. 76,277
Stockholders' equity.......................................................... 48,545
See "Pro Forma Combined Condensed Financial Information" and accompanying
notes thereto.
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COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of Caere
and ViewStar and combined per share data on an unaudited pro forma basis after
giving effect to the Merger on a pooling of interests basis of accounting. This
data should be read in conjunction with the selected financial data, the pro
forma combined condensed financial information and the separate historical
financial statements of Caere and ViewStar and notes thereto, incorporated by
reference herein or included elsewhere in this Prospectus/Joint Proxy Statement.
The pro forma combined financial data are not necessarily indicative of the
operating results that would have been achieved had the Merger been consummated
as of the beginning of the periods presented and should not be construed as
representative of future operations.
YEARS ENDED NINE MONTHS
DECEMBER 31, ENDED
------------------ SEPTEMBER 30,
1993 1994 1995
------ ------ -------------
Historical -- Caere:
Earnings (loss) before cumulative effect of change in
accounting principle per share......................... $(0.05) $ 0.18 $ 0.16
Historical -- ViewStar:
Net loss per share........................................ $(1.46) $(6.06) $ (3.19)
Pro forma combined loss before cumulative effect of change
in accounting principle per share(2):
Per Caere share........................................... $(0.20) $(0.58) $ (0.33)
Equivalent per ViewStar share(3).......................... $(0.04) $(0.12) $ (0.07)
AS OF
------------------------------
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
Historical book value per share(1):
Per Caere share.................................................. $ 4.43 $ 4.62
Per ViewStar share............................................... $(0.09) $ (0.71)
Pro forma combined book value per share(2)(4):
Per Caere share.................................................. $ 3.28 $ 2.99
Equivalent per ViewStar share(3)................................. $ 0.66 $ 0.60
- ---------------
(1) The historical book value per share is computed, in the case of Caere, by
dividing stockholders' equity by the number of shares of Caere Common Stock
outstanding at the end of each period and, in the case of ViewStar, by
dividing shareholders' equity by the number of shares of ViewStar Common
Stock and ViewStar Preferred Stock, on an as-converted basis, outstanding at
the end of each period.
(2) Caere and ViewStar estimate they will incur direct transaction costs of
approximately $2.1 million associated with the Merger, which will be charged
to operations upon consummation of the Merger. In addition, it is expected
that after the Merger, Caere will incur additional charges to operations,
currently estimated to be $2.0 to $2.2 million, to reflect costs associated
with integrating the two companies. The Pro Forma Combined Book Value Per
Share data give effect to estimated direct transaction costs and a $2.2
million charge relating to integrating the two companies as if such costs
and charge had been incurred as of September 30, 1995. These costs and
charges are not included in the pro forma loss before cumulative effect of
change in accounting principle per share data. See "Pro Forma Combined
Condensed Financial Information" and accompanying notes thereto.
(3) The ViewStar Equivalent Pro Forma Combined Per Share amounts are calculated
by multiplying the Caere combined pro forma per share amounts by the Assumed
Applicable Fraction of .19494.
(4) The Pro Forma Combined Book Value Per Share is computed by dividing pro
forma stockholders' equity by the pro forma number of shares of common stock
outstanding at the end of each period.
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RISK FACTORS
Each Caere stockholder and ViewStar shareholder should carefully consider
and evaluate the following factors, among others, before voting on the proposed
Merger.
VIEWSTAR HISTORY OF OPERATING LOSSES AND UNCERTAINTY OF FUTURE OPERATING RESULTS
ViewStar has never operated profitably and incurred net losses of
$11,262,000 in 1994 and $7,440,000 for the first nine months of 1995. These
substantial losses resulted primarily from (i) costs associated with the
expansion of ViewStar's direct sales force and other personnel additions in the
second half of 1993 in anticipation of expected 1994 revenue growth, (ii)
decreases in license fee revenues beginning in the first quarter of 1994, and
(iii) expenditures to augment ViewStar's service and support capability in the
first half of 1994. The license fee revenue decreases resulted primarily from
significant customer dissatisfaction with ViewStar's inability to meet customer
service and support demands that arose from several large orders received in the
second half of 1993. Such customer dissatisfaction and resulting lost revenue
opportunities also contributed to a significant number of resignations in
ViewStar's direct sales force, which had further adverse effects on license fee
revenues.
ViewStar addressed these problems by (i) shifting its focus from direct
sales to an increasing reliance on system integrators and distributors to serve
its target customer base, (ii) restructuring its senior management team, (iii)
revamping its sales and distribution organization, (iv) adding employees to meet
the service and support requirements and (v) adding employees to accelerate
development of new product releases, 4.0 and 4.1. Costs associated with certain
of these actions, coupled with reduced revenues, resulted in substantial losses
in 1994 and the first half of 1995.
ViewStar attributes renewed revenue growth in the second and third quarters
of 1995 to the effects of the foregoing actions and the introduction of product
releases 4.0 and 4.1. However, there is no assurance that the recently positive
revenue trend will continue. Moreover, although ViewStar operated profitably in
the third quarter, excluding severance related costs, there can be no assurance
that ViewStar's business can operate profitably on a sustained basis.
TRANSITION OF CAERE BUSINESS MODEL
During 1994, Caere began to bundle versions of its OmniPage and WordScan
software recognition products with scanners from various manufacturers. Caere's
objective in bundling its software products with scanners was to expand the
overall market for OCR software by providing a larger number of scanner
purchasers with experience in the advantages of optical character recognition.
The success of this model, compared to Caere's former model of selling its
software primarily through retail distribution, depends upon a significant
proportion of customers who first receive OCR software in a bundled product
deciding to upgrade to a newer or more fully featured version of the software.
Such an upgrade is typically at a substantially lower price than the retail
price of the newer or fully featured product.
Bundled products incorporating OmniPage and WordScan began shipping in
significant quantities in the fourth quarter of 1994. Because of the lower
per-unit revenue to Caere that results from the combined sale of a bundled
product plus an upgrade compared to the retail sale of a fully featured version
of the software, the "bundle and upgrade" program resulted in decreased revenues
from software recognition products for the first nine months of 1995 compared to
the first nine months of 1994, despite an increase of 92% in unit sales for the
same comparison periods. There can be no assurance that Caere's transition to
the "bundle and upgrade" business model will be successful and provide
sufficient increases in unit volume in the future to offset reduced per-unit
revenue. In addition, customers using the bundled products may defer or forego
purchase of Caere's more fully featured versions of OmniPage and WordScan
products, if they find that the bundled products satisfy their recognition
needs.
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FLUCTUATIONS IN OPERATING RESULTS
Caere's and ViewStar's revenues and operating results have fluctuated in
the past and the combined company's future revenues and operating results are
likely to do so in the future, particularly on a quarterly basis.
ViewStar's license revenues are difficult to forecast because ViewStar's
sales cycle is relatively long and quarterly revenues depend on a relatively few
large contracts that are subject to changes in customer budgets and general
economic conditions. Because ViewStar's operating expenses are based on
anticipated revenue levels and a high percentage of ViewStar's expenses are
relatively fixed, the timing of revenues from a single contract can cause
significant fluctuations in operating results from quarter to quarter and may
adversely affect operating results. In addition, ViewStar historically has
operated with little backlog because its software products are generally shipped
as orders are received. As a result, license revenues in any quarter are
substantially dependent on orders booked and shipped in that quarter. Further,
certain contracts may constitute a significant portion of the operating profits
for the quarter in which they are signed. Historically, ViewStar has often
recognized a substantial portion of its revenues in the last month of the
quarter, with these revenues frequently concentrated in the last week of the
quarter. In addition, changes in levels of consulting activity and seasonality
in training revenues, which tend to lag license fee revenues by approximately
one quarter, have resulted in variability of services revenues from quarter to
quarter. ViewStar also generally has realized lower revenues from license fees
in the first quarter of the year than in the immediately preceding quarter.
ViewStar believes that this has been primarily due to the concentration by some
customers of larger capital purchases in the fourth quarter of the calendar
year, followed by lower purchasing activity during the first quarter of the
calendar year. Accordingly, revenues in any quarter are not indicative of
revenues in any future period. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations of ViewStar."
Caere's experience has been that a disproportionately large percentage of
shipments has occurred in the third month of each fiscal quarter and that
shipments tend to be concentrated in the latter half of the month. Backlogs
early in a quarter are not generally large enough to assure that Caere will meet
its revenue target for any particular quarter. A shortfall in shipments at the
end of any particular quarter may cause the results for that quarter to fall
significantly short of anticipated levels.
The combined company's quarterly operating results may continue to
fluctuate due to numerous other factors. Some of these factors include the
demand for the combined company's products, seasonality, customer order
deferrals in anticipation of new versions of the combined company's products,
the introduction of new products and product enhancements by the combined
company or its competitors, including the effects of filling the distribution
channels following such introductions and of potential delays in availability of
announced or anticipated products, price changes by the combined company or its
competitors, product sales mix, the mix of license and service revenue,
commencement or conclusion of significant development contracts, changes in
foreign currency exchange rates, timing of acquisitions and associated costs,
and timing of significant marketing and sales promotions.
COMPETITION AND PRICE EROSION
The computer software and hardware markets in which both Caere and ViewStar
participate are highly competitive and characterized by rapid change and
improvements in technology along with constant pressure to reduce prices. Many
of the combined company's competitors will have substantially greater financial,
marketing, recruiting and training resources than the combined company.
ViewStar's principal competitors include International Business Machines
Corp. ("IBM"), Unisys Corporation, Wang Laboratories, Inc. ("Wang"), FileNet
Corporation ("FileNet") and numerous smaller software vendors. ViewStar also
faces competition from systems integrators who configure hardware and software
into customized systems. In addition, new companies continue to enter the
market. As the market for client-server document management and workflow
software becomes increasingly competitive, many companies are offering lower
priced products which compete with ViewStar products.
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Caere faces two distinct types of competition in its OCR product line.
First, several companies offer packaged OCR application programs through the
retail distribution channel, including Xerox Corp. ("Xerox") and several small
independent software vendors. Caere expects to face significant competition and
price erosion in the retail channel.
The second area of increasing competition is in the OEM market, where
companies license OCR technology to be incorporated into application software
products, or to be "bundled" with related hardware products such as scanners or
fax modems. Xerox is currently a major competitor in the OEM market and Adobe
Systems Incorporated ("Adobe") is a potential major competitor in this market.
Caere's strategy of bundling several products may encourage additional
competitors to bundle some or all of their products and offer them at a reduced
price.
NEW PRODUCTS AND TECHNOLOGICAL CHANGE
The industries in which both Caere and ViewStar participate are
characterized by rapid technological change, frequent product introductions and
improvements and decreasing prices for both hardware and software. Accordingly,
the combined company's success will depend in part upon its ability to develop
product enhancements and new products that keep pace with continuing changes in
technology and customer preferences while remaining price competitive. There can
be no assurance that the combined company will be successful in developing
product enhancements or new products to keep abreast of changing technologies,
that it will be able to introduce such products on a timely basis, or that any
such products or enhancements will be successful in the marketplace. The
combined company's failure to develop technological improvements or to adapt its
products to technological change on a timely basis may, over time, have a
material adverse effect on the combined company's business.
In addition, Caere will be subject to the risk that significant portions of
the functionality provided by its OCR products could be incorporated into
computer operating systems such as those developed and marketed by Microsoft
Corp., Apple Computer, Inc., IBM and Novell, Inc., which could have a material
adverse effect on the combined company's revenues and results of operations.
Caere and ViewStar have incurred, and the combined company expects to
continue to incur, substantial expenses associated with the introduction and
promotion of new products. There can be no assurance that the expenses incurred
will not exceed development budgets or that new products will achieve market
acceptance and generate sales sufficient to offset development costs. In
addition, programs as complex as those offered by Caere and ViewStar may contain
a number of undetected errors or bugs when they are first introduced or as new
versions are released. There can be no assurance that, despite testing by Caere
and ViewStar and by third-party test sites, errors will not be found in future
releases of the combined company's products, which would negatively affect
market acceptance of these products.
The introduction of new or enhanced products requires Caere and ViewStar to
manage the transition from older products. ViewStar must encourage the
transition of customers to new product releases in order to minimize the costs
associated with supporting multiple product versions. Caere must manage new
product introductions so as to minimize disruption in customer ordering
patterns, avoid excessive levels of older product inventories and ensure that
adequate supplies of new products can be delivered to meet customer demands.
Caere and ViewStar have from time to time experienced delays in the shipment of
new products. There can be no assurance that future product transitions will be
managed successfully by the combined company.
COMBINATION OF THE COMPANIES; POSSIBLE ADVERSE EFFECT ON FINANCIAL RESULTS
The combination of the two organizations will require the dedication of
management resources, which will temporarily distract attention from the
day-to-day business of the combined company. There can be no assurance that the
combination will be completed without disrupting Caere's and ViewStar's
businesses. Should Caere and ViewStar not be able to combine their businesses in
a timely and coordinated fashion, it could result in a material adverse effect
on operating results. Moreover, the ability of the combined company to retain
key management, technical, sales and marketing personnel will be critical to the
combined company's
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future operations. In addition, the anticipated combination of the two companies
may cause uncertainties, hesitation and possible dissatisfaction among customers
and potential customers of Caere and ViewStar.
Caere and ViewStar estimate they will incur direct transaction costs of
approximately $2.1 million associated with the Merger. These nonrecurring
transaction costs will be charged to operations upon consummation of the Merger.
In addition, Caere anticipates incurring an additional charge upon consummation
of the Merger of $2.0 million to $2.2 million to reflect costs and expenses
relating to integrating the two companies. See "Pro Forma Combined Condensed
Financial Information" included elsewhere herein.
KEY PERSONNEL
Caere's and ViewStar's success depends to a significant degree upon the
continued contributions of the combined company's key management, marketing,
product development and operational personnel. In the past fifteen months, both
Caere and ViewStar have filled a number of key management positions. The success
of the combined company will depend to a large extent upon its ability to retain
and continue to attract highly skilled personnel. Competition for employees in
the computer industry is intense, and there can be no assurance that the
combined company will be able to attract and retain enough qualified employees.
If the business of the combined company grows, it may become increasingly
difficult for it to hire, train and assimilate the new employees needed. In
addition, it is possible that the business changes or uncertainty brought about
by the Merger may cause key employees to leave Caere or ViewStar prior to the
Merger or to leave the combined company following the Merger. The combined
company's inability to retain and attract key employees could have a material
adverse effect on the combined company's product development and results of
operations. Neither Caere or ViewStar carries any key person life insurance with
respect to any of its personnel.
DEPENDENCE UPON COMPLEX SERVICE DELIVERY MODEL
Successful implementation of ViewStar's software often requires significant
and complex add-on implementation and integration services, which may be
provided by ViewStar or by other certified service providers. These complex
services require close coordination between ViewStar's service and support
functions, the customer's internal support resources, and third party
integration service providers. The combined company's future operating results
will be dependent on its ability to coordinate these complex service resources
and assure successful implementation of the ViewStar software, while limiting
the costs that the combined company incurs. Customer satisfaction in certain key
accounts may be critical to generating additional business in these customers'
industries or geographic areas. In such accounts, ViewStar may have to devote
significant additional resources to ensure successful implementation and
integration, thereby negatively affecting profitability. Failure to achieve
customer satisfaction despite such efforts could adversely affect future
operating results.
LACK OF PRODUCT REVENUE DIVERSIFICATION
ViewStar derived substantially all of its revenues in the first nine months
of 1995 from its workflow and document management software. Caere derived
approximately 80% of sales in the first nine months of 1995 from the OmniPage
and WordScan line of products. Caere expects that these software products will
continue to account for a majority of the combined company's sales in the
future. A decline in demand for these products as a result of competition,
technological change or other factors would have a material adverse effect on
the combined company's results of operations.
DEPENDENCE ON DISTRIBUTION PARTNERS
Commencing in 1994, ViewStar reduced its reliance on its direct sales force
and increased its reliance on sales through system integrators and distributors.
ViewStar license revenues through system integrators and distributors have
increased from 22% of license fees in 1994 to 35% for the nine months ended
September 30, 1995. Through their extensive business relationships, system
integrators and distributors have the capacity to generate greater volumes of
orders than ViewStar's direct sales force. Moreover, systems integrators and
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distributors are able to provide a substantial amount of the service and support
that would otherwise have to be supplied by ViewStar. Most of ViewStar's system
integrators and distributors do not have long-standing relationships with
ViewStar and may cease actively marketing ViewStar products at any time. Some of
ViewStar's system integrators and distributors also offer competing products or
systems manufactured by third parties or themselves. The loss of one or more
system integrators or distributors, or the failure of the parties to renew
agreements with ViewStar on expiration, could have a material adverse effect on
ViewStar's business, revenue growth and operating results.
Caere's sales are made primarily through independent distributors,
value-added resellers ("VARs"), original equipment manufacturers ("OEMs"),
independent software vendors, and systems integrators, and to retail dealers and
chains. Accordingly, the combined company will be dependent upon the continued
viability and financial stability of such distributors and resellers, which are
not under the direct control of Caere. In addition, sales by these resellers and
distributors in turn are substantially dependent upon the growth of the personal
computer industry. Due in part to the historical volatility of the personal
computer industry, certain of Caere's resellers have from time to time
experienced declining profit margins, cash flow shortages and other financial
difficulties. The future growth and success of the combined company will
continue to depend in large part upon its resale channels. If its resellers were
to experience financial difficulties, the combined company's results of
operations could be adversely affected. Additionally, there are increasing
numbers of companies competing for access to these distribution channels.
Distributors and retailers often carry competing products. Retailers of Caere's
products typically have a limited amount of shelf space and promotional
resources for which there is intense competition. Caere's arrangements with its
respective distributors may be terminated by either party at any time without
cause. There can be no assurance that distributors and retailers will continue
to provide the combined company's products with adequate levels of shelf space
and promotional support. Failure to do so would have a material adverse effect
on the combined company's results of operations.
RISK OF PRODUCT RETURNS
Like other manufacturers of packaged software products, Caere is exposed to
the risk of product returns from distributors. Although Caere attempts to
monitor and manage the volume of its sales to distributors, overstocking by its
distributors may lead the combined company to accept returns, whether or not the
distributors have a contractual right to return the products. In addition, the
risk of product returns may increase if the demand for new products introduced
by the combined company is lower than Caere or its distributors anticipate at
the time of introduction. Although Caere believes that it provides adequate
allowances for returns, there can be no assurance that actual returns will not
exceed the combined company's allowances. Any product returns in excess of
recorded allowances could result in a material adverse effect on operating
results of the combined company.
INTERNATIONAL SALES
Caere's international sales for the nine months ended September 30, 1995
represented approximately 29% of Caere's net revenues. ViewStar's international
sales for the same period represented approximately 26% of ViewStar's net sales.
Caere expects that international sales will continue to represent a significant
portion of the combined company's product revenues and that the combined company
will be subject to the normal risks of international sales, such as export laws,
currency fluctuations, longer payment cycles, greater difficulties in accounts
receivable collections and the requirement of complying with a wide variety of
foreign laws. Although Caere and ViewStar have not previously experienced any
difficulties under foreign law in exporting their products to other countries,
there can be no assurance that the combined company will not experience such
difficulties in foreign countries in the future. Any such difficulties would
have a material adverse effect on the combined company's international sales. In
addition, because both companies invoice their foreign sales in U.S. dollars,
fluctuations in exchange rates could affect demand for the combined company's
products by causing their prices to be out of line with products priced in the
local currency. See also "Risk Factors -- Dependence on Proprietary Rights;
Uncertainty of Obtaining Licenses."
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MATURE MARKETS FOR CERTAIN OCR PRODUCTS
For fiscal years ended December 31, 1993 and 1994 and for the nine months
ended September 30, 1995, Caere derived approximately 22%, 15% and 14%,
respectively, of its net revenues from sales of its transaction processing OCR
and bar code products. The market for both of these sets of products is
relatively mature and may not be subject to growth or expansion by the combined
company in the future. There can be no assurance that Caere's hardware-based
transaction processing products will continue to be a significant source of net
revenues for the combined company.
DEPENDENCE ON SOLE SOURCE SUPPLIERS
Most of the components used in the manufacture of Caere's products are
available from multiple sources of supply. Certain components used in the
manufacture of Caere's transaction processing products, however, are each
currently available only from a single source. Although Caere generally
maintains several months of inventory of these components, failure of a
single-source supplier to deliver required quantities of such materials could
materially adversely affect the combined company's operating results. Caere
believes that, if necessary, it could develop alternative sources of supply for
these components and parts, or re-engineer the products. However, any delays in
developing such alternative sources of supply or in the re-engineering of the
products could have a material adverse effect on the combined company's results
of operations.
DEPENDENCE ON MARKET ACCEPTANCE OF IMAGE INPUT DEVICES
Although Caere is seeking to diversify its product line, Caere's revenues
since 1992 have been derived primarily from software products that are designed
for use with scanners, computer fax images, digital photocopiers and other
similar image sources. The demand for Caere products depends upon continued
growth in unit sales of these image input devices and upon Caere's ability to
maintain the compatibility of its products with all or most of these
commercially available image input devices. Although image input device sales
have increased in recent years, there can be no assurance that sales growth will
continue. Any significant decline in the level of image input device sales would
have an immediate and materially adverse effect on the combined company's
revenues.
DEPENDENCE ON PROPRIETARY RIGHTS; UNCERTAINTY OF OBTAINING LICENSES
Caere and ViewStar rely on a combination of patent, copyright, trademark
and trade secret protection, nondisclosure agreements and cross-licensing
arrangements to establish and protect their proprietary rights. Caere has a
number of patents and patent applications and intends to file additional patent
applications as it considers appropriate. There can be no assurance that patents
will issue from any of these pending applications or, if patents do issue, that
any claims allowed will be sufficiently broad to protect Caere's technology. In
addition, there can be no assurance that any patents that may be issued to Caere
will not be challenged, invalidated or circumvented, or that any rights granted
thereunder would provide proprietary protection to the combined company. Caere
and ViewStar each have a number of trademarks and trademark applications. There
can be no assurance that litigation with respect to trademarks will not result
from the combined company's use of registered or common law marks, or that, if
litigation against the combined company were successful, any resulting loss of
the right to use a trademark would not reduce sales of the combined company's
products in addition to the possibility of a significant damages award.
Although, following the Merger, Caere intends to defend the proprietary rights
of the combined company, policing unauthorized use of proprietary technology or
products is difficult, and there can be no assurance that Caere's efforts will
be successful. The laws of certain foreign countries may not protect the
proprietary rights of the combined company to the same extent as do the laws of
the United States.
Caere and ViewStar have received, and may receive in the future,
communications asserting that their products infringe the proprietary rights of
third parties or seeking indemnification against such infringement. Caere and
ViewStar are not aware that any of their respective products, trademarks, or
other proprietary rights infringe the property rights of third parties. However,
there can be no assurance that third parties will not assert infringement claims
against the combined company in the future with respect to current or future
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products or that any such assertion may not require the combined company to
enter into royalty arrangements or result in costly litigation. As the number of
software products in the industry increases and the functionality of these
products further overlap, Caere believes that software developers may become
increasingly subject to infringement claims. Any such claims, with or without
merit, can be time consuming and expensive to defend. There can be no assurance
that any such intellectual property litigation that may be brought in the future
will not have a material adverse effect on the combined company's financial
position or results of operations. As a result of such claims or litigation, it
may become necessary or desirable in the future for the combined company to
obtain licenses relating to one or more of its products or relating to current
or future technologies, and there can be no assurance that it would be able to
do so on commercially reasonable terms.
In addition, both Caere and ViewStar have developed products in the past
that incorporate technology based on licenses received by them from third
parties. The combined company's ability to continue to develop and commercialize
its products will be affected by its ability to renew existing technology
licenses and to obtain technology licenses from third parties in the future.
There can be no assurance that the combined company will be able to renew its
current licenses or obtain any necessary licenses in the future. The failure to
renew existing licenses or to obtain any licenses that may be required in the
future could have a material adverse effect on the combined company.
POSSIBLE VOLATILITY OF CAERE STOCK PRICE
The prices for Caere Common Stock have fluctuated widely in the past. The
management of Caere believes that such fluctuations may have been caused by
announcements of new products, quarterly fluctuations in the results of
operations and other factors, including changes in conditions of the personal
computer industry in general. Stock markets have experienced extreme price
volatility in recent years. This volatility has had a substantial effect on the
market prices of securities issued by Caere and other high technology companies,
often for reasons unrelated to the operating performance of the specific
companies. Caere anticipates that prices for Caere Common Stock may continue to
be volatile following the Merger. Such future stock price volatility for Caere
Common Stock may provoke the initiation of securities litigation, such as the
class action suits filed against Caere in the past, which may divert substantial
management resources and have an adverse effect on Caere and on the combined
company's results of operations. In addition, the total number of shares
issuable in connection with the Merger is fixed and will not be adjusted based
on changes in the relative trading prices of Caere Common Stock, unless the
Designated Caere Stock Price is less than $8.50 or more than $13.73. If the
Designated Caere Stock Price is less than $8.50 or more than $13.73, the number
of shares of Caere Common Stock issued pursuant to the Merger shall increase or
decrease according to the formula set forth under "The Merger and Related
Transactions -- Conversion of Shares." The trading price of Caere Common Stock
at the Merger Date may vary from the price as of the date hereof, or the date on
which stockholders vote on the Merger, as a result of changes in the business,
operations, financial results and prospects of Caere or ViewStar, market
assessments of the likelihood that the Merger will be consummated and the timing
thereof, general market and economic conditions, and other factors. See "The
Merger and Related Transactions -- Reasons for the Merger."
EFFECT OF ANTITAKEOVER PROVISIONS OF DELAWARE LAW AND CAERE'S CHARTER DOCUMENTS
Upon consummation of the Merger, the former shareholders of ViewStar, a
corporation organized under the laws of California, will become stockholders of
Caere, a corporation governed by the laws of Delaware. Certain provisions of the
Delaware Law and the charter documents of Caere may have the effect of delaying,
deferring or preventing changes in control or management of Caere. Caere is
subject to the provisions of Section 203 of the Delaware Law, which has the
effect of restricting changes in control of a company. In addition, Board of
Directors of Caere is divided into three separate classes. The Board of
Directors of Caere has authority to issue up to 2,000,000 shares of Preferred
Stock and to fix the rights, preferences, privileges and restrictions, including
voting rights, of such shares without any further vote or action by its
stockholders. Caere also has a Preferred Share Rights Plan (the "Caere Rights
Plan"). See "Comparison of Rights of Stockholders of Caere and ViewStar -- Caere
Rights Plan." The antitakeover protections of the Delaware Law, the Caere
charter documents and the Caere Rights Plan could make it more difficult for a
third party to
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acquire, or could discourage a third party from acquiring, a majority of the
outstanding stock of Caere. See "Comparison of Rights of Stockholders of Caere
and ViewStar."
SHARES ELIGIBLE FOR FUTURE SALE
Subject to upward or downward adjustment if the Designated Caere Stock
Price falls outside the range of $8.50 to $13.73, Caere will issue 3,418,496
shares of Caere Common Stock in the Merger or upon subsequent exercises of
assumed ViewStar Options that were vested but not exercised as of the Merger
Date, and up to an additional approximately 252,301 shares of Caere Common Stock
will be issuable upon the future vesting and exercise of the assumed unvested
ViewStar Options (based on the estimated number of unvested ViewStar Options
that will be outstanding at the Merger Date and based on the Assumed Applicable
Fraction). In general, the shares issued in the Merger, other than to ViewStar
affiliates, will be freely tradable following the Merger. The shares issued
after the Merger Date upon the exercise of the assumed ViewStar Options will be
registered pursuant to a registration statement on Form S-8 to be filed by Caere
under the Securities Act within seven business days after the Merger Date. In
addition, persons who may be considered affiliates of Caere or ViewStar,
respectively, have agreed that they will not transfer, sell, exchange, pledge or
otherwise dispose of any Caere Common Stock now held by such holders or received
by them in the Merger from 30 days prior to the Merger Date until the date Caere
shall have publicly released financial results for a period that includes at
least 30 days of combined operations of Caere and ViewStar (the "Affiliates
Expiration Date"). Immediately after the Affiliates Expiration Date, these
shares of Caere Common Stock will be eligible for sale in the public market,
subject to compliance with Rules 144 and 145 under the Securities Act. The sale
of any of the foregoing shares of Caere Common Stock may cause substantial
fluctuations in the price of Caere Common Stock over short time periods.
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THE CAERE MEETING
DATE, TIME AND PLACE OF MEETING
The Caere Meeting will be held on Tuesday, January 23, 1996, at 11:00 a.m.,
local time, at the Red Lion Hotel, 2050 Gateway Place, San Jose, California
95110.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of Caere Common Stock at the close of business on
the Record Date are entitled to vote at the Caere Meeting. As of the close of
business on the Record Date, there were 13,283,224 shares of Caere Common Stock
outstanding and entitled to vote, held of record by approximately 569
stockholders. Each Caere stockholder is entitled to one vote for each share of
Caere Common Stock held as of the Record Date.
VOTING OF PROXIES
The Caere proxy accompanying this Prospectus/Joint Proxy Statement is
solicited on behalf of the Board of Directors of Caere for use at the Caere
Meeting. Stockholders are requested to complete, date and sign the accompanying
proxy and promptly return it in the accompanying envelope or otherwise mail it
to Caere. All proxies that are properly executed and returned, and that are not
revoked, will be voted at the Caere Meeting in accordance with the instructions
indicated on the proxies or, if no direction is indicated, to approve the Merger
Agreement and the Merger and the proposal to increase the number of shares of
Caere Common Stock subject to the Purchase Plan recommended by Caere's Board of
Directors as indicated herein. Caere's Board of Directors does not presently
intend to bring any business before the Caere Meeting other than the specific
proposals referred to in this Prospectus/Joint Proxy Statement and specified in
the notice of the Caere Meeting. So far as the Board of Directors of Caere
knows, no other matters are to be brought before the Caere Meeting. As to any
business that may properly come before the Caere Meeting, however, it is
intended that proxies, in the form enclosed, will be voted in respect thereof in
accordance with the judgment of the persons voting such proxies. A Caere
stockholder who has given a proxy may revoke it at any time before it is
exercised at the Caere Meeting, by (i) delivering to the Secretary of Caere (by
any means, including facsimile) a written notice, bearing a date later than the
date of the proxy, stating that the proxy is revoked, (ii) signing and so
delivering a proxy relating to the same shares and bearing a later date prior to
the vote at the Caere Meeting, or (iii) attending the Caere Meeting and voting
in person (although attendance at the Caere Meeting will not, by itself, revoke
a proxy).
VOTE REQUIRED
Approval and adoption of the Merger Agreement and the Merger requires the
affirmative vote of the holders of a majority of the total shares of Caere
Common Stock cast at the Caere Meeting, present in person or represented by
proxy and entitled to vote. Approval and adoption of the amendment to the
Purchase Plan will require the affirmative vote of the holders of a majority of
the shares of Caere Common Stock present in person or represented by proxy and
entitled to vote at the Caere Meeting. The executive officers and directors of
Caere have agreed to vote all shares of Caere Common Stock that they
beneficially own for approval of the Merger Agreement and the Merger. On the
Record Date, such officers and directors beneficially owned approximately 1.2%
of the then outstanding shares of Caere Common Stock. See "The Merger Agreement
and Related Transactions -- Related Agreements," "-- Affiliate Agreements" and
"-- Additional Matter for Consideration of Caere Stockholders."
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the Caere Meeting is
a majority of the shares of Common Stock outstanding on the Record Date.
Abstentions and broker non-votes each will be included in determining whether a
quorum is present. Abstentions will be counted towards the tabulation of votes
cast. Abstentions will have the same effect as a vote against the proposals to
approve the Merger and the
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amendment to the Purchase Plan. Broker non-votes will not be counted for any
purpose in determining whether the proposals to approve the Merger and the
amendment to the Purchase Plan have been approved.
SOLICITATION OF PROXIES AND EXPENSES
Caere will bear the entire cost of the solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to its stockholders. Caere has engaged
the firm of D.F. King & Co., Inc. to assist it in the distribution and
solicitation of proxies and has agreed to pay D.F. King & Co., Inc. a fee of
$5,500 plus expenses for its services. Copies of the solicitation materials will
be furnished to banks, brokerage houses, fiduciaries and custodians holding in
their names shares of Caere Common Stock beneficially owned by others to forward
to such beneficial owners. Caere may reimburse persons representing beneficial
owners of Caere Common Stock for their costs of forwarding solicitation
materials to such beneficial owners. Original solicitation of proxies by mail
may be supplemented by telephone, telegram, letter or personal solicitation by
directors, officers, or other regular employees of Caere and by D.F. King & Co.,
Inc. No additional compensation will be paid to directors, officers and other
regular employees for such services.
RESOLICITATION
Caere and ViewStar will resolicit their respective shareholders regarding
the proposals to approve the Merger Agreement prior to the shareholder vote
under the circumstances described in "The Merger and Related
Transactions -- Conversion of Shares -- Resolicitation."
BOARD RECOMMENDATIONS
THE BOARD OF DIRECTORS OF CAERE BELIEVES THAT THE MERGER IS FAIR TO AND IN
THE BEST INTERESTS OF CAERE AND ITS STOCKHOLDERS AND THEREFORE UNANIMOUSLY
RECOMMENDS A VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND THE MERGER AND
UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO CAERE'S 1990
EMPLOYEE STOCK PURCHASE PLAN.
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THE VIEWSTAR MEETING
DATE, TIME AND PLACE
The ViewStar Meeting will be held on Tuesday, January 23, 1996, at 9:00
a.m., local time, at the Red Lion Hotel, 2050 Gateway Place, San Jose,
California 95110.
SOLICITATION OF PROXIES
The enclosed proxy is solicited on behalf of the Board of Directors of
ViewStar for use at the ViewStar Meeting, or at any adjournment thereof. Any
proxy given pursuant to this solicitation may be revoked by the person giving it
at any time before its use by delivering to the Secretary of ViewStar a written
notice of revocation or a duly executed proxy bearing a later date or by
attending the ViewStar Meeting and voting in person.
RECORD DATE AND OUTSTANDING SHARES
Only shareholders of record at the close of business on the Record Date are
entitled to vote at the ViewStar Meeting. As of the close of business on the
Record Date, there were 2,533,616 shares of ViewStar Common Stock and 9,330,487
shares of ViewStar Preferred Stock outstanding and entitled to vote. ViewStar
shareholders are entitled to one vote for each share of Common Stock and one
vote for each share of Preferred Stock held on the Record Date.
VOTE REQUIRED
Approval of the Merger Agreement and the Merger by ViewStar shareholders is
required by the California General Corporation Law and the ViewStar Articles.
Such approval requires the affirmative vote of the holders of (i) a majority of
the shares of ViewStar Common Stock outstanding on the Record Date, voting as a
separate class; and (ii) a majority of the shares of ViewStar Preferred Stock
outstanding on the Record Date, voting together as a separate class. Certain
shareholders and the executive officers and directors of ViewStar have agreed to
vote all of the shares of ViewStar Capital Stock owned or controlled by them in
favor of such approval and adoption. On the Record Date, such shareholders and
such executive officers and directors owned approximately 27.3% and 80.4%,
respectively, of all then outstanding shares of ViewStar Common Stock and
Preferred Stock. See "The Merger and Related Transactions -- Related
Agreements -- Voting Agreements" and "-- Affiliate Agreements." Approval of
certain payments and benefits pursuant to the Employment Agreements between
ViewStar and, respectively, the President and Chief Executive Officer of
ViewStar and the Chairman of the Board of ViewStar requires the affirmative vote
of holders of more than 75% of the shares of ViewStar Capital Stock outstanding
immediately prior to the Merger, voting together as a single class on an
as-converted basis, excluding the shares of ViewStar Capital Stock owned by the
President and Chief Executive Officer of ViewStar and the Chairman of the Board
of Directors of ViewStar. Certain shareholders of ViewStar have agreed to vote
all of the shares of ViewStar Capital Stock owned or controlled by them in favor
of such approval and adoption. As of the Record Date, such shareholders owned
approximately 76.5% of the shares of ViewStar Capital Stock, excluding the
shares of ViewStar Capital Stock owned by the President and Chief Executive
Officer of ViewStar and the Chairman of the Board of Directors of ViewStar. See
"Additional Matter for Consideration of ViewStar Shareholders."
As of the Record Date and the date of this Prospectus/Joint Proxy
Statement, Caere owned no shares of ViewStar Capital Stock.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the ViewStar Meeting
is a majority of the shares of ViewStar Common Stock and a majority of the
shares of ViewStar Preferred Stock outstanding on the Record Date. Abstentions
and broker non-votes will be counted for purposes of determining the presence of
a quorum. Abstentions will be counted towards the tabulation of the votes cast.
Abstentions and broker non-votes will have the same effect as a vote against the
Merger Agreement, the Merger and the Employment Agreements with the President
and Chief Executive Officer of ViewStar and the Chairman of the Board of
Directors of ViewStar.
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EXPENSES OF SOLICITATION
ViewStar will bear the cost of solicitation of proxies in the enclosed form
from its shareholders. In addition to solicitation by mail, the directors,
officers and employees of ViewStar may solicit proxies from shareholders by
telephone, telegram, telecopy, letter or in person.
RESOLICITATION
Caere and ViewStar will resolicit their respective shareholders regarding
the proposals to approve the Merger Agreement prior to the shareholder vote
under the circumstances described in "The Merger and Related
Transactions -- Conversion of Shares -- Resolicitation."
BOARD RECOMMENDATIONS
THE BOARD OF DIRECTORS OF VIEWSTAR BELIEVES THAT THE MERGER IS FAIR TO AND
IN THE BEST INTERESTS OF VIEWSTAR AND ITS SHAREHOLDERS AND THEREFORE UNANIMOUSLY
RECOMMENDS A VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND THE MERGER AND
UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF CERTAIN PAYMENTS AND BENEFITS
PURSUANT TO THE EMPLOYMENT AGREEMENTS BETWEEN VIEWSTAR AND, RESPECTIVELY, THE
PRESIDENT AND CHIEF EXECUTIVE OFFICER OF VIEWSTAR AND THE CHAIRMAN OF THE BOARD
OF DIRECTORS OF VIEWSTAR. SUCH EXECUTIVE OFFICERS ARE MEMBERS OF THE BOARD OF
DIRECTORS OF VIEWSTAR.
SHAREHOLDERS SHOULD NOT SEND ANY STOCK
CERTIFICATES WITH THEIR PROXY CARDS
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THE MERGER AND RELATED TRANSACTIONS
The description of the Merger and the principal terms of the Merger
Agreement in this Joint Proxy Statement/Prospectus is subject to and qualified
in its entirety by reference to the Merger Agreement, a copy of which is
attached as Appendix A and incorporated herein by reference.
GENERAL
The Merger will be consummated promptly after Caere stockholder and
ViewStar shareholder approval and the satisfaction or waiver of the other
conditions to consummation of the Merger. Upon consummation of the Merger,
ViewStar will become a wholly-owned subsidiary of Caere. The shareholders of
ViewStar will become stockholders of Caere (as described below), and their
rights will be governed by Caere's Certificate of Incorporation, as amended, and
Bylaws.
CONVERSION OF SHARES
VIEWSTAR SHARES
Upon the consummation of the Merger, (i) each then outstanding share of
ViewStar Common Stock will automatically be converted into a fraction of a share
of Caere Common Stock equal to the Applicable Fraction (as defined below) and
(ii) each then outstanding share of each series of ViewStar Preferred Stock will
be converted into a fraction of a share of Caere Common Stock equal to the
fraction obtained by dividing the per share liquidation preference of each
series under the ViewStar Articles by the Designated Caere Stock Price (as
defined below). Certain holders of shares of ViewStar Preferred Stock have
agreed to convert an aggregate of approximately 72% of the outstanding shares of
ViewStar Preferred Stock into ViewStar Common Stock prior to the consummation of
the Merger. The effect of such conversion will be to reduce by approximately
$25,335,589 the amount of the liquidation preference of outstanding ViewStar
Preferred Stock on the Merger Date (assuming such date is on or about January
23, 1996) and to increase the number of outstanding shares of ViewStar Common
Stock by approximately 6,745,343.
The Applicable Fraction will be the fraction: (a) having a numerator equal
to the amount by which the Aggregate Shares of Caere Common Stock to be Issued
(as defined below) exceeds the aggregate shares of Caere Common Stock issuable
upon conversion of ViewStar Preferred Stock as described in clause (ii) above;
and (b) having a denominator equal to the sum of (i) the number of shares of
ViewStar Common Stock issued and outstanding immediately prior to the Merger,
and (ii) the number of shares of ViewStar Common Stock subject to ViewStar stock
options ("ViewStar Options") that are "vested" as of the Merger Date. ViewStar
Options will be considered "vested" to the extent they are exercisable on the
Merger Date, including ViewStar Options the exercisability of which is
accelerated as a result of the Merger or the vesting of which will continue
after the Merger without regard to the Optionee's continued status as an
employee. The "Aggregate Shares of Caere Common Stock to be Issued" shall be
3,418,496 shares of Caere Common Stock; provided, however, that if the
Designated Caere Stock Price (as defined below) is less than $8.50, the number
of shares of Caere Common Stock in the Aggregate Shares of Caere Common Stock to
be Issued will be calculated by adding to the 3,418,496 shares of Caere Common
Stock the product of multiplying (x) a fraction, the numerator of which is the
difference between $8.50 and such Designated Caere Stock Price, and the
denominator of which is such Designated Caere Stock Price by (y) 1,709,248; and
provided, further, that if the Designated Caere Stock Price is greater than
$13.73, the number of shares of Caere Common Stock in the Aggregate Shares of
Caere Common Stock to be Issued will be calculated by subtracting from the
3,418,496 shares of Caere Common Stock the product of multiplying (x) a
fraction, the numerator of which is the difference between such Designated Caere
Stock Price and $13.73 and the denominator of which is such Designated Caere
Stock Price, by (y) 1,709,248. The "Designated Caere Stock Price" will be the
average of the closing prices of Caere Common Stock as reported on the Nasdaq
National Market for the ten consecutive trading days during the period ending on
the third trading date preceding the Merger Date. Although the Applicable
Fraction cannot be calculated at this time, for illustrative purposes only, and
assuming the Merger
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occurs on January 23, 1996, the Applicable Fraction would be as follows at the
Designated Caere Stock Prices shown below:
DESIGNATED CAERE APPLICABLE
STOCK PRICE FRACTION
------------------ ----------
$14.00........................ 0.23498
$13.73........................ 0.23657
$13.00........................ 0.23250
$12.00........................ 0.22613
$11.00........................ 0.21888
$10.00........................ 0.20983
$ 9.00........................ 0.19896
$ 8.50........................ 0.19245
$ 8.00........................ 0.19480
$ 7.00........................ 0.20052
From the day prior to the announcement of the Merger through December 12, 1995,
the closing prices per share of Caere Common Stock ranged from $7.75 to $10.375.
See "Summary -- Market Price Data." Within the range of $8.50 to $13.73, the
Aggregate Shares of Caere Common Stock to be Issued is fixed at 3,418,496. If
the Designated Caere Stock Price is less than $8.50, the Aggregate Shares of
Caere Common Stock to be Issued will increase in accordance with the formula
described above (and at a Designated Caere Stock Price of $6.54 would increase
by 15% to 3,931,270 shares). If the Designated Caere Stock Price is greater than
$13.73, the Aggregate Shares of Caere Common Stock to be Issued will decrease in
accordance with the formula described above.
For illustrative purposes only, if the Designated Caere Stock Price were
equal to $8.684375, the average of the closing prices of Caere Common Stock as
reported on the Nasdaq National Market for the ten consecutive trading days in
the period ended on December 12, 1995, the Applicable Fraction would be 0.19494
(the "Assumed Applicable Fraction"). Using the Assumed Applicable Fraction,
approximately 3,123,675 shares of Caere Common Stock would be issued in the
Merger to holders of ViewStar Capital Stock, representing approximately 19% of
the shares of Caere Common Stock outstanding immediately after consummation of
the Merger, and approximately 294,821 shares of Caere Common Stock will be
reserved for issuance upon the exercise of assumed vested ViewStar Options. An
additional approximately 252,301 shares of Caere Common Stock will be reserved
for issuance upon the exercise of assumed, unvested ViewStar Options outstanding
on the Merger Date. The foregoing numbers are subject to change based upon the
granting, exercise, termination or expiration of ViewStar Options at or prior to
the Merger Date.
A recent price for Caere Common Stock is shown on the cover page of this
Prospectus/Joint Proxy Statement. Holders of Caere Common Stock and ViewStar
Capital Stock may obtain the daily closing prices of Caere Common Stock from the
Wall Street Journal or by calling Investor Relations at Caere (408) 395-7000.
Of the total shares of Caere Common Stock issued in the Merger, 10% will be
retained for a period of time in escrow as security to Caere against any breach
of representations, warranties or covenants by ViewStar and 3% will be retained
in escrow to reimburse Caere for certain Merger related expenses beyond those
that Caere has agreed to assume. Any shares not required to satisfy such
obligations will be released from escrow to the ViewStar shareholders. See "The
Merger Transaction and Related Transactions -- Escrow."
No fractional shares of Caere Common Stock will be issued in the Merger.
Instead, each ViewStar shareholder who would otherwise be entitled to receive a
fraction of a share of Caere Common Stock will receive an amount of cash equal
to the per share market value of Caere Common Stock (based on the Designated
Caere Stock Price) multiplied by the fraction of a share of Caere Common Stock
to which the shareholder would otherwise be entitled. Caere intends to use its
current cash resources to fund the payments for fractional shares.
RESOLICITATION
If more than 3,931,270 shares of Caere Common Stock would be issued in the
Merger, or if the Applicable Fraction would be less than 0.18860, then Caere and
ViewStar will adjourn their respective
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shareholder meetings and resolicit their respective shareholders on their
approval of the Merger. In the event of any such adjournment of the Caere
Meeting, prior to such adjournment the vote on the proposal to approve the
amendment to Caere's 1990 Employee Stock Purchase Plan may be taken and
completed.
VIEWSTAR OPTIONS
Upon consummation of the Merger, each then outstanding ViewStar Option will
automatically be converted into an option to purchase a number of shares of
Caere Common Stock determined by multiplying the number of shares of ViewStar
Common Stock subject to the ViewStar Option by the Applicable Fraction, at an
exercise price per share of Caere Common Stock equal to the exercise price per
share of the ViewStar Option at the time of the Merger divided by the Applicable
Fraction, rounded up to the nearest cent. To avoid fractional shares, the number
of shares of Caere Common Stock subject to a converted ViewStar Option will be
rounded down to the nearest whole share, with no cash being payable for such
fractional share. The other terms of each ViewStar Option, including status as
an "incentive stock option" for federal income tax purposes and vesting
schedule, will remain unchanged. Caere will file a Registration Statement on
Form S-8 with the Commission within seven business days of the Merger Date, with
respect to the issuance of shares of Caere Common Stock upon exercise of the
assumed ViewStar Options.
Holders of vested ViewStar Options who exercise such options during the
escrow periods described under "The Merger Transaction and Related
Transactions -- Escrow" will have 10% and 3% of such option shares withheld in
escrow on the same terms as ViewStar shareholders.
As of the Merger Date, approximately 1,512,401 shares of ViewStar Common
Stock will be subject to outstanding vested ViewStar Options and approximately
1,294,278 shares of ViewStar Common Stock will be subject to outstanding
unvested ViewStar Options. The foregoing numbers are subject to change based
upon the granting, exercise, termination or expiration of ViewStar Options at or
prior to the Merger Date. Based on the Assumed Applicable Fraction, if the same
number of shares are subject to ViewStar Options at the Merger Date, such
options would be converted into options to purchase an aggregate of
approximately 551,512 shares of Caere Common Stock.
VIEWSTAR WARRANTS
As of the close of business on the Record Date, there were outstanding
warrants (the "ViewStar Warrants") to purchase an aggregate of 275,000 shares of
ViewStar Common Stock and 51,282 shares of ViewStar Preferred Stock at various
exercise prices. All of the ViewStar Warrants will expire by their terms on the
Merger Date unless exercised. Holders of those ViewStar Warrants having an
exercise price below the result of the multiplication of the applicable exchange
ratio for the shares of ViewStar Capital Stock issuable upon exercise thereof by
the Designated Caere Stock Price may elect to exercise such ViewStar Warrants on
a "net exercise" basis by notifying ViewStar that, rather than tendering the
cash required to purchase the full number of shares subject to the ViewStar
Warrant, the holder elects to surrender the ViewStar Warrant in exchange for a
number of shares determined by dividing (a) the aggregate fair market value of
all the shares subject to the ViewStar Warrant (determined by the value to be
received for shares of such class in the Merger) minus the aggregate cash
exercise price of the ViewStar Warrant, by (b) the fair market value of one
share of the class subject to the ViewStar Warrant. Holders of ViewStar warrants
may submit notices of exercise that are conditional on the consummation of the
Merger.
CONVERSION OF SUB SHARES
Each share of Sub outstanding on the Merger Date will convert in the Merger
into one share of ViewStar Common Stock.
SURRENDER OF CERTIFICATES
If the Merger becomes effective, Caere will mail a letter of transmittal
with instructions to all holders of record of ViewStar Capital Stock as of the
Merger Date of the Merger for use in surrendering their stock certificates in
exchange for certificates representing Caere Common Stock and a cash payment in
lieu of
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fractional shares. Certificates representing shares of ViewStar Capital Stock
should not be surrendered until the letter of transmittal is received.
BACKGROUND OF THE MERGER
In May 1995, ViewStar engaged UBS to assist ViewStar in the search for a
potential merger partner. In June 1995, consistent with Caere's established goal
of expansion into enterprise-wide software, Caere's management made a
presentation to the Board of Directors of Caere concerning the advisability of
pursuing potential acquisitions of companies in the document imaging or workflow
management industries, including possibly ViewStar. In late June 1995, Robert
Teresi, the Chairman of the Board and Chief Executive Officer of Caere contacted
F. Gibson Myers, Jr., a member of the Board of Directors of ViewStar, to
determine whether ViewStar had any interest in a merger. In early July 1995,
Steven Humphreys, the President of Caere, contacted Mark Perry, then Chief
Executive Officer and President of ViewStar. Mr. Humphreys discussed the general
possibilities for a merger. Both parties agreed to review the thoughts exchanged
and determine whether further discussion was warranted.
In mid July, Caere's management held a conference call with the Board of
Directors of Caere to update the Board on the status of the discussions. In late
July 1995, Mr. Humphreys and Mr. Perry met, and Mr. Humphreys presented Caere's
background and strategy. Mr. Perry presented the general business status and
outlook for ViewStar. A discussion ensued in which both parties determined that
serious assessment of a merger should be pursued. In early August 1995, a
follow-up meeting was held between Mr. Humphreys and Mr. Perry. Mr. Perry
indicated significant interest on ViewStar's part in exploring a partnership. On
the same day, Mr. Humphreys met with Mr. Teresi to discuss a specific
non-binding proposal for review by the Board of Directors of Caere prior to
communication to ViewStar.
On August 7, Mr. Teresi, Mr. Humphreys and Blanche Sutter, Chief Financial
Officer of Caere, visited ViewStar for a product demonstration, to discuss
financial statements, and generally to obtain further operational information
regarding ViewStar. On August 10, Ms. Sutter spoke by telephone with
representatives of RS & Co., to discuss a potential merger with ViewStar and to
draft a non-binding term sheet for review by the Board of Directors of Caere. On
August 15, at ViewStar's request, Mr. Humphreys presented Caere's business
status and strategy to certain members of the Board of Directors of ViewStar. A
discussion ensued regarding the potential of the combined company, as well as
the stand-alone operations and outlook of both companies.
Representatives of RS & Co. attended the regularly scheduled meeting of the
Board of Directors of Caere on August 23, 1995 and discussed the proposed
merger, together with the proposed term sheet. Representatives of UBS attended
the meeting of the Board of Directors of ViewStar on August 25, and discussed
the proposed merger and the details of the proposed term sheet. Caere was
notified by representatives of UBS on August 30, that ViewStar had decided to
enter into negotiations with Caere for a merger of the two companies, based
generally on the non-binding term sheet which Caere had presented to ViewStar.
This term sheet formed the basis for the Merger Agreement later executed by
Caere and ViewStar.
On September 6, Ms. Sutter met with Caere legal counsel and independent
accountants to discuss a definitive agreement. Also on September 6, ViewStar's
management presented to the Board of Directors of ViewStar an update on
discussions with Caere. Later that day, representatives of Caere and ViewStar,
together with their respective legal and financial advisors, met to discuss a
definitive agreement and timetable for consummation of the merger. Negotiations
and due diligence with respect to the Merger and the Merger Agreement and
related agreements commenced the next week and continued until October 8.
At separate meetings on Sunday, October 8, and on Monday, October 9,
respectively, the Board of Directors of Caere and the ViewStar Board of
Directors discussed and approved the terms of the Merger and the Merger
Agreement. At these meetings, the Boards of Directors of Caere and ViewStar
discussed information regarding the businesses of Caere and ViewStar, including
financial and management issues, the impact of the Merger on such businesses,
stock price considerations with respect to Caere, liquidity considerations with
respect to ViewStar's shareholders and information regarding other merger and
acquisition transactions in such companies' industries. At the meeting of the
Board of Directors of Caere, RS & Co. made the presentation and delivered the
oral opinion regarding the fairness of the Merger to Caere from a financial
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point of view described in "Opinion of Caere's Financial Advisor." A more
detailed discussion of the matters considered by the Boards of Directors of
Caere and ViewStar at these meetings is included under the captions "Reasons for
the Merger -- Caere's Reasons for the Merger" and "-- ViewStar's Reasons for the
Merger." On Monday, October 9, following such approval by the Boards of
Directors of Caere and ViewStar and after the close of trading, Robert Teresi,
the Chairman of the Board and Chief Executive Officer of Caere, and Mark Perry,
the Chairman of the Board of ViewStar, executed the Merger Agreement. The
agreement to merge was announced by issuance of a joint press release prior to
the opening of trading on the morning of Tuesday, October 10.
REASONS FOR THE MERGER
JOINT REASONS FOR THE MERGER
The Boards of Directors of Caere and ViewStar each considered that the
combined company would have the potential for competitive advantage and improved
financial performance. The Boards of Directors of Caere and ViewStar also
considered several significant changes in the information technology industry.
These changes include (i) the growing demand for more complete
"desktop-to-enterprise" solutions; (ii) the increasing sensitivity of corporate
customers to the financial stability of vendors of mission critical
applications; (iii) the growth of Microsoft Windows NT client-server technology;
and (iv) increasing competition as a result of the recent consolidations in the
document imaging and workflow management industry, including FileNet's
acquisition of Watermark Software, Inc. ("Watermark"), and Wang's acquisition of
Sigma Imaging Systems, Inc. ("Sigma").
Caere and ViewStar have identified a number of potential mutual benefits of
the Merger that they believe will contribute to the success of the combined
company. These potential benefits include:
- IMPROVED SALES PERFORMANCE. As a result of the financial strength and
stability of the combined company, the Boards of Directors of Caere and
ViewStar believe that ViewStar will be better positioned to be viewed as
a financially stable provider of mission-critical application solutions
to corporate customers.
- TECHNICAL EXPERTISE IN BOTH THE DESKTOP AND CLIENT/SERVER
ENVIRONMENTS. The Boards of Directors of Caere and ViewStar believe that
Caere's desktop expertise, combined with the client-server capabilities
of ViewStar, will help enable the combined company to provide the
complete "desktop-to-enterprise" solutions demanded by corporate
customers. These solutions will position the combined company to benefit
from the increased growth of the Windows NT platform.
- COMPLEMENTARY TECHNOLOGIES. The Boards of Directors of Caere and
ViewStar believe that Caere's document content recognition technologies,
including optical character recognition, forms creation and processing
and full text retrieval, combined with ViewStar's process automation
solutions will enable the combined company to develop solutions with
much more comprehensive functionality.
- IMPROVED COMPETITIVE POSITION. The Boards of Directors of Caere and
ViewStar believe that increased revenues and resources will allow the
combined company to meet increasing competitive challenges from larger
companies, accelerate technological innovation and promote greater
customer and market awareness.
- VERTICAL MARKETS. The Boards of Directors of Caere and ViewStar believe
that the combined customer base will afford the combined company
opportunities to cross sell and develop specific vertical market
applications.
- EMPLOYEE RECRUITMENT AND RETENTION. The Boards of Directors of Caere and
ViewStar believe that higher visibility, increased financial strength
and greater career opportunities will allow the combined company to
attract and retain a larger pool of appropriately skilled and trained
employees.
- GREATER ECONOMIES OF SCALE IN INTERNATIONAL MARKETS. The Boards of
Directors of Caere and ViewStar believe that the greater international
sales volume of the combined company will allow the
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considerable start up and support costs involved in new foreign markets to be
shared across a broader product range.
- COMPLEMENTARY SALES CHANNEL STRENGTHS. The Boards of Directors of Caere
and ViewStar believe that Caere's historical distribution through
retail, VAR, and OEM channels, combined with ViewStar's VAR, system
integrator and direct sales channels, will provide the combined company
comprehensive distribution for increased market coverage.
In addition to the joint reasons discussed above, the Board of Directors of
each company also considered separate reasons for approving the Merger, which
are summarized below.
CAERE'S REASONS FOR THE MERGER
The Board of Directors of Caere believes that the following are additional
reasons for the stockholders of Caere to vote for approval and adoption of the
Merger Agreement and approval of the Merger:
- WINDOWS NT. The Board of Directors of Caere believes that ViewStar
products and technology will allow Caere to benefit from the anticipated
adoption of Microsoft Windows NT as the standard platform for enterprise
applications.
- DIVERSIFICATION OF PRODUCTS. The Board of Directors of Caere believes
that ViewStar's complementary products and technology will enable Caere
to diversify and expedite its product offerings.
- EXPANSION OF CAERE'S PRODUCTS. The Board of Directors of Caere believes
that the ViewStar products will enable Caere to establish a significant
presence in the workflow market sector.
In the course of its deliberations, the Board of Directors of Caere
reviewed with Caere's management a number of other factors relevant to the
Merger. In particular, the Board of Directors of Caere considered, among other
things: (i) information concerning Caere's and ViewStar's respective businesses,
prospects, financial performances, financial conditions, operations and product
development schedules; (ii) the public stock market price of Caere Common Stock
in the recent past; (iii) multiples paid in other selected software merger and
acquisition transactions; (iv) an analysis of the respective contributions to
revenues, operating profits and net profits of the combined company; (v) the
compatibility of the managements of Caere and ViewStar; (vi) Caere's strategic
objectives for participation in the enterprise client-server software market;
(vii) a financial presentation by RS & Co., including the opinion of RS & Co. to
the effect that the consideration to be paid is fair from a financial point of
view to Caere (as of the date of such presentation); and (viii) reports from
management and legal advisors on the results of Caere's due diligence
investigation of ViewStar. For a description of the financial presentation by
RS & Co., see "Opinion of Caere's Financial Advisor." The Board of Directors of
Caere considered the ranges of value derived by RS & Co. and described in
"Opinion of Caere's Financial Advisor," and, while not adopting such as its own,
found such ranges, taken together, to be reasonable.
The Board of Directors of Caere also considered a variety of potentially
negative factors in its deliberations concerning the Merger, including: (i) the
absence of profitability throughout the operating history of ViewStar and the
significant losses incurred by ViewStar as recently as the first half of 1995;
(ii) the adverse revenue trend experienced by ViewStar during 1994 through the
first quarter of 1995; (iii) the possible dilutive effect of the issuance of
Caere stock in the Merger (see "Risk Factors -- Integration of Operations;
Possible Adverse Effect on Financial Results"); (iv) the risk that the public
market price of Caere's stock might be adversely affected by announcement of the
Merger; (v) the charges expected to be incurred in connection with the Merger,
primarily in the quarter in which the Merger is completed, including the
transaction costs and costs of integrating the businesses of the companies to be
reflected in a charge estimated to be between $4.1 million and $4.3 million (see
"Pro Forma Combined Condensed Financial Information"); (vi) the risk that the
combined company's ability to increase or maintain revenues might be diminished
by intensified competition among suppliers of similar or related products; (vii)
the risk that, despite the efforts of the combined company, the services of key
persons might not be retained; (viii) the risk that other benefits sought to be
obtained by the Merger might not be obtained; and (ix) other risks described
above under "Risk Factors." The officers, directors and affiliates of Caere do
not have any interest different
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from those of Caere stockholders in the Merger and, consequently, no such
interest was a factor in the deliberations of the Board of Directors of Caere
regarding the Merger.
In view of the wide variety of factors, both positive and negative,
considered by the Board of Directors of Caere, the Board of Directors of Caere
did not find it practical to, and did not, quantify or otherwise assign relative
weights to the specific factors considered. After taking into consideration all
of the factors set forth above, the Board of Directors of Caere determined that
the Merger was in the best interests of Caere and its stockholders and that
Caere should proceed with the Merger at this time.
VIEWSTAR'S REASONS FOR THE MERGER
The Board of Directors of ViewStar believes that the proposed Merger would
afford ViewStar the following additional advantages and a greater opportunity to
accomplish its strategic objectives:
- IMPROVED SALES PERFORMANCE. As a result of the financial strengths and
stability of the combined company, the Board of Directors of ViewStar
believes that ViewStar will be better positioned to be viewed as a
financially stable provider of mission-critical application solutions to
corporate customers.
- DESKTOP CAPABILITY. The Board of Directors of ViewStar believes that
Caere's desktop products and technology will complement ViewStar's
current enterprise solutions and improve its ability to provide a
comprehensive solution to its customers.
- ACCESS TO CAPITAL. The Board of Directors of ViewStar believes that
Caere's current resources and access to public markets will allow
ViewStar increased operating flexibility and the opportunity to pursue
development activities.
- COMPLEMENTARY OPERATIONS. The Board of Directors of ViewStar believes
that the businesses of Caere and ViewStar are complementary on all
levels -- strategic, operating, technical and marketing -- allowing both
companies to continue as stand-alone businesses, and alleviating the
need for the time consuming and potentially disruptive integration of
operations.
- EMPLOYEE RECRUITMENT AND RETENTION. The Board of Directors of ViewStar
believes that, in addition to greater stability, a publicly traded
company has greater ability to provide financial incentives in order to
recruit and retain employees.
- SHAREHOLDER LIQUIDITY. The Board of Directors of ViewStar believes that
the Merger will provide ViewStar shareholders with the ability to
convert a currently illiquid investment into a liquid one with the
opportunity to realize a future return based on the potential
appreciation of Caere's Common Stock after the Merger.
The Board of Directors of ViewStar views the Merger as a means by which
ViewStar shareholders will be able to obtain liquidity for their ViewStar
shares. The Board of Directors of ViewStar believes that it is in the best
interests of the ViewStar shareholders to obtain marketable securities that may
be either held or sold as determined by each individual shareholder. In this
regard, the Board of Directors of ViewStar considered the feasibility and
prospects of alternative means to provide liquidity for ViewStar shareholders,
including other potential business combinations and an initial public offering
of ViewStar Common Stock (an "IPO"). Based on management's past informal
discussions with investment bankers, the Board of Directors of ViewStar
concluded that an IPO would not be feasible in the near term because of
ViewStar's recent substantial operating losses and the need to demonstrate
profitability on a sustained basis.
In evaluating the proposed Merger, the Board of Directors of ViewStar
considered and discussed a wide variety of factors, including the details of the
Merger Agreement, a description of Caere's business and the recent trading
activity of Caere's stock. The Board of Directors of ViewStar also discussed
each component of the Merger Agreement in light of its fairness to ViewStar's
shareholders, the impact of the Merger on current employees of and lenders to
ViewStar, the availability of liquidity to ViewStar's shareholders, and the
requirements for a tax-free transaction which could be accounted for as a
pooling of interests. In addition, the Board of Directors of ViewStar considered
the advantages and disadvantages that the Merger would present to ViewStar's
achievement of its strategic objectives. As part of the evaluation process, the
Board of Directors of ViewStar reviewed information about the business,
operations and future prospects of both ViewStar and
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Caere, including Caere's annual, quarterly and other reports, registration
statements and definitive proxy statements filed by Caere with the Commission,
and ViewStar's current business plan. The Board of Directors of ViewStar
considered whether any other potential acquiror might offer the same or similar
benefits to ViewStar, and concluded that Caere offered the best benefits
available.
The Board of Directors of ViewStar also considered the following
potentially negative factors: (i) the potential disruption of ViewStar's
business that might result from employee uncertainty and lack of focus following
announcement of the Merger and during the combination of the operations of Caere
and ViewStar; (ii) the possibility that the Merger might not be consummated, and
the effects of the public announcement of the Merger on (A) ViewStar's revenues
and operating results, and (B) ViewStar's ability to attract and retain key
management, marketing and technical personnel; (iii) the possible effects of the
public announcement of the Merger on the market price of Caere's Common Stock;
(iv) the risk that, despite the intentions and the efforts of the parties to
reassure ViewStar's system integrators and distributors regarding the combined
company's intention to support their future sales efforts, the announcement of
the Merger could result in decisions by such system integrators and distributors
to delay or cancel purchases of ViewStar products; (v) the risk that the
anticipated benefits of the Merger will not be realized; and (vi) the other
risks described above under "Risk Factors."
After considering the foregoing factors, the Board of Directors of ViewStar
unanimously approved the Merger Agreement and the transactions contemplated
thereby, including the Merger, and recommended that the shareholders of ViewStar
approve and adopt the Merger Agreement and the Merger. In view of the wide
variety of factors considered, both positive and negative, the Board of
Directors of ViewStar did not find it practicable to, and did not, quantify or
otherwise assign relative weights to the specific factors considered.
BOARD RECOMMENDATION
THE BOARD OF DIRECTORS OF CAERE HAS DETERMINED THAT THE MERGER IS IN THE
BEST INTERESTS OF CAERE AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS A VOTE
FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER.
THE BOARD OF DIRECTORS OF VIEWSTAR HAS DETERMINED THAT THE MERGER IS IN THE
BEST INTERESTS OF VIEWSTAR AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS A
VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER.
OPINION OF CAERE'S FINANCIAL ADVISOR
As described above under the heading "Background of Merger -- Reasons For
the Merger," Caere engaged RS & Co. to act as its financial advisor in
connection with the Merger and to render an opinion as to the fairness to Caere
of the Applicable Fraction. At the October 8, 1995 meeting of the Board of
Directors of Caere, RS & Co. delivered an oral opinion, which was subsequently
confirmed in writing, that the consideration to be paid in the Merger was fair
to Caere from a financial point of view. The complete text of the written
opinion of RS & Co. dated October 8, 1995, which sets forth the assumptions
made, procedures followed, matters considered and scope of the review undertaken
by, as well as limitations on, RS & Co. in rendering its opinion, is attached
hereto as Appendix B. Caere stockholders are urged to read RS & Co.'s opinion in
its entirety.
RS & Co. did not recommend to Caere that any specific amount of
consideration constituted the appropriate consideration for the Merger. RS &
Co.'s opinion is directed only to the fairness to Caere from a financial point
of view of the consideration to be paid by Caere, and does not constitute a
recommendation to any Caere stockholder as to how such stockholder should vote
at the Caere Meeting. RS & Co. expresses no opinion as to the tax consequences
of the Merger, and RS & Co.'s opinion as to the fairness of the consideration to
be paid by Caere does not take into account the particular tax status or
position of any holder of Caere Common Stock. In rendering its opinion, RS & Co.
was not engaged as an agent or fiduciary of
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Caere stockholders or any other third party. The summary of the opinion of RS &
Co. set forth in this Prospectus/Joint Proxy Statement is qualified in its
entirety by reference to the full text of such opinion.
Based on past activities, RS & Co. has a certain degree of familiarity with
Caere. In addition, in the course of its engagement, RS & Co. completed further
investigations of both Caere and ViewStar. In arriving at its opinion, however,
RS & Co. did not independently verify any of the foregoing information and
relied on all such information being complete and accurate in all material
respects. Furthermore, RS & Co. did not obtain any independent appraisal of the
properties or assets of Caere or ViewStar, nor was RS & Co. furnished with any
such evaluations or appraisals. With respect to the financial and operating
forecasts (and the assumptions and bases therefor) of Caere and ViewStar which
RS & Co. reviewed, RS & Co. assumed that such forecasts had been reasonably
prepared in good faith on the basis of reasonable assumptions, reflected the
best available estimates and judgments of the respective managements of Caere
and ViewStar and that such projections and forecasts will be realized in the
amounts and in the time periods currently estimated by such managements of Caere
and ViewStar. In addition, RS & Co. relied upon estimates and judgments of Caere
and ViewStar managements as to the future financial performance of both
companies. RS & Co. also assumed that the Merger will be treated as a pooling of
interests in accordance with generally accepted accounting principles and as a
tax free reorganization for income tax purposes. The opinion is necessarily
based upon market, economic and other conditions that existed and could be
evaluated as of the date of the opinion, and on information available to RS &
Co. as of such date.
In connection with its opinion, RS & Co., among other things, (i) reviewed
financial information relating to Caere and ViewStar furnished to RS & Co. by
both companies, including certain internal financial analyses and forecasts
prepared by the managements of Caere and ViewStar; (ii) reviewed publicly
available information; (iii) held discussions with the managements of Caere and
ViewStar concerning the business, past and current business operations,
financial condition and future prospects of both companies, independently and
combined; (iv) reviewed the Merger Agreement; (v) reviewed the stock price and
trading history of Caere; (vi) reviewed the contribution by each company to pro
forma combined revenue, operating income, pre-tax income and net income; (vii)
reviewed the valuations of publicly traded companies which RS & Co. deemed
comparable to Caere and ViewStar; (viii) compared the financial terms of the
Merger with other transactions which RS & Co. deemed relevant; (ix) prepared
discounted cash flow analyses of both companies; (x) analyzed the pro forma
earnings per share of the combined company; and (xi) made such other studies and
inquiries, and reviewed such other data, as RS & Co. deemed relevant.
The following paragraphs summarize the significant analyses performed by RS
& Co. in arriving at its opinion presented to the Board of Directors of Caere.
The information presented below is based on the financial condition of Caere and
ViewStar as of a date or dates shortly before the Merger Agreement was executed
on October 8, 1995 and stock price information through the close of the market
on October 5, 1995.
Stock Price and Trading Analysis. RS & Co. reviewed the trading activity
including share price and trading volume of Caere Common Stock since Caere's
initial public offering on October 19, 1989. With respect to Caere, RS & Co.
noted that, since October 19, 1989, the daily closing prices of Caere Common
Stock ranged from a high bid of $24.50 on February 4, 1993 to a low offer of
$5.50 on July 7, 1993. In addition, RS & Co. noted that in the last twelve
months, since October 3, 1994, the daily closing prices of the Caere Common
Stock ranged from a high bid of $19.63 on December 27, 1994 to a low offer of
$7.88 on May 26, 1995. RS & Co. also reviewed selected Caere news announcements
for the same period. Furthermore, RS & Co. compared the indexed performance of
Caere Common Stock with the Nasdaq Composite Index and the Standard & Poor's
Industrial Index for the period October 3, 1994 to October 5, 1995. RS & Co.
noted that the price of Caere Common Stock over the 12 month period ended
October 5, 1995 had increased, but not to the same degree as the two indices.
Contribution Analysis. RS & Co. compared the contribution of Caere and
ViewStar to pro forma combined revenue, operating income, pre-tax income, and
net income for fiscal years ending December 31, 1995 and 1996. RS & Co. noted
that Caere would contribute approximately 67.3% and 68.4% of projected 1995 and
1996 revenue, respectively, approximately 69.6% of projected 1996 operating
income, approximately 78.3% of projected 1996 pre-tax income, and approximately
71.5% of projected 1996 net income. RS & Co.
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also noted that because ViewStar was projecting an operating loss for fiscal
year 1995, ViewStar's contribution to pro forma combined operating income,
pre-tax income, and net income for fiscal year 1995 was not meaningful. RS & Co.
compared these projected contribution figures with the approximately 79.7%
ownership position that Caere stockholders would have in the pro forma company
assuming the Caere Common Stock price remains within the range of $8.50 to
$13.73.
Comparable Company Analysis Related to Caere. RS & Co. compared certain
financial data and multiples of income statement parameters accorded to other
publicly traded companies deemed by RS & Co. to be comparable to Caere.
Financial data compared included market equity capitalization, total
capitalization, revenues, operating income, net income, earnings per share,
operating margin, net margin and projected earnings per share growth rate as
reported by ZACKS Investment Research ("ZACKS") and/or research analysts.
Multiples compared included total capitalization to revenue, total
capitalization to operating income, and price per share to earnings per share.
Companies deemed by RS & Co. to be comparable to Caere included Adobe, Autodesk,
Inc., Corel Corporation, and Delrina Corporation (the "Caere Comparable
Companies"). RS & Co. also reviewed financial data and multiples for Frame
Technology Corporation ("Frame") and concluded that these multiples were not
meaningful, as they reflected the embedded control premium implied by Adobe's
offer to acquire Frame.
For Caere, based on total capitalization to revenues multiples of
approximately 3 to 4x for projected calendar 1995 and approximately 2 to 3x for
projected calendar 1996 for the Caere Comparable Companies, Caere's implied
equity value per share ranged from $13.25 to $18.75. Based on total
capitalization to operating income multiples of approximately 11 to 19x for
projected calendar 1995 and approximately 9 to 14x for projected calendar 1996
for the Caere Comparable Companies, Caere's implied equity value per share
ranged from $4.50 to $10.25. Based on price per share to earnings per share
multiples of approximately 18 to 24x for projected calendar 1995 and
approximately 15 to 21x for projected calendar 1996 for the Caere Comparable
Companies, Caere's implied equity value per share ranged from $3.75 to $9.75.
Comparable Company Analysis Related to ViewStar. RS & Co. compared certain
financial data and multiples of income statement parameters accorded to other
publicly traded companies deemed by RS & Co. to be comparable to ViewStar.
Financial data compared included market equity capitalization, total
capitalization, revenues, operating income, net income, earnings per share,
operating margin, net margin and projected earnings per share growth rate as
reported by ZACKS. Multiples compared included total capitalization to revenue,
total capitalization to operating income, and price per share to earnings per
share. Companies deemed by RS & Co. to be comparable to ViewStar included
Comshare, Incorporated, Manugistic Group, Inc., Platinum Software Corporation,
and System Software Associates, Inc. (the "ViewStar Comparable Companies"). RS &
Co. also compared ViewStar financial data directly to financial data and
multiples accorded to FileNet. RS & Co. deemed FileNet to be particularly
comparable to ViewStar, given that FileNet is a direct competitor with ViewStar
and operates under a similar business model.
For ViewStar, based on total capitalization to revenues multiples of
approximately 1.5 to 2.5x for projected calendar 1995 and approximately 1 to 2x
for projected calendar 1996 for the ViewStar Comparable Companies, ViewStar's
implied equity value ranged from $28 million to $61 million. Based on total
capitalization to operating income multiples of approximately 10 to 14x for
projected calendar 1996 for the ViewStar Comparable Companies, ViewStar's
implied equity value ranged from $27 million to $38 million. Based on price per
share to earnings per share multiples of approximately 16 to 22x for projected
calendar 1996 for the ViewStar Comparable Companies, ViewStar's implied equity
value ranged from $40 million to $54 million.
For ViewStar, based on total capitalization to revenues multiples of 2.1x
for projected calendar 1995 and 2.0x for projected calendar 1996 for FileNet,
ViewStar's implied equity value ranged from $52 million to $57 million. Based on
a total capitalization to operating income multiple of 12.2x for projected
calendar 1996 for FileNet, ViewStar's implied equity value was $33 million.
Based on a price per share to earnings per share multiple of 20.2x for projected
calendar 1996 for FileNet, ViewStar's implied equity value was $50 million. RS &
Co. noted that because ViewStar was projecting an operating loss for fiscal year
1995, implied equity
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values based on ViewStar's projected fiscal year 1995 results utilizing either a
total capitalization to operating income multiple or an earnings per share
multiple were not meaningful.
Comparable Transaction Analysis Related to ViewStar. RS & Co. also analyzed
publicly available information for 12 selected pending or completed acquisitions
and mergers within the software industry. The twelve acquisition transactions
reviewed were: the acquisition of Mastersoft, Inc. by Frame; the acquisition of
Watermark by FileNet; the acquisition of Frame by Adobe; the acquisition of
Sigma by Wang; the acquisition of the on-line analytical processing business of
Information Resources, Inc. by Oracle Corporation; the acquisition of Lotus
Development Corporation by IBM; the acquisition of Recognition International
Inc. by BancTec, Inc.; the acquisition of Answer Systems, Inc. by PLATINUM
Technology, Inc. ("PLATINUM"); the acquisition of Reltech Group, Inc. by
PLATINUM; the acquisition of Trinzic Corporation by PLATINUM; the acquisition of
Easel Corporation by VMARK Software, Inc.; and the acquisition of Sunrise Test
Systems, Inc. by Viewlogic Systems, Inc. In examining these transactions, RS &
Co. analyzed total capitalization to latest twelve months revenue. For ViewStar,
based on the total capitalization to latest twelve months revenue multiple of
approximately 1.5 to 5.0x, ViewStar's implied equity value ranged from $30
million to $104 million.
Discounted Cash Flow Analysis Related to Caere. RS & Co. performed a
discounted cash flow analysis to estimate the present value of the stand-alone
unlevered (before interest expenses) after-tax cash flows that Caere is expected
to generate based upon extrapolation of financial projections prepared by the
management of Caere. RS & Co. discounted the projected unlevered after-tax cash
flows using a range of discount rates of 15% to 20%. This range was based on the
weighted average cost of capital of Caere Comparable Companies. Caere's
unlevered after-tax cash flows were calculated as the after-tax operating
earnings of Caere adjusted for the add-back of non-cash expenses and the
deduction of uses of cash not reflected in the income statement. RS & Co. added
to the present value of the cash flows the terminal value of Caere in the year
2001, discounted back at the same discount rate. The terminal value was computed
by multiplying Caere's projected earnings before interest and taxes ("EBIT") in
the calendar year 2001 by terminal multiples ranging from 8.0x to 12.0x. The
discounted cash flow valuation indicated a range of implied equity values per
Caere share of approximately $8.25 to $11.00.
Discounted Cash Flow Analysis Related to ViewStar. RS & Co. performed a
discounted cash flow analysis to estimate the present value of the stand-alone
unlevered (before interest expenses) after-tax cash flows that ViewStar is
expected to generate based upon extrapolation of financial projections prepared
by the management of ViewStar. RS & Co. discounted the projected unlevered
after-tax cash flows using a range of discount rates of 15% to 20%. This range
was based on the weighted average cost of capital of ViewStar Comparable
Companies. ViewStar's unlevered after-tax cash flows were calculated as the
after-tax operating earnings of ViewStar adjusted for the add-back of non-cash
expenses and the deduction of uses of cash not reflected in the income
statement. RS & Co. added to the present value of the cash flows the terminal
value of ViewStar in the year 2001, discounted back at the same discount rate.
The terminal value was computed by multiplying ViewStar's projected EBIT in the
calendar year 2001 by terminal multiples ranging from 10.0x to 14.0x. RS & Co.
used corresponding formulas to arrive at calculations for Caere's unlevered
after-tax cash flows and terminal value. The discounted cash flow valuation
indicated a range of implied equity values of approximately $39 million to $63
million.
Pro Forma Merger Analysis. RS & Co. also analyzed the pro forma earnings
per share of the combined company assuming an average closing price of Caere for
the 10 trading days ending three trading days prior to closing (the "Closing
Average") of $11.116. Such analysis indicated that, in the absence of synergies,
pro forma earnings per share of the combined companies, compared to Caere as a
stand-alone entity, would be increased by approximately 9% for Caere's fiscal
year 1996. The number of shares to be issued in the Merger may be adjusted under
certain circumstances related to the actual Closing Average. See "Purchase Price
Range Analysis" below and "The Merger and Related Transactions -- Conversion of
Shares."
Purchase Price Range Analysis. RS & Co. also analyzed the impact of the
consideration to be paid based on a range of Closing Average prices (such prices
were selected for illustrative purposes only and were not intended to be
predictive as to the actual Closing Average). Such analysis indicated that,
based on Closing
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Average prices ranging from $5.00 to $8.00 (a level that would cause an increase
in the number of shares issued in the Merger), the market value of the
consideration to be paid would range from $24.6 million to $29.7 million. Based
on Closing Average prices ranging from $10.00 to $13.00 (a level that would not
cause a change in the number of shares issued in the Merger), the market value
of the consideration to be paid would range from $35.7 million to $46.0 million.
Based on Closing Average prices ranging from $14.00 to $17.00 (a level that
would cause a decrease in the number of shares issued in the Merger), the market
value of the consideration to be paid would range from $48.9 million to $54.1
million.
The preparation of fairness opinions involves various determinations as to
the most appropriate and relevant quantitative and qualitative methods of
financial analyses and the application of those methods to the particular
circumstances and, therefore, such opinions are not readily susceptible to
summary description. In arriving at its opinion, RS & Co. did not attribute any
particular weight to any analysis or factor considered by it, but rather made
qualitative judgments as to the significance and relevance of each analysis and
factor. Accordingly, RS & Co. believes its analyses must be considered as a
whole and that considering any portion of such analyses and current factors
could create a misleading or incomplete view of the process underlying opinions.
In its analyses, RS & Co. made numerous assumptions with respect to industry
performance, general business and other conditions and matters, many of which
are beyond the control of Caere and ViewStar. Any estimates contained in these
analyses are not necessarily indicative of actual values or predictive of future
results or values, which may be significantly more or less favorable than as set
forth therein. In addition, analyses relating to the value of businesses do not
purport to be appraisals or to reflect the prices at which businesses actually
may be sold.
RS & Co. was retained based on RS & Co.'s experience as financial advisor
in connection with mergers and acquisitions as well as RS & Co.'s investment
banking relationship and familiarity with Caere. In the course of its securities
trading, sales and other activities, RS & Co. may purchase or sell Caere Common
Stock for its own account and the accounts of its customers. Accordingly, RS &
Co. may, from time to time, have a long or short position in the securities of
Caere.
RS & Co. is a nationally recognized investment banking firm. As part of its
investment banking business, RS & Co. is frequently engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of securities, private
placements and other purposes.
Pursuant to the terms of an engagement letter dated September 29, 1995,
Caere has agreed to pay to RS & Co. a transaction fee of $575,000 for acting as
its financial advisor in connection with the Merger, including the rendering of
its fairness opinion; $200,000 of this fee was payable to RS & Co. at the time
of the delivery of its opinion, and the balance is payable within ten days
following consummation of the Merger. Caere also has agreed to indemnify RS &
Co. against certain liabilities, including liabilities under the federal
securities laws or relating to or arising out of RS & Co.'s engagement as
financial advisor, and to reimburse RS & Co. for its reasonable out-of-pocket
expenses, up to a maximum of $10,000, in the event the Merger is not
consummated.
RELATED AGREEMENTS
Affiliates Agreements
To help ensure that the Merger will be accounted for as a "pooling of
interests," the executive officers and directors of Caere and ViewStar and 10%
shareholders of ViewStar have executed affiliates agreements that require such
persons to vote their shares of ViewStar Capital Stock or Caere Common Stock, as
the case may be, in favor of the Merger and prohibit such persons from disposing
of their shares during the period commencing 30 days prior to the Merger Date
and ending when Caere publicly releases its quarterly financial statements
including the combined financial results of ViewStar and Caere for a period of
at least 30 days. Pursuant to such agreements, ViewStar affiliates have also
acknowledged the resale restrictions imposed by Rule 145 promulgated under the
Securities Act on shares received by them in the Merger. In addition, certain
shareholders of ViewStar will also sign agreements making certain
representations pertaining to the
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"continuity of interest" requirements for a tax-free reorganization. See
"Certain Federal Income Tax Matters" below.
Conversion Agreements
Certain holders of ViewStar Preferred Stock have agreed to convert not less
than 78.5%, 78.1%, 98.1%, 70.4% and 35.0%, respectively, of all shares of
ViewStar Series A, B, C, D and E Preferred Stock into ViewStar Common Stock
immediately prior to the Effective Time of the Merger.
Voting Agreements
Pursuant to voting agreements executed concurrently with the execution of
the Merger Agreement, directors, executive officers and certain major
shareholders of ViewStar holding in the aggregate approximately 51.3% of the
outstanding shares of ViewStar Preferred Stock and 22.3% of the outstanding
shares of ViewStar Common Stock have agreed to vote in favor of the Merger and
have granted Robert G. Teresi, Chairman and Chief Executive Officer of Caere,
and Blanche M. Sutter, Vice President, Finance, Chief Financial Officer and
Secretary of Caere, irrevocable proxies to vote their shares of ViewStar Common
Stock and ViewStar Preferred Stock in favor of the Merger. Including directors,
executive officers and certain major shareholders of ViewStar who have entered
into affiliate agreements, holders in the aggregate of approximately 27.3% of
the outstanding shares of ViewStar Common Stock and 80.4% of the outstanding
shares of ViewStar Preferred Stock have agreed to vote for the Merger.
BENEFITS TO VIEWSTAR EXECUTIVES FROM THE MERGER
Certain executives of ViewStar are entitled to severance compensation if
their employment is terminated upon or after the Merger and to acceleration of
vesting of ViewStar Options or continued vesting of ViewStar Options, whether or
not they continue to be employed by ViewStar.
Kamran Kheirolomoom, President and Chief Executive Officer of ViewStar,
entered into an amended and restated employment agreement with ViewStar on
October 9, 1995, with an employment term expiring July 31, 1996 (the "Employment
Term"), at a base compensation rate of $171,000 per year, plus a guaranteed
bonus of 20% of his base compensation. He is also eligible for an additional
bonus of 20% of his base compensation pursuant to ViewStar's 1995 Management
Incentive Plan program, which will terminate effective December 31, 1995. Mr.
Kheirolomoom will receive a lump sum severance payment of $258,000 and his
remaining salary and guaranteed bonus upon termination of his employment without
cause during the Employment Term. The agreement also provides that Mr.
Kheirolomoom will become a consultant to ViewStar for a period of 12 months
commencing upon his termination of employment. As compensation for his
consulting services, and for his agreement not to solicit or hire ViewStar
employees for 12 months following termination of his employment and an agreement
not to compete, Mr. Kheirolomoom will be paid a lump sum fee of $400,000 upon
termination of his employment with ViewStar. On the Merger Date, an option to
purchase 50,000 shares of Common Stock granted to Mr. Kheirolomoom in May 1994
will become exercisable as to 2% of the shares for each month since May 1994 and
will continue vesting through July 31, 1997 at a rate of 2% per month, whether
or not he continues to be employed by ViewStar. Mr. Kheirolomoom's other stock
options will also continue to vest through July 31, 1997 at a rate of 2% per
month, whether or not he continues to be employed by ViewStar.
Mark Perry, Chairman of the Board of Directors of ViewStar, entered into an
employment agreement with ViewStar dated May 18, 1994 when Mr. Perry became
President and Chief Executive Officer of ViewStar. The agreement was amended on
September 25, 1995, following Mr. Perry's relinquishment in July 1995 of the
position of President and Chief Executive Officer and his appointment as
Chairman of the Board of Directors of ViewStar. Pursuant to the employment
agreement, as amended, Mr. Perry will receive his base salary of $200,000 per
year, a bonus of $50,000 payable in monthly increments beginning October 1,
1995, and continued ViewStar health benefits through July 25, 1996. In addition,
Mr. Perry will be paid $1,000 per day for any additional services rendered on
behalf of ViewStar, such services to be provided up to five days per month
through December 31, 1995 and up to two days per month thereafter, until July
26, 1996.
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Mr. Perry will also receive a payment of $200,000 in the event of the sale of
ViewStar, consummated prior to July 21, 1996, in recognition for his services on
behalf of the Company. On the Merger Date, Mr. Perry's option to purchase 50,000
shares of ViewStar Common Stock will become exercisable as to 2% of the shares
for every month the option has been outstanding since the grant date in May
1994. Additionally, Mr. Perry's agreement provides for the acceleration of
vesting of 50% of any unvested ViewStar Options held by Mr. Perry, upon a change
of control of ViewStar. Any remaining unvested options held by Mr. Perry will
continue to vest at the rate of 2% per month for as long as Mr. Perry continues
to provide services to ViewStar as an employee or consultant. Mr. Perry's
agreement also contains a covenant not to solicit employees of ViewStar for one
year following his termination of employment with ViewStar.
Messrs. Kheirolomoom and Perry each have entered into an agreement with
ViewStar pursuant to which, if the payments and benefits under the employment
agreements described above are not approved by more than 75% of the shares of
ViewStar Capital Stock outstanding immediately prior to the Merger, excluding
the shares of ViewStar Capital Stock owned by Messrs. Kheirolomoom and Perry
they will receive alternate payments and benefits similar to the payments and
benefits provided under such employment agreements, except that the aggregate
amount of the alternate payments and benefits shall not exceed the largest
amount that would result in no portion of such payments and benefits being
treated as an "excess parachute payment" within the meaning of Section 280G of
the Code. Under Section 280G of the Code, no excess parachute payments will
exist as long as the aggregate payments and benefits in the nature of
compensation that are contingent on a change in control of the corporation,
within the meaning of Section 280G, are less than three times the recipient's
annualized compensation included in gross income in the five taxable years prior
to the change in control (or the lesser portion of such period during which the
recipient performed services for the corporation). See "Additional Matter for
Consideration of ViewStar Shareholders."
ViewStar has agreed to provide two of its current employees, Gayle Crowell,
Senior Vice President and General Manager, Worldwide Field Operations, and
Shirish Hardikar, Vice President, Marketing, with twelve months of salary and
stock vesting continuance, in the event a change of control of ViewStar, such as
the Merger, results in the respective employee's termination or a significant
reduction in responsibilities. In addition, ViewStar has a bonus plan pursuant
to which certain key employees, including Ms. Crowell, Mr. Hardikar and Robert
I. Pender, Jr., Vice President of Finance and Chief Financial Officer (but not
including Mr. Kheirolomoom or Mr. Perry), are being offered the right to receive
cash bonuses ranging from $25,000 to $125,000 payable on the Merger Date
provided that they have not voluntarily terminated their employment prior
thereto. Such key employees are obligated to refrain from soliciting any
employees of ViewStar or Caere to terminate their employment for one year
following the Merger Date and must stipulate to pay various amounts of
liquidated damages to ViewStar if they voluntarily resign their employment with
ViewStar within the nine months after the Merger Date.
REPRESENTATIONS AND COVENANTS
Under the Merger Agreement, Caere and ViewStar made a number of
representations regarding their respective capital structures, operations,
financial condition and other matters, including their authority to enter into
the Merger Agreement and to consummate the Merger. ViewStar covenanted that,
until the consummation of the Merger or the termination of the Merger Agreement,
it will maintain its business, it will not take certain actions outside the
ordinary course of business without Caere's prior written consent. Both parties
have covenanted that they will use all commercially reasonable efforts to
consummate the Merger. ViewStar agreed not to initiate or solicit any proposals
relating to the possible acquisition of ViewStar or any of its subsidiaries or
any material portion of its capital stock or assets by any person other than
Caere, and has further agreed not to enter into any agreement providing for any
such acquisition. Caere has agreed, if the Merger is consummated, to maintain to
the extent practicable ViewStar's current employee benefit plans and
arrangements until ViewStar's employees are allowed to participate in comparable
Caere plans or arrangements and to use reasonable efforts to provide ViewStar
employees the same or comparable benefits under Caere's employee benefit plans
and arrangements as are provided to similarly situated employees of Caere. Caere
also has agreed to provide employees of ViewStar with the opportunity to
participate in employee stock
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option or other incentive compensation plans of Caere on substantially the same
terms and conditions as are available to Caere's similarly situated employees.
ESCROW
The Merger Agreement provides that 10% of the shares of Caere Common Stock
to be issued to ViewStar shareholders and to be issued to holders of vested
ViewStar Options when exercised will be placed in escrow to indemnify Caere for
damages arising from the following circumstances: (a) an inaccuracy in or breach
of a representation or warranty of ViewStar in the Merger Agreement or any
related agreement; (b) a breach of a covenant or obligation of ViewStar or any
of the Signing Shareholders; or (c) any legal proceeding in connection with
clauses (a) and (b). No claims may be delivered to the Escrow Agent after 135
days after the Closing Date. The Escrow Agent is presently expected to be the
State Street Bank and Trust Company. Subject to the retention of shares in the
escrow to cover claims made during the escrow period, any shares remaining in
the escrow after such 135 day period will be distributed pro rata to the
beneficial owners.
The Merger Agreement also provides that 3% of the shares of Caere Common
Stock to be issued to ViewStar shareholders and to be issued to holders of
vested ViewStar Options when exercised will be placed in escrow to compensate
Caere to the extent that (i) ViewStar's legal and accounting fees and the fees
and expenses payable to UBS exceed or will exceed $750,000; (ii) the costs and
expenses of Mr. Kheirolomoom's employment agreement exceed or will exceed
$500,000; (iii) the costs and expenses of Mr. Perry's employment agreement
exceed or will exceed $400,000; (iv) any amounts are paid or will be paid to
employees as severance; or (v) amounts paid as bonuses to employees under the
ViewStar employee retention program exceed or will exceed $740,000. Costs and
expenses of Mr. Kheirolomoom's and Mr. Perry's employment agreements include the
cost, if any, to Caere of any foregone tax benefit that would have been
available except for the fact that any payment or benefit (including accelerated
option vesting) received or to be received by either Mr. Kheirolomoom or Mr.
Perry under their employment agreements constitutes a "parachute payment" within
the meaning of the Internal Revenue Code of 1986, as amended (the "Code"). See
"Additional Matter for Consideration of ViewStar Shareholders." This escrow will
terminate not later than 90 days after the Closing Date and any remaining shares
will be distributed pro rata to their beneficial owners.
CONDITIONS TO THE MERGER
In addition to the requirement that approval by the Caere stockholders and
ViewStar shareholders be received, the obligations of Caere and ViewStar to
consummate the Merger will be subject to the satisfaction of a number of other
conditions, including the absence of any stop orders or proceedings seeking a
stop order with respect to the Registration Statement filed in connection with
this Prospectus/Joint Proxy Statement; the absence of any order, decree or
ruling by any court or governmental agency or threat thereof, or any other fact
or circumstance, that would prohibit or render illegal the transactions
contemplated by the Merger Agreement; the absence of the issuance by any federal
or state court of any temporary restraining order, any preliminary or permanent
injunction or any other order preventing the consummation of the Merger; and the
receipt of all permits or authorizations that may be required by regulatory
authorities.
Each party's obligations under the Merger Agreement will also be
conditioned upon the accuracy in every material respect of the representations
and warranties made by the other party; the performance in all material respects
by the other party of its covenants; the absence of a material adverse change
with respect to the other party; the receipt of approval of the Merger by the
stockholders of Caere and the shareholders of ViewStar; and the receipt of
certain legal opinions (including an opinion to the effect that the Merger will
be treated for federal income tax purposes as a tax-free reorganization).
ViewStar's obligations to consummate the Merger will be further conditioned
upon the approval for quotation on the Nasdaq National Market of the Caere
Common Stock to be issued in the Merger, subject to notice of issuance, among
other things.
Caere's obligations to consummate the Merger will be further conditioned,
among other things, upon (i) the receipt of a letter from KPMG that the Merger
will be treated as a pooling of interests for accounting purposes and (ii) no
more than 10% of the ViewStar Common Stock and 10% of the ViewStar Preferred
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Stock outstanding at the time of the Merger being eligible to exercise
dissenters' rights of appraisal under California law. See "Dissenters' Rights."
TERMINATION AND BREAK-UP FEES
Termination
The Merger Agreement may be terminated by mutual agreement of both parties
or by either party (i) as a result of a material breach by the other party of
any covenant or agreement set forth in the Merger Agreement; (ii) if the timely
satisfaction of any of its conditions for closing the Merger has become
impossible; (iii) if any of its closing conditions have not been satisfied at
the "Scheduled Closing Time" (which is no later than third day after the Caere
Meeting); or (iv) if the Closing has not taken place or before the Final Date
(as defined below).
As discussed above, the term "Final Date" is defined in the Merger
Agreement as March 31, 1996, except that if a temporary, preliminary or
permanent injunction or other order by any federal or state court that would
prohibit or otherwise restrain consummation of the Merger is issued and in
effect on such date, and such injunction has not become final and nonappealable,
either ViewStar or Caere may, by giving the other written notice thereof on or
prior to March 31, 1996, extend the time for consummation of the Merger up to
and including the earlier of the date such injunction becomes final and
nonappealable or June 30, 1996, so long as ViewStar or Caere shall, at its own
expense, use its best efforts to have such injunction dissolved.
Break-Up Fees
In the event of a termination by ViewStar of the Merger Agreement due to
the failure of certain closing conditions deemed by the parties to be within
Caere's reasonable control, Caere would be required to pay ViewStar $1,200,000.
In addition, Caere would be required to pay ViewStar $1,200,000 if Caere's
stockholders fail to approve the Merger and (i) the Board of Directors of Caere
failed to recommend the Merger or withdrew its recommendation or (ii) a third
party announced its intention to acquire Caere prior to the Caere stockholders'
vote on the Merger.
In the event of a termination by Caere, due to the failure of certain
closing conditions deemed by the parties to be within ViewStar's reasonable
control, ViewStar would be required to pay Caere $1,200,000. In addition,
ViewStar would be required to pay Caere $1,200,000 if ViewStar's shareholders
fail to approve the Merger by sufficient votes to preclude the possibility of
more than 10% of the shares of ViewStar Common Stock or 10% of the shares of
ViewStar Preferred Stock becoming dissenting shares and (i) the Board of
Directors of ViewStar failed to recommend the Merger or withdrew its
recommendation or (ii) a third party announced its intention to acquire ViewStar
prior to the vote of the ViewStar shareholders on the Merger.
WAIVERS AND AMENDMENTS
At any time at or prior to the Merger Date, to the extent legally allowed,
Caere or ViewStar, without approval of the stockholders or shareholders of each
such company, may waive compliance with any of the agreements or conditions
contained in the Merger Agreement for the benefit of that company. Neither Caere
nor ViewStar currently intends to waive compliance with any such agreements or
conditions.
The Merger Agreement may be amended by Caere and ViewStar at any time
before or after approval of the Caere stockholders or the ViewStar shareholders,
except that, after such approval, no amendment may be made that by law requires
the further approval of the Caere stockholders or the ViewStar shareholders
unless such approval is obtained.
CERTAIN FEDERAL INCOME TAX MATTERS
The following discussion summarizes the material federal income tax
considerations of the Merger that are generally applicable to holders of
ViewStar Capital Stock. This discussion is based on currently existing
provisions of the Code, existing and proposed Treasury Regulations thereunder
and current administrative rulings and court decisions, all of which are subject
to change. Any such change, which may or may not be
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retroactive, could alter the tax consequences to Caere, ViewStar or ViewStar's
shareholders as described herein.
ViewStar shareholders should be aware that this discussion does not deal
with all federal income tax considerations that may be relevant to particular
ViewStar shareholders in light of their particular circumstances, such as
shareholders who are dealers in securities, who are subject to the alternative
minimum tax provisions of the Code, who are foreign persons, or who acquired
their shares in connection with stock option or stock purchase plans or in other
compensatory transactions. In addition, the following discussion does not
address the tax consequences of the Merger under foreign, state or local tax
laws or the tax consequences of the exercise of ViewStar Warrants or ViewStar
Options or any other transactions effectuated prior to or after the Merger
(whether or not such transactions are in connection with the Merger).
Accordingly, VIEWSTAR WARRANTHOLDERS, OPTIONHOLDERS, AND SHAREHOLDERS ARE URGED
TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES OF THE MERGER,
INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO
THEM OF THE MERGER IN THEIR PARTICULAR CIRCUMSTANCES.
Neither Caere nor ViewStar has requested a ruling from the Internal Revenue
Service (the "IRS") with regard to any of the federal income tax consequences of
the Merger. Wilson, Sonsini, Goodrich & Rosati, Professional Corporation,
counsel to ViewStar, and Cooley Godward Castro Huddleson & Tatum, counsel to
Caere, have each rendered an opinion (collectively, the "Tax Opinions") that the
Merger will constitute a reorganization under Section 368(a) of the Code (a
"Reorganization"). Such opinions are based on certain assumptions as well as
representations received from Caere, ViewStar and Sub (including an assumption,
based on representations, concerning the "continuity of interest" requirement
discussed below) and are subject to the limitations discussed below. Moreover,
such opinions will not be binding on the IRS nor preclude the IRS from adopting
a contrary position. The discussion below assumes that the Merger will qualify
as a Reorganization, based upon such opinions.
Subject to the limitations and qualifications referred to herein, and as a
result of the Merger's qualifying as a Reorganization, the following federal
income tax consequences should result:
(a) No gain or loss will be recognized by the holders of ViewStar
Capital Stock upon the receipt of Caere Common Stock solely in exchange for
such ViewStar Capital Stock in the Merger (except to the extent of cash
received in lieu of fractional shares or as a result of exercising
dissenters' or appraisal rights).
(b) The aggregate tax basis of the Caere Common Stock so received by
ViewStar shareholders in the Merger (including any fractional share of
Caere Common Stock not actually received) will be the same as the aggregate
tax basis of the ViewStar Capital Stock surrendered in exchange therefor.
(c) The holding period of the Caere Common Stock so received by each
ViewStar shareholder in the Merger will include the period for which the
ViewStar Capital Stock surrendered in exchange therefor was considered to
be held, provided that the ViewStar Capital Stock so surrendered is held as
a capital asset at the Merger Date.
(d) Cash payments received by holders of ViewStar Capital Stock in
lieu of a fractional share will be treated as if such fractional share of
Caere Common Stock had been issued in the Merger and then redeemed by
Caere. A ViewStar shareholder receiving such cash will recognize gain or
loss upon such payment, measured by the difference (if any) between the
amount of cash received and the basis in such fractional share. The gain or
loss should be capital gain or loss provided that such share of ViewStar
capital stock was held as a capital asset at the Merger Date.
(e) A shareholder of ViewStar who exercises dissenters' rights or
appraisal rights under any applicable law with respect to a share of
ViewStar Capital Stock and receives payments for such stock in cash will
recognize capital gain or loss (if such stock was held as a capital asset
at the Merger Date) measured by the difference between the amount of cash
received and the shareholder's basis in such share, provided such payment
is neither essentially equivalent to a dividend within the meaning of
Section 302 of the Code nor has the effect of a distribution of a dividend
within the meaning of
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Section 356(a)(2) of the Code (collectively, a "Dividend Equivalent
Transaction"). A sale of ViewStar Capital Stock incident to an exercise of
dissenters' rights will generally not be a Dividend Equivalent Transaction
if, as a result of such exercise, the dissenting shareholder owns no shares
of Caere Common Stock (either actually or constructively within the meaning
of Section 318 of the Code).
(f) None of Caere, ViewStar or Sub will recognize gain solely as a
result of the Merger.
The Tax Opinions are subject to certain assumptions and qualifications and
are based on the truth and accuracy of certain representations of Caere,
ViewStar, Sub and certain shareholders of ViewStar, including representations in
certain certificates delivered to counsel by the respective managements of
Caere, ViewStar and Sub and certain shareholders of ViewStar. Of particular
importance are the assumptions and representations relating to the "continuity
of interest" requirement.
To satisfy the "continuity of interest" requirement, ViewStar shareholders
must not, pursuant to a plan or intent existing at or prior to the Merger Date,
dispose of or transfer so much of either (i) their ViewStar Capital Stock in
anticipation of the Merger or (ii) the Caere Common Stock to be received in the
Merger (collectively, "Planned Dispositions"), such that the ViewStar
shareholders, as a group, would no longer have a significant equity interest in
the ViewStar business being conducted by Caere after the Merger. ViewStar
shareholders will generally be regarded as having a significant equity interest
as long as the Caere Common Stock received in the Merger (after taking into
account Planned Dispositions), in the aggregate, represents a substantial
portion of the entire consideration received by the ViewStar shareholders in the
Merger. No assurance can be made that the "continuity of interest" requirement
will be satisfied, and if such requirement is not satisfied, the Merger would
not be treated as a Reorganization.
A successful IRS challenge to the Reorganization status of the Merger (as a
result of a failure of the "continuity of interest" requirement or otherwise)
would result in significant tax consequences. A ViewStar shareholder would
recognize gain or loss with respect to each share of ViewStar capital stock
surrendered equal to the difference between the shareholder's basis in such
share and the fair market value, as of the Merger Date, of the Caere Common
Stock received in exchange therefor. In such event, a stockholder's aggregate
basis in the Caere Common Stock so received would equal its fair market value,
and the stockholder's holding period for such stock would begin the day after
the Merger.
ACCOUNTING TREATMENT
The Merger is structured to qualify as a pooling of interests for
accounting purposes. Under this accounting treatment, the recorded assets and
liabilities and the operating results of both Caere and ViewStar are carried
forward to the combined operations of the surviving corporation at their
recorded amounts. No recognition of goodwill in the combination is required of
either party to the Merger.
To support the treatment of the Merger as a pooling of interests, the
affiliates of Caere and ViewStar have entered into agreements imposing certain
resale limitations on their stock. See "-- Related Agreements -- Affiliates
Agreements" above. It is a condition to each of Caere's and ViewStar's
obligations to consummate the Merger that, among other things, Caere receive a
letter from KPMG, its independent auditors, to the effect that the Merger will
be treated as a pooling of interests for accounting purposes.
AFFILIATES' RESTRICTIONS ON SALE OF CAERE COMMON STOCK
The shares of Caere Common Stock to be issued in the Merger will have been
registered under the Securities Act pursuant to a Registration Statement on Form
S-4, thereby allowing such shares to be traded without restriction by all former
holders of ViewStar Capital Stock who (i) are not deemed to be "affiliates" of
ViewStar at the time of the ViewStar Meeting (as "affiliates" is defined for
purposes of Rule 145 under the Securities Act) and (ii) who do not become
"affiliates" of Caere after the Merger. ViewStar shareholders who may be deemed
to be "affiliates" of ViewStar will be so advised prior to the Merger.
The Merger Agreement requires ViewStar to use all commercially reasonable
efforts to cause its affiliates to enter into agreements not to make any public
sale of any Caere Common Stock received upon conversion of ViewStar Capital
Stock in the Merger prior to the date Caere shall have publicly released
financial results for
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a period that includes at least 30 days of combined operations of ViewStar and
Caere, and thereafter not to make any sale of Caere Common Stock received upon
conversion of ViewStar Capital Stock in the Merger, except in compliance with
Rule 145 under the Securities Act. See "-- Related Agreements -- Affiliates
Agreements" above. In general, Rule 145, as currently in effect, imposes
restrictions on the manner in which such affiliates who remain affiliates of
Caere after the Merger may make resales of Caere Common Stock and also on the
number of shares of Caere Common Stock that such affiliates, and others
(including persons with whom the affiliates act in concert), may sell within any
three-month period. These restrictions will generally apply for at least a
period of two years after the Merger (or longer if the person remains an
affiliate of Caere).
DISSENTERS' RIGHTS
If the Merger Agreement is approved by the required vote of ViewStar
shareholders and is not abandoned or terminated, holders of ViewStar Capital
Stock who did not vote in favor of the Merger may, by complying with Sections
1300 through 1312 of the California Law, be entitled to dissenters' rights as
described therein. The record holders of the shares of ViewStar Capital Stock
that are eligible to, and do, exercise their dissenters' rights with respect to
the Merger are referred to herein as "Dissenting Shareholders," and the shares
of stock with respect to which they exercise dissenters' rights are referred to
herein as "Dissenting Shares." If a ViewStar shareholder has a beneficial
interest in shares of ViewStar Capital Stock that are held of record in the name
of another person, such as a broker or nominee, and such shareholder desires to
perfect whatever dissenters' rights such beneficial shareholder may have, such
beneficial shareholder must act promptly to cause the holder of record timely
and properly to follow the steps summarized below.
It is a condition to Caere's obligation to consummate the Merger that not
more than 10% of the shares of ViewStar Common Stock and not more than 10% of
the shares of ViewStar Preferred Stock be eligible to be treated as Dissenting
Shares at the time of the Merger.
The following discussion is not a complete statement of the California Law
relating to dissenters' rights, and is qualified in its entirety by reference to
Sections 1300 through 1312 of the California Law attached to this
Prospectus/Joint Proxy Statement as Appendix C and incorporated herein by
reference. This discussion and Sections 1300 through 1312 of the California Law
should be reviewed carefully by any holder who wishes to exercise statutory
dissenters' rights or wishes to preserve the right to do so, since failure to
comply with the required procedures will result in the loss of such rights.
Shares of ViewStar Capital Stock must satisfy each of the following
requirements to qualify as Dissenting Shares under the California Law: (i) the
shares of ViewStar Capital Stock must have been outstanding on the Record Date;
(ii) the shares of ViewStar Capital Stock must not have been voted in favor of
the Merger; (iii) the holder of such shares of ViewStar Capital Stock must make
a written demand that ViewStar repurchase shares of ViewStar Capital Stock at
fair market value (as described below); and (iv) the holder of such shares of
ViewStar Capital Stock must submit certificates for endorsement (as described
below). A vote by proxy or in person against the Merger does not in and of
itself constitute a demand for appraisal rights under the California Law.
Pursuant to Sections 1300 through 1312 of the California Law, holders of
Dissenting Shares may require ViewStar to repurchase their Dissenting Shares at
a price equal to the fair market value of such shares determined as of the day
before the first announcement of the terms of the Merger, excluding any
appreciation or depreciation as a consequence of the proposed Merger, but
adjusted for any stock split, reverse stock split or stock dividend that becomes
effective thereafter.
Within ten days following approval of the Merger by ViewStar shareholders,
ViewStar is required to mail to each holder of shares of ViewStar Capital Stock
not voted in favor of the Merger a notice of the approval of the Merger, a
statement of the price determined by ViewStar to represent the fair market value
of Dissenting Shares (which shall constitute an offer by ViewStar to purchase
such Dissenting Shares at such stated price), and a description of the
procedures for such holders to exercise their rights as Dissenting Shareholders.
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Within 30 days after the date on which the notice of the approval of the
Merger by the outstanding shares is mailed to Dissenting Shareholders, a
Dissenting Shareholder must demand that ViewStar repurchase such shareholder's
Dissenting Shares in a statement setting forth the number and class of
Dissenting Shares held of record by such Dissenting Shareholder that the
Dissenting Shareholder demands that ViewStar purchase, and a statement of what
the Dissenting Shareholder claims to be the fair market value of the Dissenting
Shares as of the day before the announcement of the proposed Merger. The
statement of fair market value in such demand by the Dissenting Shareholder
constitutes an offer by the Dissenting Shareholder to sell the Dissenting Shares
at such price within such 30-day period. Such holder must also submit to
ViewStar or its transfer agent certificates representing any Dissenting Shares
that the Dissenting Shareholder demands ViewStar purchase, so that such
Dissenting Shares may either be stamped or endorsed with the statement that the
shares are Dissenting Shares or exchanged for certificates of appropriate
denomination so stamped or endorsed.
If, upon the Dissenting Shareholder's surrender of the certificates
representing the Dissenting Shares, ViewStar and a Dissenting Shareholder agree
upon the price to be paid for the Dissenting Shares and agree that such shares
are Dissenting Shares, then the agreed price is required by law to be paid to
the Dissenting Shareholder within the later of 30 days after the date of such
agreement or 30 days after any statutory or contractual conditions to the
consummation of the Merger are satisfied or waived.
If ViewStar and a Dissenting Shareholder disagree as to the price for such
Dissenting Shares or disagree as to whether such shares are entitled to be
classified as Dissenting Shares, such holder has the right to bring an action in
California Superior Court, within six months after the date on which the notice
of the approval of the Merger by ViewStar shareholders is mailed, to resolve
such dispute. In such action, the court will determine whether the shares of
ViewStar Capital Stock held by such shareholder are Dissenting Shares, the fair
market value of such shares of ViewStar Capital Stock, or both. The California
Law provides, among other things, that a Dissenting Shareholder may not withdraw
the demand for payment of the fair market value of Dissenting Shares unless
ViewStar consents to such request for withdrawal.
Under the Delaware Law, Caere stockholders are not entitled to dissenters'
or appraisal rights with respect to the proposed Merger.
MERGER EXPENSES AND FEES AND OTHER COSTS
Caere and ViewStar estimate that they will incur direct transaction costs
of approximately $2.1 million associated with the Merger. These nonrecurring
transaction costs will be charged to operations upon consummation of the Merger.
In addition, Caere anticipates incurring an additional charge upon consummation
of the Merger of $2.0 million to $2.2 million to reflect costs and expenses
relating to integrating the two companies. See "Pro Forma Combined Condensed
Financial Information" included elsewhere herein.
Whether or not the Merger is consummated, except as set forth below, each
party will bear its own costs and expenses in connection with the Merger and the
transactions provided for therein. Caere has agreed to pay RS & Co. a
transaction fee of $575,000 if the Merger is consummated, $200,000 of which
became due upon delivery by RS & Co. of their fairness opinion and the balance
of which is due at the Merger Date. Caere will also reimburse RS & Co. for the
reasonable out-of-pocket expenses incurred by RS & Co. in rendering services to
Caere in connection with the Merger, up to a maximum of $10,000 in the event the
Merger is not consummated. See "Opinion of Caere's Financial Advisor."
For services rendered to ViewStar in connection with the Merger, ViewStar
has agreed to pay UBS Securities ("UBS") a fee of 1.5% percent of the value of
the consideration received from Caere in the Merger (which consideration
includes certain indebtedness of ViewStar on the Merger Date) and has also
agreed to reimburse UBS for reasonable out-of-pocket expenses incurred in
connection with this transaction. Steven Brooks, a managing director of UBS, is
a director of ViewStar. See "Escrow" concerning the escrow of shares to
compensate Caere for certain Merger expenses.
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REGULATORY MATTERS
Caere and ViewStar are not aware of any governmental or regulatory
approvals required for consummation of the Merger, other than compliance with
the federal securities laws and applicable securities and "blue sky" laws of the
various states.
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following pro forma combined condensed financial statements have been
prepared to give effect to the Merger, using the pooling of interests method of
accounting.
The pro forma combined condensed financial statements reflect certain
assumptions deemed probable by management regarding the proposed Merger (e.g.,
that share information used in the pro forma information approximates actual
share information at the Merger Date). No adjustments to the pro forma combined
condensed financial information have been made to account for different possible
results in connection with the foregoing, as management believes that the impact
on such information of the varying outcomes, individually or in the aggregate,
would not be materially different.
The pro forma combined condensed balance sheet as of September 30, 1995
gives effect to the Merger as if it had occurred on September 30, 1995, and
combines the unaudited condensed consolidated balance sheet of Caere and the
balance sheet of ViewStar as of September 30, 1995.
The pro forma combined condensed statements of operations combine the
historical consolidated statements of operations of Caere and ViewStar for each
of the years in the two-year period ended December 31, 1994 and the nine months
ended September 30, 1995, in each case as if the Merger had occurred at the
beginning of the earliest period presented.
Caere and ViewStar estimate that they will incur direct transaction costs
of approximately $2.1 million associated with the Merger, which will be charged
to operations upon consummation of the Merger. In addition, it is expected that
following the Merger, Caere will incur an additional charge to operations,
currently estimated to be between $2.0 and $2.2 million to reflect costs
associated with integrating the two companies. This range is a preliminary
estimate only and is therefore subject to change. There can be no assurance that
Caere will not incur additional charges to reflect costs associated with the
Merger or that management will be successful in its efforts to integrate the
operations of the two companies.
Such pro forma combined condensed financial information is presented for
illustrative purposes only and is not necessarily indicative of the financial
position or results of operations that would have actually been reported had the
Merger occurred at the beginning of the periods presented, nor is it necessarily
indicative of future financial position or results of operations. These pro
forma combined condensed financial statements are based upon the respective
historical consolidated financial statements of Caere and ViewStar and should be
read in conjunction with the respective historical consolidated financial
statements and notes thereto of Caere and ViewStar, incorporated by reference
herein or included elsewhere in this Prospectus/Joint Proxy Statement, and do
not incorporate any benefits from cost savings or synergies of operations of the
combined company.
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PRO FORMA COMBINED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1995
(IN THOUSANDS)
PRO PRO
FORMA FORMA
ASSETS CAERE VIEWSTAR ADJUSTMENTS COMBINED
------- -------- ----------- --------
Current assets:
Cash and cash equivalents...................... $ 4,219 $ 750 $ (2,000)(2c) $ 2,969
Short-term investments......................... 41,195 -- 41,195
Receivables.................................... 7,538 6,648 14,186
Inventories.................................... 2,315 -- 2,315
Other current assets........................... 4,720 552 5,272
------- -------- --------
Total current assets................... 59,987 7,950 65,937
Property and equipment, net...................... 5,590 2,818 (250)(2b) 8,158
Other assets..................................... 1,794 388 2,182
------- -------- -------- --------
Total assets........................... $67,371 $ 11,156 $ (2,250) $ 76,277
======= ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Subordinated notes payable to stockholders..... $ -- $ 2,000 $ (2,000)(2c) $ --
Accounts payable and accrued expenses.......... 4,943 5,266 -- 10,209
Accrued integration and merger................. 509 -- 1,950(2b)
2,100(2a) 4,559
Deferred revenue............................... -- 9,995 9,995
Current portion of capital lease obligations
and notes payable........................... -- 1,151 1,151
------- -------- -------- --------
Total current liabilities.............. 5,452 18,412 2,050 25,914
Deferred income taxes............................ 725 -- 725
Noncurrent portion of capital lease obligations
and notes payable.............................. -- 1,093 1,093
Stockholders' equity:
Preferred stock................................ -- 94 (94) --
Authorized.................................. 2,000 9,395 (9,395) 2,000
Issued and outstanding...................... -- 9,330 (9,330) --
Common stock and additional paid-in capital.... 61,482 23,774 94 85,350
Authorized.................................. 30,000 20,000 (20,000) 30,000
Issued and outstanding...................... 13,232 2,418 635 16,285
Stockholder notes receivable................ -- (264) (264)
Accumulated deficit............................ (288) (31,953) (2,200)(2b)
------- --------
(2,100)(2a) (36,541)
-------- --------
Total stockholders' equity............. 61,194 (8,349) (4,300) 48,545
------- -------- -------- --------
Total liabilities and stockholders'
equity............................... $67,371 $ 11,156 $ (2,250) $ 76,277
======= ======== ======== ========
See accompanying notes to pro forma combined condensed financial statements.
49
61
PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER NINE MONTHS
31, ENDED
--------------------- SEPTEMBER 30,
1993 1994 1995
------- ------- -------------
Net revenues........................................... $76,360 $81,942 $55,531
------- ------- -------
Costs and expenses:
Cost of revenues..................................... 24,822 25,732 17,426
Research and development............................. 15,164 16,305 10,938
Selling, general and administrative.................. 40,174 45,083 32,038
Merger and severance related costs................... -- 3,332 1,267
Discontinuance of product line....................... 834 --
------- ------- -------
80,994 90,452 61,669
------- ------- -------
Operating loss.................................... (4,634) (8,510) (6,138)
Interest income, net................................... 737 1,287 1,282
------- ------- -------
Loss before income taxes and cumulative effect of
change in accounting principle.................... (3,897) (7,223) (4,856)
Income tax expense (benefit)........................... (974) 1,655 415
------- ------- -------
Loss before cumulative effect of change in accounting
principle......................................... $(2,923) $(8,878) $(5,271)
======= ======= =======
Loss before cumulative effect of change in accounting
principle per share............................... $ (0.20) $ (0.58) $ (0.33)
======= ======= =======
Shares used in per share calculation................... 14,934 15,381 16,176
======= ======= =======
See accompanying notes to pro forma combined condensed financial statements.
50
62
CAERE-VIEWSTAR
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1. PRO FORMA BASIS OF PRESENTATION
These pro forma combined condensed financial statements reflect the
issuance of 3,418,496 shares of Caere Common Stock (consisting of 3,052,348
shares to be issued upon the Merger and 366,148 shares to be issued upon
exercise of ViewStar Warrants and vested ViewStar Options) in exchange for an
aggregate of 9,162,872 shares of ViewStar Common Stock, 2,585,144 shares of
ViewStar Preferred Stock, 250,000 ViewStar Warrants and 1,511,246 ViewStar
vested Options (outstanding as of September 30, 1995) in connection with the
Merger (determined based on an estimated Merger Date of January 23, 1996 and an
estimated Designated Caere Stock Price of $8.684375) set forth in the following
table.
PREFERRED SHARES PREFERRED
EXPECTED TO BE SHARES
SHARES CONVERTED TO OUTSTANDING ESTIMATED NUMBER OF CAERE
OUTSTANDING COMMON STOCK AT CLOSING EXCHANGE RATIO COMMON SHARES
----------- ---------------- ----------- -------------- ---------------
ViewStar shares outstanding as
of September 30, 1995:
Common....................... 2,417,529 .19494 471,273
Preferred shares expected to
be converted to common.... 6,745,343 .19494 1,314,937
Preferred:
Series A-1................ 316,667 226,667 90,000 .36272 32,644
Series A-2................ 210,000 186,666 23,334 .36099 8,423
Series B.................. 415,142 324,237 90,905 .38379 34,888
Series C.................. 2,640,081 2,589,273 50,808 .40901 20,781
Series D-1................ 1,795,842 1,200,000 595,842 .48363 288,165
Series D-2................ 2,183,600 1,600,000 583,600 .41454 241,924
Series E-1................ 1,000,000 316,600 683,400 .57932 395,904
Series E-2................ 769,155 301,900 467,255 .52094 243,409
------------------------ ----------
6,745,343 2,585,144
========= =========
Caere Common Shares to be
issued as of September 30,
1995......................... 3,052,348
Caere Common Shares outstanding
as of September 30, 1995..... 13,232,750
----------
Total Caere Common Shares
outstanding after completion
of the Merger as of September
30, 1995..................... 16,285,098
==========
Each then outstanding share of each series of ViewStar Preferred Stock will
be converted into a fraction of a share of Caere Common Stock equal to the
fraction obtained by dividing the per share liquidation preference of such
series under the ViewStar Articles by the Designated Caere Stock Price.
The actual number of shares of Caere Common Stock to be issued, as well as
the exchange ratios, will be determined at the Effective Time based on the
number of shares of ViewStar Common and Preferred Stock and vested ViewStar
Options outstanding.
2. PRO FORMA COMBINED BALANCE SHEET
(a) Caere and ViewStar estimate they will incur direct transaction costs of
approximately $2.1 million associated with the Merger consisting of transaction
fees for investment bankers, attorneys, accountants, financial printing and
other related charges. These nonrecurring transaction costs will be charged to
operations upon consummation of the Merger.
51
63
CAERE-VIEWSTAR
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(b) It is expected that following the Merger, Caere will incur an
additional charge to operations, currently estimated to be between $2.0 and $2.2
million to reflect costs associated with integrating the two companies. The Pro
Forma Condensed Balance Sheet gives effect to estimated direct transaction costs
and a $2.2 million charge to operations relating to integrating the two
companies as if such costs and charge had been incurred as of September 30,
1995. This charge consists primarily of the following: (i) severance costs; and
(ii) cancellation and continuation of certain contractual obligations arising
from the Merger.
(c) The subordinated notes payable to stockholders will be repaid by Caere
upon consummation of the Merger.
The direct transaction costs and additional charge are not reflected in the
Pro Forma Combined Condensed Statements of Operations.
As of September 30, 1995, ViewStar had significant net operating losses
available to offset future taxable income. The Merger, if consummated, will
result in a change in ownership that will restrict Caere's use of ViewStar's
operating loss carryforwards. Caere estimates that it will be able to utilize
approximately $2.3 million of ViewStar's operating loss carryforwards annually
to offset taxable income.
3. PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
The following is a summary of the historical results of operations of Caere
and ViewStar and their pro forma combined amounts to reflect the Merger as if it
were effected for all periods presented below.
YEARS ENDED DECEMBER NINE MONTHS
31, ENDED
-------------------- SEPTEMBER 30,
1993 1994 1995
------- -------- -------------
NET REVENUES:
Caere................................................... $48,264 $ 59,130 $38,453
ViewStar................................................ 28,096 22,812 17,078
------- -------- -------
$76,360 $ 81,942 $55,531
======= ======== =======
COST OF REVENUES:
Caere................................................... $16,205 $ 17,633 $11,810
ViewStar................................................ 8,617 8,099 5,616
------- -------- -------
$24,822 $ 25,732 $17,426
======= ======== =======
RESEARCH AND DEVELOPMENT:
Caere................................................... $ 9,389 $ 9,734 $ 6,643
ViewStar................................................ 5,775 6,571 4,295
------- -------- -------
$15,164 $ 16,305 $10,938
======= ======== =======
SELLING, GENERAL AND ADMINISTRATIVE:
Caere................................................... $24,594 $ 25,897 $18,722
ViewStar................................................ 15,580 19,186 13,316
------- -------- -------
$40,174 $ 45,083 $32,038
======= ======== =======
MERGER AND SEVERANCE RELATED COSTS:
Caere................................................... -- 3,254 297
ViewStar................................................ -- 78 970
------- -------- -------
-- 3,332 1,267
52
64
CAERE-VIEWSTAR
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS
YEARS ENDED DECEMBER ENDED
31, SEPTEMBER 30,
1993 1994 1995
------- -------- -------
======= ======== =======
DISCONTINUANCE OF PRODUCT LINE:
Caere................................................... $ 834 -- --
ViewStar................................................ -- -- --
------- -------- -------
$ 834 -- --
======= ======== =======
INTEREST INCOME, NET:
Caere................................................... $ 1,057 $ 1,372 $ 1,571
ViewStar................................................ (320) (85) (289)
------- -------- -------
$ 737 $ 1,287 $ 1,282
======= ======== =======
INCOME TAX EXPENSE (BENEFIT):
Caere................................................... $(1,093) $ 1,600 $ 383
ViewStar................................................ 119 55 32
------- -------- -------
$ (974) $ 1,655 $ 415
======= ======== =======
EARNINGS (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE:
Caere................................................... $ (608) $ 2,384 $ 2,169
ViewStar................................................ (2,315) (11,262) (7,440)
------- -------- -------
$(2,923) $ (8,878) $(5,271)
======= ======== =======
The following table reconciles the numbers of shares used in the pro forma
per share computations to the numbers set forth in Caere's and ViewStar's
historical statements of operations:
NINE MONTHS
YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER
----------------- 30,
1993 1994 1995
------ ------ -----------
Shares used in per share calculation (in thousands, except
estimated Applicable Fraction):
Historical -- Caere........................................... 12,639 13,136 13,477
Options to purchase common stock(1)......................... -- (497) (336)
------ ------ ------
12,639 12,649 13,141
------ ------ ------
Historical -- ViewStar........................................ 1,591 1,857 2,329
Assumed Applicable Fraction................................... .19494 .19494 .19494
------ ------ ------
310 362 454
Caere common shares to be issued for ViewStar preferred
stock(2).................................................... 1,985 2,370 2,581
------ ------ ------
Pro forma combined............................................ 14,934 15,381 16,176
====== ====== ======
- ---------------
(1) To exclude common stock equivalents arising from options to purchase Caere
Common Stock during periods where they would be antidilutive on a pro forma
combined basis.
(2) To include shares of ViewStar Preferred Stock which will be converted to
Caere Common Stock upon the Closing.
53
65
MANAGEMENT OF CAERE
The executive officers and directors of Caere are as follows:
NAME AGE POSITION
Serge L. Blanc 58 Vice President, Business Products
Dan D. Borozan 58 Vice President, Operations
James K. Dutton 63 Director
Dean A. Hovey 41 Vice President, Business Development
Steven C. Humphreys 34 President
Sidney S. Kahn 57 Director
Chad B. Kinzelberg 28 Vice President, Marketing
Lawrence F. Lunetta 43 Vice President, Sales and Service
Cary H. Masatsugu 39 Vice President, Engineering
Wayne E. Rosing 49 Director
Blanche M. Sutter 49 Vice President, Finance, Chief Financial
Officer and Secretary
Robert G. Teresi 54 Chairman of the Board and Chief Executive
Officer
Frederick W. Zuckerman 60 Director
Mr. Blanc joined the Company in May 1977 as Vice President, Engineering. In
August 1994, he became Vice President, Business Products.
Mr. Borozan joined the Company in January 1991 as Vice President,
Operations. Prior to joining the Company, he was Director of Materials at Hughes
LAN Systems, a manufacturer of local area network products.
Mr. Dutton has been a director of the Company since 1979. He is currently a
consultant and private investor. From December 1979 to May 1985, he served as
the Company's President and Chief Executive Officer. From 1991 to May 1993, Mr.
Dutton was a consultant to and President of Andor Corporation, a distributor of
high end mainframe computer equipment and related software. He was a director of
System Industries Inc. from 1985 to July 1993 and served as Chairman of the
Board from March 1992 to July 1993. He has been a director of ECCS, Inc. since
September 1994 and a director of Network Equipment Technologies, Inc. since
October 1995.
Mr. Hovey joined the Company in August 1994 as Vice President, Business
Development. Prior to joining the Company, from 1989 to 1994, he was a General
Partner of Avalon Ventures, a venture capital fund.
Mr. Humphreys joined the Company in June 1994 as President. Prior to
joining the Company, from 1991 to 1994, he was Vice President of Business
Development and Vice President of the Information Development Services Division
for GE Information Services, a provider of applications and systems software
development. From 1990 to 1991, he was President and Chief Executive Officer of
Space Industries Telecommunications and Electronics Company (SITEC), a provider
of PC-based software and hardware for faxing, scanning and voice response.
Mr. Kahn, has served as a director of the Company since 1978. He has been a
private investor since December 1987. He is director of a number of privately
held corporations, including Orion Network Systems, Inc., Telogy Systems, Inc.
and the Ambis Corporation. He is also a director of Phoenix Network Systems.
Mr. Kinzelberg joined the Company in September 1994 as Vice President,
Marketing. Prior to that, he was Senior Director, Marketing, from 1992 to 1994,
and Senior Director, Fax and Messaging Software in 1994, at Delrina Corporation,
a designer and manufacturer of fax, forms, and content-based software. From
54
66
May 1990 to June 1992, he was Director of Marketing for Polaris Software, a
developer of personal information manager software.
Mr. Lunetta became the Company's Vice President, Sales and Service in April
1995. Previously, he was the Company's Vice President, Strategic Relations since
August 1994, and Vice President, Worldwide Marketing from 1993 to 1994. From
1992 to 1993 he was Director of International Markets. From 1989 to 1991, he was
Vice President, Marketing and Sales, for Advanced Vision Research, a
manufacturer of desktop scanners.
Mr. Masatsugu joined the Company as an engineer in December 1994, and
became Vice President, Engineering in May 1995. Prior to joining the Company, he
was Vice President, Engineering, at Calera Recognition Systems, Inc., a
manufacturer of optical character recognition software which was acquired by
Caere in December 1994. From March to August 1994 he was Vice President,
Engineering, at EO, Inc., an AT&T subsidiary, a developer and manufacturer of
personal communicator products. From 1988 to 1993 he held various engineering
and marketing positions at GO Corporation, a developer of communication-oriented
operating system software.
Mr. Rosing, has been a director of the Company since June 1991. Since
September 1994, he has been President of The Remote Telescope Company, Inc., a
recently incorporated company that is developing automatic telescopes with
Internet access. From 1988 to 1994, he was an officer of Sun Microsystems, Inc.,
a manufacturer of UNIX-based professional work stations and compatible software,
or President or Vice President of one of its subsidiaries, divisions, or groups.
Ms. Sutter has been the Company's Vice President, Finance, and Chief
Financial Officer since April 1986. In June 1989, she was also appointed as the
Company's Secretary.
Mr. Teresi has been with the Company since 1976 and has served as
President, Chief Executive Officer and a director of the Company since May 1985.
He was elected Chairman of the Board on October 15, 1991. In May 1994, Mr.
Teresi relinquished the office of President.
Mr. Zuckerman, has been a director of the Company since March 1995. Mr.
Zuckerman is a private investor and a partner in the firm of Zuckerman &
Firstenberg, an investment banking/financial advisory organization. Previously,
he was Vice President and Treasurer of International Business Machines Corp., a
multinational corporation principally engaged in the information technology
business, from September 1993 to January 1995; Vice President and Treasurer of
RJR Nabisco, Inc., a multinational corporation principally engaged in the
tobacco and food businesses, from February 1991 to September 1993; and Corporate
Vice President and Treasurer of Chrysler Corp., a multinational corporation
principally engaged in the automotive business, from December 1981 to September
1990. He is a director of Meditrust, Turner Corporation, NVR Corporation,
Anacomp, Inc., Japan Equity Fund, The Singapore Fund, Pantone, Inc. and Olympic
Financial, Ltd.
55
67
BUSINESS OF VIEWSTAR
ViewStar designs, develops and markets products that address
mission-critical, line-of-business workflow applications involving data,
electronic documents, images, text, multimedia and other formats in a
distributed, networked environment. ViewStar products are sold directly and
through system integrators and distributors to medium to large organizations in
many industries, including insurance, banking, financial services, oil and gas,
utilities, health care, manufacturing and transportation, as well as government
and education. ViewStar also provides significant implementation and support
services, both directly and through third parties, to ensure the successful
deployment and ongoing maintenance of ViewStar products.
ViewStar provides an open, object-oriented, network-based business process
automation software system encompassing workflow automation and document image
and information management. The system supports industry-standard hardware and
software platforms, including Microsoft Windows NT and UNIX operating
environments; Oracle 7, Microsoft SQL Server and Sybase System 10 databases; and
Novell Netware, Microsoft NT, and Banyan file services. The software operates in
a distributed environment over local and wide-area networks to provide workgroup
or enterprise-wide processing and access to documents and associated data or
multimedia information.
With the ViewStar system, organizations can deploy small departmental
applications to large complex systems distributed over multiple locations. At
September 30, 1995, more than 250 ViewStar systems had been installed worldwide
to optimize and automate a wide range of document-intensive applications,
including claims processing, consumer lending, accounts payable, contracts
management, financial-instruments trading operations, regulatory approvals, and
customer service. ViewStar's current clients in North America include Aetna Life
& Casualty Co., American Express Company, California State Automobile
Association, General Electric Capital Corp., Minnesota Mining & Mfg. Co., and
Texas Commerce Bancshares, Inc. International clients include American Express
Company, General Electric Capital Corp., EDF (France), Wellcome Trust (UK),
Private Patients Plan (UK), AirTours plc (UK), ENI (Italy), Barclays Bank
(Australia), debitel Cellular (Germany), Electrobel (Belgium), Fin P&T
(Finland), and the University of Kuwait.
The ViewStar system, with its current 4.1 release, enables deployment of
multiple system configurations involving Microsoft Windows NT and UNIX servers
and offers scalability from 10 to over 1,000 users, one to many geographic
locations, from 150,000 to over 250,000 pages scanned and archived per day, and
from 200,000 to over 350,000 workflow transactions processed per day. With the
software, users and organizations can capture, convert, index, store, retrieve,
annotate, route, track, output and manage compound (multimedia) documents. The
ViewStar system also offers interfaces to a wide range of peripheral subsystems
for document scanning, archiving, facsimile import and export, OCR/ICR, and host
or mainframe system integration.
ViewStar 4.1 also includes the Process Architect -- a high-level, visual
design software tool for business process modeling and simulation. Process
Architect incorporates a portfolio of pre-defined, customizable, reusable tasks
or objects to enable business users, as well as systems developers, to easily
design business application processes, and provides direct connection to
ViewStar's object-oriented application development tools and services for rapid
application development and deployment.
ViewStar markets its products through a direct sales force, with offices in
Alameda and Los Angeles, California; Atlanta, Georgia; Boston, Massachusetts;
Charlotte, North Carolina; Chicago, Illinois; Cleveland, Ohio; Dallas and
Houston, Texas; New York, New York; Vienna, Virginia and Seattle, Washington.
ViewStar's sales in Europe are managed by ViewStar's United Kingdom and France
subsidiaries. ViewStar also markets its products through distributors and
resellers, including Electronic Data Systems Corporation; Andersen Consulting;
Federal Data Corporation; WM-Data Nordic AB in Denmark, Finland, Norway and
Sweden; AlAlamiah Electronics Co. in Saudi Arabia and Kuwait; debis Systemhaus
DCS in Germany; Tandem Computers Incorporated in the U.S. and Tandem Computers
Pty. Ltd. in Australia and New Zealand. Other distributors include Nissho
Electronics Corporation in Japan; Ekar S.R.L. in Italy; SsangBangWool Int'l,
Inc. in South Korea and Concerto S.A. in Spain and Portugal.
56
68
SELECTED FINANCIAL DATA OF VIEWSTAR
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The statement of operations data set forth below for the years ended
December 31, 1993 and 1994 and for the nine months ended September 30, 1995, and
the balance sheet data at December 31, 1994 and September 30, 1995, are derived
from the audited statements of ViewStar, which are included elsewhere herein.
The statement of operations data for the nine months ended September 30, 1994 is
unaudited but has been prepared on the same basis as the audited financial
statements and, in the opinion of ViewStar, includes all adjustments consisting
of normal recurring adjustments necessary for the fair presentation thereof.
Operating results for the nine months ended September 30, 1995 are not
necessarily indicative of the results that may be expected for future periods or
for the year ending December 31, 1995. The data should be read in conjunction
with the financial statements, related notes and other financial information
included herein.
STATEMENT OF OPERATIONS DATA:
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, ---------------------
-------------------------------------------------------- SEPT. 30 SEPT. 30
1990 1991 1992 1993 1994 1994 1995
------- ------- ------- ------- -------- -------- --------
License fees............................. $ 6,898 $ 6,580 $10,790 $15,847 $ 10,436 $ 6,515 $ 8,491
Services................................. -- 3,381 6,616 10,205 11,857 8,731 8,517
Hardware sales and fees.................. -- 2,489 5,725 2,044 519 477 70
------- ------- ------- ------- -------- ------- -------
Net revenues..................... 6,898 12,450 23,131 28,096 22,812 15,723 17,078
------- ------- ------- ------- -------- ------- -------
Costs and expenses:
Cost of revenues....................... 1,377 3,793 9,113 8,617 8,099 5,731 5,616
Research and development............... 2,176 2,997 3,559 5,775 6,571 4,725 4,295
Marketing and sales.................... 5,206 5,188 8,627 12,838 16,127 11,534 11,792
General and administrative............. 2,196 1,365 2,058 2,742 3,059 2,137 1,524
Severance related costs................ -- -- -- -- 78 -- 970
------- ------- ------- ------- -------- ------- -------
Total costs and expenses................. 10,955 13,343 23,357 29,972 33,934 24,127 24,197
------- ------- ------- ------- -------- ------- -------
Operating loss........................... (4,057) (893) (226) (1,876) (11,122) (8,404 ) (7,119 )
Other, net............................... 151 52 (109) (320) (85) (80 ) (289 )
------- ------- ------- ------- -------- ------- -------
Loss before income taxes................. (3,906) (841) (335) (2,196) (11,207) (8,484 ) (7,408 )
Income taxes............................. -- -- 77 119 55 20 32
------- ------- ------- ------- -------- ------- -------
Net loss................................. $(3,906) $ (841) $ (412) $(2,315) $(11,262) $(8,504 ) $(7,440 )
======= ======= ======= ======= ======== ======= =======
Net loss per share....................... $ (2.97) $ (0.63) $ (0.29) $ (1.46) $ (6.06) $ (4.66 ) $ (3.19 )
Shares used in per share calculation..... 1,316 1,325 1,425 1,591 1,857 1,826 2,329
STATEMENT OF OPERATIONS DATA AS A PERCENTAGE OF NET SALES:
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, -----------------------
-------------------------------------------------------- SEPT. 30, SEPT. 30,
1990 1991 1992 1993 1994 1994 1995
------- ------- ------- ------- -------- --------- ---------
Net revenues............................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of revenues...................... 19.9 30.5 39.4 30.7 35.5 36.4 32.9
Research and development.............. 31.5 24.1 15.4 20.6 28.8 30.1 25.1
Marketing and sales................... 75.5 41.7 37.3 45.7 70.7 73.4 69.0
General and administrative............ 31.8 10.9 8.9 9.8 13.4 13.6 8.9
Severance costs....................... -- -- -- -- 0.3 -- 5.7
----- ----- ----- ----- ----- ----- -----
Operating income (loss)................. (58.7%) (7.2%) (1.0%) (6.8%) (48.7%) (53.5%) (41.6%)
===== ===== ===== ===== ===== ===== =====
BALANCE SHEET DATA:
AS OF DECEMBER 31, AS OF
------------------------------------------------------- SEPT. 30,
1990 1991 1992 1993 1994 1995
------- ------- ------- ------- ------- ---------
Working capital..................................... $1,066 $5,119 $ 4,666 $ 5,800 $(3,513) $(10,462 )
Total assets........................................ 7,556 9,395 15,199 18,581 17,856 11,156
Short-term debt, including current portion of
long-term obligations............................. 2,647 364 512 701 946 3,151
Long-term debt...................................... 513 304 626 857 955 1,093
Shareholders' equity................................ 1,410 5,801 5,546 7,175 (978) (8,349 )
57
69
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF VIEWSTAR
OVERVIEW
ViewStar was incorporated in 1986 and shipped its first product in 1988.
ViewStar provides client-server workflow, imaging and document management
software to automate complex business processes. ViewStar's revenues are derived
mainly from two sources, software license fees and revenues from services,
including maintenance, training and consulting. Software maintenance fees are
billed on an annual basis as a percentage of software license fees. Consulting
and implementation services are billed on a time and materials basis. ViewStar's
license fee revenue rose consistently from 1989 through 1993. ViewStar incurred
net losses of $11,262,000 in 1994 and $7,440,000 for the first nine months of
1995. These substantial losses resulted primarily from (i) costs associated with
the expansion of ViewStar's direct sales force and other personnel additions in
the second half of 1993 in anticipation of expected 1994 revenue growth, (ii)
decreases in license fee revenues beginning in the first quarter of 1994, and
(iii) expenditures to augment ViewStar's service and support capability in the
first half of 1994. The license fee revenue decreases resulted primarily from
significant customer dissatisfaction with ViewStar's inability to fulfill
customer service and support demands that particularly arose from several large
orders received in the second half of 1993. Such customer dissatisfaction and
resulting lost revenue opportunities also contributed to a significant number of
resignations in ViewStar's direct sales force, which had further adverse effects
on license fee revenues.
ViewStar addressed these problems by (i) shifting its focus from direct
sales to an increasing reliance on system integrators and distributors to serve
its target customer base, (ii) restructuring its senior management team, (iii)
revamping its sales and distribution organization, (iv) adding employees to meet
the service and support requirements, and (v) adding employees to accelerate
development of new product releases 4.0 and 4.1. Costs associated with certain
of these actions, coupled with reduced revenues, resulted in substantial losses
in 1994 and the first half of 1995.
To counter these losses, ViewStar reduced its headcount from 236 at
December 31, 1994 to 145 at September 30, 1995 through a combination of
attrition and reductions. Favorable market acceptance of Releases 4.0 and 4.1 in
the second and third quarters of 1995, respectively, combined with the decrease
in operating expenses have provided ViewStar renewed revenue growth and improved
operating results. In the quarter ended September 30, 1995, ViewStar operated
profitably, excluding severance related costs. There can be no assurance,
however, that ViewStar's business can operate profitably on a sustained basis.
RESULTS OF OPERATIONS
REVENUES
ViewStar had total net revenues of $17,078,000 for the nine months ended
September 30, 1995, compared to $15,723,000 for the comparable period in 1994.
This 9% increase was due primarily to increased license fee revenue. Total
revenues decreased 19% to $22,812,000 in fiscal 1994 from $28,096,000 in fiscal
1993, because of the customer dissatisfaction described in "Overview" above.
License fee revenue for the nine months ended September 30, 1995 increased
30% to $8,491,000 from $6,515,000 in the comparable nine month period in 1994,
due to stronger demand for ViewStar's new product releases. License fee revenue
decreased 34% to $10,436,000 in fiscal 1994 from $15,847,000 in fiscal 1993, due
primarily to customer dissatisfaction with ViewStar's inability to fulfill
service and support requirements related to its fourth quarter 1993 product
release.
Service revenue, which consists of revenue for both consulting services and
maintenance, decreased slightly to $8,517,000 for the nine month period ended
September 30, 1995, from $8,731,000 for the same period in 1994, due primarily
to a reduction in consulting revenues offset by an increase in maintenance
revenue. Revenue from services increased 16% to $11,857,000 in fiscal 1994 from
$10,205,000 in fiscal 1993, primarily because of increases in maintenance and
training revenue due to the expansion of ViewStar's installed base. Consulting
services revenue decreased 18% to $4,144,000 for the nine months ended
58
70
September 30, 1995, from $5,026,000 for the same period in 1994. This decrease
reflected a reduction in services personnel and increased reliance on system
integrators and distributors to provide consulting services, as described above.
Maintenance revenue for the nine month period ended September 30, 1995 increased
18% to $4,373,000, from $3,705,000 for the same period in 1994, due to the
expansion of ViewStar's installed base.
COSTS AND EXPENSES
Total costs and expenses for the nine months ended September 30, 1995 were
flat at $24,197,000, compared to $24,127,000 for the same period in 1994. Higher
commissions and other costs associated with higher revenues were offset by
reductions due to decreased headcount. Total costs and expenses increased 13% to
$33,934,000 in fiscal 1994, from $29,972,000 in fiscal 1993, due primarily to
headcount additions.
Cost of license fees, consisting of third-party royalties, and product and
shipping costs, decreased 24% to $394,000 for the nine months ended September
30, 1995, from $520,000 for the comparable period in 1994, due to reductions in
third-party royalties. Cost of license fees increased to $720,000 in 1994 from
$606,000 in 1993, an increase of 19%, due to higher product costs.
Cost of services, consisting principally of the expenses for ViewStar's
internal and third party consulting employees and relationships, was flat at
$5,222,000 for the nine months ended September 30, 1995, compared to $5,170,000
for the comparable period in 1994. Cost of services increased 10% to $7,337,000
in 1994 from $6,663,000 in 1993, due to the increase in headcount in the latter
part of 1994 and an increase in the cost of third party services.
Prior to 1994, the Company sold significant quantities of hardware to its
customers as part of its workflow management systems. Since 1994, ViewStar has
not sold hardware directly to customers, but instead has relied upon outside
hardware distributors to make direct hardware sales to ViewStar's customers. As
a result, the cost of hardware for the nine months ended September 30, 1995 was
$0 as compared to $41,000 for the same period in 1994. Similarly, the cost of
hardware for the year ended December 31, 1994 was $42,000, compared to
$1,348,000 for the same period in 1993.
Sales and marketing expense was $11,792,000 for the nine month period ended
September 30, 1995, an increase of 2% from $11,534,000 in the comparable period
of 1994, which resulted from increases in costs and commissions associated with
higher revenues, offset by expense reductions due to decreased headcount. Sales
and marketing expense increased 26% to $16,127,000 in fiscal 1994 from
$12,838,000 in fiscal year 1993, due primarily to personnel increases intended
to provide sales support for anticipated 1994 revenue growth, together with an
additional $1,034,000 in expenses relating to the formation and operation of the
UK subsidiary.
Product development expense of $4,295,000 for the nine months ended
September 30, 1995 decreased 9% from $4,725,000 for the same period in 1994 due
to a modest reduction in personnel and cost containment measures. Product
development expenses increased 14% to $6,571,000 in fiscal 1994 from $5,775,000
in fiscal 1993 due to increased staffing of software engineers required to
enhance ViewStar's product line. ViewStar is committed to providing continuing
enhancements to current products as well as to developing new technologies for
the future. ViewStar expects to continue to invest heavily in product
development in 1996.
General and administrative expense was $1,524,000 for the nine months ended
September 30, 1995, a decrease of 29% from $2,137,000 for the same period in
1994 due primarily to reductions in headcount. General and administrative
expenses increased 12% to $3,059,000 in fiscal 1994 from $2,742,000 in fiscal
1993, due to increases in staffing during 1993 and 1994.
During the nine months ended September 30, 1995, ViewStar incurred $970,000
in expenses related to headcount reductions and costs associated with the
closure of a facility.
OTHER INCOME (EXPENSE)
Interest expense for the nine months ended September 30, 1995 increased 92%
to $399,000, compared to $208,000 for the same period in 1994 due to increased
borrowings. Interest expense decreased 25% to
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$284,000 for fiscal 1994, from $378,000 in fiscal 1993 due to decreased
borrowings. See "Liquidity and Capital Resources." Interest income was $110,000
for the nine months ended September 30, 1995, compared to $128,000 for the same
period in 1994. Interest income in fiscal 1994 was $199,000, compared to $58,000
in fiscal 1993.
INCOME TAXES
Income tax expense for the nine months ended September 30, 1995 increased
to $32,000, compared to $20,000 for the same period in 1994, primarily due to
state and foreign tax obligations. Income tax expense decreased 54% to $55,000
in fiscal 1994, from $119,000 for fiscal 1993 due to the increased losses. As of
September 30, 1995, ViewStar had net operating loss carryforwards in the amount
of $23,945,000 for federal income tax purposes, expiring from 2001 through 2010,
and $9,915,000 for state franchise tax purposes expiring from 1996 through 2000.
In addition, as of September 30, 1995, ViewStar also had federal and state
research and development credit carryforwards of $945,000 and $565,000
respectively, expiring from 2001 through 2010.
QUARTERLY INFORMATION
The following table sets forth statements of operations by quarter for the
nine months ended September 30, 1995 and the percentage of ViewStar's total
revenues represented by each item during the respective quarter.
MARCH 31, JUNE 30, SEPTEMBER 30,
1995 % 1995 % 1995 % TOTAL
--------- ------ -------- ----- ------------- ----- -------
Revenues
License fees......... $ 1,086 28.4% $ 2,977 51.5% $ 4,428 59.2% $ 8,491
Services............. 2,706 70.9% 2,759 47.7% 3,052 40.8% 8,517
Hardware sales and
fees.............. 27 0.7% 45 0.8% (2) (0.0)% 70
------- ------ ------- ----- ------ ----- -------
Total revenues......... 3,819 100.0% 5,781 100.0% 7,478 100.0% $17,078
------- ------ ------- ----- ------ ----- -------
Costs and expenses
Cost of license
fees.............. 160 4.2% 125 2.2% 109 1.5% 394
Cost of services..... 1,806 47.3% 1,759 30.4% 1,657 22.2% 5,222
Sales and
marketing......... 3,811 99.8% 4,351 75.3% 3,630 48.5% 11,792
Product
development....... 1,522 39.8% 1,472 25.5% 1,301 17.4% 4,295
General and
administrative.... 538 14.1% 580 10.0% 406 5.4% 1,524
Severance related
costs............. 320 8.4% 48 0.8% 602 8.1% 970
------- ------ ------- ----- ------ ----- -------
Total costs and
expenses.......... 8,157 213.6% 8,335 144.2% 7,705 103.0% 24,197
------- ------ ------- ----- ------ ----- -------
Operating loss......... (4,338) (113.6)% (2,554 ) (44.2)% (227) (3.0)% (7,119)
Interest expense....... (74) (1.9)% (161 ) (2.8)% (164) (2.2)% (399)
Other income........... 40 1.0% 48 0.8% 22 0.3% 110
------- ------ ------- ----- ------ ----- -------
Loss before income
taxes................ (4,372) (114.5)% (2,667 ) (46.1)% (369) (4.9)% (7,408)
Income taxes........... -- 0.0% 32 (0.6)% -- 0.0% 32
------- ------ ------- ----- ------ ----- -------
Net loss............... $(4,372) (114.5)% $(2,699 ) (46.7)% $ (369) (4.9)% $(7,440)
======= ====== ======= ===== ====== ===== =======
Revenues for the quarter ended September 30, 1995 increased by 29% and 96% over
the quarters ended June 30, 1995 and March 31, 1995, respectively, due to
increased demand for ViewStar's products and services. The increase in license
fee revenue from the first quarter to the third quarter reflects the 1995
product releases. Revenue increases were realized from sales by both system
integrators and distributors, and the direct sales force. Total costs and
expenses increased from $8,157,000 for the quarter ended March 31, 1995 to
$8,335,000 for the quarter ended June 30, 1995, due to increased revenues, and
decreased to $7,705,000 for the quarter ended September 30, 1995 due to
additional headcount reductions made during the quarter.
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VARIABILITY OF OPERATING RESULTS
ViewStar's revenues and operating results can vary substantially from
quarter to quarter. License revenue, which represented approximately 46% of
total revenues in 1994 and 50% of total revenues for the nine months ended
September 30, 1995, are difficult to forecast because ViewStar's sales cycle is
relatively long and quarterly revenues depend on a relatively few large orders
that are subject to changes in customer budgets and general economic conditions.
Because ViewStar's operating expenses are based on anticipated revenue levels
and a high percentage of ViewStar's expenses are relatively fixed, the timing of
revenues from a single contract can cause significant fluctuations in operating
results from quarter to quarter and may adversely affect operating results. In
addition, ViewStar historically has operated with little backlog because its
software products are generally shipped as orders are received. As a result,
license revenues in any quarter are substantially dependent on orders booked and
shipped in that quarter. Further, the value of an average contract as a percent
of quarterly revenue is substantial, and certain contracts may constitute a
significant portion of the operating profits for the quarter in which they are
signed. Historically, ViewStar has often recognized a substantial portion of its
revenues in the last month of the quarter, with these revenues frequently
concentrated in the last week of the quarter. In addition, changes in levels of
consulting activity and seasonality in training revenue, which tends to lag
license fee revenue by approximately one quarter, have resulted in variability
of services revenue from quarter to quarter. ViewStar also generally has
realized lower revenue from license fees in the first quarter of the year than
in the immediately preceding quarter. ViewStar believes that this has been
primarily due to the concentration by some customers of larger capital purchases
in the fourth quarter of the calendar year, followed by lower purchasing
activity during the first quarter of the calendar year. Accordingly, revenues in
any quarter are not indicative of revenues in any future period.
CURRENT TRENDS
Commencing in 1994, ViewStar reduced its reliance on its direct sales force
and increased its reliance on sales through system integrators and distributors.
ViewStar license revenue through system integrators and distributors have
increased to 35% of license fees in 1995 from 22% for the nine months ended
September 30, 1994. Through their extensive business relationships, system
integrators and distributors have the capacity to generate greater volumes of
orders than ViewStar's direct sales force. Moreover, system integrators and
distributors are able to provide a substantial amount of the service and support
that would otherwise have to be supplied by ViewStar. Most of ViewStar's system
integrators and distributors do not have long-standing relationships with
ViewStar and may cease actively marketing ViewStar products at any time. Some of
ViewStar's system integrators and distributors also offer competing products or
systems manufactured by third parties or themselves. The loss of one or more
system integrators or distributors, or the failure of the parties to renew
agreements with ViewStar on expiration, could have a material adverse effect on
ViewStar's business, revenue growth and operating results.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, ViewStar has financed its operations through borrowings
from its principal shareholders, sale of equity securities and bank debt. Under
ViewStar's secured bank line of credit as of September 30, 1995, up to
$4,000,000 ($6,000,000 at December 31, 1994) is available for working capital
advances, based upon the level of eligible accounts receivable. ViewStar intends
to finance its operations through the Merger Date with borrowings on its bank
line of credit. In June of 1995, ViewStar borrowed $2,000,000 from certain of
its existing Preferred Stock investors. These borrowings were subordinated to
its bank line of credit. See Note 4 of Notes to Consolidated Financial
Statements.
During 1992, 1993 and 1994, ViewStar's principal use of cash was to support
increases in headcount, facility costs and additions to property and equipment
resulting from ViewStar's growth. As of September 30, 1995, ViewStar had
$750,000 in cash and cash equivalents. ViewStar currently anticipates that
additions to property and equipment for the fourth quarter of 1995 will be
approximately $300,000. Excluding deferred revenues of $9,995,000 for the nine
months ended September 30, 1995 and $9,767,000 for the comparable period in
1994, ViewStar had working capital of $6,254,000 as of December 31, 1994 and a
working capital deficit of $467,000 as of September 30, 1995.
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Accounts receivable days' sales was 77 as of September 30, 1995, 106 days
as of December 31, 1994 and 102 days as of December 31, 1993. Given the
historical pattern of revenue generation toward the end of each quarter,
ViewStar anticipates that accounts receivable and related days' sales
outstanding will continue to be substantial in future periods.
VIEWSTAR STOCK, OPTIONS AND DIVIDENDS
ViewStar is a privately held company; there is no public trading market for
its stock. There are a total of 263 holders of ViewStar Capital Stock, of which
234 hold shares of ViewStar Common Stock. The Caere Common Stock issued to the
holders of ViewStar Capital Stock in the Merger will be registered pursuant to
the Registration Statement on Form S-4 of which this Prospectus/Joint Proxy
Statement is a part. In addition, the Merger Agreement provides that Caere will
file a Registration Statement on Form S-8 to cover shares issued upon exercise
of ViewStar Options assumed by Caere in the Merger, within seven business days
after the Effective Time. As of the Record Date, there were options outstanding
to purchase an aggregate of 2,806,679 shares of ViewStar Common Stock.
ViewStar has never declared or paid any dividends on its Common Stock and
has no plans to do so in the foreseeable future. ViewStar's bank line of credit
prohibits the payment of cash dividends.
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MANAGEMENT OF VIEWSTAR
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information as of the Record Date
with respect to each executive officer and director of ViewStar:
NAME AGE POSITION WITH VIEWSTAR
D. Kirkwood Bowman 54 Director
Steven D. Brooks 44 Director
Gayle A. Crowell 45 Senior Vice President and General Manager,
Worldwide Operations
Christina L. Darwall 47 Director
Shirish S. Hardikar 40 Vice President, Marketing
Kamran Kheirolomoom 40 President, Chief Executive Officer and
Director
F. Gibson Myers, Jr. 53 Director
Robert I. Pender, Jr. 38 Vice President of Finance and Chief Financial
Officer
Mark W. Perry 52 Chairman of the Board
Hon Wong 38 Director
Mr. Bowman has served as a director of ViewStar since May 1988. He has been
a general partner of Inman & Bowman Management, a venture capital fund, since
June 1985.
Mr. Brooks has served as a director of ViewStar since January 1995. He has
been a Managing Director of Union Bank of Switzerland since November 1994. From
July 1992 to November 1994, he was a private investor. From November 1989 to
June 1992, he was a Principal of Rainwater, Inc., a private investment company.
Mr. Brooks has served as a director of QuickResponse Services, Inc., a publicly
held corporation, since December 1992.
Ms. Crowell joined ViewStar as Senior Vice President and General Manager,
Worldwide Operations, in July 1994. Prior to joining ViewStar, she was Vice
President of Worldwide Sales of Recognition International, a document management
company, from November 1991 to June 1994. From May 1989 to November 1991, she
was Group Director of Channels of Oracle Corporation, a database software
company.
Ms. Darwall has served as a director of ViewStar since February 1986, and
she was Chairman of the Board from February 1986 to September 1989. From
September 1989 to September 1991, she served as Vice President of Business
Development and Marketing of ViewStar. Since January 1995, Ms. Darwall has
served as a director of the Harvard Business School Publishing Corporation.
Mr. Hardikar joined ViewStar as Vice President, Marketing in March 1995.
Prior to joining ViewStar, he was a Vice President of Action Technologies, Inc.,
a software and business process reengineering and workflow automation company,
from September 1993 to March 1995. From January 1992 to September 1993, he was a
Vice President and director and the Secretary of Renaissance Software, Inc., an
object oriented UNIX software development company. He was a Vice President and a
Founder of Vistron Inc., a network printing and imaging systems manufacturer,
from January 1990 to December 1991.
Mr. Kheirolomoom joined ViewStar as President and Chief Executive Officer
in February 1986, serving until January 1992. He served as Chief Executive
Officer from January 1992 to July 1993 and served as President and Chief
Executive Officer from July 1993 to May 1994. He served as Chairman of the Board
from May 1994 to July 1995, and he has served as President and Chief Executive
Officer since July 1995. He has served as a director of ViewStar since February
1986.
Mr. Myers has served as a director of ViewStar since May 1988. He has been
a general partner of the Mayfield Fund, a venture capital fund, since September
1970.
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Mr. Pender joined ViewStar as Controller in April 1993. In August 1995, he
became Vice President of Finance and Chief Financial Officer. From January 1992
to April 1993, he served as Controller of Versant Object Technology Corporation,
an object oriented database software development company. From October 1989 to
January 1992, he was International Finance Manager of Silvar-Lisco Corporation,
an engineering software development company.
Mr. Perry joined ViewStar as President and Chief Executive Officer, serving
from May 1994 through July 1995. He has served as a director of ViewStar since
May 1994. Since August 1995, he has served as Chairman of the Board. Prior to
joining ViewStar, he was Vice Chairman from April 1992 to May 1994 and Executive
Vice President from February 1988 to April 1992 of Silicon Graphics, Inc., a
computer hardware manufacturer. Mr. Perry has served as a director of Exabyte
Corp., a publicly held corporation, since March 1994. He has also served as a
director of Arbor Corp., a private corporation, since February 1993.
Mr. Wong has served as a director of ViewStar since October 1986. Mr. Wong
has been a partner of Wongfratris Co., a venture capital company, since June
1985.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid by ViewStar for services rendered to ViewStar during the fiscal year ended
December 31, 1994 (the "Last Fiscal Year") by Kamran Kheirolomoom, ViewStar's
President and Chief Executive Officer, and the only current executive officer of
ViewStar who will serve as an executive officer of Caere after the Merger (the
"Continuing Executive"). No determination has yet been made regarding the period
during which Mr. Kheirolomoom will continue to be employed after the Merger.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM
NAME AND -------------------------------------- COMPENSATION
PRINCIPAL POSITION SALARY($)(1) BONUS($) OTHER($) OPTIONS(#)
------------------------------ ------------ -------- -------- ------------
Kamran Kheirolomoom,.......... 156,000 10,000 150,000(2)
President and Chief 50,000(3)
Executive Officer
- ---------------
(1) Includes amounts deferred pursuant to Section 401(k) of the Code.
(2) Mr. Kheirolomoom's option to purchase 150,000 shares of ViewStar Common
Stock granted on June 14, 1993 under the Amended 1986 Incentive Stock Option
Plan with an exercise price of $1.50 per share was repriced to $.60 per
share by the Board of Directors of ViewStar on December 14, 1994, along with
all other outstanding options to purchase ViewStar Common Stock with an
exercise price in excess of $.60 per share.
(3) Mr. Kheirolomoom's option to purchase 50,000 shares of ViewStar Common Stock
granted on May 20, 1994 under the 1994 Senior Executive Stock Plan with an
exercise price of $1.50 per share was repriced to $.60 per share by the
Board of Directors of ViewStar on December 14, 1994, along with all other
outstanding options to purchase ViewStar Common Stock with an exercise price
in excess of $.60 per share.
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The following table sets forth the stock options granted to the Continuing
Executive during the Last Fiscal Year.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
--------------------------------
NUMBER OF PERCENTAGE OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE OR BASE
OPTIONS EMPLOYEES PRICE EXPIRATION
NAME GRANTED(#) IN FISCAL YEAR(%) ($/SH) DATE
------------------------------ ---------- ----------------- ---------------- ----------
Kamran Kheirolomoom........... 50,000(1) 3.3 .60 5/20/04
- ---------------
(1) The option vests pursuant to Mr. Kheirolomoom's employment agreement. The
option vests on May 20, 2002 unless before December 31, 1995 there is an
initial public offering of the ViewStar Common Stock or a strategic
corporate relationship involving an equity investment in ViewStar of not
less than $5 million. If either such event occurs, the option shall become
immediately exercisable for 2% of the option for each month the option has
been outstanding and shall continue to vest at the rate of 2% per month. See
"The Merger and Related Transactions -- Benefits to ViewStar Executives from
the Merger."
The following table sets forth the number and fiscal year-end value of all
unexercised stock options held by the Continuing Executive at the end of the
Last Fiscal Year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR-END(#) AT FISCAL YEAR-END(2)
SHARES ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED(1)($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------- ------------------ -------------- ----------- ------------- ----------- -------------
Kamran Kheirolomoom.. -- -- 108,000 192,000 -- --
- ---------------
(1) Value of underlying securities on date of exercise (as determined by the
Board of Directors), minus the exercise price.
(2) Value of underlying securities at fiscal year end, as determined by the
Board of Directors of ViewStar, (for in-the-money options only), minus the
exercise price.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
See "The Merger Transaction -- Benefits to ViewStar Executives from the
Merger."
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VIEWSTAR SECURITY OWNERSHIP OF
PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of ViewStar Common Stock and ViewStar Preferred Stock as of December
12, 1995 (i) by each person known by ViewStar to own beneficially more than 5%
of the outstanding shares of ViewStar Common Stock or more than 5% of the
outstanding shares of ViewStar Preferred Stock, (ii) by each of the directors
and executive officers of ViewStar, and (iii) by all of ViewStar's directors and
executive officers as a group.
PERCENT OF
NUMBER OF PERCENT OF TOTAL
SHARES CLASS SHARES
CLASS OF BENEFICIALLY BENEFICIALLY BENEFICIALLY
NAME OF PERSON OR IDENTITY OF GROUP(1) SECURITIES OWNED(2) OWNED(3) OWNED
- ------------------------------------------------- ----------- ------------ ------------ ------------
Entities affiliated with Mayfield Fund(4) Preferred 2,483,335 26.62% 21.48%
2800 Sand Hill Road, Suite 250 Common 82,556 3.16%
Menlo Park, CA 94025
Entities affiliated with Inman & Bowman(5) Preferred 1,499,612 16.07% 13.30%
4 Orinda Way Common 84,744 3.28%
Building D, Suite 150
Orinda, CA 94563
J.P. Morgan Investment Corporation(6) Preferred 1,492,377 15.99% 12.88%
60 Wall Street Common 41,375 1.61%
New York, NY 10260-0060
Entities affiliated with Institutional Venture
Partners(7) Preferred 1,202,879 12.89% 10.44%
3000 Sand Hill Road Common 39,959 1.55%
Building 2, Suite 290
Menlo Park, CA 94025
Entities affiliated with Technology Partners(8) Preferred 968,905 10.38% 8.46%
1550 Tiburon Blvd., Suite A Common 36,149 1.42%
Belvedere, CA 94920
Wongfratris Company(9) Preferred 807,104 8.65% 7.07%
51 Jordan Place Common 32,785 1.28%
Palo Alto, CA 94303
Kamran Kheirolomoom(10) Common 575,000 21.21% 4.77%
c/o ViewStar Corporation
1101 Marina Village Parkway
Alameda, CA 94501
Entities affiliated with Sequoia Capital(11) Preferred 495,881 5.31% 4.18%
3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, CA 94025
Mark W. Perry (12) Common 286,000 10.52% 2.37%
c/o ViewStar Corporation
1101 Marina Village Parkway
Alameda, CA 94501
Russell H. Rowe(13) Common 242,000 9.51% 2.04%
2327 Peachtree Circle
Antioch, CA 94509
David E. Ruiz Common 200,000 7.89% 1.69%
2730 Longspur Way
Pleasanton, CA 94566
Michael K. Crosno(14) Common 191,800 7.55% 1.62%
27 Cherry Hills Court
Alamo, CA 94507
Christina L. Darwall Preferred 16,000 * 1.40%
25 Willard Lane Common 150,000 5.92%
Hillsborough, CA 94010
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PERCENT OF
NUMBER OF PERCENT OF TOTAL
SHARES CLASS SHARES
CLASS OF BENEFICIALLY BENEFICIALLY BENEFICIALLY
NAME OF PERSON OR IDENTITY OF GROUP(1) SECURITIES OWNED(2) OWNED(3) OWNED
- ------------------------------------------------- ----------- ------------ ------------ ------------
Wendy S. Cook(15) Common 129,430 5.10% 1.09%
50 Buckeye Avenue
Oakland, CA 94618
Gayle A. Crowell(16) Common 57,250 2.21% *
c/o ViewStar Corporation
1101 Marina Village Parkway
Alameda, CA 94501
Shirish S. Hardikar(17) Common 36,500 1.42% *
c/o ViewStar Corporation
1101 Marina Village Parkway
Alameda, CA 94501
Robert I. Pender, Jr.(18) Common 29,150 1.14% *
c/o ViewStar Corporation
1101 Marina Village Parkway
Alameda, CA 94501
Steven D. Brooks(19) Common 9,800 * *
555 California Street
Suite 4650
San Francisco, CA 94104
D. Kirkwood Bowman(20) Preferred 0 * *
4 Orinda Way Common 0 *
Building D, Suite 150
Orinda, CA 94563
F. Gibson Myers, Jr.(21) Preferred 0 * *
2800 Sand Hill Road Common 0 *
Suite 250
Menlo Park, CA 94025
Hon Wong(22) Preferred 0 * *
51 Jordan Place Common 0 *
Palo Alto, CA 94303
All Current Directors and Preferred 16,000 *
Executive Officers (10 persons)(23) Common 1,143,700 37.74% 9.38%
- ---------------
* Less than 1%.
(1) Except as indicated by footnote, and subject to community property laws
where applicable, the persons named in the table above have sole voting and
investment power with respect to all shares of Common Stock and Preferred
Stock shown as beneficially owned by them.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of Common Stock subject to
options, warrants and convertible notes currently exercisable or
convertible, or exercisable or convertible within 60 days, are deemed
outstanding including for purposes of computing the percentage of the
person holding such option, but not for purposes of computing the
percentage of any other holder.
(3) Computed on the basis of 2,533,616 shares of ViewStar Common Stock and
9,330,487 shares of ViewStar Preferred Stock.
(4) Preferred Stock total includes (i) 36,757 and 882,162 shares of Series C
Preferred Stock held by Mayfield Associates and Mayfield VI, respectively,
(ii) 33,609 and 806,601 shares held by the above entities, respectively,
and (iii) 5,538, 26,359, 132,905 and 559,404 shares of Series E Preferred
Stock held by Mayfield Associates, Mayfield Associates Fund II, Mayfield VI
and Mayfield VII, respectively. Common Stock total includes 2,163, 1,280,
51,911, and 27,202 shares subject to warrants exercisable within 60 days
held by Mayfield Associates, Mayfield Associates Fund II, Mayfield VI and
Mayfield VII, respectively. F. Gibson Myers, Jr., a director of the
Company, is a general partner of Mayfield
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Associates, Mayfield Associates Fund II, Mayfield VI and Mayfield VII and
has voting and investment power with respect to such shares. Mr. Myers
disclaims beneficial ownership of such shares except to the extent of his
proportionate partnership interest therein.
(5) Preferred Stock total includes (i) 33,660 and 340 shares of Series A
Preferred Stock held by Inman & Bowman and Inman & Bowman Entrepreneurs,
respectively, (ii) 30,000 and 303 shares of Series B Preferred Stock held
by the above entities, respectively, (iii) 556,217 and 11,351 shares of
Series C Preferred Stock held by the above entities, respectively, (iv)
634,584 and 12,952 shares of Series D Preferred Stock held by the above
entities, respectively, and (v) 218,003 and 2,202 shares of Series E
Preferred Stock held by the above entities, respectively. Common Stock
total includes (i) 33,108 and 676 shares of Common Stock held by Inman &
Bowman and Inman & Bowman Entrepreneurs, respectively, and (ii) 50,450 and
510 shares subject to warrants exercisable within 60 days held by Inman &
Bowman and Inman & Bowman Entrepreneurs, respectively. D. Kirkwood Bowman,
a director of the Company, is a general partner of Inman & Bowman and of
Inman & Bowman Entrepreneurs and voting and investment power with respect
to such shares. Mr. Bowman disclaims beneficial ownership of such shares
except to the extent of his proportionate partnership interest therein.
(6) Common Stock total includes 41,375 shares subject to warrants exercisable
within 60 days.
(7) Preferred Stock total includes (i) 559,054 and 8,514 shares of Series C
Preferred Stock held by Institutional Venture Partners IV and Institutional
Venture Management IV, respectively, (ii) 146,288 and 293,738 shares of
Series D Preferred Stock held by the above entities, respectively, and
(iii) 192,355 and 2,930 shares of Series E Preferred Stock held by the
above entities, respectively. Common Stock total includes 39,360 and 599
shares subject to warrants exercisable within 60 days held by Institutional
Venture Partners IV and Institutional Venture Management IV, respectively.
(8) Preferred Stock total includes (i) 33,333 and 33,333 shares of Series A
Preferred Stock held by Technology Partners West Fund II and Technology
Partners West Fund III, respectively, (ii) 60,606, 60,606 and 30,300 shares
of Series B Preferred Stock held by Technology Partners West Fund II,
Technology Partners West Fund III and TPW Venture Partners IX,
respectively, (iii) 108,108 and 108,108 shares of Series C Preferred Stock
held by Technology Partners West Fund II and Technology Partners West Fund
III, respectively, (iv) 385,945 shares of Series D Preferred Stock held by
Technology Partners West Fund IV, L.P. and (v) 28,205, 28,205 and 92,156
shares of Series E Preferred Stock held by Technology Partners West Fund
II, Technology Partners West Fund III and Technology Partners West Fund IV,
L.P., respectively. Common Stock total includes (i) 11,825 and 11,824
shares of Common Stock held by Technology Partners West Fund II and
Technology Partners West Fund III, respectively, and (ii) 3,125, 3,125 and
6,250 shares subject to warrants exercisable within 60 days held by
Technology Partners West Fund II, Technology Partners West Fund III and
Technology Partners West Fund IV, respectively.
(9) Preferred Stock total includes 266,667 shares of Series A Preferred Stock,
90,909 shares of Series B Preferred Stock, 40,540 shares of Series C
Preferred Stock, 254,118 shares of Series D Preferred Stock and 154,870
shares of Series E Preferred Stock held by Wongfratris Company. Common
Stock total includes (i) 10,135 shares of Common Stock and (ii) 22,650
shares subject to warrants exercisable within 60 days held by Wongfratris
Company. Hon Wong, a director of the Company, is a general partner of
Wongfratris Company and has voting and investment power with respect to
such shares. Mr. Wong disclaims beneficial ownership of such shares except
to the extent of his proportionate partnership interest therein.
(10) Includes options to purchase 178,000 shares of Common Stock that are
exercisable within 60 days; does not include options to purchase 95,000
shares of Common Stock that will become exercisable upon consummation of
the Merger or continue to vest without regard to continued employment after
the Merger.
(11) Includes (i) 234,638, 14,865 and 9,459 shares of Series C Preferred Stock
held by Sequoia Capital IV, Sequoia Technology Partners II, and Sequoia
XVIII, respectively, (ii) 138,759, 9,697, 3,947 and 2,517 shares of Series
D Preferred Stock held by Sequoia Capital IV, Sequoia Technology Partners
II, Sequoia XX and Sequoia XXI, respectively, and (iii) 73,634, 5,019,
1,592 and 1,754 shares of Series E
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Preferred Stock held by Sequoia Capital IV, Sequoia Technology Partners II,
Sequoia XXIII and Sequoia XXIV, respectively.
(12) Includes options to purchase 186,000 shares of Common Stock that are
exercisable within 60 days; does not include options to purchase 224,000
shares of Common Stock that will become exercisable upon consummation of
the Merger or continue to vest without regard to continued employment after
the Merger.
(13) Includes options to purchase 11,000 shares of Common Stock that are
exercisable within 60 days.
(14) Includes options to purchase 7,500 shares of Common Stock that are
exercisable within 60 days.
(15) Includes options to purchase 4,430 shares of Common Stock that are
exercisable within 60 days.
(16) Includes options to purchase 57,250 shares of Common Stock that are
exercisable within 60 days.
(17) Includes options to purchase 36,500 shares of Common Stock that are
exercisable within 60 days.
(18) Includes options to purchase 29,150 shares of Common Stock that are
exercisable within 60 days.
(19) Includes options to purchase 9,800 shares of Common Stock that are
exercisable within 60 days.
(20) Preferred Stock total does not include shares held by entities affiliated
with Inman and Bowman. Mr. Bowman is a general partner of Inman & Bowman
and Inman & Bowman Entrepreneurs. Mr. Bowman shares voting and investment
power with respect to such shares. Mr. Bowman disclaims beneficial
ownership of such shares except to the extent of his proportionate
partnership interest therein.
(21) Preferred Stock total does not include shares held by entities affiliated
with the Mayfield Fund. Mr. Myers is a general partner of Mayfield
Associates, Mayfield Associates Fund II, Mayfield VI and Mayfield VII. Mr.
Myers shares voting and investment power with respect to such shares. Mr.
Myers disclaims beneficial ownership of such shares except to the extent of
his proportionate partnership interest therein.
(22) Preferred Stock total does not include shares held by entities affiliated
with Wongfratris Company. Mr. Wong is a general partner of Wongfratris
Company. Mr. Wong shares voting and investment power with respect to such
shares. Mr. Wong disclaims beneficial ownership of such shares except to
the extent of his proportionate partnership interest therein.
(23) Preferred Stock total does not include shares held by entities affiliated
with Inman & Bowman, the Mayfield Fund, and Wongfratris Company, of which
Mr. Bowman, Mr. Myers and Mr. Wong, respectively, all directors of the
Company, are general partners and have voting power. See footnotes (4),
(5), (9), (20), (21) and (22) above. Common Stock total includes options to
purchase 996,700 shares that are exercisable within 60 days held by six
directors and executive officers, but does not include options to purchase
319,000 shares that will become exercisable upon consummation of the Merger
or will continue to vest without regard to continued employment after the
Merger, which are held by two directors and executive officers. See
footnotes (10), (12), (16), (17), (18) and (19) above.
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COMPARISON OF RIGHTS OF STOCKHOLDERS OF CAERE AND VIEWSTAR
Caere is incorporated in the State of Delaware, and ViewStar is
incorporated in the State of California. Pursuant to the Merger, Sub will be
merged with and into ViewStar and ViewStar will continue to be governed by the
California Law. Caere will continue to be governed by the Delaware Law following
the Merger. The rights of Caere's stockholders are governed by its Certificate
of Incorporation, as amended (the "Caere Certificate of Incorporation"), its
Bylaws (the "Caere Bylaws") and the Delaware Law. The rights of ViewStar's
shareholders are governed by the ViewStar Articles, its Bylaws (the "ViewStar
ByLaws") and the California Law. After the Merger Date, the rights of ViewStar
shareholders who become Caere stockholders will be governed by the Caere
Certificate of Incorporation, Caere Bylaws and the Delaware Law. The following
is a summary comparison of certain differences between the rights of Caere
stockholders under the Delaware Law and the Caere Certificate of Incorporation
and the Caere Bylaws and the rights of ViewStar shareholders under the
California Law and the ViewStar Articles and the ViewStar Bylaws. This summary
does not purport to be complete and is qualified in its entirety by reference to
the corporate statutes of Delaware and California, and the corporate charters
and bylaws of Caere and ViewStar.
Cumulative Voting. In an election of directors under cumulative voting,
each share of stock normally having one vote is entitled to a number of votes
equal to the number of directors to be elected. A stockholder may then cast all
such votes for a single candidate or may allocate them among as many candidates
as the stockholder may choose (up to the number of directors to be elected).
Without cumulative voting, the holders of a majority of the shares present at an
annual meeting or any special meeting held to elect directors would have the
power to elect all the directors to be elected at that meeting, and no person
could be elected without the support of holders of a majority of the shares
voting at such meeting.
Under the Delaware Law, cumulative voting in the election of directors is
not available unless specifically provided for in a corporation's certificate of
incorporation. The Caere Certificate of Incorporation does not provide for
cumulative voting. Under the California Law, cumulative voting in the election
of directors is a right available to all shareholders of California corporations
unless a corporation is "listed" for trading and that corporation's articles of
incorporation specifically eliminate cumulative voting. The ViewStar Articles do
not (and may not) eliminate cumulative voting.
The ViewStar Articles provide that the holders of ViewStar Series A
Preferred Stock and Series B Preferred Stock, voting together as a single class,
are entitled to elect one director; and for so long as the total number of
shares of ViewStar Series C, Series D and Series E Preferred Stock outstanding
equals or exceeds 10% of ViewStar Capital Stock outstanding on a fully diluted
basis, the holders of ViewStar Series C, Series D and Series E Preferred Stock,
voting together as a single class, are entitled to elect two directors. The
affirmative vote of the holders of a majority of shares of ViewStar Preferred
Stock entitled to vote is required for such elections.
Stockholder Power to Call Special Stockholders Meeting. Under the Delaware
Law, a special meeting of stockholders may be called by the board of directors
or any other person authorized to do so in the corporation's certificate of
incorporation or bylaws. The Caere Bylaws provide that special meetings of
stockholders may be called by the chairman of the board, the president or by a
resolution adopted by the affirmative vote of a majority of the Board of
Directors of Caere or by the holders of shares entitled to cast not less than
10% of the votes at the meeting.
Under the California Law, a special meeting of shareholders may be called
by the board of directors, the chairman of the board, the president, the holders
of shares entitled to cast not less than 10% of the votes at such meeting and
such persons authorized to do so in a company's articles of incorporation or
bylaws. The ViewStar Bylaws do not authorize any additional persons.
Dissolution. Under the Delaware Law, a dissolution must be approved by
stockholders holding 100% of the total voting power or the dissolution must be
initiated by the board of directors and approved by the holders of a majority of
the outstanding voting shares of the corporation. Under the California Law,
shareholders holding 50% or more of the total voting power may authorize a
corporation's dissolution, and this right may not be modified by its articles of
incorporation.
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Size of Board of Directors. The Delaware Law permits the board of directors
of a Delaware corporation to change the authorized number of directors by
amendment to the corporation's bylaws or in the manner provided in the bylaws,
unless the number of directors is fixed in the corporation's certificate of
incorporation, in which case a change in the number of directors may be made
only by amendment to the certificate of incorporation.
The Caere Bylaws provide that the authorized number of directors of the
corporation shall be fixed from time to time by the Board of Directors of Caere,
either by a resolution or a bylaw duly adopted by the Board of Directors of
Caere. The number of directors presently authorized is five.
Under the California Law, although changes in the number of directors must
in general be approved by the shareholders, the board of directors of a
California corporation may fix the exact number of directors within a stated
range set forth in the corporation's articles of incorporation or bylaws, if the
stated range has been approved by the shareholders.
The ViewStar Bylaws provide that the number of directors shall be
established from time to time by resolution of the Board of Directors of
ViewStar or the shareholders, provided that the authorized number shall not be
fewer than four nor more than seven, with the current number of directors fixed
at seven.
Classified Board of Directors. A classified board is one with respect to
which a certain number of the directors, but not necessarily all, are elected on
a rotating basis each year. The Delaware Law permits, but does not require, a
Delaware corporation to provide in its certificate of incorporation for a
classified board of directors, pursuant to which the directors can be divided
into up to three classes of directors with staggered terms of office, with only
one class of directors to be elected each year for a maximum term of three
years.
The Caere Certificate of Incorporation and Caere Bylaws currently provide
that the Board of Directors of Caere shall be divided into three classes, each
class consisting as nearly as possible of one-third of the total number of
directors with each class having a three-year term.
Under the California Law, generally directors must be elected annually,
unless the corporation is "listed." Under the California Law, a listed
corporation may have a classified board of no fewer than six directors divided
into two classes of directors or a classified board of no fewer than nine
directors divided into three classes. The ViewStar Articles and ViewStar Bylaws
do not (and may not) provide for a classified board.
Removal of Directors. Under the Delaware Law, any director or the entire
board of directors of a Delaware corporation with a classified board of
directors may only be removed with cause unless the certificate of incorporation
provides otherwise. The Caere Certificate of Incorporation provides that
directors may be removed with cause by a vote of a majority of the combined
voting power of Caere's Stock, and directors may be removed without cause by a
vote of two-thirds of the combined voting power of Caere's outstanding stock.
Under the California Law, any director or the entire board of directors may
be removed, with or without cause, with the approval of a majority of the
outstanding shares entitled to vote; however, no director may be removed (unless
the entire board is removed) if the number of shares voted against the removal
would be sufficient to elect the director under cumulative voting.
The ViewStar Articles provide that the director elected by the holders of
ViewStar Series A and Series B Preferred Stock may be removed with or without
cause only by such holders; and the two directors elected by the holders of
ViewStar Series C, Series D and Series E Preferred Stock may be removed with or
without cause only by such holders. Vacancies created by any such removal may
only be filled by the respective series of ViewStar Preferred Stock entitled to
vote for and remove such directors.
Actions by Written Consent of Stockholders. Under the Delaware Law,
stockholders may execute an action by written consent in lieu of a meeting of
stockholders. The Delaware Law permits a corporation to eliminate such actions
by written consent in its certificate of incorporation. Under the Caere
Certificate of Incorporation, such actions by written consent are eliminated.
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Under the California Law, unless otherwise provided in the articles of
incorporation, any action that may be taken at any annual or special meeting of
shareholders may be taken without a meeting by written consent of shareholders
having the requisite number of votes, subject to the requirement that ten days'
advance notice of such shareholder approval of certain types of transactions and
matters be given where all shareholders' consents are not solicited. The
ViewStar Articles do not limit the rights of shareholders to act by written
consent.
Advance Notice Requirement for Stockholder Proposals and Director
Nominations. Caere Bylaws require reasonable advance notice by a stockholder of
a proposal or director nomination that such stockholder desires to present at
the annual meeting of stockholders.
ViewStar's Bylaws do not require advance notice of proposals or director
nominations intended to be presented by a shareholder at an annual meeting.
Voting Requirements. Unless otherwise specified in a Delaware corporation's
certificate of incorporation, an amendment to the certificate of incorporation
requires the affirmative vote of a majority of the outstanding stock entitled to
vote thereon. Furthermore, under the Delaware Law, the holders of the
outstanding shares of a class are entitled to vote as a class upon any proposed
amendment to the certificate of incorporation, whether or not entitled to vote
thereon by the provisions of the corporation's certificate of incorporation, if
the amendment would increase or decrease the aggregate number of authorized
shares of such class, increase or decrease the par value of the shares of such
class, or alter or change the powers, preferences or specific rights of the
shares of such class so as to adversely affect them.
Unless otherwise specified in a California corporation's articles of
incorporation, an amendment to the articles of incorporation requires the
affirmative vote of a majority of the outstanding shares entitled to vote
thereon. Under the California Law, the holders of the outstanding shares of a
class are entitled to vote as a class if the proposed amendment would (i)
increase or decrease the aggregate number of authorized shares of such class,
(ii) effect an exchange, reclassification or cancellation of all or part of the
shares of such class, other than a stock split, (iii) effect an exchange, or
create a right of exchange, of all or part of the shares of another class into
the shares of such class, (iv) change the rights, preferences, privileges or
restrictions of the shares of such class, (v) create a new class of shares
having rights, preferences or privileges prior to the shares of such class, or
increase the rights, preferences or privileges or the number of authorized
shares having rights, preferences or privileges prior to the shares of such
class, (vi) in the case of preferred shares, divide the shares of any class into
series having different rights, preferences, privileges or restrictions or
authorize the board of directors to do so, or (vii) cancel or otherwise affect
dividends on the shares of such class which have accrued but have not been paid.
Under both the Delaware Law and the California Law, with certain
exceptions, any merger, consolidation or sale of all or substantially all of a
corporation's assets must be approved by the corporation's board of directors
and a majority of the outstanding shares entitled to vote. In addition, the
California Law, but not the Delaware Law, requires such transactions, among
others, to be approved by a majority of the outstanding shares of each class of
stock without regard to limitations on voting rights.
Caere's Certificate of Incorporation provides that certain provisions of
the Certificate may only be amended, altered, changed or repealed if not less
than two-thirds of the combined voting power of Caere's then outstanding stock
have approved such action. These provisions include the size and classification
of the board, filling vacancies on the board, the prohibition on actions by
written consent of the stockholders, advance notice of stockholder business,
removal of directors without cause and special voting requirements. The effect
of this super majority voting provision is to make any of these changes more
difficult.
Rights of Dissenting Stockholders. Generally, stockholders of a Delaware
corporation who dissent from a merger or consolidation of the corporation for
which a stockholders' vote is required are entitled to appraisal rights,
requiring the surviving corporation to purchase the dissenting shares at fair
value. There are, however, generally no statutory rights of appraisal with
respect to stockholders of a Delaware corporation whose shares of stock are
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
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of record by more than 2,000 stockholders where such stockholders receive only
shares of stock of the corporation surviving or resulting from the merger or
consolidation (or cash in lieu of fractional interests therein).
Generally, shareholders of a California corporation who dissent from a
merger or consolidation of the corporation are entitled to dissenters' rights.
See "The Merger and Related Transactions -- Appraisal and Dissenters' Rights."
Inspection of Stockholders List. Both the Delaware Law and the California
Law allow any stockholder to inspect the stockholders list for a purpose
reasonably related to such person's interest as a stockholder. Additionally, the
California Law provides for an absolute right to inspect and copy the
corporation's shareholders list by a person or persons holding at least 5% in
the aggregate of the corporation's outstanding voting shares, or any shareholder
or shareholders holding 1% or more of such shares who have filed a Schedule 14B
with the Commission relating to the election of directors (such schedule was
repealed by the Commission in 1992). The Delaware Law does not provide for any
such absolute right of inspection.
Dividends. Subject to any restrictions contained in a corporation's
certificate of incorporation, the Delaware Law generally provides that a
corporation may declare and pay dividends out of surplus (defined as net assets
minus stated capital) or, when no surplus exists, out of net profits for the
fiscal year in which the dividend is declared and/or for the preceding fiscal
year. Dividends may not be paid out of net profits if the capital of the
corporation is less than the amount of capital represented by the issued and
outstanding stock of all classes having a preference upon the distribution of
assets. Caere's Certificate of Incorporation contains no restrictions on the
declaration or payment of dividends.
The California Law provides that a corporation may make a distribution to
its shareholders if: (i) the retained earnings of the corporation immediately
prior to the distribution equal or exceed the amount of the proposed
distribution; or (ii) immediately after giving effect to the distribution, (a)
the sum of the assets of the corporation (exclusive of goodwill, capitalized
research and development expenses and deferred charges) would be at least equal
to 1 1/4 times its liabilities (not including deferred taxes, deferred income
and other deferred credits), and (b) the current assets of the corporation would
be at least equal to its current liabilities or, if the average of the earnings
of the corporation before taxes on income and before interest expense for the
two preceding fiscal years was less than the average of the interest expense of
the corporation for such fiscal years, at least equal to 1 1/4 times its current
liabilities. In addition, the corporation making the distribution must not be,
and must not as a result of the distribution become, likely to be unable to meet
its liabilities (except those whose payment is otherwise adequately provided
for) as they mature. Neither the ViewStar Articles nor its Bylaws contain any
presently applicable restrictions on the declaration or payment of dividends.
Bylaws. Under the Delaware Law, the authority to adopt, amend, or repeal
the bylaws of a Delaware corporation is held exclusively by the stockholders
unless such authority is conferred upon the board of directors in the
corporation's certificate of incorporation. The Caere Certificate of
Incorporation expressly grants to its directors the power to make, alter, or
repeal any bylaws. Adoption, amendment and repeal of the Caere Bylaws by the
stockholders requires a vote of two-thirds of the combined voting power of
Caere's outstanding stock.
Under the California Law, a corporation's bylaws may be adopted, amended or
repealed either by the board of directors or the shareholders of the
corporation. The ViewStar Bylaws provide that the ViewStar Bylaws may be changed
either by the vote of the holders of a majority of the outstanding shares
entitled to vote or by the board of directors (subject to the shareholders'
ability to adopt a bylaw provision restricting or eliminating the power of the
Board of Directors of ViewStar to adopt, amend or repeal the ViewStar Bylaws);
provided, however, that the Board of Directors of ViewStar may not amend the
ViewStar Bylaws in order to change a fixed number of directors (except to alter
the authorized number of directors within the existing range of a minimum of
four and a maximum of seven directors) or to change from a fixed to a variable
board or vice versa. A bylaw adopted by the shareholders may restrict or
eliminate the power of the Board of Directors of ViewStar to adopt, amend or
repeal the bylaws.
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Preemptive Rights. Stockholders of a Delaware corporation have only such
preemptive rights as may be provided in its certificate of incorporation. Caere
Certificate of Incorporation does not grant any preemptive rights to its
stockholders.
Shareholders of a California corporation have such preemptive rights as may
be provided in the corporation's articles of incorporation. The ViewStar
Articles do not grant any preemptive rights to ViewStar shareholders. However,
case law in California has created a doctrine of "quasi-preemptive" rights in
appropriate circumstances, even when no such rights exist in the corporation's
articles of incorporation.
Caere Rights Plan. On April 17, 1991, the Board of Directors of Caere
declared a dividend of one preferred share purchase right (a "Right") for each
outstanding share of Caere Common Stock to the holders of record on May 3, 1991,
and authorized and directed the issuance of one Right with respect to each share
of Caere Common Stock that becomes outstanding prior to the occurrence of
certain triggering events, pursuant to the Preferred Shares Rights Agreement
dated April 17, 1991 (the "Rights Agreement"). Each share of Caere Common Stock
issued in exchange for ViewStar Common Stock includes one Right. Each Right
entitles the registered holder to purchase from Caere one one-hundredth of a
share of Caere's Series A Junior Participating Preferred Stock at a price equal
to $90.00 per one one-hundredth of a preferred share, subject to adjustment
under certain circumstances provided in the Rights Agreement. Upon the
occurrence of certain events generally associated with an unsolicited takeover
attempt of Caere, the Rights (except for Rights held by an Acquiring Person (as
defined in the Rights Agreement)) will become exercisable and will cease to
trade with the Caere Common Stock. Upon the acquisition without the consent of
the Board of Directors of Caere of 15% or more of Caere Common Stock or
announcement of a tender offer or exchange offer for shares in excess of 15% or
more of Caere Common Stock, each Right (except for Rights held by an Acquiring
Person) will be converted into a right to purchase at the then-current exercise
price of the Right that number of shares of Caere Common Stock having a market
value of two times the exercise price of the Right or, in the event of merger of
Caere into an Acquiring Person, securities of the Acquiring Person having a
market value of two times the exercise price of the Right. Subject to the terms
of the Rights Agreement, Caere may exchange the Rights for Caere Common Stock.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire Caere in a
manner that causes the Rights to become exercisable. Caere believes, however,
that the Rights should neither affect any prospective offeror willing to
negotiate with the Board of Directors of Caere nor interfere with any merger or
other business combination approved by the Board of Directors of Caere because
the Board of Directors of Caere may, at its option, redeem the Rights. The terms
of the Rights may be amended by the Board of Directors of Caere without the
consent of the holders of the Rights.
Transactions Involving Officers or Directors. A Delaware corporation may
lend money to, or guarantee any obligation incurred by, its officers or
directors if, in the judgment of the board of directors, such loan or guarantee
may reasonably be expected to benefit the corporation. With respect to any other
contract or transaction between the corporation and one or more of its directors
or officers, such transactions are neither void nor voidable if either (i) the
director's or officer's interest is made known to the disinterested directors or
the stockholders of the corporation, who thereafter approve the transaction in
good faith, or (ii) the contract or transaction is fair to the corporation as of
the time it is approved or ratified by either the board of directors, a
committee thereof, or the stockholders.
Under the California Law, any loan or guarantee to or for the benefit of a
director or officer of the corporation or its subsidiaries requires approval of
the shareholders unless such loan or guarantee is provided for under a plan
approved by shareholders owning a majority of the outstanding shares of the
corporation. In addition, the California Law permits shareholders to approve a
bylaw authorizing the board of directors alone to approve a loan or guarantee to
or on behalf of an officer (whether or not a director) if the board of directors
determines that such a loan or guarantee may reasonably be expected to benefit
the corporation, which bylaw may be utilized to authorize officer loans and
guarantees if the corporation has 100 or more shareholders of record. The
shareholders of ViewStar have approved such a bylaw provision.
The California Law similarly states that contracts or transactions between
a corporation and (i) any of its directors or (ii) a second corporation of which
a director is also a director are not void or voidable if the
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material facts as to the transaction and as to the director's interest are fully
disclosed and the disinterested directors or a majority of the disinterested
shareholders represented and voting at a duly held meeting approve or ratify the
transaction in good faith, or the person asserting the validity of the contract
or transaction sustains the burden of proving that the contract or transaction
was just and reasonable as to the corporation at the time it was authorized,
approved or ratified.
Filling Vacancies on the Board of Directors. Under the Delaware Law,
vacancies on the board of directors and newly created directorships may be
filled by a majority of the directors then in office (even though less than a
quorum) unless (i) otherwise provided in the certificate of incorporation or
bylaws of the corporation (the Caere Certificate of Incorporation and Caere
Bylaws do not provide otherwise) or (ii) the certificate of incorporation
directs that a particular class is to elect such director, in which case any
other directors elected by such class, or a sole remaining director, shall fill
such vacancy.
Under the California Law, any vacancy on the board of directors other than
one created by removal of a director may be filled by the board of directors. If
the number of directors is less than a quorum, a vacancy may be filled by the
unanimous written consent of the directors then in office, by the affirmative
vote of a majority of the directors at a meeting held pursuant to notice or
waivers of notice or by a sole remaining director. A vacancy created by removal
of a director may be filled by the board of directors only if so authorized by a
corporation's articles of incorporation or by a bylaw approved by the
corporation's shareholders. ViewStar Articles and Viewstar Bylaws do not
authorize the Board to fill such a vacancy.
Limitation of Liability of Directors and Indemnification. Under the
Delaware Law, a corporation may include in its certificate of incorporation a
provision that would, subject to the limitations described below, eliminate or
limit directors' liability for monetary damages for breaches of their fiduciary
duty of care. Under the Delaware Law, a director's liability cannot be
eliminated or limited (i) for breaches of the duty of loyalty, (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, (iii) for the payment of unlawful dividends or expenditure of
funds for unlawful stock purchases or redemptions, or (iv) for transactions from
which such director derived an improper personal benefit. Caere Certificate of
Incorporation contains provisions limiting a director's liability to the fullest
extent permitted by the Delaware Law. Under Section 145 of the Delaware Law,
Caere also has broad powers to indemnify its directors and officers against
liabilities they may incur in such capacities, including liabilities under the
Securities Act. Caere's Bylaws provide that Caere will indemnify its directors
and executive officers and may indemnify other officers to the fullest extent
permitted by law. Under the Caere Bylaws, indemnified parties are entitled to
indemnification for negligence, gross negligence and otherwise to the fullest
extent permitted by law. The Caere Bylaws also require Caere to advance
litigation expenses in the case of stockholder derivative actions or other
actions, against an undertaking by the indemnified party to repay such advances
if it is ultimately determined that the indemnified party is not entitled to
indemnification. Caere also has indemnification agreements with its executive
officers and directors.
Under the California Law, a corporation is permitted to adopt a provision
in its articles of incorporation eliminating the liability of a director to the
corporation or its shareholders for monetary damages for breach of the
director's fiduciary duty of care, provided such liability does not arise from
certain proscribed conduct, including intentional misconduct and transactions
pursuant to which the director received an improper personal benefit. In
addition, under the California Law, (i) a corporation has the power to indemnify
a director against expenses, judgments, fines and settlements if that person
acts in good faith and in a manner the person reasonably believed to be in the
best interests of the corporation and, in the case of a criminal proceeding, had
no reasonable cause to believe the conduct of the person was unlawful, and (ii)
a corporation has the power to indemnify, with certain exceptions, any person
who is a party to any action by or in the right of the corporation, against
expenses actually and reasonably incurred by that person in connection with the
defense or settlement of the action if the person acted in good faith and in a
manner the person believed to be in the best interests of the corporation and
its shareholders.
The indemnification authorized by the California Law is not exclusive, and
a corporation may grant its directors, officers, employees or other agents
certain additional rights to indemnification. The ViewStar Articles and ViewStar
Bylaws provide for indemnification of its agents (as defined under the
California Law)
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to the fullest extent permissible under the California Law, which may be in
excess of the indemnification expressly permitted by Section 317 of the
California Law.
Business Combinations/Reorganizations. A provision of the Delaware Law
prohibits certain transactions between a Delaware corporation and an "interested
stockholder." An "interested stockholder" for purposes of this Delaware Law
provision is a stockholder that is directly or indirectly a beneficial owner of
15% or more of the voting power of the outstanding voting stock of a Delaware
corporation (or its affiliate or associate). This provision prohibits certain
business combinations between an interested stockholder and a corporation for a
period of three years after the date the interested stockholder acquired its
stock unless (i) the business combination is approved by the corporation's board
of directors prior to the stock acquisition date; (ii) the interested
stockholder acquired at least 85% of the voting stock of the corporation in the
transaction in which such stockholder became an interested stockholder; or (iii)
the business combination is approved by a majority of the board of directors and
the affirmative vote of two-thirds of disinterested stockholders.
Under the California Law, there is no such comparable provision. However,
the California Law does provide that, except where the fairness of the terms and
conditions of the transaction has been approved by the California Commissioner
of Corporations and except in a "short-form" merger (the merger of a parent
corporation with a subsidiary in which the parent owns at least 90% of the
outstanding shares of each class of the subsidiary's stock), if the surviving
corporation or its parent corporation owns, directly or indirectly, shares of
the target corporation representing more than 50% of the voting power of the
target corporation prior to the merger, the nonredeemable common stock of a
target corporation may be converted only into nonredeemable common stock of the
surviving corporation or its parent corporation, unless all of the shareholders
of the class consent. The effect of this provision is to prohibit a cash-out
merger of minority shareholders, except where the majority shareholder already
owns 90% or more of the voting power of the target corporation and could,
therefore, effect a short-form merger to accomplish such a cash-out of minority
shareholders.
In addition, the California Law requires that, in connection with certain
transactions between a corporation whose shares are held of record by 100 or
more persons and an "interested party," such interested party must deliver a
written opinion as to the fairness of the consideration to the shareholders of
the corporation. An "interested party" for purposes of this California Law
provision means a person who is a party to the transaction and (i) directly or
indirectly controls the corporation, (ii) is an officer or director of the
corporation, or (iii) is an entity in which a material financial interest is
held by any director or executive officer of the corporation.
Shareholder Derivative Suits. Under the Delaware Law, a stockholder may
only bring a derivative action on behalf of the corporation if the stockholder
was a stockholder of the corporation at the time of the transaction in question
or his or her stock thereafter devolved upon him or her by operation of law. The
California Law provides that a shareholder bringing a derivative action on
behalf of the corporation need not have been a shareholder at the time of the
transaction in question, provided that certain tests are met. The California Law
also provides that the corporation or the defendant in a derivative suit may
make a motion to the court for an order requiring the plaintiff shareholder to
furnish a security bond. Delaware does not have a similar bonding requirement.
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ADDITIONAL MATTER FOR CONSIDERATION OF CAERE STOCKHOLDERS
APPROVAL OF AMENDMENT TO 1990 EMPLOYEE STOCK PURCHASE PLAN
In February 1990, the Board of Directors of Caere adopted Caere's 1990
Employee Stock Purchase Plan (the "Purchase Plan"). At December 12, 1995, an
aggregate of only 72,114 shares remained available for the grant of future
rights under the Purchase Plan. In October 1995, the Board of Directors of Caere
adopted, subject to stockholder approval, a proposal to amend the Purchase Plan
to increase the number of shares authorized for issuance under the Purchase Plan
by 150,000 shares to a total of 500,000 shares. The Board of Directors of Caere
adopted these amendments to ensure that Caere may continue to provide a
meaningful incentive for all of its employees, Caere stockholders are being
asked to approve the amendment to the Purchase Plan to increase the number of
shares which may be issued under the Purchase Plan from 350,000 to 500,000, an
increase of 150,000 shares.
VOTE REQUIRED
The affirmative vote of a majority of the shares of the Caere Common Stock
present in person or represented by proxy and entitled to vote at the Caere
Meeting will be required for the approval of this proposal. Abstentions will be
counted towards the tabulation of votes cast on the proposal and will have the
same effect as negative votes. Broker non-votes will not be counted for any
purpose in determining whether the proposal has been approved.
DESCRIPTION OF THE PURCHASE PLAN
The essential features of the Purchase Plan are outlined below.
PURPOSE
The purpose of the Purchase Plan is to provide a means by which employees
of Caere (and any parent or subsidiary of Caere designated by the Board of
Directors of Caere to participate in the Purchase Plan) may be given an
opportunity to purchase Caere Common Stock through payroll deductions, to assist
Caere in retaining the services of its employees, to secure and retain the
services of new employees, and to provide incentives for such persons to exert
maximum efforts for the success of Caere.
The rights to purchase Caere Common Stock granted under the Purchase Plan
are intended to qualify as options issued under an "employee stock purchase
plan" as that term is defined in Section 423(b) of the Code.
ADMINISTRATION
The Purchase Plan is administered by the Board of Directors of Caere, which
has the final power to construe and interpret the Purchase Plan and the rights
granted under it. The Board of Directors of Caere has the power, subject to the
provisions of the Purchase Plan, to determine when and how rights to purchase
Caere Common Stock will be granted, the provisions of each offering of such
rights (which need not be identical), and whether any parent or subsidiary of
Caere shall be eligible to participate in such plan. The Board of Directors of
Caere has the power, which it has not exercised, to delegate administration of
such plan to a committee of not less than three members of the Board of
Directors of Caere. The Board of Directors of Caere may abolish any such
committee at any time and revest in the Board of Directors of Caere the
administration of the Purchase Plan.
OFFERINGS
The Purchase Plan is implemented by offerings of rights to all eligible
employees from time to time by the Board of Directors of Caere. The provisions
of separate offerings need not be identical.
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ELIGIBILITY
Any person who is customarily employed at least 20 hours per week and five
months per calendar year by Caere (or by any parent or subsidiary of Caere
designated from time to time by the Board of Directors of Caere) on the first
day of an offering period is eligible to participate in that offering under the
Purchase Plan, provided such employee has been in the employ of Caere for such
continuous period preceding the first day of the offering period as the Board of
Directors of Caere may require, such period not to equal or exceed two years. If
the Board of Directors of Caere so determines, officers of Caere who are "highly
compensated" as defined in the Code may be excluded from participation in the
Purchase Plan.
Notwithstanding the foregoing, no employee is eligible for the grant of any
rights under the Purchase Plan if, immediately after such grant, the employee
would own, directly or indirectly, stock possessing 5% or more of the total
combined voting power or value of all classes of stock of Caere or of any parent
or subsidiary of Caere (including any stock which such employee may purchase
under all outstanding rights and options), nor will any employee be granted
rights that would permit such employee to buy more than $25,000 worth of stock
(determined at the fair market value of the shares at the time such rights are
granted) under all employee stock purchase plans of Caere in any calendar year.
PARTICIPATION IN THE PLAN
Eligible employees become participants in the Purchase Plan by delivering
to Caere, prior to the date selected by the Board of Directors of Caere as the
offering date for the offering, an agreement authorizing payroll deductions of
up to 15% of such employees' total compensation during the purchase period.
PURCHASE PRICE
The purchase price per share at which shares are sold in an offering under
the Purchase Plan is the lower of (1) 85% of the fair market value of a share of
Caere Common Stock on the date of commencement of the offering, or (2) 85% of
the fair market value of a share of Caere Common Stock on the date of purchase.
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
The purchase price of the shares is accumulated by payroll deductions over
the offering period. At any time during the purchase period, a participant may
terminate his or her payroll deductions. A participant may reduce, increase or
begin such payroll deductions after the commencement of an offering only as
provided by the Board of Directors of Caere in implementing the offering. All
payroll deductions made for a participant are credited to his or her account
under the Purchase Plan and deposited with the general funds of Caere. A
participant may make additional payments into such account only as specifically
provided for in the offering.
PURCHASE OF STOCK
By executing an agreement to participate in the Purchase Plan, the employee
is entitled to purchase shares under the Purchase Plan. In connection with
offerings made under the Purchase Plan, the Board of Directors of Caere
specifies a maximum number of shares which any employee may be granted the right
to purchase and the maximum aggregate number of shares which may be purchased
pursuant to such offering by all participants. If the aggregate number of shares
to be purchased upon exercise of rights granted in the offering would exceed the
maximum aggregate number, the Board of Directors of Caere would make a pro rata
allocation of shares available in a uniform and equitable manner. Unless the
employee's participation is discontinued, his or her right to purchase shares is
exercised automatically on each specified exercise date during the offering
period at the applicable price. See "Withdrawal" below.
WITHDRAWAL
While each participant in the Purchase Plan is required to sign an
agreement authorizing payroll deductions, the participant may withdraw from a
given offering by terminating his or her payroll deductions
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90
and by delivering to Caere a notice of withdrawal from the Purchase Plan. Such
withdrawal may be elected at any time prior to the end of the applicable
offering period.
Upon any withdrawal from an offering by the employee, Caere will distribute
to the employee his or her accumulated payroll deductions without interest, less
any accumulated deductions previously applied to the purchase of stock on the
employee's behalf during such offering, and such employee's interest in the
offering automatically will be terminated. The employee is not entitled to again
participate in that offering. An employee's withdrawal from an offering will not
have any effect upon such employee's eligibility to participate in subsequent
offerings under the Purchase Plan.
TERMINATION OF EMPLOYMENT
Rights granted pursuant to any offering under the Purchase Plan terminate
immediately upon cessation of an employee's employment for any reason, except
death, and Caere will distribute to such employee all of his or her accumulated
payroll deductions, without interest. In the event of a participating employee's
death, the balance in his or her account will be held and used to purchase stock
on the next exercise date during the offering, provided that the estate or
representative of the deceased employee does not withdraw from the offering.
RESTRICTIONS ON TRANSFER
Rights granted under the Purchase Plan are not transferable, except upon
death, and may be exercised only by the person to whom such rights are granted,
or, in the case of death, by the estate of the deceased employee.
DURATION, AMENDMENT AND TERMINATION
The Board of Directors of Caere may suspend or terminate the Purchase Plan
at any time. Unless terminated earlier, the Purchase Plan will terminate on
February 15, 2000.
The Board of Directors of Caere may amend the Purchase Plan at any time.
Any amendment of the Purchase Plan must be approved by the stockholders within
12 months of its adoption by the Board of Directors of Caere if the amendment
would (a) increase the number of shares of Caere Common Stock reserved for
issuance under the Purchase Plan, (b) modify the requirements relating to
eligibility for participation in the Purchase Plan to the extent such
modification requires stockholder approval in order for the Purchase Plan to
obtain employee stock purchase plan treatment under Section 423 of the Code, or
(c) modify the Purchase Plan in any other way if such modification requires
stockholder approval in order for the Purchase Plan to obtain employee stock
purchase plan treatment under Section 423 of the Code or comply with the
requirements of Rule 16b-3 under the Exchange Act.
Rights granted before amendment or termination of the Purchase Plan will
not be altered or impaired by any amendment or termination of such plan without
consent of the person to whom such rights were granted.
EFFECT OF CERTAIN CORPORATE EVENTS
In the event of a dissolution or liquidation of Caere, specified type of
merger or other corporate reorganization, then, as determined by the Board of
Directors of Caere in its sole discretion, the surviving corporation either will
assume the rights under the Purchase Plan or substitute similar rights, such
rights will continue in full force and effect, or the exercise date of any
ongoing offering will be accelerated such that the outstanding rights may be
exercised immediately prior to, or concurrent with any such event.
STOCK SUBJECT TO PURCHASE PLAN
If rights granted under the Purchase Plan expire, lapse or otherwise
terminate without being exercised, the Caere Common Stock not purchased under
such rights again becomes available for issuance under such plan.
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FEDERAL INCOME TAX INFORMATION
Rights granted under the Purchase Plan are intended to qualify for
favorable federal income tax treatment associated with rights granted under an
employee stock purchase plan which qualifies under provisions of Section 423 of
the Code.
A participant will be taxed on amounts withheld for the purchase of shares
as if such amounts were actually received. Other than this, no income will be
taxable to a participant until disposition of the shares acquired, and the
method of taxation will depend upon the holding period of the purchased shares.
If the stock is disposed of at least two years after the beginning of the
offering period and at least one year after the stock is transferred to the
participant, then the lesser of (a) the excess of the fair market value of the
stock at the time of such disposition over the exercise price or (b) the excess
of the fair market value of the stock as of the beginning of the offering period
over the exercise price (determined as of the beginning of the offering period)
will be treated as ordinary income. Any further gain or any loss will be taxed
as a long-term capital gain or loss. Capital gains currently are generally
subject to lower tax rates than ordinary income. The maximum capital gains rate
for federal income tax purposes is 28%, while the maximum ordinary rate is
effectively 39.6% at the present time.
If the stock is sold or disposed of before the expiration of either of the
holding periods described above, then the excess of the fair market value of the
stock on the exercise date over the exercise price will be treated as ordinary
income at the time of such disposition, and Caere may, in the future, be
required to withhold income taxes relating to such ordinary income from other
payments made to the participant. The balance of any gain will be treated as
capital gain. Even if the stock is later disposed of for less than its fair
market value on the exercise date, the same amount of ordinary income is
attributed to the participant, and a capital loss is recognized equal to the
difference between the sales price and the fair market value of the stock on
such exercise date. Any capital gain or loss will be long- or short-term
depending on whether the stock has been held for more than one year.
There are no federal income tax consequences to Caere by reason of the
grant or exercise of rights under the Purchase Plan. Caere is generally entitled
to a deduction to the extent amounts are taxed as ordinary income to a
participant by reason of a disposition before the expiration of the holding
periods described above (subject to the requirement of reasonableness, the
provisions of Section 162(m) of the Code and the satisfaction of a tax reporting
obligation).
PURCHASE PLAN PARTICIPATION
No executive officers participated in the Purchase Plan in 1994. Although
executive officers are eligible to participate in the Purchase Plan, there has
been no material participation by executive officers since the inception of the
Plan. There were 61,057 shares of Caere Common Stock purchased by participants
in the Purchase Plan during the fiscal year ended December 31, 1994, at prices
ranging from $5.8438 to $8.1813, for a total purchase price of $426,830.
THE BOARD OF DIRECTORS OF CAERE HAS UNANIMOUSLY RECOMMENDED A VOTE
FOR APPROVAL OF THE AMENDMENT TO CAERE'S
1990 EMPLOYEE STOCK PURCHASE PLAN
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ADDITIONAL MATTER FOR CONSIDERATION OF VIEWSTAR SHAREHOLDERS
APPROVAL OF CERTAIN TERMS OF EMPLOYMENT AGREEMENTS
At the ViewStar Meeting, ViewStar shareholders will be asked to consider
and vote upon a proposal to approve certain payments and benefits pursuant to
the Employment Agreements between ViewStar and Kamran Kheirolomoom, President
and Chief Executive Officer of ViewStar, and Mark Perry, Chairman of the Board
of Directors of ViewStar, respectively (the "Executives"). These payments and
benefits (the "Benefits"), which include substantial cash payments and the
acceleration of certain stock options, are provided in connection with any
change of control of ViewStar such as the Merger. The Benefits are described in
detail under "The Merger and Related Transactions -- Benefits to ViewStar
Executives from the Merger."
Approval of payment of the Benefits requires the affirmative vote of
holders of more than 75% of the shares of ViewStar Capital Stock outstanding
immediately prior to the Merger, voting together as a single class on an
as-converted basis, excluding shares of ViewStar Capital Stock owned by the
Executives. Certain shareholders of ViewStar holding approximately 76.5% of the
shares of ViewStar Capital Stock as of the Record Date, voting together as a
single class, excluding shares of ViewStar Capital Stock held by the Executives,
have entered into agreements to vote in favor of the payment of the Benefits and
have executed irrevocable proxies appointing F. Gibson Myers, Jr., a member of
the Board of Directors of ViewStar, as their proxy to vote their shares of
ViewStar Capital Stock with respect to the payment of the Benefits.
In the absence of ViewStar shareholder approval in accordance with this
proposal, the Benefits would be classified as "parachute payments" if they were
deemed to have been received by the Executives as a result of the Merger and
equaled or exceeded 300% of their annualized base period compensation as
determined under Section 280G of the Code. In that event, ViewStar would be
unable to claim a tax deduction for, and each of the Executives would be
required to pay a 20% excise tax on, the portion of the Benefits that exceeded
his annualized base period compensation and which therefore would be considered
an "excess parachute payment." If approved by the ViewStar shareholders, the
full amount of the Benefits under the Employment Agreements will be paid to the
Executives without these adverse tax consequences.
If the payment of the Benefits under the Employment Agreements is not
approved by the ViewStar shareholders, the Executives are entitled to receive
alternate payments and benefits similar to the Benefits, except that the
alternate payments and benefits shall not exceed the largest amount that would
result in no portion of such alternate payments and benefits being treated as an
"excess parachute payment" under Section 280G of the Code.
THE VIEWSTAR BOARD HAS UNANIMOUSLY APPROVED AND RECOMMENDS THAT VIEWSTAR
SHAREHOLDERS APPROVE THE PAYMENT OF THE BENEFITS. The Executives are members of
the Board of Directors of ViewStar.
STOCKHOLDER PROPOSALS
As described in Caere's proxy statement relating to its 1995 Annual Meeting
of Stockholders, Caere stockholder proposals for inclusion in the Caere proxy
statement and form of proxy relating to the Caere 1996 Annual Meeting of
Shareholders must be received by Caere by December 8, 1995 in order that they
may be considered for inclusion in the proxy statement and form of proxy
relating to that meeting.
EXPERTS
The consolidated financial statements and schedules of Caere as of December
31, 1993 and 1994, and for each of the years in the three-year period ended
December 31, 1994, have been incorporated by reference herein and in the
Registration Statement, have been audited by KPMG Peat Marwick LLP, independent
auditors, as set forth in their report thereon incorporated by reference herein,
and are included in reliance upon the reports of KPMG Peat Marwick LLP and
Coopers & Lybrand L.L.P., relating to the financial statements of Calera
Recognition Systems, Inc. at December 31, 1993 and for each of the two years in
the period ended December 31, 1993 incorporated by reference herein, and given
upon the authority of said firms, as experts in accounting and auditing.
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93
The financial statements and financial statement schedules of ViewStar as
of December 31, 1993 and 1994, and for each of the years in the two-year period
ended December 31, 1994, and the financial statements of ViewStar as of and for
the nine-month period ended September 30, 1995 are included in this Prospectus/
Joint Proxy Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent auditors, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the shares of Caere Common Stock offered hereby will be
passed upon for Caere by Cooley Godward Castro Huddleson & Tatum, Palo Alto,
California. Certain legal matters in connection with the Merger will be passed
upon for ViewStar by Wilson, Sonsini, Goodrich & Rosati, Professional
Corporation, Palo Alto, California. An investment partnership of the law firm of
Cooley Godward Castro Huddleson & Tatum, consisting of certain members (and
former members) of such firm, beneficially owns 5,000 shares ViewStar Series C
Preferred Stock. An investment partnership of the law firm of Wilson, Sonsini,
Goodrich & Rosati, consisting of certain members (and former members) of such
firm, beneficially owns 8,181 shares of ViewStar Series B Preferred Stock. Mario
M. Rosati, a partner of the law firm of Wilson, Sonsini, Goodrich & Rosati,
holds the office of Secretary of ViewStar and is trustee of the Mario M. Rosati
Trust U/D/T dated January 5, 1990 which beneficially owns 454 shares of ViewStar
Series B Preferred Stock.
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VIEWSTAR CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Operations................................................. F-4
Consolidated Statements of Stockholders' Equity (Deficit)............................. F-5
Consolidated Statements of Cash Flows................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
F-1
95
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Caere Corporation:
We have audited the accompanying consolidated balance sheets of ViewStar
Corporation and subsidiaries as of December 31, 1994 and September 30, 1995, and
the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for each of the years in the two-year period ended
December 31, 1994, and for the nine months ended September 30, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
ViewStar Corporation and subsidiaries as of December 31, 1994 and September 30,
1995, and the results of their operations and their cash flows for each of the
years in the two-year period ended December 31, 1994, and for the nine months
ended September 30, 1995, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
San Jose, California
October 19, 1995
F-2
96
VIEWSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 4,094 $ 750
Accounts receivable, net of allowances of $532 and $597 in 1994
and 1995, respectively........................................ 9,787 6,648
Prepaid expenses and other current assets........................ 485 552
-------- --------
Total current assets..................................... 14,366 7,950
Property and equipment, net........................................ 3,135 2,818
Other assets....................................................... 355 388
-------- --------
$ 17,856 $ 11,156
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses............................ $ 5,666 $ 5,266
Borrowings under bank line of credit............................. 1,500 --
Subordinated notes payable to stockholders....................... -- 2,000
Deferred revenue................................................. 9,767 9,995
Current portion of capital lease obligations and notes payable... 946 1,151
-------- --------
Total current liabilities................................ 17,879 18,412
Noncurrent portion of capital lease obligations and notes
payable.......................................................... 955 1,093
Commitments
Stockholders' deficit:
Preferred stock, $.01 par value; 9,395,146 shares authorized;
9,330,487 shares issued and outstanding in 1994 and 1995
(aggregate liquidation preference of $35,568 as of September
30, 1995)..................................................... 94 94
Common stock, $.01 par value; 15,000,000 and 20,000,000 shares
authorized in 1994 and 1995, respectively; 2,047,819 and
2,417,529 shares issued and outstanding in 1994 and 1995,
respectively.................................................. 20 24
Additional paid-in capital....................................... 23,540 23,750
Stockholders notes receivable.................................... (119) (264)
Accumulated deficit.............................................. (24,513) (31,953)
-------- --------
Total stockholders' deficit.............................. (978) (8,349)
-------- --------
$ 17,856 $ 11,156
======== ========
See accompanying notes to consolidated financial statements.
F-3
97
VIEWSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS
YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- -----------------------
1993 1994 1994 1995
------- -------- ----------- -------
(UNAUDITED)
Revenues:
License fees.................................. $15,847 $ 10,436 $ 6,515 $ 8,491
Services...................................... 10,205 11,857 8,731 8,517
Hardware sales and fees....................... 2,044 519 477 70
------- ------- ------- -------
Total revenues........................ 28,096 22,812 15,723 17,078
------- ------- ------- -------
Costs and expenses:
Cost of license fees.......................... 606 720 520 394
Cost of services.............................. 6,663 7,337 5,170 5,222
Cost of hardware.............................. 1,348 42 41 --
Sales and marketing........................... 12,838 16,127 11,534 11,792
Product development........................... 5,775 6,571 4,725 4,295
General and administrative.................... 2,742 3,059 2,137 1,524
Severance related costs....................... -- 78 -- 970
------- ------- ------- -------
Total costs and expenses.............. 29,972 33,934 24,127 24,197
------- ------- ------- -------
Operating loss.................................. (1,876) (11,122) (8,404) (7,119)
Interest expense................................ (378) (284) (208) (399)
Other income.................................... 58 199 128 110
------- ------- ------- -------
Loss before income taxes.............. (2,196) (11,207) (8,484) (7,408)
Income taxes.................................... 119 55 20 32
------- ------- ------- -------
Net loss.............................. $(2,315) $(11,262) $(8,504) $(7,440)
======= ======= ======= =======
Net loss per share.............................. $ (1.46) $ (6.06) $ (4.66) $ (3.19)
======= ======= ======= =======
Shares used in per share computation............ 1,591 1,857 1,826 2,329
======= ======= ======= =======
See accompanying notes to consolidated financial statements.
F-4
98
VIEWSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
TOTAL
PREFERRED STOCK COMMON STOCK ADDITIONAL STOCKHOLDERS STOCKHOLDERS'
--------------- --------------- PAID-IN NOTES ACCUMULATED EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT (DEFICIT)
------ ------ ------ ------ ---------- ------------ ----------- -------------
Balances as of
December 31, 1992............ 7,561 $ 76 1,547 $ 15 $ 16,391 $ -- $ (10,936) $ 5,546
Issuance of common stock....... -- -- 193 2 104 (59) -- 47
Issuance of Series E
convertible preferred
stock........................ 1,000 10 -- -- 3,887 -- -- 3,897
Net loss....................... -- -- -- -- -- -- (2,315) (2,315)
----- --- ----- --- ------- ----- -------- --------
Balances as of
December 31, 1993............ 8,561 86 1,740 17 20,382 (59) (13,251) 7,175
Issuance of common stock....... -- -- 317 3 215 (60) -- 158
Issuance of Series E
convertible preferred
stock........................ 769 8 -- -- 2,943 -- -- 2,951
Net loss....................... -- -- -- -- -- -- (11,262) (11,262)
----- --- ----- --- ------- ----- -------- --------
Balances as of
December 31, 1994............ 9,330 94 2,057 20 23,540 (119) (24,513) (978)
Issuance of common stock....... -- -- 361 4 210 (145) -- 69
Net loss....................... -- -- -- -- -- -- (7,440) (7,440)
----- --- ----- --- ------- ----- -------- --------
Balances as of
September 30, 1995........... 9,330 $ 94 2,418 $ 24 $ 23,750 $ (264) $ (31,953) $ (8,349)
===== === ===== === ======= ===== ======== ========
See accompanying notes to consolidated financial statements.
F-5
99
VIEWSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS
YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- -----------------------
1993 1994 1994 1995
------- -------- ----------- -------
(UNAUDITED)
Cash flows from operating activities:
Net loss...................................... $(2,315) $(11,262) $(8,504) $(7,440)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization.............. 1,030 1,239 875 1,262
Changes in operating assets and
liabilities:
Accounts receivable...................... (979) 311 1,133 3,139
Prepaid expenses and other current
assets................................ 207 (148) (327) (67)
Accounts payable and accrued expenses.... (278) 1,939 491 (400)
Deferred revenue......................... 4,361 3,646 2,742 228
------- -------- ------- -------
Net cash provided by (used in)
operating activities................ 2,026 (4,275) (3,590) (3,278)
------- -------- ------- -------
Cash flows from investing activities:
Purchase of furniture and equipment, net... (439) (1,230) (356) --
(Decrease) increase in other assets........ (116) (19) 37 (33)
------- -------- ------- -------
Net cash used in investing
activities.......................... (555) (1,249) (319) (33)
------- -------- ------- -------
Cash flows from financing activities:
Proceeds from borrowings under bank line of
credit..................................... 4,350 2,900 2,900 --
Payments of borrowings under bank line of
credit..................................... (7,100) (1,400) (1,400) (1,500)
Issuance of subordinated notes payable to
stockholders............................... -- -- -- 2,000
Principal payments on capital lease
obligations and notes payable.............. (781) (905) (664) (902)
Issuance of note payable...................... -- -- -- 300
Issuance of convertible preferred stock....... 3,897 2,951 2,951 --
Issuance of common stock...................... 47 158 190 69
------- -------- ------- -------
Net cash provided by (used in)
financing activities................ 413 3,704 3,977 (33)
------- -------- ------- -------
Net increase (decrease) in cash and cash
equivalents................................... 1,884 (1,820) 68 (3,344)
Cash and cash equivalents at beginning of
period........................................ 4,030 5,914 5,914 4,094
------- -------- ------- -------
Cash and cash equivalents at end of period...... $ 5,914 $ 4,094 $ 5,982 $ 750
======= ======== ======= =======
Supplemental cash flow disclosures:
Cash paid:
Interest................................... $ 142 $ 100 $ 64 $ 155
======= ======== ======= =======
Income taxes............................... $ 24 $ 1 $ 10 $ 16
======= ======== ======= =======
Capital lease obligations incurred............ $ 1,199 $ 1,248 $ 1,248 $ 945
======= ======== ======= =======
Issuance of common stock in exchange for note
receivable................................. $ 59 $ 60 $ -- $ 145
======= ======== ======= =======
See accompanying notes to consolidated financial statements.
F-6
100
VIEWSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ViewStar Corporation (the Company) is in the business of developing,
marketing, and servicing advanced document management and workflow process
automation software products.
The Company's significant accounting policies are as follows:
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
ViewStar Corporation and its wholly owned subsidiaries, ViewStar UK Limited
and ViewStar SARL. All intercompany balances and transactions have been
eliminated in consolidation.
Revenues
Revenues from the sale of software licenses and hardware are recognized
when (i) a signed contract exists, (ii) delivery has occurred, (iii) the
fee is fixed and collectibility is probable, and (iv) remaining vendor
obligations are insignificant. Generally, revenues from the sale of
software licenses through distributors are recognized after contract
signing and shipment and upon the earlier of sale to the end user or upon
receipt of nonrefundable cash payments from the distributors. Revenues from
third-party hardware referral fees are recognized after contract signing
and shipment from the hardware distributor to the customer. Revenues from
software installation and consulting contracts are recognized as the
services are performed. Revenues from software maintenance agreements are
recognized ratably over the service period.
The Company licenses its products to customers in a variety of industries
throughout North America, Europe, Japan, and Australia. The Company
performs ongoing credit evaluations of its customers and generally does not
require collateral. The Company maintains reserves for potential credit
losses.
Revenues related to customers outside the United States were $3,091,000,
$1,544,000, and $4,362,000 during the years ended December 31, 1993 and
1994 and the nine months ended September 30, 1995, respectively.
Income Taxes
The Company uses the liability method to account for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
the differences between the financial reporting and tax basis of assets and
liabilities and are measured using the enacted tax rates and laws that will
be in effect when the differences are expected to reverse. A valuation
allowance is recorded to the extent management does not believe it is more
likely than not that deferred tax assets will be realized.
Cash and Cash Equivalents
Cash equivalents, consisting of liquid investments with original maturities
of three months or less, are stated at cost, which approximates fair value.
Unrealized gains and losses as of December 31, 1994 and September 30, 1995,
and realized gains and losses for the periods then ended were not material.
Cash equivalents are composed of certificates of deposit with major banks,
government securities, and money market securities of companies from a
variety of industries. The Company classified all of its debt securities as
held to maturity as of December 31, 1994 and September 30, 1995.
F-7
101
VIEWSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment
Property and equipment are recorded at cost and depreciated on a
straight-line basis over the three- to five-year estimated useful lives of
the assets. Leasehold improvements and assets recorded under capital leases
are amortized over the shorter of the estimated useful lives or the related
lease terms.
Computer Software Development Costs
Costs incurred to establish the technological feasibility of computer
software products are considered product development costs and are expensed
as incurred. Once the technological feasibility of a software product to be
marketed has been established, development and enhancement costs are
capitalized. Generally, the establishment of technological feasibility of
the Company's products and general release coincide. As a result, the
Company has not capitalized any software development costs to date.
Net Loss Per Share
Net loss per share is computed using the weighted average number of common
shares outstanding during the period. Common stock equivalent shares from
convertible preferred stock, common stock options, and warrants to purchase
convertible preferred stock or common stock have not been included because
their effect would be antidilutive.
Interim Financial Statements
The unaudited consolidated financial statements for the nine months ended
September 30, 1994 have been prepared on the same basis as the audited
financial statements and, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the results of operations and cash flows for that
period. The results for the nine months ended September 30, 1995 are not
necessarily indicative of the results that might be expected for the entire
year.
(2) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
Furniture and equipment............................ $2,161,000 $ 2,137,000
Leasehold improvements............................. 530,000 518,000
Equipment recorded under capital lease............. 4,966,000 5,911,000
---------- ----------
7,657,000 8,566,000
Less accumulated depreciation and amortization
including $3,242,000 and $4,119,000 applicable to
equipment recorded under capital leases in 1994
and 1995, respectively........................... 4,522,000 5,748,000
---------- ----------
$3,135,000 $ 2,818,000
========== ==========
F-8
102
VIEWSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following:
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
Accrued commissions................................ $1,495,000 $ 1,239,000
Other.............................................. 4,171,000 4,027,000
---------- ----------
$5,666,000 $ 5,266,000
========== ==========
(4) BANK LINE OF CREDIT, SUBORDINATED NOTES PAYABLE TO STOCKHOLDERS, AND NOTES
PAYABLE
The Company has a financing agreement with a bank providing for borrowings
of up to $4 million under a line of credit bearing interest at the bank's
prime rate plus 2.75%. The agreement limits borrowings to 80% of eligible
accounts receivable, as defined, and is subject to renewal by the bank in
May 1996. The borrowings are secured by substantially all of the Company's
assets. The agreement does not include any financial covenants. The Company
issued warrants to purchase 27,468 shares of Series E Preferred Stock in
connection with the financing agreement. The warrants are exercisable at
any time at $3.90 per share subject to adjustment as defined. The warrants
expire in September 1999 and June 2000.
Also in May 1995, the Company obtained $2 million in cash from certain of
its existing stockholders in exchange for subordinated notes. The notes
bear interest at 9% per annum. The principal amount of the notes and
accrued interest are due upon demand at any time after April 15, 1996. The
notes are subordinated to the Company's line of credit with the bank and
are secured by all of the assets of the Company. The Company issued
warrants to purchase 250,000 shares of common stock in connection with the
subordinated notes. The warrants are exercisable at any time at $0.60 per
share and expire in 2000.
Included in capital lease obligations and notes payable in the accompanying
consolidated balance sheet as of September 30, 1995 is $300,000 related to
a noninterest note payable to a customer. The note is unsecured and
$120,000 is payable in 1996 and the remainder is due in 1997.
(5) LEASE OBLIGATIONS
The Company leases certain computers and other equipment under capital
leases. In addition, the Company leases its facilities and certain
equipment under operating leases. Future minimum lease payments are as
follows:
CAPITAL OPERATING
LEASES LEASES
---------- ----------
For the three months ended December 31, 1995........ $ 335,000 $ 320,000
1996.............................................. 1,060,000 1,132,000
1997.............................................. 609,000 1,069,000
1998.............................................. 110,000 1,069,000
1999.............................................. 21,000 490,000
2000.............................................. -- 67,000
---------- ----------
2,135,000 $4,147,000
==========
Less amounts representing interest.................. 191,000
----------
Present value of minimum lease payments............. 1,944,000
Less current portion................................ 1,031,000
----------
Noncurrent portion of capital lease
obligations............................. $ 913,000
==========
F-9
103
VIEWSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Rent expense was $1,108,000, $1,246,000, and $1,004,000 for the years ended
December 31, 1993 and 1994 and the nine months ended September 30, 1995,
respectively.
(6) INCOME TAXES
The components of the provision for income taxes consisted of the
following:
YEARS ENDED NINE MONTHS
DECEMBER 31, ENDED
-------------------- SEPTEMBER 30,
1993 1994 1995
-------- ------- -------------
Current:
Federal.............................. $ 14,000 $ -- $ --
State................................ 55,000 20,000 --
Foreign.............................. 50,000 35,000 32,000
-------- ------- -------
$119,000 $55,000 $32,000
======== ======= =======
Significant components of the Company's deferred tax assets and liabilities
for federal and state income taxes are as follows:
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
Deferred tax liabilities:
State taxes.................................... $ -- $ (610,000)
Other.......................................... -- --
----------- ------------
Total deferred tax liabilities......... -- (610,000)
Deferred tax assets:
Accrued expenses............................... 305,000 339,000
Allowances..................................... 230,000 259,000
Accrued compensation........................... 373,000 265,000
Net operating losses........................... 6,413,000 9,065,000
Research and development credits............... 1,186,000 1,513,000
Other.......................................... 624,000 630,000
----------- ------------
Total deferred tax assets.............. 9,131,000 12,071,000
Valuation allowance.............................. (9,131,000) (11,461,000)
----------- ------------
Net deferred tax assets.......................... -- 610,000
----------- ------------
Total net deferred income taxes........ $ -- $ --
=========== ============
F-10
104
VIEWSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income taxes differed from the amount computed by applying the statutory
federal income tax rate as follows:
YEARS ENDED NINE MONTHS
DECEMBER 31, ENDED
------------------------- SEPTEMBER 30,
1993 1994 1995
--------- ----------- -------------
Statutory federal income tax
provision.......................... $(747,000) $(3,810,000) $ (2,519,000)
State taxes, net of federal
benefit............................ 55,000 20,000 --
Net operating losses not utilized.... 747,000 3,810,000 2,519,000
Foreign taxes........................ 50,000 35,000 32,000
Other................................ 14,000 -- --
--------- ----------- -----------
Provision for income
taxes.................... $ 119,000 $ 55,000 $ 32,000
========= =========== ===========
As of September 30, 1995, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $23,945,000, expiring in
the years 2001 through 2010, and net operating loss carryforwards for state
income tax purposes of approximately $9,915,000 expiring in the years 1996
through 2000. The Company also had federal and state research and
development credit carryforwards of approximately $945,000 and $565,000,
respectively, which expire in the years 2001 through 2010.
Due to "change of ownership" provisions of the Tax Reform Act of 1986,
utilization of the Company's net operating loss carryforwards and research
and development credit carryforwards may be subject to a limitation, if it
should be determined that a greater than 50% ownership change, such as that
contemplated by the proposed merger described in Note 8, were to occur in
the future.
(7) STOCKHOLDERS' EQUITY
Preferred Stock
Preferred stock as of September 30, 1995 consisted of the following series:
NONCUMULATIVE
LIQUIDATION DIVIDEND
SERIES AUTHORIZED OUTSTANDING PREFERENCE PER SHARE
----------------------------------- ---------- ----------- ----------- -------------
A-1................................ 316,667 316,667 $ 992,751 $ .15
A-2................................ 210,000 210,000 655,200 .15
B.................................. 415,142 415,142 1,356,269 .17
C.................................. 2,660,081 2,640,081 9,182,202 .19
D-1................................ 1,795,974 1,795,842 7,413,236 .24
D-2................................ 2,197,282 2,183,600 7,703,741 .24
E-1................................ 1,000,000 1,000,000 4,875,000 .39
E-2................................ 800,000 769,155 3,389,666 .39
Each share of Series A, B, C, D, and E stock is convertible into one share
of common stock. The shares may be converted at any time, at the option of
the stockholder, except that conversion will automatically occur upon a
public offering of the Company's common stock under certain conditions. The
preferred stock has noncumulative dividend and voting rights equal to the
number of shares of common stock into which it is convertible.
As of September 30, 1995, warrants to purchase approximately 10,000 shares
of Series C Preferred Stock and 13,814 shares of Series D Preferred Stock
remain outstanding. These warrants expire in November 1995 and March 1997,
or under certain conditions, at various dates upon the closing of a
F-11
105
VIEWSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
public offering or merger. The warrants were issued in connection with the
line of credit agreement with the bank. The exercise prices of the warrants
range from $1.85 to $2.40 per share.
Amended 1986 Incentive Stock Plan
The Company has an Incentive Stock Plan (the Plan) under which 3,730,000
shares of common stock may be issued to officers and key employees. The
Plan allows the Board of Directors to grant nonstatutory stock options,
incentive stock options, and stock purchase rights at amounts not less than
85%, 100%, and 110%, respectively, of the fair market value of common
stock, as determined by the Company's Board of Directors, based on factors
described in the Plan. The term of options and rights may not exceed 10
years. As of September 30, 1995 181,100 nonstatutory stock options were
outstanding.
Incentive stock option activity is summarized as follows:
EXERCISE NUMBER OF
PRICE SHARES
----------- ---------
Options outstanding as of December 31, 1993......... $.60 - 1.50 1,748,638
Granted........................................... .60 - 2.00 771,333
Exercised......................................... .60 - 1.50 (216,463)
Canceled.......................................... .60 - 1.50 (297,778)
--------
Options outstanding as of December 31, 1994......... .60 2,005,730
Granted........................................... .60 1,179,750
Exercised......................................... .60 (358,188)
Canceled.......................................... .60 (403,851)
--------
Options outstanding as of September 30, 1995........ .60 2,423,441
========
In 1994, the Company's Board of Directors amended all outstanding stock
options to purchase common stock with exercise prices in excess of $0.60
per share to reduce their exercise price to $0.60 per share, which the
Board determined to be fair market value. As of September 30, 1995, options
to purchase 1,140,276 shares were exercisable and 1,106,559 shares remained
available for grant under the Plan.
1994 Senior Executive Stock Plan
In January 1994, the Company adopted the 1994 Senior Executive Stock Plan
(the 1994 Plan) under which incentive and nonstatutory options to purchase
shares of common stock may be granted to certain employees and consultants
of the Company. A total of 795,000 shares of common stock have been
reserved for issuance under the 1994 Plan and, as of September 30, 1995,
options to purchase 795,000 shares at $0.60 per share have been granted to
employees, 50,000 of which are nonstatutory stock options. Options to
purchase 100,000 shares at $0.60 per share were exercised during 1994 and
no options were exercised during 1995. The exercise price of each incentive
and nonqualified stock option shall not be less than 100% and 85%,
respectively, of the fair market value of the stock on the date of grant
(110% of the fair market value for key stockholders). Options vest based
upon criteria determined by the Board of Directors, generally ratably over
a 50-month period. Options to purchase 129,300 shares are exercisable as of
September 30, 1995. Options expire after 10 years from the date of grant.
Warrants
In connection with the signing of a distributor agreement, the Company
issued a warrant to purchase 25,000 shares of common stock at an exercise
price per share of $4.00.
F-12
106
VIEWSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) SUBSEQUENT EVENTS
On October 9, 1995, the Board of Directors approved the Agreement and Plan
of Merger and Reorganization (the Agreement) under which all of the
Company's preferred and common stock will be exchanged for shares of common
stock of Caere Corporation (Caere), and all of the Company's outstanding
options to purchase common stock will be converted into options to purchase
Caere common stock, as determined by a formula set forth in the Agreement.
All unexercised warrants to purchase preferred and common stock will
terminate upon the effectiveness of the merger. The transaction, if
consummated, will result in a change in ownership that will restrict the
Company's use of its net operating loss and tax credit carryforwards.
F-13
107
APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
among
CAERE CORPORATION,
a Delaware corporation;
VIEWSTAR ACQUISITION CORP.,
a California corporation;
VIEWSTAR CORPORATION,
a California corporation;
and
CERTAIN SHAREHOLDERS OF VIEWSTAR CORPORATION
------------------------------------------------------------
Dated as of October 29, 1995
As Amended and Restated on October 23, 1995
------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
108
TABLE OF CONTENTS
PAGE
-----
SECTION 1. DESCRIPTION OF TRANSACTION............................................ A-1
1.1 Merger of Merger Sub into the Company................................. A-1
1.2 Effect of the Merger.................................................. A-1
1.3 Closing; Effective Time............................................... A-1
1.4 Articles of Incorporation and Company Bylaws; Directors and
Officers.............................................................. A-2
1.5 Conversion of Shares.................................................. A-2
1.6 Employee Stock Options................................................ A-4
1.7 Warrants.............................................................. A-5
1.8 Bridge Loan........................................................... A-5
1.9 Registration on Form S-4.............................................. A-5
1.10 Closing of the Company's Transfer Books............................... A-6
1.11 Exchange of Certificates.............................................. A-6
1.12 Dissenting Shares..................................................... A-7
1.13 Tax Consequences...................................................... A-7
1.14 Accounting Treatment.................................................. A-7
1.15 Termination of Registration Rights and Rights of First Refusal........ A-7
1.16 Further Action........................................................ A-8
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................... A-8
2.1 Due Organization; Subsidiaries; Etc. ................................. A-8
2.2 Articles of Incorporation and Company Bylaws; Records................. A-8
2.3 Capitalization, Etc................................................... A-8
2.4 Financial Statements.................................................. A-10
2.5 Absence of Changes.................................................... A-10
2.6 Title to Assets....................................................... A-12
2.7 Bank Accounts; Receivables............................................ A-12
2.8 Equipment; Leasehold.................................................. A-12
2.9 Proprietary Assets.................................................... A-12
2.10 Contracts............................................................. A-13
2.11 Liabilities........................................................... A-16
2.12 Compliance with Legal Requirements.................................... A-16
2.13 Governmental Authorizations........................................... A-16
2.14 Tax Matters........................................................... A-16
2.15 Employee and Labor Matters; Benefit Plans............................. A-17
2.16 Environmental Matters................................................. A-19
2.17 Insurance............................................................. A-20
2.18 Related Party Transactions............................................ A-20
2.19 Legal Proceedings; Orders............................................. A-20
2.20 Authority; Binding Nature of Agreement................................ A-20
2.21 Non-Contravention; Consents........................................... A-21
i
109
PAGE
-----
2.22 Full Disclosure....................................................... A-21
2.23 Fees and Expenses..................................................... A-21
2.24 Board Approval........................................................ A-22
2.25 Vote Required......................................................... A-22
2.26 Shareholder Voting Agreements......................................... A-22
2.27 Conversion Agreements................................................. A-22
2.28 Pooling of Interests.................................................. A-22
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB............... A-22
3.1 Organization; Good Standing; Qualification and Power.................. A-22
3.2 Capital Structure..................................................... A-22
3.3 SEC Filings; Financial Statements..................................... A-23
3.4 Authority; Binding Nature of Agreement................................ A-23
3.5 Valid Issuance........................................................ A-23
3.6 Information Supplied.................................................. A-23
3.7 Non-Contravention; Consents........................................... A-23
3.8 Fees and Expenses..................................................... A-24
3.9 No Material Adverse Change............................................ A-24
3.10 Compliance with Legal Requirements.................................... A-24
3.11 Legal Proceedings..................................................... A-24
3.12 Board Approval........................................................ A-24
3.13 Vote Required......................................................... A-24
3.14 Pooling of Interests.................................................. A-24
SECTION 4. CERTAIN COVENANTS OF THE COMPANY AND THE SIGNING SHAREHOLDERS......... A-25
4.1 Access and Investigation.............................................. A-25
4.2 Operation of the Company's Business................................... A-25
4.3 Notification; Updates to Disclosure Schedule.......................... A-26
4.4 No Negotiation........................................................ A-27
4.5 Company Shareholder Approval.......................................... A-27
4.6 Prospectus/Proxy Statement............................................ A-27
4.7 Employee Retention Program............................................ A-28
4.8 Bonus Letters......................................................... A-28
SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES................................... 28
5.1 Filings and Consents.................................................. A-28
5.2 Stockholder Approval.................................................. A-28
5.3 Prospectus/Proxy Statement............................................ A-28
5.4 State Securities Law Compliance....................................... A-29
5.5 Notification; Updates to Disclosure Schedule.......................... A-29
5.6 Pooling of Interests.................................................. A-30
5.7 Affiliate Agreements.................................................. A-30
5.8 All Commercially Reasonable Efforts................................... A-30
5.9 Tax Matters........................................................... A-30
ii
110
PAGE
-----
5.10 Amended and Restated Employment Agreement............................. A-30
5.11 FIRPTA Matters........................................................ A-30
5.12 Conversion Agreements................................................. A-30
5.13 Release............................................................... A-30
5.14 Termination of Employee Plans......................................... A-30
5.15 Access and Investigation.............................................. A-30
5.16 Company Plans......................................................... A-31
5.17 Indemnification....................................................... A-31
SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB.......... 31
6.1 Accuracy of Representations........................................... A-31
6.2 Performance of Covenants.............................................. A-32
6.3 Company Shareholder Approval.......................................... A-32
6.4 Consents.............................................................. A-32
6.5 Absence of Material Adverse Change.................................... A-32
6.6 Agreements and Documents.............................................. A-32
6.7 FIRPTA Compliance..................................................... A-33
6.8 Form S-4.............................................................. A-33
6.9 Parent Stockholder Approval........................................... A-33
6.10 No Restraints......................................................... A-33
6.11 No Legal Proceedings.................................................. A-33
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY.................... A-33
7.1 Accuracy of Representations........................................... A-33
7.2 Performance of Covenants.............................................. A-33
7.3 Documents............................................................. A-33
7.4 Form S-4.............................................................. A-34
7.5 Parent Stockholder Approval........................................... A-34
7.6 Company Shareholder Approval.......................................... A-34
7.7 Listing............................................................... A-34
7.8 No Restraints......................................................... A-34
SECTION 8. TERMINATION........................................................... 34
8.1 Termination Events.................................................... A-34
8.2 Termination Procedures................................................ A-35
8.3 Effect of Termination................................................. A-35
8.4 Breakup Fee........................................................... A-35
SECTION 9. INDEMNIFICATION, ETC.................................................. A-36
9.1 Survival of Representations, Etc...................................... A-36
9.2 Indemnification by Indemnifying Shareholders.......................... A-36
9.3 Threshold; Ceiling.................................................... A-37
9.4 Satisfaction of Indemnification Claim................................. A-37
9.5 No Contribution....................................................... A-37
iii
111
PAGE
-----
9.6 Defense of Third Party Claims......................................... 37
9.7 Exercise of Remedies by Indemnitees Other Than Parent................. A-38
SECTION 10. MISCELLANEOUS PROVISIONS.............................................. 38
10.1 Indemnifying Shareholders' Agent...................................... A-38
10.2 Further Assurances.................................................... A-38
10.3 Fees and Expenses..................................................... A-38
10.4 Indemnification for Certain Merger Expenses........................... A-39
10.5 Attorneys' Fees....................................................... A-39
10.6 Notices............................................................... A-40
10.7 Confidentiality....................................................... A-40
10.8 Time of the Essence................................................... A-40
10.9 Headings.............................................................. A-40
10.10 Counterparts.......................................................... A-40
10.11 Governing Law......................................................... A-40
10.12 Successors and Assigns................................................ A-40
10.13 Remedies Cumulative; Specific Performance............................. A-41
10.14 Waiver................................................................ A-41
10.15 Amendments............................................................ A-41
10.16 Public Announcements.................................................. A-41
10.17 Severability.......................................................... A-41
10.18 Parties in Interest................................................... A-41
10.19 Entire Agreement...................................................... A-41
10.20 Construction.......................................................... A-42
iv
112
EXHIBITS
Exhibit A -- Signing Shareholders
Exhibit B -- Certain Definitions
Exhibit C -- Form of Amended and Restated Articles of Incorporation of Surviving
Corporation*
Exhibit D -- Directors and Executive Officers of Surviving Corporation*
Exhibit E -- Form of Shareholder Agreement
Exhibit F -- Form of Preferred Conversion Agreement
Exhibit G-1 -- Form of ViewStar Affiliate Agreement
Exhibit G-2 -- Form of Caere Affiliate Agreement
Exhibit G-3 -- Persons to Execute Affiliate Agreements
Exhibit H-1 -- Form of Tax Representation Letter of Parent and Merger Sub*
Exhibit H-2 -- Form of Tax Representation Letter of the Company*
Exhibit I -- Form of Continuity of Interest Certificate*
Exhibit J -- Form of Release
Exhibit K -- Form of General Escrow Agreement
Exhibit L -- Form of Legal Opinion of Wilson, Sonsini, Goodrich & Rosati, P.C.*
Exhibit M -- Form of Legal Opinion of Cooley Godward Castro Huddleson & Tatum*
Exhibit N -- Form of Merger Expenses General Escrow Agreement
- ---------------
* Omitted from this Prospectus/Joint Proxy Statement
113
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION ("Agreement") is made
and entered into by and among: CAERE CORPORATION, a Delaware corporation
("Parent"); VIEWSTAR ACQUISITION CORP., a California corporation and a wholly
owned subsidiary of Parent ("Merger Sub"); VIEWSTAR CORPORATION, a California
corporation (the "Company"); and the parties identified on Exhibit A (the
"Signing Shareholders"), effective as of October 9, 1995. Certain other
capitalized terms used in this Agreement are defined in Exhibit B.
RECITALS
A. Parent, Merger Sub, the Company and the signing Shareholders entered
into an Agreement and Plan of Merger and Reorganization dated as of October 9,
1995 (the "Prior Agreement") and wish to amend and restate the Prior Agreement,
effective as of October 9, 1995, as set forth herein.
B. Parent, Merger Sub and the Company intend to effect a merger of Merger
Sub into the Company in accordance with this Agreement and the California
General Corporation Law (the "Merger"). Upon consummation of the Merger, Merger
Sub will cease to exist, and the Company will become a wholly owned subsidiary
of Parent.
C. It is intended that the Merger qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). For accounting purposes, it is intended that the Merger be
treated as a "pooling of interests."
D. This Agreement has been approved by the respective boards of directors
of Parent, Merger Sub and the Company.
E. The Signing Shareholders own a total of 540,919 shares of Company Common
Stock; a total of 300,667 shares of Series A Preferred Stock; a total of 121,212
shares of Series B Preferred Stock; a total of 1,527,027 shares of Series C
Preferred Stock; a total of 1,741,864 shares of Series D Preferred Stock; a
total of 1,099,191 shares of Series E Preferred Stock; and Bridge Warrants to
purchase an aggregate of 156,166 shares of the Company's Common Stock.
Contemporaneously with the execution and delivery of this Agreement, each
Signing Shareholder is executing and delivering to Parent a Shareholder
Agreement of even date herewith.
AGREEMENT
The parties to this Agreement agree as follows:
SECTION 1. DESCRIPTION OF TRANSACTION
1.1 MERGER OF MERGER SUB INTO THE COMPANY. Upon the terms and subject to
the conditions set forth in this Agreement, at the Effective Time (as defined in
Section 1.3), Merger Sub shall be merged with and into the Company, and the
separate existence of Merger Sub shall cease. The Company will continue as the
surviving corporation in the Merger (the "Surviving Corporation").
1.2 EFFECT OF THE MERGER. The Merger shall have the effects set forth in
this Agreement and in the applicable provisions of the California General
Corporation Law.
1.3 CLOSING; EFFECTIVE TIME. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Cooley Godward Castro Huddleson & Tatum, Five Palo Alto Square, Palo Alto,
California 94306 at 10:00 a.m. on a date to be mutually agreed upon by Parent
and the Company, which date shall be no later than the third business day after
the Parent Stockholder Meeting (the "Scheduled Closing Time"). (The date on
which the Closing actually takes place is referred to in this Agreement as the
"Closing Date.") Contemporaneously with or as promptly as practicable after the
Closing, a properly executed agreement of merger conforming to the requirements
of Chapter 11 of the California
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General Corporation Law shall be filed with the Secretary of State of the State
of California. The Merger shall become effective at the time such agreement of
merger is filed with and accepted by the Secretary of State of the State of
California (the "Effective Time").
1.4 ARTICLES OF INCORPORATION AND COMPANY BYLAWS; DIRECTORS AND
OFFICERS. Unless otherwise determined by Parent and the Company prior to the
Effective Time:
(a) the Articles of Incorporation of the Surviving Corporation shall
be amended and restated as of the Effective Time to conform to Exhibit C;
(b) the Company Bylaws of the Surviving Corporation shall be amended
and restated as of the Effective Time to conform to the Company Bylaws of
Merger Sub as in effect immediately prior to the Effective Time; and
(c) the directors and officers of the Surviving Corporation
immediately after the Effective Time shall be the individuals identified on
Exhibit D.
1.5 CONVERSION OF SHARES.
(a) Subject to Sections 1.11(c) and 1.12, at the Effective Time, by virtue
of the Merger and without any further action on the part of Parent, Merger Sub,
the Company or any shareholder of the Company:
(i) Each share of Company Common Stock that is issued and outstanding
immediately prior to the Effective Time, including without limitation any
shares of Company Common Stock issued upon conversion of shares of Company
Preferred Stock effective on or before the Closing, will by virtue of the
Merger and at the Effective Time, and without any further action on the
part of any holder thereof, be converted into a number of shares of validly
issued, fully paid and nonassessable Parent Common Stock, equal to the
Applicable Fraction at the Effective Time.
(ii) Each share (if any) of Series A Preferred Stock that has not been
converted and thus is still issued and outstanding immediately prior to the
Effective Time will by virtue of the Merger and at the Effective Time, and
without any further action on the part of any holder thereof, be converted
into a number of shares of validly issued, fully paid and nonassessable
Parent Common Stock, equal to the Applicable Series A Fraction, as defined
below.
(iii) Each share (if any) of Series B Preferred Stock that has not
been converted and thus is still issued and outstanding immediately prior
to the Effective Time will by virtue of the Merger and at the Effective
Time, and without any further action on the part of any holder thereof, be
converted into a number of shares of validly issued, fully paid and
nonassessable Parent Common Stock, equal to the Applicable Series B
Fraction, as defined below.
(iv) Each share (if any) of Series C Preferred Stock that has not been
converted and thus is still issued and outstanding immediately prior to the
Effective Time will by virtue of the Merger and at the Effective Time, and
without any further action on the part of any holder thereof, be converted
into a number of shares of validly issued, fully paid and nonassessable
Parent Common Stock, equal to the Applicable Series C Fraction, as defined
below.
(v) Each share (if any) of Series D Preferred Stock that has not been
converted and thus is still issued and outstanding immediately prior to the
Effective Time will by virtue of the Merger and at the Effective Time, and
without any further action on the part of any holder thereof, be converted
into a number of shares of validly issued, fully paid and nonassessable
Parent Common Stock, equal to the Applicable Series D Fraction, as defined
below.
(vi) Each share (if any) of Series E Preferred Stock that has not been
converted and thus is still issued and outstanding immediately prior to the
Effective Time will by virtue of the Merger and at the Effective Time, and
without any further action on the part of any holder thereof, be converted
into a number of shares of validly issued, fully paid and nonassessable
Parent Common Stock, equal to the Applicable Series E Fraction, as defined
below.
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(vii) each share of the common stock (with no par value) of Merger Sub
outstanding immediately prior to the Effective Time shall be converted into
one share of common stock of the Surviving Corporation.
(b) For purposes of this Agreement:
(i) The "Aggregate Shares of Parent Common Stock Issued For Company
Preferred Stock" shall be the number of shares of Parent Common Stock
issued pursuant to Sections 1.5(a)(ii), (iii), (iv), (v) and (vi) above.
(ii) The "Aggregate Shares of Parent Common Stock to be Issued" shall
be 3,418,496 shares of Parent Common Stock; provided, however, that if the
"Designated Parent Stock Price" is less than $8.50, the number of shares of
Parent Common Stock in the "Aggregate Shares of Parent Common Stock to be
Issued" shall be calculated by adding to the 3,418,496 shares of Parent
Common Stock the product of multiplying (x) a fraction, the numerator of
which is the difference between $8.50 and such Designated Parent Stock
Price and the denominator of which is such Designated Parent Stock Price by
(y) 1,709,248 (ii); and provided, further, that if the Designated Parent
Stock Price is greater than $13.73, the number of shares of Parent Common
Stock in the "Aggregate Shares of Parent Common Stock to be Issued" shall
be calculated by subtracting from the 3,418,496 shares of Parent Common
Stock the product of multiplying (x) a fraction, the numerator of which is
the difference between such Designated Parent Stock Price and $13.73 and
the denominator of which is such Designated Parent Stock Price by (y)
1,709,248.
(iii) The "Applicable Fraction" shall be the fraction: (a) having a
numerator equal to the amount by which the Aggregate Shares of Parent
Common Stock to be Issued exceeds the Aggregate Shares of Parent Common
Stock Issued for Company Preferred Stock; and (b) having a denominator
equal to the amount determined by the sum of (i) the number of shares of
Company Common Stock issued and outstanding immediately prior to the
Effective Time, plus (ii) the Vested Option Shares.
(iv) The "Applicable Series A Fraction" shall be the fraction
determined by dividing (a) the "Series A Liquidation Preference Per Share"
for the share of Series A Preferred Stock in question by (b) the
"Designated Parent Stock Price."
(v) The "Applicable Series B Fraction" shall be the fraction
determined by dividing (a) the "Series B Liquidation Preference Per Share"
for the share of Series B Preferred Stock in question by (b) the
"Designated Parent Stock Price."
(vi) The "Applicable Series C Fraction" shall be the fraction
determined by dividing (a) the "Series C Liquidation Preference Per Share"
for the share of Series C Preferred Stock in question by (b) the
"Designated Parent Stock Price."
(vii) The "Applicable Series D Fraction" shall be the fraction
determined by dividing (a) the "Series D Liquidation Preference Per Share"
for the share of Series D Preferred Stock in question by (b) the
"Designated Parent Stock Price."
(viii) The "Applicable Series E Fraction" shall be the fraction
determined by dividing (a) the "Series E Liquidation Preference Per Share"
for the share of Series E Preferred Stock in question by (b) the
"Designated Parent Stock Price."
(ix) The "Designated Parent Stock Price" shall be the average of the
closing sale prices of a share of Parent Common Stock as reported on The
Nasdaq National Market System for each of the ten consecutive trading days
ending on the third trading date preceding the Closing Date.
(x) The "Series A Liquidation Preference" shall be the aggregate
dollar Series A Liquidation Preference of all shares of Series A Preferred
Stock in accordance with Article IV, paragraph 2 of the Company Articles
("Art. IV, para. 2") of any shares of Series A Preferred Stock that are
still outstanding at the Effective Time (after the conversion of Series A
Preferred Stock into Company Common Stock has
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occurred). The "Series A Liquidation Preference Per Share" shall be the
amount of such Series A Liquidation Preference applicable to a particular
share of such still outstanding Series A Preferred Stock.
(xi) The "Series B Liquidation Preference" shall be the aggregate
dollar Series B Liquidation Preference of all shares of Series B Preferred
Stock of the Company in accordance with Art. IV, para. 2 of any shares of
Series B Preferred Stock that are still outstanding at the Effective Time
(after the conversion of Series B Preferred Stock into Company Common Stock
has occurred). The "Series B Liquidation Preference Per Share" shall be the
amount of such Series B Liquidation Preference applicable to a particular
share of still outstanding Series B Preferred Stock.
(xii) The "Series C Liquidation Preference" shall be the aggregate
dollar Series C Liquidation Preference of all shares of Series C Preferred
Stock of the Company in accordance with Art. IV, para. 2 of any shares of
Series C Preferred Stock that are still outstanding at the Effective Time
(after the conversion of Series C Preferred Stock into Company Common Stock
has occurred). The "Series C Liquidation Preference Per Share" shall be the
amount of such Series C Liquidation Preference applicable to a particular
share of still outstanding Series C Preferred Stock.
(xiii) The "Series D Liquidation Preference" shall be the aggregate
dollar Series D Liquidation Preference of all shares of Series D Preferred
Stock of the Company in accordance with Art. IV, para. 2 of any shares of
Series D Preferred Stock that are still outstanding at the Effective Time
(after the conversion of Series D Preferred Stock into Company Common Stock
has occurred). The "Series D Liquidation Preference Per Share" shall be the
amount of such Series D Liquidation Preference applicable to a particular
share of still outstanding Series D Preferred Stock.
(xiv) The "Series E Liquidation Preference" shall be the aggregate
dollar Series E Liquidation Preference of all shares of Series E Preferred
Stock of the Company in accordance with Art. IV, para. 2 of any shares of
Series E Preferred Stock that are still outstanding at the Effective Time
(after the conversion of Series E Preferred Stock into Company Common Stock
has occurred). The Series E Liquidation Preference Per Share" shall be the
amount of such Series E Liquidation Preference applicable to a particular
share of still outstanding Series E Preferred Stock.
(c) If, prior to the Effective Time, Parent recapitalizes through a
subdivision of its outstanding shares into a greater number of shares, or a
combination of its outstanding shares into a lesser number of shares, or
reorganizes, reclassifies or otherwise changes its outstanding shares into the
same or a different number of shares of other classes, or declares a dividend on
its outstanding shares payable in shares of its capital stock or securities
convertible into shares of its capital stock, then the numerator of the
Applicable Fraction will be adjusted appropriately.
(d) If any shares of Company Common Stock outstanding immediately prior to
the Effective Time are unvested or are subject to a repurchase option, risk of
forfeiture or other condition under any applicable restricted stock purchase
agreement or other agreement with the Company, then the shares of Parent Common
Stock issued in exchange for such shares of Company Common Stock will also be
unvested and subject to the same repurchase option, risk of forfeiture or other
condition, and the certificates representing such shares of Parent Common Stock
may accordingly be marked with appropriate legends.
1.6 EMPLOYEE STOCK OPTIONS.
(a) At the Effective Time, each stock option that is then outstanding under
the Company's Amended 1986 Incentive Stock Plan and 1994 Senior Executive Stock
Plan (collectively, the "Stock Plans"), whether vested or unvested (a "Company
Option"), shall be assumed by Parent in accordance with the terms (as in effect
as of the date of the Company Option) of the Stock Plans and the stock option
agreement by which such Company Option is evidenced. All rights with respect to
Company Common Stock under outstanding Company Options shall thereupon be
converted into rights with respect to Parent Common Stock. Accordingly, from and
after the Effective Time, (a) each Company Option assumed by Parent may be
exercised solely for shares of Parent Common Stock, (b) the number of shares of
Parent Common Stock subject to each such assumed Company Option shall be equal
to the number of shares of Company Common Stock that were subject to such
Company Option immediately prior to the Effective Time multiplied by the
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Applicable Fraction, rounded down to the nearest whole number of shares of
Parent Common Stock, (c) the per share exercise price for the Parent Common
Stock issuable upon exercise of each such assumed Company Option shall be
determined by dividing the exercise price per share of Company Common Stock
subject to such Company Option, as in effect immediately prior to the Effective
Time, by the Applicable Fraction, and rounding the resulting exercise price up
to the nearest whole cent, and (d) all restrictions on the exercise of each such
assumed Company Option shall continue in full force and effect, and the term,
exercisability, vesting schedule, status as an incentive or nonqualified option,
and other provisions of such Company Option shall otherwise remain unchanged;
provided, however, that each such assumed Company Option shall, in accordance
with its terms, be subject to further adjustment as appropriate to reflect any
stock split, reverse stock split, stock dividend, recapitalization or other
similar transaction effected by Parent after the Effective Time. The Company and
Parent shall take all action that may be necessary (under the Stock Plans and
otherwise) to effectuate the provisions of this Section 1.6. Following the
Closing, Parent will send to each holder of an assumed Company Option a written
notice setting forth (i) the number of shares of Parent Common Stock subject to
such assumed Company Option, and (ii) the exercise price per share of Parent
Common Stock issuable upon exercise of such assumed Company Option.
(b) Parent will cause the Parent Common Stock issuable upon exercise of the
assumed Company Options (the "Assumed Options") to be registered under the
Securities Act of 1933, as amended (the "Securities Act"), on Form S-8
promulgated by the Securities and Exchange Commission ("SEC") and to be
registered or qualified (or to have established that an exemption from such
registration or qualification is available) under the "blue sky" laws of all
states in which holders of Company Options reside, within seven (7) business
days after the Effective Time, and Parent will use its best efforts to maintain
the effectiveness of such registration statement or registration statements for
so long as any such Assumed Options shall remain outstanding. With respect to
any Company employee or director who subsequent to the Merger will be subject to
the reporting requirements under Section 16(a) of the Exchange Act with respect
to the securities of Parent beneficially owned by such person, Parent shall
administer the Assumed Options (including the provisions of the Stock Plans
incorporated in the Assumed Options) in a manner that complies with the
disinterested administration requirements of Rule 16b-3 promulgated by the SEC
under the Exchange Act. At or prior to the Effective Time, Parent will reserve a
sufficient number of shares of Parent Common Stock for issuance upon exercise of
the Assumed Options.
(c) Ten percent (10%) of any amount of Parent Common Stock to be received
by any holder of Vested Option Shares under Section 1.6(b) above shall become
part of the General Escrow Amount pursuant to the General Escrow Agreement when
such Vested Option Shares are issued.
1.7 WARRANTS. All Company Warrants will terminate as of the Effective Time
in accordance with their terms.
1.8 BRIDGE LOAN.
(a) The Company will use all commercially reasonable efforts (but will not
be required to pay additional consideration or make any similar inducement) to
cause each holder of a Secured Subordinated Promissory Note (a "Bridge Note") to
deliver such Bridge Note to Parent for payment at the Closing, as well as to
deliver such documents as Parent may reasonably request releasing all security
interest and other liens granted by the Company in connection with the Bridge
Loan.
(b) Parent will upon the Closing (i) either repay or cause the Surviving
Corporation to repay all outstanding indebtedness of the Company to Silicon
Valley Bank (for which there shall be no prepayment penalty) or, with the
cooperation of the Company, obtain from Silicon Valley Bank its consent to repay
the Bridge Loan, and (ii) upon receipt of the Bridge Notes and releases required
under subsection (i) above, repay each Bridge Note in accordance with the
reasonable instructions of the holder of such Bridge Note.
1.9 REGISTRATION ON FORM S-4. The Parent Common Stock to be issued in the
Merger shall be registered under the Securities Act on the Form S-4 (as
hereinafter defined). As promptly as practicable after the date of this
Agreement, Parent and the Company shall prepare, and Parent shall file with the
SEC, a Form S-4 registration statement (the "Form S-4"), together with the
prospectus/joint proxy statement to be
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included therein (the "Prospectus/Proxy Statement") and any other documents
required by the Securities Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), in connection with the Merger. Each of Parent and
the Company shall use its best efforts to respond promptly to any comments of
the SEC on the Form S-4 and to have the Form S-4 declared effective under the
Securities Act as promptly as practicable after such filing. Parent shall also
take any action required to be taken under any applicable state securities or
blue sky laws and regulations of The Nasdaq National Market in connection with
the issuance of the Parent Common Stock pursuant to the Merger and upon exercise
of the Assumed Options and the Company Warrants after the Effective Time. The
Company shall promptly furnish to Parent all information concerning the Company
and the Company's shareholders as may reasonably be required in connection with
any action contemplated by this Section 1.9. Each of Parent and the Company will
notify the other promptly of the receipt of any comments from the SEC or its
staff and of any request by the SEC or its staff for amendments or supplements
to the Form S-4 or the Prospectus/Proxy Statement or for additional information
and will supply the other with copies of all correspondence with the SEC or its
staff with respect to the Form S-4 or the Prospectus/Proxy Statement. Whenever
any event occurs which should be set forth in an amendment or supplement to the
Form S-4 or the Prospectus/Proxy Statement, Parent or the Company, as the case
may be, shall promptly inform the other of such occurrence and cooperate in
filing with the SEC or its staff, and/or mailing to stockholders of Parent and
shareholders of the Company, such amendment or supplement.
1.10 CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the Effective Time,
holders of certificates representing shares of the Company's capital stock that
were outstanding immediately prior to the Effective Time shall cease to have any
rights as shareholders of the Company, and the stock transfer books of the
Company shall be closed with respect to all shares of such capital stock
outstanding immediately prior to the Effective Time. No further transfer of any
such shares of the Company's capital stock shall be made on such stock transfer
books after the Effective Time. If, after the Effective Time, a valid
certificate previously representing any of such shares of the Company's capital
stock (a "Company Stock Certificate") is presented to the Surviving Corporation
or Parent, such Company Stock Certificate shall be canceled and shall be
exchanged as provided in Section 1.11.
1.11 EXCHANGE OF CERTIFICATES.
(a) At or as soon as practicable after the Effective Time, Parent will send
to the holders of Company Stock Certificates (i) a letter of transmittal in
customary form and containing such provisions as Parent may reasonably specify,
and (ii) instructions for use in effecting the surrender of Company Stock
Certificates in exchange for certificates representing Parent Common Stock. Upon
surrender of a Company Stock Certificate to Parent for exchange, together with a
duly executed letter of transmittal and such other documents as may reasonably
be required by Parent, the holder of such Company Stock Certificate shall be
entitled to receive in exchange therefor a certificate representing the number
of whole shares of Parent Common Stock that such holder has the right to receive
pursuant to the provisions of this Section 1, and the Company Stock Certificate
so surrendered shall be canceled. Until surrendered as contemplated by this
Section 1.11, each Company Stock Certificate shall be deemed, from and after the
Effective Time, to represent only the right to receive upon such surrender a
certificate representing shares of Parent Common Stock (and cash in lieu of any
fractional share of Parent Common Stock) as contemplated by this Section 1. If
any Company Stock Certificate shall have been lost, stolen or destroyed, Parent
may, in its discretion and as a condition precedent to the issuance of any
certificate representing Parent Common Stock, require the owner of such lost,
stolen or destroyed Company Stock Certificate to provide an appropriate
affidavit and to deliver a bond (in such sum as Parent may reasonably direct) as
indemnity against any claim that may be made against Parent or the Surviving
Corporation with respect to such Company Stock Certificate.
(b) No dividends or other distributions declared or made with respect to
Parent Common Stock with a record date after the Effective Time shall be paid to
the holder of any unsurrendered Company Stock Certificate with respect to the
shares of Parent Common Stock represented thereby, and no cash payment in lieu
of any fractional share shall be paid to any such holder, until such holder
surrenders such Company Stock Certificate in accordance with this Section 1.11
(at which time such holder shall be entitled to receive all such dividends and
distributions and such cash payment).
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(c) No fractional shares of Parent Common Stock shall be issued in
connection with the Merger, and no certificates for any such fractional shares
shall be issued. In lieu of such fractional shares, any holder of capital stock
of the Company who would otherwise be entitled to receive a fraction of a share
of Parent Common Stock (after aggregating all fractional shares of Parent Common
Stock issuable to such holder) shall, upon surrender of such holder's Company
Stock Certificate(s), be paid in cash the dollar amount (rounded to the nearest
whole cent), without interest, determined by multiplying such fraction by the
Designated Parent Stock Price.
(d) Parent and the Surviving Corporation shall be entitled to deduct and
withhold from any consideration payable or otherwise deliverable to any holder
or former holder of capital stock of the Company pursuant to this Agreement such
amounts as Parent or the Surviving Corporation may be required to deduct or
withhold therefrom under the Code or under any provision of state, local or
foreign tax law. To the extent such amounts are so deducted or withheld, such
amounts shall be treated for all purposes under this Agreement as having been
paid to the Person to whom such amounts would otherwise have been paid.
(e) Neither Parent nor the Surviving Corporation shall be liable to any
holder or former holder of capital stock of the Company for any shares of Parent
Common Stock (or dividends or distributions with respect thereto), or for any
cash amounts, delivered to any public official pursuant to any applicable
abandoned property, escheat or similar law.
1.12 DISSENTING SHARES.
(a) Notwithstanding anything to the contrary contained in this Agreement,
any shares of capital stock of the Company that, as of the Effective Time, are
or may become "dissenting shares" within the meaning of Section 1300(b) of the
California Corporations Code shall not be converted into or represent the right
to receive Parent Common Stock in accordance with Section 1.5 (or cash in lieu
of fractional shares in accordance with Section 1.11(c)), and the holder or
holders of such shares shall be entitled only to such rights as may be granted
to such holder or holders in Chapter 13 of the California General Corporation
Law; provided, however, that if the status of any such shares as "dissenting
shares" shall not be perfected, or if any such shares shall lose their status as
"dissenting shares," then, as of the later of the Effective Time or the time of
the failure to perfect such status or the loss of such status, such shares shall
automatically be converted into and shall represent only the right to receive
(upon the surrender of the certificate or certificates representing such shares)
Parent Common Stock in accordance with Section 1.5 (and cash in lieu of
fractional shares in accordance with Section 1.11(c)).
(b) The Company shall give Parent (i) prompt notice of any written demand
received by the Company prior to the Effective Time to require the Company to
purchase shares of capital stock of the Company pursuant to Chapter 13 of the
California General Corporation Law and of any other demand, notice or instrument
delivered to the Company prior to the Effective Time pursuant to the California
General Corporation Law, and (ii) the opportunity to participate in all
negotiations and proceedings with respect to any such demand, notice or
instrument. The Company shall not make any payment or settlement offer prior to
the Effective Time with respect to any such demand unless Parent shall have
consented in writing to such payment or settlement offer.
1.13 TAX CONSEQUENCES. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368 of the
Code. The parties to this Agreement hereby adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
United States Treasury Regulations.
1.14 ACCOUNTING TREATMENT. For accounting purposes, the Merger is intended
to be treated as a "pooling of interests."
1.15 TERMINATION OF REGISTRATION RIGHTS AND RIGHTS OF FIRST REFUSAL. Upon
consummation of the Merger, the registration rights and rights of first refusal
granted by the Company to holders of the Company's Preferred Stock and the
Company Warrants in the contracts listed in Part 2.3(g) of the Disclosure
Schedule shall terminate.
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1.16 FURTHER ACTION. If, at any time after the Effective Time, any further
action is determined by Parent to be necessary or desirable to carry out the
purposes of this Agreement or to vest the Surviving Corporation or Parent with
full right, title and possession of and to all rights and property of Merger Sub
and the Company, the officers and directors of the Surviving Corporation and
Parent shall be fully authorized (in the name of Merger Sub, in the name of the
Company and otherwise) to take such action.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as specified in the Company Disclosure Schedule, the Company hereby
represents and warrants, to and for the benefit of the Indemnitees, as follows:
2.1 DUE ORGANIZATION; SUBSIDIARIES; ETC.
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of California and has all necessary
power and authority: (i) to conduct its business in the manner in which its
business is currently being conducted; (ii) to own and use its assets in the
manner in which its assets are currently owned and used; and (iii) to perform
its obligations under all Company Contracts.
(b) Except as set forth in Part 2.1(b) of the Company Disclosure Schedule,
the Company has not conducted any business under or otherwise used, for any
purpose or in any jurisdiction, any fictitious name, assumed name, trade name or
other name, other than the name "ViewStar Corporation."
(c) The Company is not and has not been required to be qualified,
authorized, registered or licensed to do business as a foreign corporation in
any jurisdiction other than the jurisdictions identified in Part 2.1(c) of the
Company Disclosure Schedule, except where the failure to be so qualified,
authorized, registered or licensed has not had and will not have a Material
Adverse Effect on the Company. The Company is in good standing as a foreign
corporation in each of the jurisdictions identified in Part 2.1(c) of the
Company Disclosure Schedule.
(d) The Company does not own any controlling interest in any Entity and the
Company has never owned, beneficially or otherwise, any shares or other
securities of, or any direct or indirect equity interest in, any Entity. The
Company has not agreed and is not obligated to make any future investment in or
capital contribution to any Entity. The Company has not guaranteed and is not
responsible or liable for any obligation of any of the Entities in which it owns
or has owned any equity interest.
2.2 ARTICLES OF INCORPORATION AND COMPANY BYLAWS; RECORDS. The Company has
delivered to Parent accurate and complete copies of: (1) the Company's articles
of incorporation and Company Bylaws, including all amendments thereto; (2) the
stock records of the Company; and (3) the minutes and other records of the
meetings and other proceedings (including any actions taken by written consent
or otherwise without a meeting) of the shareholders of the Company, the board of
directors of the Company and all committees of the board of directors of the
Company. There have been no formal meetings or other proceedings of the
shareholders of the Company, the board of directors of the Company or any
committee of the board of directors of the Company that are not fully reflected
in such minutes or other records. There has not been any violation of any of the
provisions of the Company's articles of incorporation or Company Bylaws, and the
Company has not taken any action that is inconsistent in any material respect
with any resolution adopted by the Company's shareholders, the Company's board
of directors or any committee of the Company's board of directors. The books of
account, stock records, minute books and other records of the Company are
accurate, up-to-date and complete in all material respects, and have been
maintained in accordance with prudent business practices.
2.3 CAPITALIZATION, ETC.
(a) The authorized capital stock of the Company consists of: (i) 20,000,000
shares of Company Common Stock, of which 2,417,529 shares have been issued and
are outstanding as of the date of this Agreement; and (ii) 9,395,146 shares of
Company Preferred Stock, of which 526,667 shares are Series A Preferred Stock,
415,142 shares are Series B Preferred Stock, 2,660,081 shares are Series C
Preferred Stock, 3,993,256 shares are Series D Preferred Stock and 1,800,000
shares are Series E Preferred Stock. As of the
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date of this Agreement, 526,667 of Series A Preferred Stock, 415,142 shares of
Series B Preferred Stock, 2,640,081 shares of Series C Preferred Stock,
3,979,442 shares of Series D Preferred Stock and 1,769,155 shares of Series E
Preferred Stock are issued and outstanding. Each outstanding share of Company
Preferred Stock is convertible into one share of Company Common Stock. All of
the outstanding shares of Company Common Stock and Preferred Stock have been
duly authorized and validly issued, and are fully paid and non-assessable. Part
2.3(a) of the Company Disclosure Schedule lists each repurchase option which is
held by the Company and to which any of such shares is currently subject, and
the Company has delivered complete and accurate copies of any such repurchase
option to Parent.
(b) The Company has reserved 4,325,000 shares of Company Common Stock for
issuance under the Stock Plans, of which options to purchase 3,110,441 shares
are outstanding as of the date of this Agreement. The Company had delivered to
Parent a list which accurately sets forth, with respect to each Company Option
that is outstanding as of the date of this Agreement: (i) the name of the holder
of such Company Option; (ii) the total number of shares of Company Common Stock
that are subject to such Company Option and the number of shares of Company
Common Stock with respect to which such Company Option is immediately
exercisable; (iii) the date on which such Company Option was granted and the
term of such Company Option; (iv) the vesting schedule for such Company Option;
(v) the exercise price per share of Company Common Stock purchasable under such
Company Option; and (vi) whether such Company Option has been designated an
"incentive stock option" as defined in Section 422 of the Code.
(c) The Company has reserved 275,000 shares of Company Common Stock for
issuance upon exercise of the Bridge Warrants and the EDS Warrants and 10,000
shares of Series C Preferred Stock, 13,814 shares of Series D Preferred Stock
and 27,468 shares of Series E Preferred Stock for issuance upon exercise of the
Bank Warrants. The Company has delivered to Parent accurate and complete copies
of each Company Warrant and any other Contract pursuant to, or in connection
with, which such Company Warrant was issued.
(d) Except as specifically referred to in Sections 2.3(a), (b) and (c)
above, or as set forth in Part 2.3(d) of the Company Disclosure Schedule, there
is no: (i) outstanding subscription, option, call, warrant or right (whether or
not currently exercisable) to acquire any shares of the capital stock or other
securities of the Company; (ii) outstanding security, instrument or obligation
that is or may become convertible into or exchangeable for any shares of the
capital stock or other securities of the Company; (iii) Contract under which the
Company is or may become obligated to sell or otherwise issue any shares of its
capital stock or any other securities; or (iv) to the Knowledge of the Company,
condition or circumstance that may give rise to or provide a basis for the
assertion of a claim by any Person to the effect that such Person is entitled to
acquire or receive any shares of capital stock or other securities of the
Company.
(e) All outstanding shares of Company Common Stock and Company Preferred
Stock, and all outstanding Company Options and Company Warrants, have been
issued and granted in compliance with (i) all applicable securities laws and
other applicable Legal Requirements, and (ii) all requirements set forth in
applicable Contracts.
(f) Except as set forth in Part 2.3(f) of the Company Disclosure Schedule,
the Company has never repurchased, redeemed or otherwise reacquired any shares
of capital stock or other securities of the Company. All securities so
reacquired by the Company were reacquired in compliance with (i) the applicable
provisions of the California General Corporation Law and all other applicable
Legal Requirements, and (ii) all requirements set forth in applicable restricted
stock purchase agreements and other applicable Contracts.
(g) REGISTRATION RIGHTS AND RIGHTS OF FIRST REFUSAL. Except as set forth in
the Contracts listed on Part 2.3(g) of the Company Disclosure Schedule, the
Company is not under any obligation to register under the Securities Act any of
its presently outstanding securities or any securities that may be subsequently
issued, and no Person holds any right to participate in new issuances of
securities by the Company.
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2.4 FINANCIAL STATEMENTS.
(a) The Company has delivered to Parent in the case of subsections (i) and
(ii) below, and will deliver to Parent in the case of subsections (iii) and (iv)
below, the following financial statements and notes (collectively, the "Company
Financial Statements"):
(i) The audited balance sheets of the Company as of December 31, 1994
and 1993, and the related audited income statements, statements of
shareholders' equity and statements of cash flows of the Company for the
years then ended, together with the notes thereto and the unqualified
report and opinion of Ernst & Young LLP relating thereto;
(ii) the unaudited balance sheet of the Company as of September 30,
1995 (the "Unaudited Interim Balance Sheet"), and the related unaudited
income statement of the Company for the nine months then ended (the
"Unaudited Financial Statements");
(iii) the audited balance sheet of the Company as of September 30,
1995, and the related audited income statement, statement of shareholders'
equity and statement of cash flows of the Company for the nine months then
ended, together with the notes thereto and the unqualified report and
opinion of KPMG Peat Marwick LLP relating thereto (the "September 30
Audited Financial Statements"); and
(iv) the unaudited balance sheets of the Company as of the end of each
month ending after September 30, 1995, and more than 10 days prior to the
Scheduled Closing Date, and the related unaudited income statement,
statement of shareholders' equity and statement of cash flows of the
Company for the month then ended (the "Unaudited Monthly Financial
Statements").
(b) The Company Financial Statements are (in the case of subsections (iii)
and (iv) above, will be) accurate and complete in all material respects and
present fairly the financial position of the Company as of the respective dates
thereof and the results of operations and cash flows of the Company for the
periods covered thereby. The Company Financial Statements have been (in the case
of subsections (iii) and (iv) above, will be) prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods covered (except that the financial statements referred to
in Section 2.4(a)(ii) and (iv) do not contain footnotes and are subject to
normal and recurring year-end audit adjustments, which will not, individually or
in the aggregate, be material in magnitude).
2.5 ABSENCE OF CHANGES. Except as set forth in Part 2.5 of the Company
Disclosure Schedule, since September 30, 1995:
(a) there has not been any material adverse change in the Company's
business, condition, assets, liabilities, operations or financial
performance, and, to the Knowledge of the Company, no event has occurred
that will, or would reasonably be expected to, have a Material Adverse
Effect on the Company;
(b) there has not been any material loss, damage or destruction to, or
any material interruption in the use of, any of the Company's assets
(whether or not covered by insurance);
(c) the Company has not declared, accrued, set aside or paid any
dividend or made any other distribution in respect of any shares of capital
stock, and has not repurchased, redeemed or otherwise reacquired any shares
of capital stock or other securities;
(d) the Company has not sold, issued or authorized the issuance of (i)
any capital stock or other security (except for Company Common Stock issued
upon the exercise of outstanding Company Options), (ii) any option or right
to acquire any capital stock or any other security (except for Company
Options described in Part 2.3(b) of the Company Disclosure Schedule), or
(iii) any instrument convertible into or exchangeable for any capital stock
or other security;
(e) the Company has not amended or waived any of its rights under, or
permitted the acceleration of vesting under, (i) any provision of its Stock
Plans, (ii) any provision of any agreement evidencing any outstanding
Company Option, or (iii) any restricted stock purchase agreement;
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(f) there has been no amendment to the Company Articles or the Company
Bylaws, and the Company has not effected or been a party to any Acquisition
Transaction, recapitalization, reclassification of shares, stock split,
reverse stock split or similar transaction;
(g) the Company has not formed any subsidiary or acquired any equity
interest or other interest in any other Entity;
(h) the Company has not made any capital expenditure which, when added
to all other capital expenditures made on behalf of the Company since
September 30, 1995, exceeds $100,000 per month;
(i) the Company has not (i) entered into or permitted any of the
assets owned or used by it to become bound by any Contract that is or would
constitute a Material Contract (as defined in Section 2.10(a)), other than
Material Contracts for the sale or license of the Company's products to
customers in the ordinary course of the Company's business and consistent
with the Company's past practices, or (ii) amended or prematurely
terminated, or waived any material right or remedy under, any such Material
Contract, except as specifically contemplated by this Agreement;
(j) the Company has not (i) acquired, leased or licensed any right or
other asset from any other Person, (ii) sold or otherwise disposed of, or
leased or licensed, any right or other asset to any other Person, or (iii)
waived or relinquished any right, except for licenses of the Company's
products to the Company's customers and except for immaterial rights or
other immaterial assets acquired, leased, licensed or disposed of, each of
which has been in the ordinary course of business and consistent with the
Company's past practices;
(k) the Company has not written off as uncollectible, or established
any extraordinary reserve with respect to, any account receivable or other
indebtedness in excess of a total of $25,000;
(l) the Company has not made any pledge of any of its assets or
otherwise permitted any of its assets to become subject to any Encumbrance,
except for pledges of immaterial assets made in the ordinary course of
business and consistent with the Company's past practices;
(m) the Company has not (i) lent money to any Person (other than
pursuant to routine travel advances made to employees in the ordinary
course of business), or (ii) incurred or guaranteed any indebtedness for
borrowed money;
(n) the Company has not (i) established or adopted any Employee
Benefit Plan, (ii) paid any bonus, other than regular bonuses pursuant to
the commission plans of certain of the Company's sales, consulting and
customer support employees, (iii) made any profit-sharing or similar
payment to, or increased the amount of the wages, salary, commissions,
fringe benefits or other compensation or remuneration payable to, any of
its directors, officers or employees (other than normal scheduled increases
to employees who are not officers), or (iv) except as contained in the
expense run rate provided in the forecast previously delivered by the
Company to Parent, hired any new employee;
(o) the Company has not changed any of its methods of accounting or
accounting practices in any respect;
(p) the Company has not made any Tax election;
(q) the Company has not commenced or settled any Legal Proceeding;
(r) the Company has not repaid any portion of, or otherwise made any
payments with respect to, the Bridge Loan;
(s) the Company has not entered into any material transaction or taken
any other material action outside the ordinary course of business or
inconsistent with its past practices; and
(t) the Company has not agreed or committed to take any of the actions
referred to in clauses "(c)" through "(s)" above.
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2.6 TITLE TO ASSETS
(a) The Company owns, and has good, valid and marketable title to: (i) all
assets reflected on the Unaudited Interim Balance Sheet; (ii) all assets
referred to in Parts 2.1, 2.7(b) and 2.9 of the Company Disclosure Schedule and
all of the Company's rights under the Contracts identified in Part 2.10 of the
Company Disclosure Schedule; and (iii) all other assets reflected in the
Company's books and records as being owned by the Company. Except as set forth
in Part 2.6 of the Company Disclosure Schedule, all of said assets are owned by
the Company free and clear of any liens or other Encumbrances, except for (x)
any lien for current taxes not yet due and payable, and (y) minor liens that
have arisen in the ordinary course of business and that do not (in any case or
in the aggregate) materially detract from the value of the assets subject
thereto or materially impair the operations of the Company.
(b) Part 2.6 of the Company Disclosure Schedule identifies all assets that
are material to the business of the Company and that are being leased or
licensed to the Company.
2.7 BANK ACCOUNTS; RECEIVABLES.
(a) Part 2.7(a) of the Company Disclosure Schedule provides accurate
information with respect to each account maintained by or for the benefit of the
Company at any bank or other financial institution.
(b) Part 2.7(b) of the Company Disclosure Schedule provides an accurate and
complete breakdown and aging of all accounts receivable, notes receivable and
other receivables of the Company as of September 30, 1995. Except as set forth
in Part 2.7(b) of the Company Disclosure Schedule, all existing accounts
receivable of the Company (including those accounts receivable reflected on the
Unaudited Interim Balance Sheet that have not yet been collected and those
accounts receivable that have arisen since September 30, 1995 and have not yet
been collected) (i) represent valid obligations of customers of the Company
arising from bona fide transactions entered into in the ordinary course of
business, and (ii) are current and will be collected in full, without any
counterclaim or set off (net of the allowance for doubtful accounts on the
Unaudited Interim Balance Sheet).
2.8 EQUIPMENT; LEASEHOLD.
(a) All material items of equipment and other tangible assets owned by or
leased to the Company are adequate for the uses to which they are being put, are
in good condition and repair (ordinary wear and tear excepted) and are adequate
for the conduct of the Company's business in the manner in which such business
is currently being conducted.
(b) The Company does not own any real property or any interest in real
property, except for the leaseholds created under the real property leases
identified in Part 2.10 of the Company Disclosure Schedule.
2.9 PROPRIETARY ASSETS.
(a) Part 2.9(a)(i) of the Company Disclosure Schedule sets forth, with
respect to each Company Proprietary Asset registered with any Governmental Body
or for which an application has been filed with any Governmental Body, (i) a
brief description of such Proprietary Asset, and (ii) the names of the
jurisdictions covered by the applicable registration or application. Part
2.9(a)(ii) of the Company Disclosure Schedule identifies and provides a brief
description of all other Company Proprietary Assets owned by the Company. Part
2.9(a)(iii) of the Company Disclosure Schedule identifies and provides a brief
description of each Proprietary Asset licensed to the Company by any Person
(except for any Proprietary Asset that is licensed to the Company under any
third party software license generally available to the public at a cost of less
than $10,000), and identifies the license agreement under which such Proprietary
Asset is being licensed to the Company. Except as set forth in Part 2.9(a)(iv)
of the Company Disclosure Schedule, the Company has good, valid and marketable
title to all of the Company Proprietary Assets identified in Parts 2.9(a)(i) and
2.9(a)(ii) of the Company Disclosure Schedule, free and clear of all liens and
other Encumbrances, and has a valid right to use all Proprietary Assets
identified in Part 2.9(a)(iii) of the Company Disclosure Schedule. Except as set
forth in Part 2.9(a)(v) of the Company Disclosure Schedule, the Company is not
obligated to make any payment to any Person for the use of any Company
Proprietary Asset. Except as set forth in
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Part 2.9(a)(vi) of the Company Disclosure Schedule, the Company has not
developed jointly with any other Person any Company Proprietary Asset with
respect to which such other Person has any rights.
(b) The Company has taken all measures and precautions reasonably necessary
to protect and maintain the confidentiality and secrecy of all Company
Proprietary Assets (except Company Proprietary Assets whose value would be
unimpaired by public disclosure) and otherwise to maintain and protect the value
of all Company Proprietary Assets. Except as set forth in Part 2.9(b) of the
Company Disclosure Schedule, the Company has not (other than pursuant to license
agreements identified in Part 2.10 of the Company Disclosure Schedule) disclosed
or delivered to any Person, or permitted the disclosure or delivery to any
Person of, (i) the source code, or any portion or aspect of the source code, of
any Company Proprietary Asset, or (ii) the object code, or any portion or aspect
of the object code, of any Company Proprietary Asset.
(c) None of the Company Proprietary Assets infringes or conflicts with any
Proprietary Asset owned or used by any other Person. The Company is not
infringing, misappropriating or making any unlawful use of, and the Company has
not at any time infringed, misappropriated or made any unlawful use of, or
received any notice or other communication (in writing or otherwise) of any
actual, alleged, possible or potential infringement, misappropriation or
unlawful use of, any Proprietary Asset owned or used by any other Person. To the
Knowledge of the Company, no other Person is infringing, misappropriating or
making any unlawful use of, and no Proprietary Asset owned or used by any other
Person infringes or conflicts with, any Company Proprietary Asset.
(d) Except as set forth in Part 2.9(d) of the Company Disclosure Schedule:
(i) each Company Proprietary Asset conforms in all material respects with any
specification, documentation, performance standard, representation or statement
made or provided with respect thereto by the Company; and (ii) there has not
been any claim by any customer or other Person alleging that any Company
Proprietary Asset (including each version thereof that has ever been licensed or
otherwise made available by the Company to any Person) does not conform in all
material respects with any specification, documentation, performance standard,
representation or statement made or provided by or on behalf of the Company,
and, to the Knowledge of the Company, there is no basis for any such claim. The
Company has established adequate reserves on the Unaudited Interim Balance Sheet
(consistent with past experience unless the Company has any reason to believe
that future experience will be different) to cover costs associated with any
obligations that the Company may have with respect to the correction or repair
of programming errors or other defects in the Company Proprietary Assets.
(e) The Company Proprietary Assets constitute all the Proprietary Assets
necessary to enable the Company to conduct its business in the manner in which
such business has been and is being conducted. Except as set forth in Part
2.9(e) of the Company Disclosure Schedule, (i) the Company has not licensed any
of the Company Proprietary Assets to any Person on an exclusive basis, and (ii)
the Company has not entered into any covenant not to compete or Contract
limiting its ability to exploit fully any of its Proprietary Assets or to
transact business in any market or geographical area or with any Person.
(f) Except as set forth in Part 2.9(f) of the Company Disclosure Schedule,
(i) all current and former employees of the Company have executed and delivered
to the Company an agreement (containing no exceptions to or exclusions from the
scope of its coverage) that is substantially identical to the form of
Confidential Information and Invention Assignment Agreement previously delivered
to Parent, and (ii) all current and former consultants and independent
contractors to the Company have executed and delivered to the Company an
agreement (containing no exceptions to or exclusions from the scope of its
coverage) that is substantially identical to the form of the Certified
Consultant Assignment Agreement and Independent Contractor Agreement previously
delivered to Parent.
2.10 CONTRACTS.
(a) Part 2.10 of the Company Disclosure Schedule identifies:
(i) each Company Contract relating to the employment of, or the
performance of services by, any employee, consultant or independent
contractor;
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(ii) each Company Contract relating to the acquisition, transfer, use,
development, sharing or license of any Company technology or any
Proprietary Asset in the following categories: all agreements with
distributors and resellers, each end-user license agreement entered into by
the Company in 1994 and 1995 involving payments or obligations in excess of
$250,000, all agreements entered into by the Company in the third quarter
of 1995 and all in-licenses of technology.
(iii) each Company Contract imposing any restriction on the Company's
right or ability (A) to compete with any other Person, (B) to acquire any
product or other asset or any services from any other Person, to sell any
product or other asset to or perform any services for any other Person or
to transact business or deal in any other manner with any other Person, or
(C) develop or distribute any technology;
(iv) each Company Contract creating or involving any agency
relationship, distribution arrangement or franchise relationship;
(v) each Company Contract relating to the acquisition, issuance or
transfer of any securities;
(vi) each Company Contract relating to the creation of any Encumbrance
in excess of $25,000 with respect to any asset of the Company;
(vii) each Company Contract involving or incorporating any guaranty,
any pledge, any performance or completion bond, any indemnity or any surety
arrangement;
(viii) each Company Contract creating or relating to any partnership
or joint venture or any sharing of revenues, profits, losses, costs or
liabilities;
(ix) each Company Contract relating to the purchase or sale of any
product or other asset by or to, or the performance of any services by or
for, any Related Party (as defined in Section 2.18);
(x) each Company Contract constituting or relating to a Government
Contract or Government Bid;
(xi) any other Company Contract involving payments or delivery of
products or services in excess of $25,000 that was entered into outside the
ordinary course of business or was inconsistent with the Company's past
practices;
(xii) any other Company Contract that has a term of more than 60 days
and that may not be terminated by the Company (without penalty) within 60
days after the delivery of a termination notice by the Company;
(xiii) any other Company Contract that contemplates or involves (A)
the payment or delivery of cash or other consideration in an amount or
having a value in excess of $100,000 in the aggregate, or (B) the
performance of services having a value in excess of $100,000 in the
aggregate; and
(xiv) each Company Contract in which the Company's right to terminate
such Company Contract is accompanied by any cancellation fees, unless such
cancellation fees do not exceed $5,000.
(Contracts in the respective categories described in clauses "(i)" through
"(xiv)" above are referred to in this Agreement as "Material Contracts.")
(b) The Company has delivered to Parent accurate and complete copies of all
written Contracts identified in Part 2.10 of the Company Disclosure Schedule,
including all amendments thereto. Part 2.10 of the Company Disclosure Schedule
provides an accurate description of the terms of each non-written Company
Contract. Each Contract identified in Part 2.10 of the Company Disclosure
Schedule is valid and in full force and effect, and, to the Knowledge of the
Company, is enforceable by the Company in accordance with its terms, subject to
(i) laws of general application relating to bankruptcy, insolvency and the
relief of debtors, and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies.
(c) Except as set forth in Part 2.10 of the Company Disclosure Schedule:
(i) the Company has not materially violated or breached, or committed
any default under, any Company Contract, and, to the Knowledge of the
Company, no other Person has violated or breached, or committed any default
under, any Company Contract;
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(ii) to the Knowledge of the Company, no event has occurred, and no
circumstance or condition exists, that (with or without notice or lapse of
time) will, or could reasonably be expected to, (A) result in a material
violation or material breach of any of the provisions of any Company
Contract, (B) give any Person the right to declare a default or exercise
any remedy under any Company Contract, (C) give any Person the right to
accelerate the maturity or performance of any Company Contract, or (D) give
any Person the right to cancel, terminate or modify any Company Contract;
(iii) since December 31, 1992, the Company has not received any notice
or other communication regarding any actual or possible material violation
or breach of, or default under, any Company Contract; and
(iv) the Company has not waived any of its material rights under any
Material Contract.
(d) No Person is renegotiating, or has a right pursuant to the terms of any
Company Contract to renegotiate, any amount paid or payable to the Company under
any Material Contract or any other material term or provision of any Material
Contract.
(e) The Contracts identified in Part 2.10 of the Company Disclosure
Schedule collectively constitute all of the Contracts necessary to enable the
Company to conduct its business in the manner in which its business is currently
being conducted.
(f) Part 2.10(f) of the Company Disclosure Schedule provides an accurate
description and breakdown of the Company's backlog under Company Contracts.
(g) Except as set forth in Part 2.10(g) of the Company Disclosure Schedule:
(i) the only Government Contract to which the Company is a party is
the Company's Distributorship Agreement with Federal Data Corporation dated
August 25, 1992, as amended through Amendment No. 5 dated August 22, 1995
(the "FDC Contract"). The Company has delivered a complete and accurate
copy of the FDC Contract to Parent;
(ii) the Company has not been a party to any Government Contract other
than the FDC Contract since January 1, 1988;
(iii) the Company has complied in all material respects with the FDC
Contract and with all Legal Requirements with respect to the FDC Contract
and any other Government Contract and Government Bid to which the Company
has been a party;
(iv) the Company has not, in obtaining or performing the FDC Contract
or any other Government Contract to which the Company has been a party,
violated (A) the Truth in Negotiations Act of 1962, as amended, (B) the
Service Contract Act of 1963, as amended, (C) the Contract Disputes Act of
1978, as amended, (D) the Office of Federal Procurement Policy Act, as
amended, (E) the Federal Acquisition Regulations (the "FAR") or any
applicable agency supplement thereto, (F) the Cost Accounting Standards,
(G) the Defense Industrial Security Manual (DOD 5220.22-M), (H) the Defense
Industrial Security Regulation (DOD 5220.22-R) or any related security
regulations, or (I) any other applicable procurement law or regulation or
other Legal Requirement;
(v) all facts set forth in or acknowledged by the Company in any
certification, representation or disclosure statement submitted by the
Company with respect to or in connection with the FDC Contract or any other
Government Contract or Government Bid to which the Company is a party were
current, accurate and complete as of the date of submission;
(vi) to the best of the knowledge of the Company, there are not and
have not been any irregularities, misstatements or omissions relating to
the FDC Contract or any other Government Contract or Government Bid to
which the Company is a party that have led to or could reasonably be
expected to lead to (A) any administrative, civil, criminal or other
investigation, Legal Proceeding or indictment involving the Company or any
of its employees, (B) the recoupment of any payments previously made to the
Company, (C) a finding or claim of fraud, defective pricing, mischarging or
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improper payments on the part of the Company, or (D) the assessment of any
penalties or damages of any kind against the Company;
(vii) the Company is not undergoing and has not undergone any audit,
and the Company has no Knowledge of any basis for any impending audit,
arising under or relating to the FDC Contract or any other Government
Contract (other than normal routine audits conducted in the ordinary course
of business);
(viii) the Company has complied with all applicable regulations and
other Legal Requirements and with all applicable contractual requirements
relating to the placement of legends or restrictive markings on technical
data, computer software and other Proprietary Assets; and
(ix) in each case in which the Company has delivered or otherwise
provided any technical data, computer software or Company Proprietary Asset
to any Governmental Body in connection with the FDC Contract or any other
Government Contract, the Company has marked such technical data, computer
software or Company Proprietary Asset with all markings and legends
(including any "restricted rights" legend and any "government purpose
license rights" legend) necessary (under the FAR or other applicable Legal
Requirements) to ensure that no Governmental Body or other Person is able
to acquire any unlimited rights with respect to such technical data,
computer software or Company Proprietary Asset.
2.11 LIABILITIES. The Company has no accrued, contingent or other
liabilities of any nature, either matured or unmatured (whether or not required
to be reflected in financial statements in accordance with generally accepted
accounting principles, and whether due or to become due), except for: (a)
liabilities reflected as such in the "liabilities" column of the Unaudited
Interim Balance Sheet; (b) accounts payable or accrued salaries and regular
bonuses pursuant to the commission plans of certain of the Company's sales
employees, that have been incurred by the Company since September 30, 1995 in
the ordinary course of business and consistent with the Company's past
practices; (c) liabilities under the Company Contracts identified in Part 2.10
of the Company Disclosure Schedule, to the extent the nature and magnitude of
such liabilities can be specifically ascertained by reference to the text of
such Company Contracts; and (d) the liabilities identified in Part 2.11 of the
Company Disclosure Schedule.
2.12 COMPLIANCE WITH LEGAL REQUIREMENTS. The Company is, and has at all
times since December 31, 1992 been, in compliance with all applicable Legal
Requirements, except where the failure to comply with such Legal Requirements
has not had and will not have a Material Adverse Effect on the Company. Except
as set forth in Part 2.12 of the Company Disclosure Schedule, since December 31,
1992, the Company has not received any notice or other communication from any
Governmental Body regarding any actual or possible violation of, or failure to
comply with, any Legal Requirement.
2.13 GOVERNMENTAL AUTHORIZATIONS. Part 2.13 of the Company Disclosure
Schedule identifies each material Governmental Authorization held by the
Company, and the Company has delivered to Parent accurate and complete copies of
all Governmental Authorizations identified in Part 2.13 of the Company
Disclosure Schedule. The Governmental Authorizations identified in Part 2.13 of
the Company Disclosure Schedule are valid and in full force and effect, and
collectively constitute all Governmental Authorizations necessary to enable the
Company to conduct its business in the manner in which its business is currently
being conducted. The Company is, and at all times since December 31, 1992 has
been, in substantial compliance with the terms and requirements of the
respective Governmental Authorizations identified in Part 2.13 of the Company
Disclosure Schedule. Since December 31, 1992, the Company has not received any
notice or other communication from any Governmental Body regarding (a) any
actual or possible violation of or failure to comply with any term or
requirement of any Governmental Authorization, or (b) any actual or possible
revocation, withdrawal, suspension, cancellation, termination or modification of
any Governmental Authorization.
2.14 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf of the Company
with any Governmental Body with respect to any taxable period ending on or
before the Closing Date (the "Company Returns") (i) have
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been or will be filed on or before the applicable due date (including any
extensions of such due date), and (ii) have been, or will be when filed,
accurately and completely prepared in all material respects in compliance with
all applicable Legal Requirements. All amounts shown on the Company Returns to
be due on or before the Closing Date have been or will be paid on or before the
Closing Date. The Company has delivered to Parent accurate and complete copies
of all Company Returns filed since December 31, 1990 which have been requested
by Parent.
(b) The Company Financial Statements fully accrue all actual and contingent
liabilities for Taxes with respect to all periods through the dates thereof in
accordance with generally accepted accounting principles. The Company will
establish, in the ordinary course of business and consistent with its past
practices, reserves adequate for the payment of all Taxes for the period from
August 31, 1995 through the Closing Date, and the Company will disclose the
dollar amount of such reserves to Parent on or prior to the Closing Date.
(c) No Company Return relating to income Taxes has ever been examined or
audited by any Governmental Body. Except as set forth in Part 2.14 of the
Company Disclosure Schedule, there have been no examinations or audits of any
Company Return. The Company has delivered to Parent accurate and complete copies
of all audit reports and similar documents (to which the Company has access)
relating to the Company Returns. Except as set forth in Part 2.14 of the Company
Disclosure Schedule, no extension or waiver of the limitation period applicable
to any of the Company Returns has been granted (by the Company or any other
Person), and no such extension or waiver has been requested from the Company.
(d) Except as set forth in Part 2.14 of the Company Disclosure Schedule, no
claim or Proceeding is pending or has been threatened against or with respect to
the Company in respect of any Tax. There are no unsatisfied liabilities for
Taxes (including liabilities for interest, additions to tax and penalties
thereon and related expenses) with respect to any notice of deficiency or
similar document received by the Company with respect to any Tax (other than
liabilities for Taxes asserted under any such notice of deficiency or similar
document which are being contested in good faith by the Company and with respect
to which adequate reserves for payment have been established). There are no
liens for Taxes upon any of the assets of the Company except liens for current
Taxes not yet due and payable. The Company has not entered into or become bound
by any agreement or consent pursuant to Section 341(f) of the Code. The Company
has not been, and the Company will not be, required to include any adjustment in
taxable income for any tax period (or portion thereof) pursuant to Section 481
or 263A of the Code or any comparable provision under state or foreign Tax laws
as a result of transactions or events occurring, or accounting methods employed,
prior to the Closing.
(e) There is no agreement, plan, arrangement or other Contract covering any
employee or independent contractor or former employee or independent contractor
of the Company that, considered individually or considered collectively with any
other such Contracts, will, or could reasonably be expected to, give rise
directly or indirectly to the payment of any amount that would not be deductible
pursuant to Section 280G or Section 162 of the Code. The Company is not, and has
never been, a party to or bound by any tax indemnity agreement, tax sharing
agreement, tax allocation agreement or similar Contract.
2.15 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) Part 2.15(a) of the Company Disclosure Schedule identifies each salary,
bonus, deferred compensation, incentive compensation, stock purchase, stock
option, severance pay, termination pay, hospitalization, medical, life or other
insurance, supplemental unemployment benefits, profit-sharing, pension or
retirement plan, program or agreement (each a "Plan," collectively, the "Plans")
sponsored, maintained, contributed to or required to be contributed to by the
Company for the benefit of any employee of the Company ("Employee"), except for
Plans which would not require the Company to make payments or provide benefits
having a value in excess of $25,000 in the aggregate.
(b) Except as set forth in Part 2.15(a) of the Company Disclosure Schedule,
the Company does not maintain, sponsor or contribute to, and, to the Knowledge
of the Company, has not at any time in the past maintained, sponsored or
contributed to, any employee pension benefit plan (as defined in Section 3(2) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
whether or not excluded from
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coverage under specific Titles or Merger Subtitles of ERISA) for the benefit of
Employees or former Employees (a "Pension Plan").
(c) The Company maintains, sponsors or contributes only to those employee
welfare benefit plans (as defined in Section 3(1) of ERISA, whether or not
excluded from coverage under specific Titles or Merger Subtitles of ERISA) for
the benefit of Employees or former Employees which are described in Part 2.15(c)
of the Company Disclosure Schedule (the "Welfare Plans"), none of which is a
multiemployer plan (within the meaning of Section 3(37) of ERISA).
(d) With respect to each Plan, the Company has delivered to Parent:
(i) an accurate and complete copy of such Plan (including all
amendments thereto);
(ii) an accurate and complete copy of the annual report, if required
under ERISA, with respect to such Plan for the last two years;
(iii) an accurate and complete copy of the most recent summary plan
description, together with each Summary of Material Modifications, if
required under ERISA, with respect to such Plan, and all material employee
communications relating to such Plan;
(iv) if such Plan is funded through a trust or any third party funding
vehicle, an accurate and complete copy of the trust or other funding
agreement (including all amendments thereto) and accurate and complete
copies of the most recent financial statements thereof;
(v) accurate and complete copies of all Contracts relating to such
Plan, including service provider agreements, insurance contracts, minimum
premium contracts, stop-loss agreements, investment management agreements,
subscription and participation agreements and recordkeeping agreements; and
(vi) an accurate and complete copy of the most recent determination
letter received from the Internal Revenue Service with respect to such Plan
(if such Plan is intended to be qualified under Section 401(a) of the
Code).
(e) The Company is not required to be, and, to the Knowledge of the
Company, has never been required to be, treated as a single employer with any
other Person under Section 4001(b)(1) of ERISA or Section 414(b), (c), (m) or
(o) of the Code. The Company has never been a member of an "affiliated service
group" within the meaning of Section 414(m) of the Code. To the Knowledge of the
Company, the Company has never made a complete or partial withdrawal from a
multiemployer plan, as such term is defined in Section 3(37) of ERISA, resulting
in "withdrawal liability," as such term is defined in Section 4201 of ERISA
(without regard to subsequent reduction or waiver of such liability under either
Section 4207 or 4208 of ERISA).
(f) The Company does not have any plan or commitment to create any
additional Welfare Plan or any Pension Plan, or to modify or change any existing
Welfare Plan or Pension Plan (other than to comply with applicable law) in a
manner that would affect any Employee.
(g) Except as set forth in Part 2.15(g) of the Company Disclosure Schedule,
no Welfare Plan provides death, medical or health benefits (whether or not
insured) with respect to any current or former Employee after any such
Employee's termination of service (other than (i) benefit coverage mandated by
applicable law, including coverage provided pursuant to Section 4980B of the
Code, (ii) deferred compensation benefits accrued as liabilities on the
Unaudited Interim Balance Sheet, and (iii) benefits the full cost of which are
borne by current or former Employees (or the Employees' beneficiaries)).
(h) With respect to each of the Welfare Plans constituting a group health
plan within the meaning of Section 4980B(g)(2) of the Code, the provisions of
Section 4980B of the Code ("COBRA") have been complied with in all material
respects.
(i) Each of the Plans has been operated and administered in all material
respects in accordance with applicable Legal Requirements, including but not
limited to ERISA and the Code.
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(j) Each of the Plans intended to be qualified under Section 401(a) of the
Code has received a favorable determination from the Internal Revenue Service,
and the Company is not aware of any reason why any such determination letter
should be revoked.
(k) Except as set forth in Part 2.15(k) of the Company Disclosure Schedule,
neither the execution, delivery or performance of this Agreement, nor the
consummation of the Merger or any of the other transactions contemplated by this
Agreement, will result in any payment (including any bonus, golden parachute or
severance payment) to any current or former Employee or director of the Company
(whether or not under any Plan), or materially increase the benefits payable
under any Plan, or result in any acceleration of the time of payment or vesting
of any such benefits.
(l) Part 2.15(l)(i) of the Company Disclosure Schedule contains a list of
all salaried employees of the Company as of the date of this Agreement, and
correctly reflects, in all material respects, their salaries, any other
compensation payable to them (including compensation payable pursuant to bonus,
deferred compensation or commission arrangements), their dates of employment and
their positions. The Company is not a party to any collective bargaining
contract or other Contract with a labor union involving any of its Employees.
Except as set forth in Part 2.15(l)(ii) of the Company Disclosure Schedule, all
of the Company's employees are "at will" employees.
(m) Part 2.15(m) of the Company Disclosure Schedule identifies each
Employee who is not fully available to perform work because of disability or
other leave and sets forth the basis of such leave and the anticipated date of
return to full service.
(n) The Company is in compliance in all material respects with all
applicable Legal Requirements and Contracts relating to employment, employment
practices, wages, bonuses and terms and conditions of employment, including
employee compensation matters.
(o) Except as set forth in Part 2.15(o) of the Company Disclosure Schedule,
the Company has good labor relations, and has no reason to believe that (i) the
consummation of the Merger or any of the other transactions contemplated by this
Agreement will have a material adverse effect on the Company's labor relations,
or (ii) any of the Company's employees intends to terminate his or her
employment with the Company.
2.16 ENVIRONMENTAL MATTERS. The Company is in compliance in all material
respects with all applicable Environmental Laws, which compliance includes the
possession by the Company of all permits and other Governmental Authorizations
required under applicable Environmental Laws, and compliance with the terms and
conditions thereof. The Company has not received any notice or other
communication (in writing or otherwise), whether from a Governmental Body,
citizens group, employee or otherwise, that alleges that the Company is not in
compliance with any Environmental Law, and, to the Knowledge of the Company,
there are no circumstances that may prevent or interfere with the Company's
compliance with any Environmental Law in the future. To the Knowledge of the
Company, no current or prior owner of any real property leased or controlled by
the Company has received any notice or other communication (in writing or
otherwise), whether from a Government Body, citizens group, employee or
otherwise, that alleges that such current or prior owner or the Company is not
in compliance with any Environmental Law. All Governmental Authorizations
currently held by the Company pursuant to Environmental Laws are identified in
Part 2.16 of the Company Disclosure Schedule, except those Governmental
Authorizations the absence of which do not have a Material Adverse Effect on the
Company. (For purposes of this Section 2.16: (i) "Environmental Law" means any
federal, state, local or foreign Legal Requirement relating to pollution or
protection of human health or the environment (including ambient air, surface
water, ground water, land surface or subsurface strata), including any law or
regulation relating to emissions, discharges, releases or threatened releases of
Materials of Environmental Concern, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Materials of Environmental Concern; and (ii) "Materials of
Environmental Concern" include chemicals, pollutants, contaminants, wastes,
toxic substances, petroleum and petroleum products and any other substance that
is now or hereafter regulated by any Environmental Law or that is otherwise a
danger to health, reproduction or the environment.)
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2.17 INSURANCE. Part 2.17 of the Company Disclosure Schedule identifies
all insurance policies maintained by, at the expense of or for the benefit of
the Company and identifies any material claims made thereunder, and the Company
has delivered to Parent accurate and complete copies of the insurance policies
identified on Part 2.17 of the Company Disclosure Schedule. Each of the
insurance policies identified in Part 2.17 of the Company Disclosure Schedule is
in full force and effect. Since December 31, 1992, the Company has not received
any notice or other communication regarding any actual or possible (a)
cancellation or invalidation of any insurance policy, (b) refusal of any
coverage or rejection of any claim under any insurance policy, or (c) material
adjustment in the amount of the premiums payable with respect to any insurance
policy.
2.18 RELATED PARTY TRANSACTIONS. Except as set forth in Part 2.18 of the
Company Disclosure Schedule: (a) no Related Party has, and no Related Party has
at any time since December 31, 1992 had, any direct or indirect interest in any
material asset used in or otherwise relating to the business of the Company; (b)
no Related Party is, or has at any time since December 31, 1992 been, indebted
to the Company; (c) since December 31, 1992, no Related Party has entered into,
or has had any direct or indirect financial interest in, any material Contract,
transaction or business dealing involving the Company; (d) no Related Party is
competing, or has at any time since December 31, 1992 competed, directly or
indirectly, with the Company; and (e) no Related Party has any claim or right
against the Company (other than rights under Company Options and rights to
receive compensation for services performed as an employee of the Company). (For
purposes of the Section 2.18 each of the following shall be deemed to be a
"Related Party": (i) each of the Signing Shareholders; (ii) each individual who
is, or who has at any time since December 31, 1992 been, an officer of the
Company; (iii) each member of the immediate family of each of the individuals
referred to in clauses "(i)" and "(ii)" above; and (iv) any trust or other
Entity (other than the Company) in which any one of the individuals referred to
in clauses "(i)", "(ii)" and "(iii)" above holds (or in which more than one of
such individuals collectively hold), beneficially or otherwise, a material
voting, proprietary or equity interest.)
2.19 LEGAL PROCEEDINGS; ORDERS.
(a) Except as set forth in Part 2.19 of the Company Disclosure Schedule,
there is no pending Legal Proceeding, and, to the Knowledge of the Company, no
Person has threatened to commence any Legal Proceeding: (i) that involves the
Company or any of the assets owned or used by the Company or any Person whose
liability the Company has or may have retained or assumed, either contractually
or by operation of law; or (ii) that challenges, or that may have the effect of
preventing, delaying, making illegal or otherwise interfering with, the Merger
or any of the other transactions contemplated by this Agreement. To the
Knowledge of the Company, except as set forth in Part 2.19 of the Company
Disclosure Schedule, no event has occurred, and no claim, dispute or other
condition or circumstance exists, that will, or that would reasonably be
expected to, give rise to or serve as a basis for the commencement of any such
Legal Proceeding.
(b) Except as set forth in Part 2.19 of the Company Disclosure Schedule, no
Legal Proceeding has been commenced by or has been pending against the Company
since December 31, 1992.
(c) There is no order, writ, injunction, judgment or decree to which the
Company, or any of the assets owned or used by the Company, is subject. To the
Knowledge of the Company, no officer or other employee of the Company is subject
to any order, writ, injunction, judgment or decree that prohibits such officer
or other employee from engaging in or continuing any conduct, activity or
practice relating to the Company's business.
2.20 AUTHORITY; BINDING NATURE OF AGREEMENT. The Company has the absolute
and unrestricted right, power and authority to enter into and, subject to
approval of the Merger and this Agreement by the shareholders of the Company at
the Company Shareholder Meeting, to perform its obligations under this
Agreement; and the execution, delivery and, subject to approval of the Merger
and this Agreement by the shareholders of the Company at the Company Shareholder
Meeting, performance by the Company of this Agreement have been duly authorized
by all necessary action on the part of the Company and its board of directors.
This Agreement constitutes the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, subject
to (i) laws of general application relating to
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bankruptcy, insolvency and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
2.21 NON-CONTRAVENTION; CONSENTS. Except as set forth in Part 2.21 of the
Company Disclosure Schedule, neither (1) the execution, delivery or performance
of this Agreement or any of the other agreements referred to in this Agreement,
nor (2) the consummation of the Merger or any of the other transactions
contemplated by this Agreement, will directly or indirectly (with or without
notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any of
the provisions of the Company Articles or Company Bylaws, or (ii) any
resolution adopted by the Company's shareholders, the Company's board of
directors or any committee of the Company's board of directors;
(b) contravene, conflict with or result in a violation of, or give any
Governmental Body or other Person the right to challenge any of the
transactions contemplated by this Agreement or to exercise any remedy or
obtain any relief under, any Legal Requirement or any order, writ,
injunction, judgment or decree to which the Company, or any of the assets
owned or used by the Company, is subject;
(c) contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate or modify, any Governmental
Authorization that is held by the Company or that otherwise relates to the
Company's business or to any of the assets owned or used by the Company;
(d) contravene, conflict with or result in a violation or breach of,
or result in a default under, any provision of any Company Contract that is
or would constitute a Material Contract, or give any Person the right to
(i) declare a default or exercise any remedy under any such Company
Contract, (ii) accelerate the maturity or performance of any such Company
Contract, or (iii) cancel, terminate or modify any such Company Contract;
or
(e) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any asset owned or used by the Company
(except for minor liens that will not, in any case or in the aggregate,
materially detract from the value of the assets subject thereto or
materially impair the operations of the Company).
Except as set forth in Part 2.21 of the Company Disclosure Schedule, the Company
is not and will not be required to make any filing with or give any notice to,
or to obtain any Consent from, any Person in connection with (x) the execution,
delivery or performance of this Agreement or any of the other agreements
referred to in this Agreement, or (y) the consummation of the Merger or any of
the other transactions contemplated by this Agreement.
2.22 FULL DISCLOSURE.
(a) This Agreement (including the Company Disclosure Schedule) does not,
and the Company's Closing Certificate will not, (i) contain any representation,
warranty or information that is false or misleading with respect to any material
fact, or (ii) omit to state any material fact necessary in order to make the
representations, warranties and information contained and to be contained herein
and therein (in the light of the circumstances under which such representations,
warranties and information were or will be made or provided) not false or
misleading.
(b) None of the information supplied or to be supplied by the Company for
inclusion or incorporation by reference in the Form S-4 and Prospectus/Proxy
Statement will, at the time the Form S-4 is declared effective, at the date the
Prospectus/Proxy Statement is mailed to the shareholders of the Company or at
the time of the Company's Shareholders Meeting, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein (in light of the circumstances under
which they are provided) not misleading.
2.23 FEES AND EXPENSES. Except for the Company's engagement of UBS
Securities Inc. ("UBS"), the Company has not paid or become obligated to pay any
fee or commission to any broker, finder or like
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intermediary in connection with the transactions contemplated by this Agreement.
The Company has delivered to Parent a complete and accurate copy of the
Company's engagement letter with UBS.
2.24 BOARD APPROVAL. The board of directors of the Company has (i)
approved the Merger and the execution of this Agreement, and (ii) determined
that the Merger is in the best interests of the shareholders of the Company and
is on terms that are fair to such shareholders.
2.25 VOTE REQUIRED. The affirmative vote of a majority of the votes
entitled to be cast by holders of (i) the outstanding shares of Company
Preferred Stock, voting together as a single class, and (ii) the outstanding
shares of Company Common Stock (voting as a class) are the only votes of the
holders of any class or series of Company's capital stock necessary to approve
this Agreement and the Merger under California Law.
2.26 SHAREHOLDER VOTING AGREEMENTS. Each of the Signing Shareholders has
executed and delivered to Parent the Shareholder Agreement in the form of
Exhibit E.
2.27 CONVERSION AGREEMENTS. The Company and holders of not less than
78.5%, 76.5% and 98.1%, respectively, of the shares of its Series A, B and C
Preferred Stock and not less than 98.8% and 99.9%, respectively, of the shares
of its Series D and E Preferred Stock have executed Conversion Agreements in the
form of Exhibit F to this Agreement pursuant to which they have agreed to
convert not less than 78.5%, 76.5% and 98.1%, respectively, of all shares of
Series A, B and C Preferred Stock, not less than 70.4% of all shares of Series D
Preferred Stock and not less than 35.3% of all shares of Series E Preferred
Stock into Common Stock of the Company immediately prior to the Effective Time
in accordance with the provisions of such Conversion Agreements.
2.28 POOLING OF INTERESTS. The Company is not aware of any event,
condition, fact or circumstance that to its Knowledge could prevent the Merger
from being accounted for as a "pooling of interests" transaction for accounting
purposes.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Except as set forth in the Parent Disclosure Schedule, Parent and Merger
Sub jointly and severally represent and warrant to the Company and the Signing
Shareholders as follows:
3.1 ORGANIZATION; GOOD STANDING; QUALIFICATION AND POWER. Parent and each
of its subsidiaries (collectively the "Parent Subsidiaries") is, and Merger Sub
when organized will be, a corporation duly organized, validly existing and in
good standing under the laws of the state of its incorporation, has, or in the
case of Merger Sub will have, all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business as now being
conducted, and is or, in the case of Merger Sub will be, duly qualified and in
good standing to do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, other than in such jurisdictions where the failure so to qualify or
to be in good standing would not have a Material Adverse Effect on Parent.
3.2 CAPITAL STRUCTURE. The authorized capital stock of Parent consists of
30,000,000 shares of Parent Common Stock and 2,000,000 shares of Parent
Preferred Stock. At the close of business on September 30, 1995, 13,232,750
shares of Parent Common Stock were issued and outstanding, no shares of Parent
Common Stock were held by Parent in its treasury, and 1,550,915 shares of Parent
Common Stock were reserved for issuance upon the exercise of outstanding options
to purchase Parent Common Stock ("Parent Options"). No shares of Parent
Preferred Stock are issued or outstanding. All outstanding shares of Parent
Common Stock are validly issued, fully paid and nonassessable and not subject to
preemptive rights contained in Parent's charter documents or in a contract to
which Parent is a party. All outstanding shares of the capital stock of each of
the Parent Subsidiaries are validly issued, fully paid and nonassessable and are
owned by Parent or one of the Parent Subsidiaries free and clear of any liens,
security interests, pledges, agreements, claims, charges or encumbrances.
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3.3 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Parent has delivered to the Company accurate and complete copies
(excluding copies of exhibits) of each report, registration statement (on a form
other than Form S-8) and definitive proxy statement filed by Parent with the SEC
between January 1, 1995 and the date of this Agreement (the "Parent SEC
Documents"). As of the time it was filed with the SEC (or, if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing): (i) each of the Parent SEC Documents complied in all material
respects with the applicable requirements of the Securities Act or the Exchange
Act (as the case may be); and (ii) none of the Parent SEC Documents contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(b) The consolidated financial statements contained in the Parent SEC
Documents: (i) complied as to form in all material respects with the published
rules and regulations of the SEC applicable thereto; (ii) were prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods covered, except as may be indicated in the notes to
such financial statements and (in the case of unaudited statements) as permitted
by Form 10-Q of the SEC, and except that unaudited financial statements may not
contain footnotes and are subject to normal and recurring year-end audit
adjustments (which will not, individually or in the aggregate, be material in
magnitude); and (iii) fairly present the consolidated financial position of
Parent and its subsidiaries as of the respective dates thereof and the
consolidated results of operations of Parent and its subsidiaries for the
periods covered thereby.
3.4 AUTHORITY; BINDING NATURE OF AGREEMENT. Parent and Merger Sub have the
absolute and unrestricted right, power and authority to enter into and, subject
to approval of the issuance of Parent Common Stock pursuant to this Agreement by
the stockholders of Parent, to perform their obligations under this Agreement;
and the execution, delivery and, subject to approval of the issuance of Parent
Common Stock pursuant to this Agreement by the stockholders of Parent,
performance by Parent and Merger Sub of this Agreement (including the
contemplated issuance of Parent Common Stock in the Merger in accordance with
this Agreement) have been duly authorized by all necessary action on the part of
Parent and Merger Sub and their respective boards of directors. This Agreement
constitutes the legal, valid and binding obligation of Parent and Merger Sub,
enforceable against them in accordance with its terms, subject to (i) laws of
general application relating to bankruptcy, insolvency and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive relief
and other equitable remedies.
3.5 VALID ISSUANCE. Subject to Section 1.5(d), the Parent Common Stock to
be issued in the Merger will, when issued in accordance with the provisions of
this Agreement, be validly issued, fully paid and nonassessable.
3.6 INFORMATION SUPPLIED. None of the information supplied or to be
supplied by Parent or Merger Sub for inclusion or incorporation by reference in
the Form S-4 and Prospectus/Proxy Statement will, at the time the Form S-4 is
declared effective, at the date the Prospectus/Proxy Statement is mailed to the
stockholders of Parent or at the time of the Parent Stockholder Meeting, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein (in
light of the circumstances under which they are provided) not misleading. The
Prospectus/Proxy Statement will comply as to form in all material respects with
the provisions of the Exchange Act and the rules and regulations promulgated by
the SEC thereunder.
3.7 NON-CONTRAVENTION; CONSENTS. Neither (1) the execution, delivery or
performance of this Agreement or any of the other agreements referred to in this
Agreement, nor (2) the consummation of the Merger or any of the other
transactions contemplated by this Agreement, will directly or indirectly (with
or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any of the
provisions of Parent's certificate of incorporation or bylaws or Merger Sub's
articles of incorporation or bylaws, or (ii) any resolution adopted by Parent's
stockholders or Merger Sub's shareholders, Parent's or Merger Sub's board of
directors or any committee of Parent's or Merger Sub's board of directors;
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(b) contravene, conflict with or result in a violation of, or give any
Governmental Body or other Person the right to challenge any of the transactions
contemplated by this Agreement or to exercise any remedy or obtain any relief
under, any Legal Requirement or any order, writ, injunction, judgment or decree
to which Parent or Merger Sub, or any of the assets owned or used by Parent or
Merger Sub, is subject;
(c) contravene, conflict with or result in a violation of any of the terms
or requirements of, or give any Governmental Body the right to revoke, withdraw,
suspend, cancel, terminate or modify, any Governmental Authorization that is
held by Parent or Merger Sub or that otherwise relates to Parent's or Merger
Sub's business or to any of the assets owned or used by Parent or Merger Sub;
(d) contravene, conflict with or result in a violation or breach of, or
result in a default under, any provision of any material contract of Parent or
Merger Sub, or give any Person the right to (i) declare a default or exercise
any remedy under any such material contract, (ii) accelerate the maturity or
performance of any such material contract, or (iii) cancel, terminate or modify
any such material contract; or
(e) result in the imposition or creation of any lien or other Encumbrance
upon or with respect to any asset owned or used by the Parent or Merger Sub
(except for minor liens that will not, in any case or in the aggregate,
materially detract from the value of the assets subject thereto or materially
impair the operations of Parent or Merger Sub).
Neither Parent nor Merger Sub is or will be required to make any filing with or
give any notice to, or to obtain any Consent from, any Person in connection with
(x) the execution, delivery or performance of this Agreement or any of the other
agreements referred to in this Agreement, or (y) the consummation of the Merger
or any of the other transactions contemplated by this Agreement.
3.8 FEES AND EXPENSES. Except for Parent's engagement of Robertson
Stephens & Company ("RS & Co."), Parent has not paid nor has it become obligated
to pay any fee or commission to any broker, finder or like intermediary in
connection with the transactions contemplated by this Agreement.
3.9 NO MATERIAL ADVERSE CHANGE. Since the date of the last Parent SEC
Document filed by Parent with the SEC, there has not been any material adverse
change in Parent's business, condition, assets, liabilities, operations or
financial performance, and to the Knowledge of Parent, no event has occurred
that will, or would be reasonably expected to, have a Material Adverse Effect on
Parent.
3.10 COMPLIANCE WITH LEGAL REQUIREMENTS. Parent is in compliance with all
applicable Legal Requirements, except where the failure to comply with such
Legal Requirements has not had and will not have a Material Adverse Effect on
Parent. Parent has not received any notice or other communication from any
Governmental Body regarding any actual or possible violation of, or failure to
comply with, any Legal Requirement, except where failure to comply with such
Legal Requirement has not had and will not have a Material Adverse Effect on
Parent.
3.11 LEGAL PROCEEDINGS. There is no Legal Proceeding pending, or to the
Knowledge of Parent, threatened against Parent (i) that challenges, or that may
have the effect of preventing, delaying, making illegal or otherwise interfering
with, the Merger or any of the other transactions contemplated by this
Agreement, or (ii) that could reasonably be expected to have a Material Adverse
Effect on Parent.
3.12 BOARD APPROVAL. The board of directors of Parent has unanimously (i)
approved this Agreement and the Merger, and (ii) determined that the Merger is
in the best interests of the stockholders of Parent and is on terms that are
fair to such stockholders.
3.13 VOTE REQUIRED. The affirmative vote of a majority of the total votes
cast at the Parent Stockholder Meeting at which a quorum is present is the only
vote necessary by Parent's stockholders to approve this Agreement and the
Merger.
3.14 POOLING OF INTERESTS. Parent is not aware of any event, condition,
fact or circumstance that to its Knowledge could prevent the Merger from being
accounted for as a "pooling of interests" transaction for accounting purposes.
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SECTION 4. CERTAIN COVENANTS OF THE COMPANY AND THE SIGNING SHAREHOLDERS
4.1 ACCESS AND INVESTIGATION. During the period from the date of this
Agreement through the Effective Time (the "Pre-Closing Period"), the Company
shall, and shall cause its Representatives to: (a) provide Parent and Parent's
Representatives with reasonable access to the Company's Representatives,
personnel and assets and to all existing books, records, Tax Returns, work
papers and other documents and information relating to the Company; and (b)
provide Parent and Parent's Representatives with copies of such existing books,
records, Tax Returns, work papers and other documents and information relating
to the Company, and with such additional financial, operating and other data and
information regarding the Company, as Parent may reasonably request.
4.2 OPERATION OF THE COMPANY'S BUSINESS. During the Pre-Closing Period,
unless the Company obtains Parent's prior written consent as set forth below:
(a) the Company shall conduct its business and operations in the
ordinary course and in substantially the same manner as such business and
operations have been conducted prior to the date of this Agreement;
(b) the Company shall use reasonable efforts to preserve intact its
current business organization, keep available the services of its current
officers and employees and maintain its relations and good will with all
suppliers, customers, landlords, creditors, employees and other Persons
having business relationships with the Company;
(c) the Company shall keep in full force all insurance policies
identified in Part 2.17 of the Disclosure Schedule;
(d) the Company shall cause its officers to report regularly (but in
no event less frequently than weekly) to Parent concerning the status of
the Company's business;
(e) the Company shall not declare, accrue, set aside or pay any
dividend or make any other distribution in respect of any shares of capital
stock, and shall not repurchase, redeem or otherwise reacquire any shares
of capital stock or other securities (except that the Company may
repurchase Company Common Stock from former employees pursuant to the terms
of existing restricted stock purchase agreements);
(f) the Company shall not sell, issue or authorize the issuance of (i)
any capital stock or other security, (ii) any option or right to acquire
any capital stock or other security, or (iii) any instrument convertible
into or exchangeable for any capital stock or other security (except that
the Company shall be permitted (x) to grant stock options exercisable for
the purchase of not more than an aggregate of 25,000 shares of Company
Common Stock to employees in accordance with its past practices, (y) to
issue Company Common Stock to employees upon the exercise of outstanding
Company Options, and (z) to issue shares of Company Common Stock upon the
conversion of shares of Preferred Stock);
(g) the Company shall not amend or waive any of its rights under, or
permit the acceleration of vesting under, (i) any provision of its Stock
Plans, (ii) any provision of any agreement evidencing any outstanding
Company Option, or (iii) any provision of any restricted stock purchase
agreement;
(h) neither the Company nor any of the Signing Shareholders shall
amend or permit the adoption of any amendment to the Company Articles or
the Company Bylaws, or effect or permit the Company to become a party to
any Acquisition Transaction, recapitalization, reclassification of shares,
stock split, reverse stock split or similar transaction (except that the
Company may issue shares of Company Common Stock upon the conversion of
shares of Preferred Stock);
(i) the Company shall not form any subsidiary or acquire any equity
interest or other interest in any other Entity;
(j) the Company shall not make any capital expenditure, except for
capital expenditures that, when added to all other capital expenditures
made on behalf of the Company during the Pre-Closing Period, do not exceed
$100,000 per month;
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(k) the Company shall not (i) enter into, or permit any of the assets
owned or used by it to become bound by, any Contract that is or would
constitute a Material Contract, other than Material Contracts for the sale
or license of the Company's products to customers in the ordinary course of
the Company's business and consistent with the Company's past practices, or
(ii) amend or prematurely terminate, or waive any material right or remedy
under, any such Material Contract;
(l) the Company shall not (i) acquire, lease or license any right or
other asset from any other Person, (ii) sell or otherwise dispose of, or
lease or license, any right or other asset to any other Person, other than
pursuant to Contracts for the sale or license of the Company's products to
customers in the ordinary course of the Company's business and consistent
with the Company's past practices, or (iii) waive or relinquish any right,
except for assets acquired, leased, licensed or disposed of by the Company
pursuant to Contracts that are not Material Contracts;
(m) the Company shall not (i) lend money to any Person (except that
the Company may make routine travel advances to employees in the ordinary
course of business and may, consistent with its past practices, allow
employees to acquire Company Common Stock in exchange for promissory notes
upon exercise of Company Options), or (ii) incur or guarantee any
indebtedness for borrowed money (except that the Company may make routine
borrowings under its line of credit with Silicon Valley Bank in the
ordinary course of business or to pay Company Transaction Costs up to
$200,000);
(n) except as set forth in Section 5.14, the Company shall not (i)
establish, adopt or amend any Plan, (ii) pay any bonus, other than regular
bonuses pursuant to the commission plans of certain of the Company's sales,
consulting and customer support employees, or make any profit-sharing
payment, cash incentive payment or similar payment to, or increase the
amount of the wages, salary, commissions, fringe benefits or other
compensation or remuneration payable to, any of its directors, officers or
employees (other than normal scheduled increases to employees who are not
officers), or (iii) hire any new employee whose aggregate annual
compensation is expected to exceed $75,000.
(o) the Company shall not change any of its methods of accounting or
accounting practices in any material respect;
(p) the Company shall not make any Tax election;
(q) the Company shall not commence or settle any material Legal
Proceeding;
(r) the Company shall not repay any portion of, or otherwise make any
payments with respect to, the Bridge Loan;
(s) the Company shall not agree or commit to take any of the actions
described in clauses "(e)" through "(r)" above.
Notwithstanding the foregoing, the Company may take any action described in
clauses "(a)" through "(s)" above if Parent gives its prior written consent to
the taking of such action by the Company, which consent will not be unreasonably
withheld (it being understood that Parent's withholding of consent to any action
will not be deemed unreasonable if Parent determines in good faith that the
taking of such action would not be in the best interests of Parent or would not
be in the best interests of the Company).
4.3 NOTIFICATION; UPDATES TO DISCLOSURE SCHEDULE.
(a) During the Pre-Closing Period, the Company shall promptly notify Parent
in writing of:
(i) the discovery by the Company of any event, condition, fact or
circumstance that occurred or existed on or prior to the date of this
Agreement and that caused or constitutes an inaccuracy in or breach of any
representation or warranty made by the Company in this Agreement;
(ii) any event, condition, fact or circumstance that occurs, arises or
exists after the date of this Agreement and that would cause or constitute
an inaccuracy in or breach of any representation or warranty made by the
Company in this Agreement if (A) such representation or warranty had been
made as of the time of the occurrence, existence or discovery of such
event, condition, fact or circumstance, or
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(B) such event, condition, fact or circumstance had occurred, arisen or
existed on or prior to the date of this Agreement;
(iii) any breach of any covenant or obligation of the Company or any
of the Signing Shareholders; and
(iv) any event, condition, fact or circumstance that would make the
timely satisfaction of any of the conditions set forth in Section 6 or
Section 7 impossible or unlikely.
(b) If any event, condition, fact or circumstance that is required to be
disclosed pursuant to Section 4.3(a) requires any change in the Company
Disclosure Schedule, or if any such event, condition, fact or circumstance would
require such a change assuming the Company Disclosure Schedule were dated as of
the date of the occurrence, existence or discovery of such event, condition,
fact or circumstance, then the Company shall promptly deliver to Parent an
update to the Company Disclosure Schedule specifying such change. No such update
shall be deemed to supplement or amend the Company Disclosure Schedule for the
purpose of (i) determining the accuracy of any of the representations and
warranties made by the Company in this Agreement, or (ii) determining whether
any of the conditions set forth in Section 6 has been satisfied.
4.4 NO NEGOTIATION. During the Pre-Closing Period, neither the Company nor
any of the Signing Shareholders shall, directly or indirectly:
(a) solicit or encourage the initiation of any inquiry, proposal or
offer from any Person (other than Parent) relating to a possible
Acquisition Transaction;
(b) participate in any discussions or negotiations or enter into any
agreement with, or provide any non-public information to, any Person (other
than Parent) relating to or in connection with a possible Acquisition
Transaction (provided, however, that response to an inquiry or proposal by
doing no more than saying that the Company is a party to this Agreement and
that under this Agreement the Company is prohibited from soliciting,
encouraging, discussing, considering, entertaining or accepting any such
inquiry or proposal shall not in itself be deemed participating in
discussions with the other Person in violation of this Agreement); or
(c) consider, entertain or accept any proposal or offer from any
Person (other than Parent) relating to a possible Acquisition Transaction.
The Company shall promptly notify Parent in writing of any material inquiry,
proposal or offer relating to a possible Acquisition Transaction with respect to
the Company that is received by the Company or any of the Signing Shareholders
during the Pre-Closing Period.
4.5 COMPANY SHAREHOLDER APPROVAL. The Company will call the Company
Shareholder Meeting, to be held after the Form S-4 shall have been declared
effective by the SEC and on or before the date of the Parent Stockholder
Meeting, to submit this Agreement, the Merger and related matters for the
consideration and approval of the Company's shareholders. Subject to the
fiduciary obligations of the Company's directors, the Form S-4 will include a
statement to the effect that the Company's board of directors has recommended
that the Company's shareholders vote for the Merger. Such meeting will be
called, held and conducted, and any proxies will be solicited, in compliance
with applicable law Legal Requirements.
4.6 PROSPECTUS/PROXY STATEMENT. The Company will mail to its shareholders
in a timely manner, for the purpose of considering and voting upon the Merger at
the Company Shareholder Meeting, the Prospectus/Proxy Statement that is
contained in the Form S-4 at the time that it is declared effective or as
subsequently amended or supplemented. The Company will promptly provide to
Parent all information relating to its business or operations necessary for
inclusion in the Prospectus/Proxy Statement to satisfy all requirements of
applicable state and federal securities laws. None of the information relating
to the Company or its officers and directors contained in any document,
certificate or other writing furnished or to be furnished by the Company and
included in (i) the Prospectus/Proxy Statement at the time the Proxy Statement
is mailed or at the time of the Company Shareholder Meeting to vote on the
Merger or at the Effective Time, as then amended or supplemented, or (ii) the
Form S-4 at the time the Form S-4 becomes effective or at the Effective Time, as
then amended or supplemented, will contain any untrue statement of a material
fact or will
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omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
provided, not misleading or necessary to correct any statement that has become
false or misleading in any earlier communication with respect to the
solicitation of proxies for the Company Shareholder Meeting or the Parent
Stockholder Meeting.
4.7 EMPLOYEE RETENTION PROGRAM. During the Pre-Closing Period, the Company
will not modify its existing employee retention program delivered to and
approved by Parent on the date of this Agreement (the "Retention Plan"), and
will not adopt any employee retention plan without Parent's prior written
consent.
4.8 BONUS LETTERS. The Company shall use its best efforts (but shall not
be required to provide any inducement other than that offered by the Bonus
Letter) to ensure that each of the individuals identified by the Company on the
date of this Agreement to receive a bonus pursuant to the Retention Plan has
executed and delivered to the Company and Parent no later than the Closing Date,
a Bonus Letter ("Bonus Letter") in form and substance approved by Parent and the
Company on the date of this Agreement; and the Company shall inform each of such
employees that no Company employee who has not executed and delivered a Bonus
Letter is eligible to receive a bonus under the Retention Plan until such
employee executes and delivers a Bonus Letter.
SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES
5.1 FILINGS AND CONSENTS. As promptly as practicable after the execution
of this Agreement, each party to this Agreement (a) shall make all filings (if
any) and give all notices (if any) required to be made and given by such party
in connection with the Merger and the other transactions contemplated by this
Agreement, and (b) shall use all commercially reasonable efforts to obtain all
Consents (if any) required to be obtained (pursuant to any applicable Legal
Requirement or Contract, or otherwise) by such party in connection with the
Merger and the other transactions contemplated by this Agreement. Parent shall
(upon request) promptly deliver to the Company a copy of each such filing made,
each such notice given and each such Consent obtained by Parent or Merger Sub
during the Pre-Closing Period; and the Company shall (upon request) promptly
deliver to Parent a copy of each such filing made, each such notice given and
each such Consent obtained by the Company during the Pre-Closing Period.
5.2 STOCKHOLDER APPROVAL. Parent will call the Parent Stockholders Meeting
to be held within 40 days after the Form S-4 shall have been declared effective
by the SEC, to submit the issuance of Parent Common Stock in connection with the
Merger and related matters for the consideration and approval of the Parent's
stockholders. Subject to the fiduciary obligations of the Parent's directors,
the Form S-4 will include a statement to the effect that the Parent's board of
directors has recommended that the Parent's stockholders vote in favor of the
Merger. Such meeting will be called, held and conducted, and any proxies will be
solicited, in compliance with applicable law.
5.3 PROSPECTUS/PROXY STATEMENT. Parent will mail to its stockholders in a
timely manner, for the purpose of considering and voting upon the issuance of
Parent Common Stock in connection with the Merger at the Parent Stockholders
Meeting, the Prospectus/Proxy Statement that is contained in the Form S-4 at the
time that it is declared effective. Parent will prepare and file the Proxy
Statement/Prospectus with the SEC as promptly as practicable, and use its best
reasonable efforts to cause the Form S-4 to become effective as soon after such
filing as practicable. In this regard, Parent will advise the Company promptly
of any comments, whether oral or written, received from the SEC with respect to
the Form S-4 and will also advise the Company promptly as to the time at which
the Form S-4 becomes effective and of the issuance by the SEC of any stop order
suspending the effectiveness of the Form S-4 or the institution of any
proceedings for such purpose and will use its reasonable best efforts to prevent
the issuance of any stop order and to obtain as soon as possible the lifting
thereof if issued. Until the Effective Time, Parent will advise the Company
promptly of any requirement of the SEC for any amendment or supplement of the
Form S-4 or for additional information, and will not at any time file any
amendment of or supplement to the prospectus contained therein, or to the
prospectus filled pursuant to Rule 424(b) of the Securities Act (the
"Prospectus"), that shall not have been previously submitted to the Company a
reasonable time prior to the proposed filing thereof or to which the Company
shall reasonably object or that is not in compliance in all material respects
with the Securities Act
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and the rules and regulations issued by the SEC thereunder. None of the
information relating to Parent (or, to the best knowledge of Parent, any other
person, contained in any document, certificate or other writing furnished or to
be furnished by Parent) included in (i) the Prospectus/Proxy Statement at the
time the Prospectus/Proxy Statement is mailed or at the time of the meeting of
Parent's stockholders to vote on the Merger or at the Effective Time, as then
amended or supplemented, or (ii) the Form S-4 at the time the Form S-4 becomes
effective or at the Effective Time, as then amended or supplemented, will
contain any untrue statement of a material fact or will omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were provided, not
misleading or necessary to correct any statement that has become false or
misleading in any earlier communication with respect to the solicitation of
proxies for the Company Shareholder Meeting and the Parent Stockholder Meeting.
From and after the date the Form S-4 becomes effective and until the Effective
Time, if any event known to Parent occurs as a result of which the Prospectus
would include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading or if it is necessary at any time to amend the Form S-4 or the
Prospectus to comply with the Securities Act, Parent will promptly notify the
Company and will prepare an amended or supplemented Form S-4 or Prospectus,
which will correct such statement or omission, and will use its reasonable best
efforts to cause any such amendment to become effective as promptly as possible.
The Prospectus/Proxy Statement as it relates to the Company will comply as to
form in all material respects with the requirements of the Exchange Act and the
rules and regulations thereunder in effect at the time the Prospectus/Proxy
Statement is mailed.
5.4 STATE SECURITIES LAW COMPLIANCE. Parent shall use all commercially
reasonable efforts to (a) qualify, prior to the Closing Date, the Parent Common
Stock to be issued pursuant to the Merger under state blue sky laws of every
jurisdiction of the United States in which (i) any registered shareholder of the
Company has an address on the records of the Company, as of the date of this
Agreement, and (ii) a Nasdaq National Market or other applicable exemption from
the qualification requirements under such laws is unavailable with respect to
the issuance of Parent Common Stock in the Merger, and (b) qualify, prior to the
Closing Date, the Assumed Options to be assumed pursuant to the Merger under the
state blue sky laws of every jurisdiction of the United States in which (i) the
records of the Company, as of the date of this Agreement, indicate that a holder
of such Assumed Options resides, and (ii) a Nasdaq National Market or other
applicable exemption from the qualification requirements under such laws is
unavailable.
5.5 NOTIFICATION; UPDATES TO DISCLOSURE SCHEDULE.
(a) During the Pre-Closing Period, Parent shall promptly notify the Company
in writing of:
(i) the discovery by Parent of any event, condition, fact or
circumstance that occurred or existed on or prior to the date of this
Agreement and that caused or constitutes an inaccuracy in or breach of any
representation or warranty made by Parent in this Agreement;
(ii) any event, condition, fact or circumstance that occurs, arises or
exists after the date of this Agreement and that would cause or constitute
an inaccuracy in or breach of any representation or warranty made by Parent
in this Agreement if (A) such representation or warranty had been made as
of the time of the occurrence, existence or discovery of such event,
condition, fact or circumstance, or (B) such event, condition, fact or
circumstance had occurred, arisen or existed on or prior to the date of
this Agreement;
(iii) any breach of any covenant or obligation of Parent; and
(iv) any event, condition, fact or circumstance that would make the
timely satisfaction of any of the conditions set forth in Section 6 or
Section 7 impossible or unlikely.
(b) If any event, condition, fact or circumstance that is required to be
disclosed pursuant to Section 5.5(a) requires any change in the Parent
Disclosure Schedule, or if any such event, condition, fact or circumstance would
require such a change assuming the Parent Disclosure Schedule were dated as of
the date of the occurrence, existence or discovery of such event, condition,
fact or circumstance, then Parent shall promptly deliver to the Company an
update to the Parent Disclosure Schedule specifying such change. No
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such update shall be deemed to supplement or amend the Parent Disclosure
Schedule for the purpose of (i) determining the accuracy of any of the
representations and warranties made by Parent in this Agreement, or (ii)
determining whether any of the conditions set forth in Section 7 has been
satisfied.
5.6 POOLING OF INTERESTS. During the Pre-Closing Period, no party to this
Agreement shall take any action that could reasonably be expected to have an
adverse effect on the ability of Parent to account for the Merger as a "pooling
of interests."
5.7 AFFILIATE AGREEMENTS. Each Signing Shareholder shall execute and
deliver to Parent, and the Company shall use all commercially reasonable efforts
to cause each other Company-Affiliated Person identified on Exhibit H-3 (and any
other Person that Parent notifies the Company may reasonably be deemed to be an
"Affiliate" of the Company for purposes of the Securities Act), to execute and
deliver to Parent, as promptly as practicable after the execution of this
Agreement, an Affiliate Agreement in the form of Exhibit H-1. Parent shall use
all commercially reasonable efforts to cause each Parent-Affiliated Person
listed on Exhibit H-3 and each other Person that could reasonably be deemed to
be an "Affiliate" of Parent for purposes of the Securities Act to execute and
deliver to Parent, as promptly as practical after execution of this Agreement,
an Affiliate Agreement in the form of Exhibit H-2.
5.8 ALL COMMERCIALLY REASONABLE EFFORTS. During the Pre-Closing Period,
(a) the Company and the Signing Shareholders shall each use all commercially
reasonable efforts to cause the conditions set forth in Section 6 to be
satisfied on a timely basis, and (b) Parent and Merger Sub shall each use all
commercially reasonable efforts to cause the conditions set forth in Section 7
to be satisfied on a timely basis.
5.9 TAX MATTERS. Prior to the Closing, (a) Parent and the Company shall
execute and deliver, to Cooley Godward Castro Huddleson & Tatum ("Cooley
Godward") and to Wilson, Sonsini, Goodrich & Rosati, P.C. ("Wilson Sonsini"),
tax representation letters in substantially the forms of Exhibits I-1 and I-2
(which will be used in connection with the legal opinions contemplated by
Sections 6.6(m) and 7.3(b)), and (b) each of the Signing Shareholders and other
CompanyAffiliated person listed on Exhibit H-3 shall execute and deliver to
Parent a Continuity of Interest Certificate in the form of Exhibit J.
5.10 AMENDED AND RESTATED EMPLOYMENT AGREEMENT. The Company CEO Agreement
shall be in full force and effect as of the Effective Time.
5.11 FIRPTA MATTERS. At the Closing, (a) the Company shall deliver to
Parent a statement (in such form as may be reasonably requested by counsel to
Parent) conforming to the requirements of Section 1.897 - 2(h)(1)(i) of the
United States Treasury Regulations, and (b) the Company shall deliver to the
Internal Revenue Service the notification required under Section 1.897 - 2(h)(2)
of the United States Treasury Regulations.
5.12 CONVERSION AGREEMENTS. The Conversion Agreements shall be in full
force and effect as of the Effective Time.
5.13 RELEASE. At the Closing, each of the Signing Shareholders shall
deliver to the Company a Release in the form of Exhibit J executed by such
Signing Shareholders.
5.14 TERMINATION OF EMPLOYEE PLANS. The Company shall terminate the "1995
Management Incentive Plan proposal" described in Part 2.15 of the Disclosure
Schedule (the "Bonus Plan") so that it shall no longer be in effect after
December 31, 1995 and shall ensure that no employee or former employee of the
Company has any rights under such Bonus Plan that will accrue after December 31,
1995.
5.15 ACCESS AND INVESTIGATION. During the Pre-Closing Period, Parent
shall, and shall cause its Representatives to: (a) provide the Company and the
Company's Representatives with reasonable access to Parent's Representatives,
personnel and assets and to all existing books, records, Tax Returns, work
papers and other documents and information relating to Parent; and (b) provide
Parent's and the Company's Representatives with copies of such existing books,
records, Tax Returns, work papers and other documents and information relating
to Parent, and with such additional financial, operating and other data and
information regarding Parent, as the Company may reasonably request.
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5.16 COMPANY PLANS. Subject to Section 5.14, the Plans listed on Part 2.15
of the Disclosure Schedule (the "Company Benefit Plans") that are in effect at
the date of this Agreement shall, to the extent practicable, remain in effect
until the Company's employees are allowed to participate in comparable Parent
employee plans and benefit arrangements. Parent shall use commercially
reasonable efforts to arrange that, as soon as practicable after the Effective
Time, benefit arrangements and employee plans provide the same or a comparable
benefit or plan to each employee of the Company as is provided to Parent's
employees who are similarly situated. The Parent benefit arrangements and
employee plans shall give full credit for each participant's period of service
with the Company and each trade or business (whether or not incorporated) under
common control (within the meaning of Section 4001(b)(1) of ERISA) or treated as
a single employer under Section 414(b), (c), (m) or (o) of the Code ("ERISA
Affiliate") with the Company prior to the Effective Time for all purposes for
which such service was recognized under the Company Benefit Plans prior to the
Effective Time. From and after the Effective Time, Parent and the Surviving
Corporation shall provide employees of the Company and its ERISA Affiliates with
the opportunity to participate in any employee stock option or other incentive
compensation plan of Parent and its ERISA Affiliates on substantially the same
terms and subject to substantially the same conditions as are available to
similarly situated employees of Parent.
5.17 INDEMNIFICATION.
(a) Parent shall cause the Surviving Corporation to keep in effect
provisions in the Company Articles and Company Bylaws in effect on the date of
this Agreement providing for exculpation of director and officer liability and
indemnification of each person who is entitled to the benefit of the
indemnification provisions set forth in the Company Articles or Company Bylaws
(the "Indemnified Parties"), to the fullest extent now or hereafter permitted
under California Law, which provisions shall not be amended except as required
by applicable law or except to make changes permitted by law that would enlarge
the Indemnified Parties' right of indemnification.
(b) The Surviving Corporation shall pay all expenses, including attorneys'
fees, that may be incurred by any Indemnified Parties in enforcing the indemnity
and other obligations provided for in this Section 5.17.
(c) The rights of each Indemnified Party hereunder shall be in addition to
any other rights such Indemnified Party may have under the Company Articles or
Company Bylaws, under California Law or otherwise. The provisions of this
Section shall survive the consummation of the Merger and are expressly intended
to benefit each of the Indemnified Parties.
(d) The Surviving Corporation shall comply with all obligations of the
Company under the indemnity agreements, if any, between the Company and its
directors and executive officers on the date of this Agreement. The term
"Surviving Corporation" shall be deemed to include its successors and assigns.
SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB
The obligations of Parent and Merger Sub to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of each of the following conditions:
6.1 ACCURACY OF REPRESENTATIONS. The representations and warranties made
by the Company in this Agreement and in each of the other agreements and
instruments delivered to Parent in connection with the transactions contemplated
by this Agreement shall have been accurate in all material respects as of the
date of this Agreement (without giving effect to any "Material Adverse Effect"
or other materiality qualifications, or any similar qualifications, contained or
incorporated directly or indirectly in such representations and warranties), and
shall be accurate in all material respects as of the Scheduled Closing Time as
if made at the Scheduled Closing Time (without giving effect to any update to
the Disclosure Schedule and without giving effect to any "Material Adverse
Effect" or other materiality qualifications, or any similar qualifications,
contained or incorporated directly or indirectly in such representations and
warranties), except, in each such case, for such inaccuracies as would neither
have, nor reasonably be expected to have, singly or in the aggregate, a Material
Adverse Effect on the Company.
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6.2 PERFORMANCE OF COVENANTS. The Company shall have performed and
complied in all material respects on or before the Closing with all of the
covenants and obligations that the Company is required to comply with or to
perform at or prior to the Closing without taking into account any specific
materiality or similar qualifications set forth in such covenants (except for
any failures to perform or comply that do not, singly or in the aggregate, cause
a Material Adverse Effect).
6.3 COMPANY SHAREHOLDER APPROVAL. The number of shares of Company Common
Stock and shares of Company Preferred Stock that are or may become "dissenting
shares" within the meaning of Section 1300 of the California Corporation Code
shall not exceed, respectively, 10% of the shares of Company Common Stock and
10% of the shares of Company Preferred Stock outstanding immediately prior to
the Effective Time.
6.4 CONSENTS. All Consents required to be obtained in connection with the
Merger and the other transactions contemplated by this Agreement (including the
Consents identified in Part 2.21 of the Disclosure Schedule) shall have been
obtained and shall be in full force and effect.
6.5 ABSENCE OF MATERIAL ADVERSE CHANGE. There shall not have been any
change since the date of this Agreement that constitutes a Material Adverse
Effect on the Company, and there shall have been no material adverse adjustments
in the September 30 Audited Financial Statements from the Unaudited Financial
Statements delivered by the Company to Parent prior to the date of this
Agreement.
6.6 AGREEMENTS AND DOCUMENTS. Parent and the Company shall have received
the following agreements and documents, each of which shall be in full force and
effect:
(a) Affiliate Agreements in the form of Exhibit G-1, executed by the
Persons identified on Exhibit G-3 and by any other Person who Parent
notifies the Company may be deemed to be an "Affiliate" of the Company for
purposes of the Securities Act;
(b) A Release in the form of Exhibit J, executed by each of the
Signing Shareholders;
(c) Conversion Agreements in the form of Exhibit F, executed by the
Company and holders of not less than the percentages of each series of
Preferred Stock specified in Section 2.27 hereof;
(d) The General Escrow Agreement in the form of Exhibit K executed by
the Company and Indemnifying Shareholders' Agent;
(e) The Merger Expenses Escrow Agreement in the form of Exhibit N
executed by the Company and Indemnifying Shareholder's Agent;
(f) Each of the Bridge Notes, together with related releases of
security interests and other liens in form satisfactory in form and
substance to Parent, so that Parent may repay the Bridge Loan;
(g) the FIRPTA statement referred to in Section 5.11(a), executed by
the Company;
(h) Continuity of Interest Certificates in the form of Exhibit I,
executed by the Signing Shareholders;
(i) a legal opinion of Wilson Sonsini, dated as of the Closing Date,
in the form of Exhibit L);
(j) a legal opinion of Cooley Godward (or, if Cooley Godward for any
reason does not render such legal opinion, a legal opinion of Wilson
Sonsini, dated as of the Closing Date, to the effect that the Merger will
constitute a reorganization within the meaning of Section 368 of the Code
(it being understood that, in rendering such opinion, such counsel may rely
upon the tax representation letters referred to in Section 5.8(a) and the
Continuity of Interest Certificates referred to in Section 6.5(j));
(k) a letter from KPMG Peat Marwick LLP, confirming as of the Closing
Date that Parent may account for the Merger as a "pooling of interests" in
accordance with generally accepted accounting principles, Accounting
Principles Board Opinion No. 16 and all published rules, regulations and
policies of the SEC;
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(l) a certificate executed by the Chairman and by the President of the
Company containing their representation and warranty on behalf of the
Company that the conditions set forth in Sections 6.1 through 6.5 have been
duly satisfied (the "Company's Closing Certificate"); and
(m) written resignations of all directors of the Company, effective as
of the Effective Time.
6.7 FIRPTA COMPLIANCE. The Company shall have filed with the Internal
Revenue Service the notification referred to in Section 5.12(b).
6.8 FORM S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop-order or proceedings
seeking a stop-order and the Prospectus/Proxy Statement shall on the Closing
Date not be subject to any proceedings commenced or threatened by the SEC.
6.9 PARENT STOCKHOLDER APPROVAL. The issuance of Parent Common Stock in
the Merger shall have been approved and adopted by Parent's stockholders in
accordance with all applicable Legal Requirements and Parent's certificate of
incorporation and Company Bylaws.
6.10 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
6.11 NO LEGAL PROCEEDINGS. No Person shall have commenced or threatened to
commence any Legal Proceeding challenging or seeking the recovery of a material
amount of damages in connection with the Merger or seeking to prohibit or limit
the exercise by Parent of any material right pertaining to its ownership of
stock of the Surviving Corporation.
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The obligations of the Company to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of the following conditions:
7.1 ACCURACY OF REPRESENTATIONS. The representations and warranties made
by Parent and Merger Sub in this Agreement shall have been accurate in all
material respects as of the date of this Agreement (without giving effect to any
Material Adverse Effect or other materiality, or any similar qualifications,
contained or incorporated directly or indirectly in such representations and
warranties), and shall be accurate in all material respects as of the Scheduled
Closing Time as if made at the Scheduled Closing Time (without giving effect to
any Material Adverse Effect or other materiality, or any similar qualifications,
contained or incorporated directly or indirectly in such representations and
warranties), except, in case, for such inaccuracies as would neither have, nor
would reasonably be expected to have, singly or in the aggregate, a Material
Adverse Effect on Parent.
7.2 PERFORMANCE OF COVENANTS. Parent and Merger Sub shall have performed
and complied in all material respects on or before the Closing with all of the
covenants and obligations that Parent and Merger Sub are required to comply with
or to perform at or prior to the Closing without taking into account any
specific materiality or similar qualifications set forth in such covenants
(except for any failures to perform or comply that do not, singly or in the
aggregate, cause a Material Adverse Effect).
7.3 DOCUMENTS. The Company shall have received the following documents:
(a) a legal opinion of Cooley Godward, dated as of the Closing Date,
in the form of Exhibit M; and
(b) a legal opinion of Wilson Sonsini (or, if Wilson Sonsini for any
reason does not render such legal opinion, a legal opinion of Cooley
Godward), dated as of the Closing Date, to the effect that the Merger will
constitute a reorganization within the meaning of Section 368 of the Code
(it being understood that, in rendering such opinion, such counsel may rely
upon the tax representation letters referred to in Section 5.8(a) and the
Continuity of Interest Certificates referred to in Sections 5.8(b) and
6.6(j)).
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7.4 FORM S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop-order or proceedings
seeking a stop-order and the Prospectus/Proxy Statement shall on the Closing
Date not be subject to any proceedings commenced or threatened by the SEC.
7.5 PARENT STOCKHOLDER APPROVAL. The issuance of Parent Common Stock in
the Merger shall have been approved and adopted by Parent's stockholders in
accordance with applicable law and Parent's Restated certificate of
incorporation and Parent's bylaws.
7.6 COMPANY SHAREHOLDER APPROVAL. The principal terms of this Agreement
and the Merger shall have been approved and adopted by the Company's
shareholders in accordance with all applicable Legal Requirements and the
Company's Articles and Company Bylaws.
7.7 LISTING. The shares of Parent Common Stock to be issued in the Merger
shall have been approved for listing (subject to notice of issuance) on The
Nasdaq National Market System.
7.8 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
7.9 ABSENCE OF MATERIAL ADVERSE CHANGE. There shall not have been any
change since the date of this Agreement that constitutes a Material Adverse
Effect on Parent.
SECTION 8. TERMINATION
8.1 TERMINATION EVENTS. This Agreement may be terminated prior to the
Closing:
(a) by Parent if there has been a material breach by the Company of
any covenant or agreement of the Company or the Signing Shareholders set
forth in this Agreement or in any other agreement or instrument delivered
to Parent, which breach has not been cured within 30 days of the date on
which written notice of such breach was first given to the Company or which
is not capable of being cured by the Scheduled Closing Time;
(b) by the Company if there has been a material breach by Parent of
any covenant or agreement of Parent in this Agreement, which breach has not
been cured within 30 days of the date on which written notice of such
breach was first given to Parent or which is not capable of being cured by
the Scheduled Closing Time;
(c) by Parent if Parent reasonably determines that the timely
satisfaction of any condition set forth in Section 6 by the Scheduled
Closing Time has become impossible (other than as a result of any failure
on the part of Parent or Merger Sub to comply with or perform any covenant
or obligation of Parent or Merger Sub set forth in this Agreement);
(d) by the Company if the Company reasonably determines that the
timely satisfaction of any condition set forth in Section 7 by the
Scheduled Closing Time has become impossible (other than as a result of any
failure on the part of the Company or any of the Signing Shareholders to
comply with or perform any covenant or obligation set forth in this
Agreement or in any other agreement or instrument delivered to Parent);
(e) by Parent at or after the Scheduled Closing Time if any condition
set forth in Section 6 has not been satisfied by the Scheduled Closing Time
(other than as a result of any failure on the part of Parent or Merger Sub
to comply with or perform any covenant or obligation of Parent or Merger
Sub set forth in this Agreement);
(f) by the Company at or after the Scheduled Closing Time if any
condition set forth in Section 7 has not been satisfied by the Scheduled
Closing Time (other than as a result of any failure on the part of the
Company or any of the Signing Shareholders to comply with or perform any
covenant or obligation set forth in this Agreement or in any other
agreement or instrument delivered to Parent);
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(g) by Parent if the Closing has not taken place on or before the
Final Date (other than as a result of any failure on the part of Parent to
comply with or perform any covenant or obligation of Parent set forth in
this Agreement);
(h) by the Company if the Closing has not taken place on or before the
Final Date (other than as a result of the failure on the part of the
Company or any of the Signing Shareholders to comply with or perform any
covenant or obligation set forth in this Agreement or in any other
agreement or instrument delivered to Parent);
(i) by the mutual consent of Parent and the Company.
As used herein, the Final Date shall be March 31, 1996, except that if a
temporary, preliminary or permanent injunction or other order by any Federal or
state court that would prohibit or otherwise restrain consummation of the Merger
shall have been issued and shall remain in effect on March 31, 1996, and such
injunction shall not have become final and nonappealable, either party, by
giving the other written notice thereof on or prior to March 31, 1996, may
extend the time for consummation of the Merger up to and including the earlier
of the date such injunction shall become final and non-appealable or June 30,
1996, so long as such party shall, at its own expense, use its best efforts to
have such injunction dissolved.
8.2 TERMINATION PROCEDURES. If Parent wishes to terminate this Agreement
pursuant to Section 8.1(a), Section 8.1(c), Section 8.1(e) or Section 8.1(g),
Parent shall deliver to the Company a written notice stating that Parent is
terminating this Agreement and setting forth a brief description of the basis on
which Parent is terminating this Agreement. If the Company wishes to terminate
this Agreement pursuant to Section 8.1(b), Section 8.1(d), Section 8.1(f) or
Section 8.1(h), the Company shall deliver to Parent a written notice stating
that the Company is terminating this Agreement and setting forth a brief
description of the basis on which the Company is terminating this Agreement.
8.3 EFFECT OF TERMINATION. If this Agreement is terminated pursuant to
Section 8.1, all further obligations of the parties under this Agreement shall
terminate; provided, however, that: (a) neither the Company nor Parent shall be
relieved of any obligation or liability arising from any prior breach by such
party of any provision of this Agreement or of any obligation or liability
arising pursuant to Section 8.4; and (b) the parties shall, in all events,
remain bound by and continue to be subject to the provisions set forth in
Section 10; provided however, that if a party receives the amount set forth in
Section 8.4(a) or (b), as applicable, such amount shall be credited toward any
Damages recoverable by such party.
8.4 BREAKUP FEE.
(a) If the Company terminates this Agreement pursuant to Section 8.1(d),
8.1(f) or 8.1(h) by reason of the fact that any of the Closing conditions
contained in Sections 7.1 or 7.2, have not been met, or the failure of the
Closing condition contained in Section 7.5 under any of the following
circumstances: (i) Parent has materially breached any covenant contained in
Section 5.2 or the covenant in Section 5.8(b) as it pertains to the condition in
Section 7.5, (ii) Parent's Board of Directors has failed to recommend or has
withdrawn its recommendation to Parent's stockholders to approve the issuance of
Parent Common Stock in the Merger, or (iii) any Person has publicly announced a
proposed Acquisition Transaction with Parent as the party to be acquired
conditioned upon the abandonment of the Merger or the failure of Parent's
stockholders to approve the Merger; or by reason of the failure of the Closing
condition contained in Section 6.6(k) under circumstances in which the acts of
Parent or any of its affiliates, not consented to in writing by the Company,
were done with the Knowledge that they could reasonably be expected to cause and
in fact did cause the failure of such condition; and in the circumstances of
such termination, all of the Closing conditions contained in Section 6 (except
the condition contained in Section 6.9) would have otherwise been met, Parent
shall pay to the Company within fifteen (15) business days after such
termination in cash the sum of $1,200,000, plus the Company's documented
out-of-pocket expenses incurred through the date of termination in connection
with this Agreement and the transactions contemplated thereby (as evidenced by
written notice accompanied by such documentation and delivered to Parent by the
Company within ten (10) business days of such termination).
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(b) If Parent terminates this Agreement pursuant to Section 8.1(c), 8.1(e)
or 8.1(g) by reason of the fact that any of the Closing conditions in Sections
6.1, 6.2, 6.4, 6.6(a) through (h), 6.6(m) or 6.7 have not been met, or the
failure of the Closing condition contained in Section 6.3 under any of the
following circumstances: (i) the Company has materially breached any covenant
contained in Section 4.5 or the covenant in Section 5.8(a) as it pertains to the
condition in Section 6.3, (ii) the Company's Board of Directors has withdrawn
its recommendation to the Company's shareholders to approve the Merger, or (iii)
any Person has publicly announced a proposed Acquisition Transaction with the
Company as the party to be acquired conditioned upon abandonment of the Merger
or the failure of the Company's shareholders to approve the Merger; or by reason
of the failure of the Closing condition contained in Section 6.6(k) under
circumstances in which the acts of the Company or any of its affiliates, not
consented to in writing by Parent, were done with the knowledge that they could
reasonably be expected to cause and did in fact cause the failure of such
condition; and in the circumstances of such termination, all of the Closing
conditions contained in Section 7 (except the condition contained in Section
7.6) would have otherwise been met, the Company shall pay to Parent within
fifteen (15) business days after such termination in cash the sum of $1,200,000,
plus Parent's documented out-of-pocket expenses incurred through the date of
termination in connection with this Agreement and the transactions contemplated
thereby (as evidenced by written notice accompanied by such documentation and
delivered to the Company by Parent within ten (10) business days of such
termination).
SECTION 9. INDEMNIFICATION, ETC.
9.1 SURVIVAL OF REPRESENTATIONS, ETC.
(a) The representations and warranties made by the Company shall survive
the Closing and shall expire on the Expiration Date; provided, however, that if,
at any time prior to the Expiration Date, any Indemnitee (acting in good faith)
delivers to the Indemnifying Shareholders' Agent and the Escrow Agent a written
notice alleging the existence of an inaccuracy in or a breach of any of the
representations and warranties made by the Company (and setting forth in
reasonable detail the basis for such Indemnitee's belief that such an inaccuracy
or breach may exist) and asserting a claim for recovery under Section 9.2 based
on such alleged inaccuracy or breach, then the claim asserted in such notice
shall survive the Expiration Date until such time as such claim is fully and
finally resolved. All representations and warranties made by Parent and Merger
Sub shall terminate and expire as of the Expiration Date, and any liability of
Parent or Merger Sub with respect to such representations and warranties shall
thereupon cease.
(b) The representations, warranties, covenants and obligations of the
Company, and the rights and remedies that may be exercised by the Indemnitees,
shall not be limited or otherwise affected by or as a result of any information
furnished to, or any investigation made by or knowledge of, any of the
Indemnitees or any of their Representatives.
(c) For purposes of this Agreement, each statement or other item of
information set forth in the Company Disclosure Schedule or in any update to the
Company Disclosure Schedule shall be deemed to be a representation and warranty
made by the Company in this Agreement.
9.2 INDEMNIFICATION BY INDEMNIFYING SHAREHOLDERS.
(a) From and after the Effective Time (but subject to Section 9.1(a)), the
Indemnifying Shareholders shall severally and not jointly in proportion and to
the extent of such Indemnifying Shareholder's pro rata share of the General
Escrow Amount hold harmless and indemnify each of the Indemnitees from and
against, and shall compensate and reimburse each of the Indemnitees for, any
Damages which are directly or indirectly suffered or incurred by any of the
Indemnitees or to which any of the Indemnitees may otherwise become subject
(regardless of whether or not such Damages relate to any third-party claim) and
which arise from or as a result of, or are directly or indirectly connected
with: (i) any inaccuracy in or breach of any representation or warranty of the
Company in this Agreement or in any other agreement or instrument delivered by
the Company to Parent pursuant to this Agreement; (ii) any breach of any
covenant or obligation of the Company or any of the Signing Shareholders
(including the covenants set forth in Sections 4 and 5); or (iii) any Legal
Proceeding relating to any inaccuracy or breach of the type referred to in
clause "(i)" or "(ii)" above
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(including any Legal Proceeding commenced by any Indemnitee for the purpose of
enforcing any of its rights under this Section 9).
(b) The Indemnifying Shareholders acknowledge and agree that, if the
Surviving Corporation suffers, incurs or otherwise becomes subject to any
Damages as a result of or in connection with any inaccuracy in or breach of any
representation, warranty, covenant or obligation, then (without limiting any of
the rights of the Surviving Corporation as an Indemnitee) Parent shall also be
deemed, by virtue of its ownership of the stock of the Surviving Corporation, to
have incurred Damages as a result of and in connection with such inaccuracy or
breach. Parent acknowledges and agrees that the Indemnifying Shareholders shall
not be liable more than once for the same Damages if more than one of the
Indemnitees suffer or incurs the same Damages.
9.3 THRESHOLD; CEILING.
(a) The Indemnifying Shareholders shall not be required to make any
indemnification payment from the General Escrow Amount pursuant to Section
9.2(a) for any inaccuracy in or breach of any of the Company's representations
and warranties set forth in Section 2 until such time as the total amount of all
Damages (including the Damages arising from such inaccuracy or breach and all
other Damages arising from any other inaccuracies in or breaches of any
representations or warranties) that have been directly or indirectly suffered or
incurred by any one or more of the Indemnitees, or to which any one or more of
the Indemnitees has or have otherwise become subject, exceeds $200,000 in the
aggregate. If the total amount of such Damages exceeds $200,000, then the
Indemnitees shall be entitled to be indemnified against and compensated and
reimbursed for the total amount of such Damages.
(b) The maximum liability of the Indemnifying Shareholders under Section
9.2(a) for breaches of the representations and warranties set forth in Section 2
shall be equal to, and shall in no event exceed, the General Escrow Amount.
9.4 SATISFACTION OF INDEMNIFICATION CLAIM. In the event the Indemnifying
Shareholders shall have any liability (for indemnification or otherwise) to any
Indemnitee under this Section 9, the Escrow Agent shall satisfy such liability
by delivering to such Indemnitee the number of shares of Parent Common Stock
determined by dividing (a) the aggregate dollar amount of such liability by (b)
the Designated Parent Stock Price (as defined in Section 1.5(b)(ix) and as
adjusted as appropriate to reflect any stock split, reverse stock split, stock
dividend, recapitalization or other similar transaction effected by Parent
between the Effective Time and the date such liability is satisfied).
9.5 NO CONTRIBUTION. Each Indemnifying Shareholder waives, and
acknowledges and agrees that such Indemnifying Shareholder shall not have and
shall not exercise or assert (or attempt to exercise or assert), any right of
contribution, right of indemnity or other right or remedy against the Surviving
Corporation in connection with any indemnification obligation or any other
liability to which such Indemnifying Shareholder may become subject under or in
connection with this Agreement.
9.6 DEFENSE OF THIRD PARTY CLAIMS. In the event of the assertion or
commencement by any Person of any claim or Legal Proceeding (whether against the
Surviving Corporation, against Parent or against any other Person) with respect
to which the Indemnifying Shareholders may become obligated to hold harmless,
indemnify, compensate or reimburse any Indemnitee pursuant to this Section 9,
Parent shall have the right, at its election, to proceed with the defense of
such claim or Legal Proceeding on its own. If Parent so proceeds with the
defense of any such claim or Legal Proceeding:
(a) if such claim or Legal Proceeding is covered by the provisions of
Section 9.2 hereof, all reasonable expenses relating to the defense of such
claim or Legal Proceeding shall be borne and paid exclusively from the
General Escrow Amount;
(b) each Indemnifying Shareholder shall make available to Parent any
documents and materials in such Indemnifying Shareholder's possession or
control that may be necessary to the defense of such claim or Legal
Proceeding; and
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(c) Parent shall have the right to settle, adjust or compromise such
claim or Legal Proceeding with the consent of the Indemnifying
Shareholders' Agent (as defined in Section 10.1); provided, however, that
such consent shall not be unreasonably withheld.
Parent shall give the Indemnifying Shareholders' Agent prompt notice of the
commencement of any such Legal Proceeding against Parent or the Surviving
Corporation; provided, however, that any failure on the part of Parent to so
notify the Indemnifying Shareholders' Agent shall not limit any of the
obligations of the Indemnifying Shareholders under this Section 9 (except to the
extent such failure materially prejudices the defense of such Legal Proceeding).
9.7 EXERCISE OF REMEDIES BY INDEMNITEES OTHER THAN PARENT. No Indemnitee
(other than Parent or any successor thereto or assign thereof) shall be
permitted to assert any indemnification claim or exercise any other remedy under
this Agreement unless Parent (or any successor thereto or assign thereof) shall
have consented to the assertion of such indemnification claim or the exercise of
such other remedy.
SECTION 10. MISCELLANEOUS PROVISIONS
10.1 INDEMNIFYING SHAREHOLDERS' AGENT. Parent and the Company hereby agree
that F. Gibson Myers, Jr. shall act as the agent for purposes of Section 9 and
Section 10.4 of this Agreement (the "Indemnifying Shareholders' Agent"). Parent
and the Escrow Agent shall be entitled to deal exclusively with the Indemnifying
Shareholders' Agent on all matters relating to Section 9 and Section 10.4 and
the General Escrow Agreement and Merger Expenses Escrow Agreement (together, the
"Escrow Agreements"), and shall be entitled to rely conclusively (without
further evidence of any kind whatsoever) on any document with respect to Section
9 and Section 10.4 or the Escrow Agreements executed or purported to be executed
on behalf of any Indemnifying Shareholder by the Indemnifying Shareholders'
Agent, and on any other action with respect to Section 9 and Section 10.4 or the
Escrow Agreements taken or purported to be taken on behalf of any Indemnifying
Shareholder by the Indemnifying Shareholders' Agent, as fully binding upon such
Indemnifying Shareholder. If the Indemnifying Shareholders' Agent shall die,
become disabled or otherwise be unable to fulfill his responsibilities as agent
of the Indemnifying Shareholders, then Mayfield VI of which F. Gibson Myers, Jr.
is a general partner, shall, within ten days after such death or disability,
appoint a successor agent and, promptly thereafter, shall notify Parent and the
Escrow Agent of the identity of such successor. Any such successor shall become
the "Indemnifying Shareholders' Agent" for purposes of Section 9 and Section 10.
If for any reason there is no Indemnifying Shareholders' Agent at any time, all
references herein to the Indemnifying Shareholders' Agent shall be deemed to
refer to Indemnifying Shareholders who received a majority of the shares of
Parent Common Stock (including shares of Parent Common Stock issuable upon
exercise of Assumed Options) received by Indemnifying Shareholders. The Signing
Shareholders shall reimburse the Indemnifying Shareholders' Agent on a pro rata
basis (based upon the percentage of each Signing Shareholder on Attachment A to
the General Escrow Agreement compared to the aggregate percentages of all
Signing Shareholders on Attachment A) for all reasonable expenses (including
attorney's fees) incurred by the Indemnifying Shareholders' Agent in connection
with the performance of his duties under the General Escrow Agreement.
10.2 FURTHER ASSURANCES. Each party hereto shall execute and cause to be
delivered to each other party hereto such instruments and other documents, and
shall take such other actions, as such other party may reasonably request (prior
to, at or after the Closing) for the purpose of carrying out or evidencing any
of the transactions contemplated by this Agreement.
10.3 FEES AND EXPENSES. Subject to Section 10.4 below, each party to this
Agreement shall bear and pay all fees, costs and expenses (including legal fees
and accounting fees) that have been incurred or that are incurred by such party
in connection with the transactions contemplated by this Agreement, including
all fees, costs and expenses incurred by such party in connection with or by
virtue of (a) the investigation and review conducted by Parent and its
Representatives with respect to the Company's business (and the furnishing of
information to Parent and its Representatives in connection with such
investigation and review), (b) the negotiation, preparation and review of this
Agreement (including the Company Disclosure Schedule) and all agreements,
certificates, opinions and other instruments and documents delivered or to be
delivered in
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connection with the transactions contemplated by this Agreement, (c) the
preparation and submission of any filing or notice required to be made or given
in connection with any of the transactions contemplated by this Agreement, and
the obtaining of any Consent required to be obtained in connection with any of
such transactions, and (d) the consummation of the Merger.
10.4 INDEMNIFICATION FOR CERTAIN MERGER EXPENSES.
(a) The Indemnifying Shareholders shall severally and not jointly in
proportion and to the extent of such Indemnifying Shareholder's pro rata share
of the Merger Expenses Escrow Amount hold harmless and indemnify each of the
Indemnitees from and against, and shall compensate and reimburse the Indemnitees
for, any amounts paid either by the Company or by any Indemnitee, whether before
or after the Closing Date, in respect of (i) legal and accounting fees and
expenses, and expenses of UBS as referenced in Section 2.23 above, incurred by
the Company (in the aggregate, "Company Transaction Costs") to the extent that
such Company Transaction Costs exceed $750,000 (such excess amount, "Company
Excess Transaction Costs"); and (ii) the Company Excess Employee Expenses. The
Merger Expenses Escrow Amount shall be held and administered pursuant to the
Merger Expenses Escrow Agreement. No later than the Closing Date, the Company
shall deliver to Parent a schedule (the "Preliminary Transaction Costs
Schedule") identifying each Person to whom the Company has paid or for whose
account the Company has incurred Company Transaction Costs, and reflecting the
amount actually paid or owed or estimated to be owed to each such Person. Parent
acknowledges and agrees that the Indemnifying Shareholders shall not be liable
more than once for the same Company Excess Merger Expenses if the Company and/or
one or more of the Indemnitees become responsible for the same Company Excess
Merger Expenses. To the extent that the Company actually pays any Company Excess
Merger Expenses for which the Indemnitees are entitled to be indemnified
hereunder, Parent may request that indemnification in respect thereof be made to
Parent.
(b) With respect to liabilities of the Indemnifying Shareholders to any
Indemnitee under this Section 10.4, the Escrow Agent shall satisfy such
liability by delivering to such Indemnitee the number of shares of Parent Common
Stock determined by dividing (a) the aggregate dollar amount of such liability
by (b) the Designated Parent Stock Price (as defined in Section 1.5(b)(iv) and
as adjusted as appropriate to reflect any stock split, reverse stock split,
stock dividend, recapitalization or other similar transaction effected by Parent
between the Effective Time and the date such liability is satisfied).
(c) The escrow under the Merger Expenses Escrow Agreement will terminate
upon the earliest to occur of (i) exhaustion of the Merger Expenses Escrow
Amount in payment of all or a portion of the liabilities of the Indemnifying
Shareholders to the Indemnitees pursuant to this Section 10.4, (ii) ninety (90)
days after the Effective Time, or (iii) the date of delivery by Parent to the
Indemnifying Shareholders' Agent and the Escrow Agent of a final update to the
Preliminary Transaction Costs Schedule (the "Final Transaction Costs Schedule")
along with a demand for return to Parent out of the Merger Expenses Escrow
Amount of any shares of Parent Common Stock to which Parent is entitled under
this Section 10.4 as of the time of the delivery of the Final Transaction Costs
Schedule. The Final Transaction Costs Schedule shall be prepared and delivered
by Parent within (10) days after the date on which Parent or the Surviving
Corporation has received final invoices, marked as such, or a written statement
that payment in full with respect to Company Transaction Costs has been received
from UBS; Wilson, Sonsini, Goodrich & Rosati; Ernst & Young LLP and any other
party identified in the Preliminary Transaction Costs Schedule.
(d) In the event that the Merger Expenses Escrow Amount is insufficient to
satisfy the indemnification obligations of the Indemnifying Shareholders under
this Section 10.4, any additional amounts for which indemnification is due shall
be paid out of the General Escrow Amount by the Escrow Agent returning shares of
Parent Common Stock to Parent, calculated using the Designated Parent Stock
Price (without regard to the threshold in Section 9.3 of this Agreement).
10.5 ATTORNEYS' FEES. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled).
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10.6 NOTICES. Any notice or other communication required or permitted to
be delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth as follows (or to such other
address or facsimile telephone number as such party shall have specified in a
written notice given to the other parties hereto):
IF TO PARENT:
Caere Corporation
100 Cooper Court
Los Gatos, California 95030
Attention: Chief Financial Officer
Facsimile: (408) 395-5263
WITH A COPY TO:
Cooley Godward Castro Huddleson & Tatum
Five Palo Alto Square
3000 El Camino Real
Palo Alto, California 94306
Attention: Lee F. Benton, Esq.
Facsimile: (415) 857-0663
IF TO THE COMPANY:
ViewStar Corporation
1101 Marina Village Parkway
Alameda, California 94501
Attention: President
Facsimile: (510) 337-2222
WITH A COPY TO:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Attention: Robert B. Jack, Esq.
Facsimile: (415) 493-6811
if to any of the Signing Shareholders at its address or facsimile as set forth
under its name on Exhibit A.
10.7 CONFIDENTIALITY. On and at all times after the Closing Date, each
Signing Shareholder shall keep confidential, and shall not use or disclose to
any other Person, any non-public document or other non-public information in
such Signing Shareholder's possession that relates to the business of the
Company or Parent.
10.8 TIME OF THE ESSENCE. Time is of the essence of this Agreement.
10.9 HEADINGS. The underlined headings contained in this Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
10.10 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.
10.11 GOVERNING LAW. This Agreement shall be construed in accordance with,
and governed in all respects by, the internal laws of the State of California,
without giving effect to principles of conflicts of laws.
10.12 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon: the
Company and its successors and assigns (if any); the Signing Shareholders and
their respective personal representatives, executors, administrators, estates,
heirs, successors and assigns (if any); Parent and its successors and assigns
(if any); and Merger Sub and its successors and assigns (if any). This Agreement
shall inure to the benefit of: the Company; the Company's shareholders (to the
extent set forth in Section 1.5); the holders of Assumed
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Options (to the extent set forth in Section 1.6); the holders of the Company
Warrants (to the extent set forth in Section 1.7); the holders of the Bridge
Notes (to the extent set forth in Section 1.8); Parent; Merger Sub; the other
Indemnitees (subject to Section 9.8); and the respective successors and assigns
(if any) of the foregoing. From and after the Closing Date, parent may freely
assign any or all of its rights under this Agreement (including its
indemnification rights under Section 9), in whole or in part, to any other
Person without obtaining the consent or approval of any other party hereto or of
any other Person.
10.13 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. The rights and remedies
of the parties hereto shall be cumulative (and not alternative). The parties to
this Agreement agree that, in the event of any breach or threatened breach by
any party to this Agreement of any covenant, obligation or other provision set
forth in this Agreement for the benefit of any other party to this Agreement,
such other party shall be entitled (in addition to any other remedy that may be
available to it) to (a) a decree or order of specific performance or mandamus to
enforce the observance and performance of such covenant, obligation or other
provision, and (b) an injunction restraining such breach or threatened breach.
10.14 WAIVER.
(a) No failure on the part of any Person to exercise any power, right,
privilege or remedy under this Agreement, and no delay on the part of any Person
in exercising any power, right, privilege or remedy under this Agreement, shall
operate as a waiver of such power, right, privilege or remedy; and no single or
partial exercise of any such power, right, privilege or remedy shall preclude
any other or further exercise thereof or of any other power, right, privilege or
remedy.
(b) No Person shall be deemed to have waived any claim arising out of this
Agreement, or any power, right, privilege or remedy under this Agreement, unless
the waiver of such claim, power, right, privilege or remedy is expressly set
forth in a written instrument duly executed and delivered on behalf of such
Person; and any such waiver shall not be applicable or have any effect except in
the specific instance in which it is given.
10.15 AMENDMENTS. This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered by the party to be bound thereby.
10.16 PUBLIC ANNOUNCEMENTS. Upon execution of this Agreement, Parent and
the Company promptly will issue a joint press release approved by both parties
announcing the Merger. Thereafter, Parent or the Company may issue such press
releases, and make such other disclosures regarding the Merger, as it determines
(after consultation with legal counsel) are required under applicable securities
laws or NASD rules; provided however, that a draft of any such press release
shall be provided to the other party and its counsel as far as practicable in
advance of its release and the comments of such other party shall be taken into
consideration.
10.17 SEVERABILITY. In the event that any provision of this Agreement, or
the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
10.18 PARTIES IN INTEREST. Except for the provisions of Sections 1.5, 1.6
and 9, none of the provisions of this Agreement is intended to provide any
rights or remedies to any Person other than the parties hereto and their
respective successors and assigns (if any).
10.19 ENTIRE AGREEMENT. This Agreement and the other agreements referred
to herein set forth the entire understanding of the parties hereto relating to
the subject matter hereof and thereof and supersede all prior agreements and
understandings among or between any of the parties relating to the subject
matter hereof and thereof; provided, however, that the Mutual Non-Disclosure
Agreement executed by of Parent and the Company on July 25, 1995 shall not be
superseded by this Agreement and shall remain in effect in accordance with its
terms until the earlier of (a) the Effective Time, or (b) the date on which such
Mutual Non-Disclosure Agreement is terminated in accordance with its terms.
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10.20 CONSTRUCTION.
(a) For purposes of this Agreement, whenever the context requires: the
singular number shall include the plural, and vice versa; the masculine gender
shall include the feminine and neuter genders; the feminine gender shall include
the masculine and neuter genders; and the neuter gender shall include the
masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the effect
that ambiguities are to be resolved against the drafting party shall not be
applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and "including," and
variations thereof, shall not be deemed to be terms of limitation, but rather
shall be deemed to be followed by the words "without limitation."
(d) Except as otherwise indicated, all references in this Agreement to
"Sections" and "Exhibits" are intended to refer to Sections of this Agreement
and Exhibits to this Agreement.
The parties hereto have caused this Agreement to be executed and delivered
as of October 23, 1995.
CAERE CORPORATION,
a Delaware corporation
By:
Robert G. Teresi
Chairman of the Board and
Chief Executive Officer
VIEWSTAR ACQUISITION CORP.,
a California corporation
By:
Blanche M. Sutter
Chief Financial Officer
VIEWSTAR CORPORATION,
a California corporation
By:
Print
Name:
Title:
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SIGNING SHAREHOLDERS:
Kamran Kheirolomoom
Mark Perry
MAYFIELD FUND
By:
Print Name:
Title:
INMAN & BOWMAN
By:
Print Name:
Title:
WONGFRATRIS COMPANY
By:
Print Name:
Title:
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EXHIBIT A
SIGNING SHAREHOLDERS
NUMBER OF NUMBER OF NUMBER OF NUMBER OF NUMBER OF NUMBER WARRANTS TO OPTIONS TO
SHARES OF SHARES OF SHARES OF SHARES OF SHARES OF OF SHARES PURCHASE PURCHASE
COMMON SERIES A SERIES B SERIES C SERIES D OF SERIES COMMON COMMON
NAME AND ADDRESS STOCK HELD HELD HELD HELD HELD E HELD STOCK HELD STOCK HELD
- ---------------------------- ---------- --------- --------- --------- --------- --------- ----------- ----------
Kamran Kheirolomoom 397,000 0 0 0 0 0 0 300,000
1101 Marina Village Pkwy
Alameda, CA 94501
Mark Perry 100,000 0 0 0 0 0 0 600,000
2606 Jackson Street
San Francisco, CA 94115
Mayfield Fund 0 0 0 918,919 840,210 724,206 82,556 0
2800 Sand Hill Road,
Ste. 250
Menlo Park, CA 94025
Attn: F. Gibson Myers, Jr.
Inman & Bowman 33,784 34,000 30,303 567,568 647,536 220,205 50,960 0
4 Orinda Way
Building D, Suite 150
Orinda, CA 94563
Attn: D. Kirkwood Bowman
Wongfratris Company 10,135 266,667 90,909 40,540 254,118 154,780 22,650 0
51 Jordan Place
Palo Alto, CA 94303
Attn: Hon Wong
------- ------- ------- --------- --------- --------- ------- -------
Totals: 540,919 300,667 121,212 1,527,027 1,741,864 1,099,191 156,166 900,000
======= ======= ======= ========= ========= ========= ======= =======
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EXHIBIT B
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit B):
ACQUISITION TRANSACTION. "Acquisition Transaction" shall mean any
transaction involving:
(a) the sale, license, disposition or acquisition of all or a material
portion of the Company's business or assets;
(b) the issuance, disposition or acquisition of (i) any capital stock
or other equity security of the Company (other than common stock issued to
employees of the Company, upon exercise of Company Options or otherwise, in
routine transactions in accordance with the Company's past practices), (ii)
any option, call, warrant or right (whether or not immediately exercisable)
to acquire any capital stock or other equity security of the Company (other
than stock options granted to employees of the Company in routine
transactions in accordance with the Company's past practices), or (iii) any
security, instrument or obligation that is or may become convertible into
or exchangeable for any capital stock or other equity security of the
Company; or
(c) any merger, consolidation, business combination, reorganization or
similar transaction involving the Company.
AGREEMENT. "Agreement" shall mean the Agreement and Plan of Reorganization
and Merger made and entered into as of October 9, 1995, by and among Parent,
Merger Sub, the Company and the Signing Shareholders to which this Exhibit B is
attached.
APPLICABLE FRACTION. "Applicable Fraction" shall have the meaning given it
in Section 1.5(b)(iii) of the Agreement.
ASSUMED OPTIONS. "Assumed Options" shall have the meaning given it in
Section 1.6(b) of the Agreement.
BANK WARRANTS. "Bank Warrants" shall mean the Series C Warrant, the Series
D Warrant and the Series E Warrant, taken together.
BRIDGE LOAN. "Bridge Loan" shall mean the Secured Subordinated Promissory
Notes dated June 1, 1995, in the aggregate principal amount of $2,000,000,
issued by the Company to certain shareholders of the Company pursuant to that
certain Note and Warrant Purchase Agreement dated May 18, 1995 among the Company
and the Investors listed on Schedule A thereto.
BRIDGE WARRANTS. "Bridge Warrants" shall mean the warrants exercisable for
the purchase of an aggregate of 250,000 shares of the Company Common Stock at a
price of $0.60 per share issued on June 1, 1995 in connection with the Bridge
Loan.
CLOSING. "Closing" shall have the meaning given it in Section 1.3 of the
Agreement.
CLOSING DATE. "Closing Date" shall have the meaning given it in Section 1.3
of the Agreement.
CODE. "Code" shall have the meaning given it in Recital B of the Agreement.
COMPANY. The "Company" shall mean ViewStar Corporation, a California
corporation.
COMPANY ARTICLES. "Company Articles" shall mean the Restated Articles of
Incorporation of the Company filed with the Secretary of State of the State of
California on August 16, 1993, as amended through June 5, 1995.
COMPANY BENEFIT PLANS. "Company Benefit Plans" shall have the meaning given
it in Section 5.16 of the Agreement.
COMPANY BYLAWS. "Company Bylaws" shall mean the bylaws of the Company
adopted by the Board of Directors on February 28, 1986, as amended through
January 4, 1995, in effect in the date of this Agreement.
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COMPANY CEO AGREEMENT. "Company CEO Agreement" shall mean the Amended and
Restated Employment Agreement of the Company's CEO in the form approved by
Parent as of the signing of this Agreement and executed by the Company and the
Company's CEO, dated October 9, 1995.
COMPANY'S CLOSING CERTIFICATE. "Company's Closing Certificate" shall have
the meaning given it in Section 6.6(l) of the Agreement.
COMPANY COMMON STOCK. "Company Common Stock" shall mean the Common Stock
($.01 par value) of the Company, 20,000,000 shares of which are authorized.
COMPANY CONTRACT. "Company Contract" shall mean any Contract: (a) to which
the Company is a party; (b) by which the Company or any of its assets is or may
become bound or under which the Company has, or may become subject to, any
obligation; or (c) under which the Company has or may acquire any right or
interest.
COMPANY DISCLOSURE SCHEDULE. "Company Disclosure Schedule" shall mean the
schedule (dated as of the date of the Agreement) delivered to Parent on behalf
of the Company pursuant to Section 2 of the Agreement.
COMPANY EXCESS EMPLOYEE EXPENSES. "Company Excess Employee Expenses" shall
mean the aggregate of any and all of the following expenses that may be paid by
the Company, Parent or the Surviving Corporation, whether before or after the
Closing Date: (a) All costs and expenses arising from or as a result of the
Company CEO Agreement (including without limitation the cost, if any, to Parent
of any foregone tax benefit that would have accrued to Parent but for the fact
that any payment or benefit (including accelerated option vesting) received or
to be received by the Company's CEO under the Company CEO Agreement constitutes
a "parachute payment" within the meaning of the Code) to the extent that the
aggregate amount of such costs and expenses exceeds $500,000; (b) all costs and
expenses arising from or as a result of the Employment Agreement by and between
the Company and Mark Perry, dated May 18, 1994, as amended on September 25, 1995
(the "Perry Employment Agreement") (including without limitation the cost, if
any, to Parent of any foregone tax benefit that would have accrued to Parent but
for the fact that any payment or benefit (including accelerated option vesting)
received or to be received by Mark Perry under the Perry Employment Agreement
constitutes a "parachute payment" within the meaning of the Code) to the extent
that the aggregate amount of such costs and expenses exceeds $400,000; (c) any
amounts paid to Phil Sakakihara prior to the Closing Date in excess of regular
salary, benefits and bonus, or after the Closing Date as severance pay or in
respect of any claim for severance pay, as provided under his offer letter from
the Company dated June 13, 1994 and (d) all amounts paid or to be paid under the
Retention Plan that exceed in the aggregate $740,000.
COMPANY EXCESS MERGER EXPENSES. "Company Excess Merger Expenses" shall mean
the aggregate of Company Excess Employee Costs and Company Excess Transaction
Costs.
COMPANY EXCESS TRANSACTION COSTS. "Company Excess Transaction Costs" shall
have the meaning given it in Section 10.4(a).
COMPANY FINANCIAL STATEMENTS. "Company Financial Statements" shall have the
meaning given them in Section 2.4 of the Agreement.
COMPANY OPTIONS. "Company Options" shall have the meaning given it in
Section 1.6 of the Agreement.
COMPANY PREFERRED STOCK. "Company Preferred Stock" shall mean the $.01 per
value Preferred Stock of the Company, 9,395,146 shares of which have been
authorized.
COMPANY PROPRIETARY ASSET. "Company Proprietary Asset" shall mean any
Proprietary Asset owned by or licensed to the Company or otherwise used by the
Company.
COMPANY SHAREHOLDER MEETING. "Company Shareholder Meeting" shall have the
meaning given it in Section 4.5 of the Agreement.
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COMPANY TRANSACTION COSTS. "Company Transaction Costs" shall have the
meaning given it in Section 10.4(a) of the Agreement.
COMPANY WARRANTS. "Company Warrants" shall mean the Bridge Warrants, the
EDS Warrants and the Bank Warrants, taken together.
CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
CONTRACT. "Contract" shall mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, warranty,
insurance policy, benefit plan or legally binding commitment or undertaking of
any nature.
CONVERSION AGREEMENT. "Conversion Agreement" shall mean each of the
Preferred Conversion Agreements in the form of Exhibit F to the Agreement
executed by the Company and the holders of the Company's Preferred Stock.
DAMAGES. "Damages" shall include any loss, damage, injury, decline in
value, lost opportunity, liability, claim, demand, settlement, judgment, award,
fine, penalty, Tax, fee (including reasonable attorneys' fees), charge, cost
(including costs of investigation) or expense of any nature.
DESIGNATED PARENT STOCK PRICE. "Designated Parent Stock Price" shall have
the meaning given it in Section 1.5(b)(ix) of the Agreement.
EDS WARRANT. "EDS Warrant" shall mean the warrant exercisable for the
purchase of 25,000 shares of Company Common Stock at a price of $4.00 per share,
issued on July 27, 1994 to Electronic Data Systems Corporation ("EDS") in full
satisfaction of the Company's obligations under Section 6.1 of the Software and
Services Agreement dated March 28, 1994 between the Company and EDS.
EFFECTIVE TIME. "Effective Time" shall have the meaning given it in Section
1.3 of the Agreement.
ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right, community
property interest or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
ENTITY. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.
ESCROW AGENT. "Escrow Agent" shall mean the First National Bank of Boston
or another escrow agent mutually agreed upon by Parent and the Company.
EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
EXPIRATION DATE. "Expiration Date" shall mean (a) as to the representations
and warranties contained in Sections 2.4, 2.7 and 3.3(b) of the Agreement, the
earlier of (i) the date KPMG Peat Marwick formally issues its opinion in
Parent's report on Form 10-K for the first fiscal year which includes financial
results with Parent and the Company combined and (ii) the date 135 days
following the Closing Date; and (b) as to all other representations and
warranties contained in Sections 2 and 3 of the Agreement, the date 135 days
following the Closing Date (such date of expiration in both cases being referred
to as the "Expiration Date" herein).
FINAL DATE. "Final Date" shall have the meaning given it in Section 8.1 of
the Agreement.
FINAL TRANSACTION COSTS SCHEDULE. "Final Transaction Costs Schedule" shall
have the meaning given it in Section 10.4(c) of the Agreement.
FORM S-4. "Form S-4" shall have the meaning given it in Section 1.9 of the
Agreement.
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GENERAL ESCROW AGREEMENT. "General Escrow Agreement" shall mean the
agreement by and among the Escrow Agent, Parent, the Company and the
Indemnifying Shareholders' Agent, dated the date of this Agreement, pursuant to
which the Escrow Agent will hold and dispense the General Escrow Amount.
GENERAL ESCROW AMOUNT. "General Escrow Amount" shall mean ten percent (10%)
of all shares of Parent Common Stock being received by shareholders of the
Company and 10% of all shares of Parent Common Stock received by holders of
Vested Option Shares when such Vested Option Shares are issued, in connection
with the Merger.
GOVERNMENT BID. "Government Bid" shall mean any quotation, bid or proposal
submitted to any Governmental Body or any proposed prime contractor or
higher-tier subcontractor of any Governmental Body.
GOVERNMENT CONTRACT. "Government Contract" shall mean any prime contract,
subcontract, letter contract, purchase order or delivery order executed or
submitted to or on behalf of any Governmental Body or any prime contractor or
higher-tier subcontractor, or any distributor or other reseller to any
Governmental Body or under which any Governmental Body or any such prime
contractor or subcontractor or distributor or reseller otherwise has or may
acquire any right or interest.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean any:
(a) permit, license, certificate, franchise, permission, clearance,
registration, qualification or authorization issued, granted, given or otherwise
made available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement; or (b) right under any Contract with any Governmental
Body.
GOVERNMENTAL BODY. "Governmental Body" shall mean any: (a) nation, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, organization, unit, body or Entity and any court or
other tribunal).
INDEMNIFYING SHAREHOLDERS. "Indemnifying Shareholders" shall mean all
shareholders of the Company entitled to receive shares of Parent Common Stock
pursuant to the Merger and all holders of Vested Option Shares who receive
Parent Common Stock pursuant to the Merger.
INDEMNITEES. "Indemnitees" shall mean the following Persons: (a) Parent;
(b) Parent's current and future affiliates (including the Surviving
Corporation); (c) the respective Representatives of the Persons referred to in
clauses "(a)" and "(b)" above; and (d) the respective successors and assigns of
the Persons referred to in clauses "(a)," "(b)" and "(c)" above; provided,
however, that the Signing Shareholders shall not be deemed to be "Indemnitees."
KNOWLEDGE. An individual will be deemed to have "Knowledge" of a particular
fact or other matter if (a) such individual is actually aware of such fact or
other matter; or (b) such individual would reasonably be expected to be aware of
such fact or other matter assuming reasonable inquiry of any facts or
circumstances actually known to such person which cause such person to doubt the
accuracy of any particular fact or other matter. A Person (other than an
individual) will be deemed to have "Knowledge" of a particular fact or other
matter if any individual who is serving, or who has any time served during 1995,
as a member of the Board of Directors, officer or director-level employee of
such Person (or in any similar capacity) has, or at any time had, Knowledge of
such fact or other matter.
LEGAL PROCEEDING. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, constitution, principle of
common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling
or requirement issued, enacted, adopted, promulgated, implemented or otherwise
put into effect by or under the authority of any Governmental Body.
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MATERIAL ADVERSE EFFECT. A violation or other matter will be deemed to have
a "Material Adverse Effect" on a Person if such violation or other matter
(considered together with all other matters that would constitute exceptions to
the representations and warranties set forth in the Agreement but for the
presence of "Material Adverse Effect" or other materiality qualifications, or
any similar qualifications, in such representations and warranties) would have a
material adverse effect on the Person's business, condition, assets, liabilities
or operations, financial performance.
MATERIAL CONTRACTS. "Material Contracts" shall have the meaning given them
in Section 2.10 (a) of the Agreement.
MERGER EXPENSES ESCROW AGREEMENT. "Merger Expenses Escrow Agreement" shall
mean the agreement by and among the Escrow Agent, Parent, the Company and the
Indemnifying Shareholders' Agent, dated the Closing Date, in the form of Exhibit
N hereto, pursuant to which the Escrow Agent will hold and dispense the Merger
Expenses Escrow Amount.
MERGER EXPENSES ESCROW AMOUNT. "Merger Expenses Escrow Amount" shall mean
three percent (3%) of all shares of Parent Common Stock being received by
shareholders of the Company and 3% of all shares of Parent Common Stock received
by holders of Vested Company Options in connection with the Merger.
MERGER SUB. "Merger Sub" shall mean ViewStar Acquisition Corp., a
California corporation.
PARENT. "Parent" shall mean Caere Corporation, a Delaware corporation.
PARENT COMMON STOCK. "Parent Common Stock" shall mean the $.001 par value
Common Stock of Parent, 30,000,000 shares of which are authorized.
PARENT DISCLOSURE SCHEDULE. "Parent Disclosure Schedule" shall mean the
schedule (dated as of the date of the Agreement) delivered to the Company on
behalf of Parent pursuant to Section 3 of the Agreement.
PARENT PREFERRED STOCK. "Parent Preferred Stock" shall mean the $.001 par
value Preferred Stock of Parent, 2,000,000 shares of which are authorized.
PARENT SEC DOCUMENTS. "Parent SEC Documents" shall have the meaning given
it in Section 3.3(a) of the Agreement.
PARENT STOCKHOLDER MEETING. "Parent Stockholder Meeting" shall mean the
meeting of the stockholders of Parent held in accordance with Section 5.2 of the
Agreement.
PERSON. "Person" shall mean any individual, Entity or Governmental Body.
PLAN OR PLANS. "Plan or Plans" shall have the meanings set forth in Section
2.15(a) of the Agreement.
PRECLOSING PERIOD. "Preclosing Period" shall have the meaning given it in
Section 4.1 of the Agreement.
PRELIMINARY TRANSACTION COSTS SCHEDULE. "Preliminary Transaction Costs
Schedule" shall have the meaning given it in Section 10.4(a) of the Agreement.
PROPRIETARY ASSET. "Proprietary Asset" shall mean: (a) any patent, patent
application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service mark (whether
registered or unregistered), service mark application, copyright (whether
registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system, computer
software, computer program, invention, design, blueprint, engineering drawing,
proprietary product, technology, proprietary right or other intellectual
property right or intangible asset; and (b) any right to use or exploit any of
the foregoing.
PROSPECTUS/PROXY STATEMENT. "Prospectus/Proxy Statement" shall have the
meaning given it in Section 1.9 of the Agreement.
REPRESENTATIVES. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
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RETENTION PLAN. "Retention Plan" shall have the meaning given it in Section
4.7 of the Agreement.
SEC. "SEC" shall mean the United States Securities and Exchange Commission.
SECURITIES ACT. "Securities Act" shall mean the Securities Act of 1933, as
amended.
SERIES A PREFERRED STOCK. "Series A Preferred Stock" shall mean the Series
A Preferred Stock of the Company, 526,667 shares of which are authorized.
SERIES B PREFERRED STOCK. "Series B Preferred Stock" shall mean the Series
B Preferred Stock of the Company, 415,142 shares of which are authorized.
SERIES C PREFERRED STOCK. "Series C Preferred Stock" shall mean the Series
C Preferred Stock of the Company, 2,660,081 shares of which are authorized.
SERIES C WARRANT. "Series C Warrant" shall mean the Warrant of the Company
exercisable for the purchase of 10,000 shares of Series C Preferred Stock at a
price of $1.85 per share, issued on September 25, 1989 to Silicon Valley Bank
("SVB").
SERIES D PREFERRED STOCK. "Series D Preferred Stock" shall mean the Series
D Preferred Stock of the Company, 3,993,256 shares of which are authorized.
SERIES D WARRANT. "Series D Warrant" shall mean the warrant of the Company
exercisable for the purchase of 13,814 shares of Series D Preferred Stock at a
price of $2.40 per share, issued on October 31, 1991 to SVB.
SERIES E PREFERRED STOCK. "Series E Preferred Stock" shall mean the Series
E Preferred Stock of the Company, 1,800,000 shares of which are authorized.
SERIES E WARRANTS. "Series E Warrants" shall mean the warrants of the
Company exercisable for the purchase of 5,000 and 22,468 shares of Series E
Preferred Stock at a price of $3.90 per share, issued on September 25, 1994 and
June 1, 1995, respectively, to SVB.
SIGNING SHAREHOLDERS. "Signing Shareholders" shall mean the shareholders
and warrant holders of the Company identified in Exhibit A.
STOCK PLANS. "Stock Plans" shall have the meaning given it in Section
1.6(a) of the Agreement.
TAX. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad
valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business
tax, withholding tax or payroll tax), levy, assessment, tariff, duty (including
any customs duty), deficiency or fee, and any related charge or amount
(including any fine, penalty or interest), imposed, assessed or collected by or
under the authority of any Governmental Body.
TAX RETURN. "Tax Return" shall mean any return (including any information
return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.
UBS. "UBS" shall have the meaning given it in Section 2.23 of the
Agreement.
VESTED OPTION SHARES. Vested Option Shares" shall mean the number of shares
of Company Common Stock subject to Company Options that are vested as of the
Closing Date, including without limitation, all shares of Company Common Stock
subject to Company Options the vesting of which is accelerated or continued
without regard to continued status as an employee (according to the terms of
employment agreements, employment offer letters, or any other agreement between
the Company and any holder of such Company Options) by reason of the Merger or
as a result of the Merger.
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EXHIBIT E
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT (the "Agreement") is being executed and
delivered as of October 9, 1995, by the undersigned Shareholders (each a
"Shareholder") in favor of CAERE CORPORATION, a Delaware corporation ("Caere").
RECITALS
A. Pursuant to an Agreement and Plan of Merger and Reorganization dated as
of October 9, 1995, by and among Caere, ViewStar Corporation, a California
corporation, ViewStar Acquisition Corp., a California corporation and a wholly
owned subsidiary of Caere ("Merger Sub"), and certain shareholders of ViewStar
(the "Reorganization Agreement"), Merger Sub is merging into ViewStar on the
Closing Date (the "Merger"). In connection with the Merger, Shareholder and
ViewStar's other shareholders are exchanging all of their shares of stock of
ViewStar for shares of Common Stock of Caere, and as a result of the Merger
ViewStar is becoming a wholly owned subsidiary of Caere.
B. In connection with the Merger, it is a condition of the Reorganization
Agreement that certain principal Shareholders of ViewStar will agree to vote
their Shares (as defined below) in favor of the Merger.
C. To comply with the Reorganization Agreement and to induce Caere to
proceed to consummate the Merger, Shareholders have agreed to certain matters,
including to vote all shares of ViewStar capital stock held by each such
Shareholder (the "Shares") in favor of the Merger.
AGREEMENT
In consideration of the foregoing premises, which are hereby incorporated
into this Agreement, and for other good and valuable consideration, the receipt,
sufficiency and adequacy of which is hereby acknowledged, each Shareholder,
severally and not jointly, hereby agrees as follows:
1. REPRESENTATIONS OF SHAREHOLDERS. Each Shareholder, severally and not
jointly, represents that such Shareholder (i) is the holder and beneficial owner
of that number of Shares set forth under such Shareholder's signature below, and
(ii) has full power and authority to make, enter into and carry out the terms of
this Agreement.
2. AGREEMENT TO VOTE SHARES. Each Shareholder shall vote such
Shareholder's Shares and any of such Shareholder's New Shares (as defined in
Section 5 below), and shall cause any holder of record of such Shareholder's
Shares or New Shares to vote in favor of approval of the Merger and the other
actions and transactions contemplated by the Reorganization Agreement
(including, without limitation, any amendment of ViewStar's Restated Articles of
Incorporation required in connection therewith) at every meeting of the
shareholders of ViewStar called for such purpose (and every adjournment thereof)
or by written consent in lieu of such a meeting or otherwise (a "Shareholder
Vote").
3. IRREVOCABLE PROXY. Concurrently with the execution of this Agreement,
each Shareholder agrees to deliver to Caere a proxy in the form attached hereto
as Exhibit A (the "Proxy"), which shall be irrevocable to the extent provided in
Section 705 of the California General Corporation Law and shall be deemed to be
coupled with an interest, with the total number of Shares beneficially owned (as
such term is defined in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended) by Shareholder set forth therein.
4. TRANSFER AND ENCUMBRANCE. Each Shareholder agrees, severally and not
jointly, not to transfer, sell, offer or otherwise dispose of or encumber any of
its Shares or New Shares prior to the earlier of (i) the effective date of the
Merger and (ii) the date the Reorganization Agreement shall have been terminated
in accordance with its terms.
5. ADDITIONAL PURCHASES. Each Shareholder agrees, severally and not
jointly, that any new shares of ViewStar capital stock acquired or purchased by
such Shareholder shall be subject to the terms of this
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Agreement to the same extent as if they constituted Shares. For purposes of this
Agreement, the term "New Shares" shall mean any shares of ViewStar capital stock
that a Shareholder purchases, otherwise acquires beneficial ownership of, or
acquires the right to vote or share in the voting of, after the execution of
this Agreement, including without limitation through the exercise of any options
or warrants to purchase ViewStar capital stock.
6. SPECIFIC PERFORMANCE. Each Shareholder acknowledges, severally and not
jointly, that (a) it will be impossible to measure in money the damage to Caere
if a Shareholder fails to comply with any of the obligations imposed by this
Agreement, (b) every such obligation is material, and (c) in the event of any
such failure, Caere will not have an adequate remedy at law or damages and,
accordingly, each Shareholder agrees, severally and not jointly, that injunctive
relief or any other equitable remedy ordered by a court, in addition to remedies
at law or damages, is the appropriate remedy for any such failure.
7. NOTICES. Any notice or other communication required or permitted to be
delivered to Shareholder or Caere under this Agreement shall be in writing and
shall be deemed properly delivered, given and received when delivered (by hand,
by registered mail, by courier or express delivery service or by facsimile) to
the address or facsimile number as follows (or to such other address or
facsimile number as such party shall have specified in a written notice given to
the other party):
IF TO CAERE: Caere Corporation
100 Cooper Court
Los Gatos, CA 95030
Attention: Chief Financial Officer
Facsimile: (408) 395-5263
IF TO VIEWSTAR: ViewStar Corporation
1101 Marina Village Parkway
Alameda, CA 94501
Attention:
Facsimile: (510) 337-2222
IF TO SHAREHOLDER AT ITS ADDRESS OR FACSIMILE AS SET FORTH UNDER ITS
SIGNATURE BELOW.
8. SEVERABILITY. If any provision of this Agreement or any part of any
such provision is held under any circumstances to be invalid or unenforceable in
any jurisdiction, then (a) such provision or part thereof shall, with respect to
such circumstances and in such jurisdiction, be deemed amended to conform to
applicable laws so as to be valid and enforceable to the fullest possible
extent, (b) the invalidity or unenforceability of such provision or part thereof
under such circumstances and in such jurisdiction shall not affect the validity
or enforceability of such provision or part thereof under any other
circumstances or in any other jurisdiction, and (c) such invalidity of
enforceability of such provision or part thereof shall not affect the validity
or enforceability of the remainder of such provision or the validity or
enforceability of any other provision of this Agreement. Each provision of this
Agreement is separable from every other provision of this Agreement, and each
part of each provision of this Agreement is separable from every other part of
such provision.
9. GOVERNING LAW. This Agreement shall be construed in accordance with,
and governed in all respects by, the laws of the State of California, without
giving effect to principles of conflicts of laws.
10. ENTIRE AGREEMENT. This Agreement and the Proxy set forth the entire
understanding of each Shareholder and Caere relating to the subject matter
hereof and supersede all prior agreements and understandings between any of such
parties relating to the subject matter hereof.
11. WAIVER. No failure on the part of Caere or any Shareholder to exercise
any power, right, privilege or remedy under this Agreement, and no delay on the
part of Caere or any Shareholder in exercising any power, right, privilege or
remedy under this Agreement, shall operate as a waiver of such power, right,
privilege or remedy; and no single or partial exercise of any such power, right,
privilege or remedy shall preclude any other or further exercise thereof or of
any other power, right, privilege or remedy. Neither Caere nor any Shareholder
shall be deemed to have waived any claim arising out of this Agreement, or any
power, right,
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privilege or remedy under this Agreement, unless the waiver of such claim,
power, right, privilege or remedy is expressly set forth in a written instrument
duly executed and delivered on behalf of such party; and any such waiver shall
not be applicable or have any effect except in the specific instance in which it
is given.
12. CAPTIONS. The captions contained in this Agreement are for convenience
of reference only, shall not be deemed to be a part of this Agreement and shall
not be referred to in connection with the construction or interpretation of this
Agreement.
13. FURTHER ASSURANCES. Each Shareholder shall execute and/or cause to be
delivered to Caere such instruments and other documents and shall take such
other actions as Caere may reasonably request to effectuate the intent and
purposes of this Agreement.
14. AMENDMENTS. This Agreement may not be amended, modified, altered, or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of Caere and Shareholder.
15. ATTORNEYS' FEES AND EXPENSES. If any legal action or other legal
proceeding relating to the enforcement of any provision of this Agreement is
brought against Shareholder, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements, in addition to any other
relief to which the prevailing party may be entitled.
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
17. TERMINATION. This Agreement shall terminate upon the earlier to occur
of the Merger or the termination of the Reorganization Agreement in accordance
with its terms and all of the provisions hereof shall terminate at such time.
18. EFFECTIVENESS OF SHAREHOLDER AGREEMENT. Each Shareholder's agreement
hereunder is a separate agreement and the representations and covenants of each
Shareholder apply only to such Shareholder and not to any other Shareholder. The
action (or inaction) by one Shareholder shall have no effect on the rights or
obligations of any other Shareholder.
19. ASSIGNMENT. This Agreement and all obligations hereunder are personal
to each Shareholder and may not be transferred or assigned by a Shareholder at
any time. Caere may, with Shareholder's written consent, which consent shall not
be unreasonably withheld, assign its rights under this Agreement to any entity
in connection with any sale or transfer of all or a substantial portion of
Caere's assets to such entity.
20. BINDING NATURE. Subject to Section 19, this Agreement will be binding
upon Shareholders and Shareholders' representatives, executors, administrators,
estate, heirs, successors and assigns, and will inure to the benefit of Caere
and its successors and assigns.
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IN WITNESS WHEREOF, the undersigned has executed and delivered this
Agreement as of the date first written above.
SHAREHOLDER
--------------------------------------
[Shareholder Name]
By:
--------------------------------------
Print Name:
--------------------------------------
Title:
--------------------------------------
Address:
--------------------------------------
--------------------------------------
--------------------------------------
Attention:
--------------------------------------
Facsimile:
--------------------------------------
Shares of ViewStar Beneficially Owned:
Common Stock:
- --------------------------------------
Series A Preferred Stock:
- -----------------------------------------------------------------------
Series B Preferred Stock:
- -----------------------------------------------------------------------
Series C Preferred Stock:
- -----------------------------------------------------------------------
Series D Preferred Stock:
- -----------------------------------------------------------------------
Series E Preferred Stock:
- -----------------------------------------------------------------------
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EXHIBIT A
LIMITED IRREVOCABLE PROXY
The undersigned shareholder of ViewStar Corporation, a California
corporation ("ViewStar"), hereby irrevocably (to the extent provided in Section
705 of the California General Corporation Law) appoints Robert G. Teresi and
Blanche M. Sutter, and each of them, the attorneys and proxies of the
undersigned, with full power of substitution and resubstitution, to vote the
shares of capital stock of ViewStar beneficially owned by the undersigned, which
shares are listed below (the "Shares"), and any and all other shares or
securities issued or issuable in respect thereof or after the date hereof, but
only with respect to the Merger (as defined below) and the other transactions
contemplated by the Reorganization Agreement (as defined below) (collectively,
the "Identified Matters"), until such time as that certain Agreement and Plan of
Merger and Reorganization dated as of October 9, 1995 (the "Reorganization
Agreement"), among Caere Corporation, a Delaware corporation ("Caere"),
ViewStar, ViewStar Acquisition Corp. and certain shareholders of ViewStar,
providing for the merger of ViewStar Acquisition Corp., a California corporation
and a wholly-owned subsidiary of Caere with and into ViewStar (the "Merger"),
shall be terminated in accordance with its terms or the Merger is effective.
Upon the execution hereof, all prior proxies given by the undersigned with
respect to the Shares and any and all other shares or securities issued or
issuable in respect thereof on or after the date hereof are hereby revoked, but
only to the extent that they relate to the Identified Matters, and no subsequent
proxies will be given with respect to the Identified Matters. This proxy is
irrevocable (to the extent provided in Section 705 of the California General
Corporation Law) and is granted in connection with that certain Shareholder
Agreement dated as of October 9, 1995 between Caere, ViewStar and the
undersigned shareholder, and is granted in consideration of Caere entering into
the Reorganization Agreement. The attorneys and proxies named above will be
empowered at any time prior to the earlier to occur of the Merger or the
termination of the Reorganization Agreement to exercise all voting and other
rights (including, without limitation, the power to execute and deliver written
consents with respect to the Shares) of the undersigned with respect to the
Shares, but only with respect to the Identified Matters, at every meeting of the
shareholders of ViewStar (and every adjournment thereof) or by written consent
in lieu of such a meeting, or otherwise, to vote the Shares in favor of approval
of the Merger and the other actions and transactions contemplated by the
Reorganization Agreement (including, without limitation, any amendment of
ViewStar's Restated Articles of Incorporation required in connection therewith).
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
Dated: October 9, 1995 SHAREHOLDER
--------------------------------------
[Shareholder Name]
By:
--------------------------------------
Print Name:
--------------------------------------
Title:
-----------------------------------
(if applicable)
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Shares of ViewStar Beneficially Owned:
Common Stock:
- --------------------------------------
CAERE CORPORATION,
a Delaware corporation
By:
- --------------------------------------
Print Name:
- --------------------------------------
Title:
- --------------------------------------
Viewstar Series A Preferred Stock:
- -------------------------------------------------------------
Series B Preferred Stock:
- -----------------------------------------------------------------------
Series C Preferred Stock:
- -----------------------------------------------------------------------
Series D Preferred Stock:
- -----------------------------------------------------------------------
Series E Preferred Stock:
- -----------------------------------------------------------------------
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EXHIBIT F
VIEWSTAR CORPORATION
PREFERRED CONVERSION AGREEMENT
This Preferred Conversion Agreement (the "Agreement") is made and entered
into as of October 8, 1995 by and among ViewStar Corporation, a California
corporation (the "Company"), and the Investors listed on Exhibit A hereto (each
individually an "Investor" and collectively, the "Investors"). The parties agree
as follows:
1. DEFINITIONS. For purposes of this Agreement and the exhibits hereto,
the following definitions shall apply:
"Acquiror" means Caere Corporation, a Delaware corporation.
"Closing" means the date and time at which the Merger is consummated.
"Preferred Stock" means all Preferred Stock of the Company, including that
Preferred Stock issuable upon exercise of warrants to purchase Preferred Stock
of the Company.
"Merger" means the merger of the Company with or into the Acquiror or a
subsidiary of the Acquiror.
2. CONVERSION OF PREFERRED STOCK. At the Closing each Investor agrees to
convert into Common Stock no less than the number of shares of each Series of
Preferred Stock held by such Investor as set forth on Exhibit 1 hereto.
3. RESTRICTIONS ON TRANSFER; INDEMNIFICATION.
3.1 STOP TRANSFER ORDER. Each Investor hereby authorizes the transfer
agent for the shares of capital stock of the Company to impose a "stop
transfer" order on any proposed transfer of any shares of Preferred Stock
unless the transferee is made aware of and agrees to be bound by the terms
of this Agreement.
3.2 INDEMNIFICATION. Each Investor agrees to indemnify and hold
harmless the Company from any damage or loss caused by any transfer of
shares of Preferred Stock in contravention to the terms of this Agreement.
4. GENERAL.
4.1 SPECIFIC PERFORMANCE. Each of the parties acknowledge that all
other parties hereto will be irreparably damaged in the event that the
provisions of this Agreement are not specifically enforced. Accordingly,
should any dispute arise pursuant this Agreement, the parties agree that
specific performance shall be an appropriate remedy in addition to any
other remedies which any party may have.
4.2 SUCCESSORS AND ASSIGNS. The terms and conditions of this
Agreement shall benefit and bind the respective successors and permitted
assigns of the parties.
4.3 GOVERNING LAW. This Agreement shall be governed by the laws of
the State of California applied to agreements among California residents
entered into and to be performed entirely within California, without
reference to principles of conflict of laws or choice of laws.
4.4 COUNTERPARTS. This Agreement may be executed in counterparts,
which together shall constitute one instrument.
4.5 REPRESENTATION BY COUNSEL. Each party to this Agreement
acknowledges that it has had the opportunity to obtain the advice of
independent legal counsel.
4.6 WAIVER OF CONFLICT OF INTEREST. Each Investor is aware that
Wilson, Sonsini, Goodrich & Rosati ("WSGR") may have previously performed
and may continue to perform certain legal services for certain of the
Investors in addition to the Company. In addition, WSGR may have obtained
confidential information of any such Investor material to WSGR's
representation of the Company in
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170
connection with this Agreement and the Merger. By signing this Agreement,
each Investor and the Company hereby waives any conflict of interest
arising out of such representation or such possession of confidential
information.
4.7 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
or waived by Investors holding a majority of the Preferred Stock acting as
a single class and by the Company. Any such amendment or waiver will be
binding on all Investors.
4.8 SEVERABILITY. If any provision is unenforceable, such provision
shall be excluded from this Agreement and the balance of the Agreement
shall be enforceable, and shall be construed to achieve the intended result
of the unenforceable provision to the maximum extent possible.
4.9 ENTIRE AGREEMENT. This Agreement, together with all exhibits
hereto, constitutes the entire understanding and agreement of the parties
with respect to the subject matter hereof.
COMPANY:
VIEWSTAR CORPORATION
By:
Title:
INVESTORS:
Harvey Allen
J.E. Ardell III
Katherine August
SALLY ROSATI BANKS, TRUSTEE UNDER
THE SALLY ROSATI BANKS TRUST
AGREEMENT DATED 06/20/90
By:
Title:
Michael Crosno
Thomas W. Clement
Charles Daniels
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171
Christina L. Darwall
William Demas
David M. De Wilde
GC&H PARTNERS
By:
Title:
William Hart
Gregory L. Henson
HQTP STRATEGIC INVESTMENTS
By:
Title:
INMAN & BOWMAN
By:
Title:
INMAN & BOWMAN ENTREPRENEURS
By:
Title:
INSTITUTIONAL VENTURE MANAGEMENT IV
By:
Title:
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INSTITUTIONAL VENTURE PARTNERS IV
By:
Title:
KANE & CO.
By:
Title:
MAYFIELD ASSOCIATES MAYFIELD ASSOCIATES II
By: By:
Title: Title:
MAYFIELD VI
By:
Title:
MAYFIELD VII
By:
Title:
J.P. MORGAN INVESTMENT CORPORATION
By:
Title:
Karen L. Palmer
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173
WILLIAM JAMES PERRY AND LEONILLA
GREEN
PERRY, TRUSTEES OF THE PERRY LIVING
TRUST
DATED MAY 14, 1990
By:
Title:
MARIO M. ROSATI, TRUSTEE OF THE
MARIO M. ROSATI TRUST U/D/T/ DATED
JANUARY 5, 1990
By:
Title:
Steven R. Russell
SEQUOIA XVIII
By:
Title:
SEQUOIA XX
By:
Title:
SEQUOIA XXI
By:
Title:
SEQUOIA XXIII
By:
Title:
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174
SEQUOIA XXIV
By:
Title:
SEQUOIA CAPITAL IV
By:
Title:
SEQUOIA TECHNOLOGY PARTNERS II
By:
Title:
Douglas Snyder
STANFORD UNIVERSITY
By:
Title:
TECHNOLOGY PARTNERS WEST FUND II, A
CALIFORNIA LIMITED PARTNERSHIP
By:
Title:
TECHNOLOGY PARTNERS WEST FUND III
A CALIFORNIA LIMITED PARTNERSHIP
By:
Title:
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175
TECHNOLOGY PARTNERS WEST FUND IV
a California Limited Partnership T.P.W. VENTURE PARTNERS IX
By: By:
Title: Title:
Richard Weisinger
David W. Wheeler
Abra Wilkins
WONGFRATRIS COMPANY
By:
Title:
WS INVESTMENT COMPANY 87A
By:
Title:
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176
SERIES D(1) SERIES D(2) SERIES E(1) SERIES E(2)
ORIG. PURCHASED ORIG. PURCHASED ORIG. PURCHASED ORIG. PURCHASED
SERIES A SERIES B SERIES C 9/29/89 10/31/91 8/16/93 9/13/94
-------- -------- --------- --------------- --------------- --------------- ---------------
INMAN & BOWMAN.......... 34,000 30,303 567,568 316,483 167,428 46,164 38,786
Inman & Bowman........ 33,660 30,000 556,217 310,152 164,080 45,703 38,138
I & B Entrepreneurs... 340 303 11,351 6,331 3,348 461 648
INST. VENTURE
PARTNERS.............. 567,568 192,802 107,520 57,468 22,996
IVP IV................ 559,054 2,892 105,907 56,606 22,351
IVM IV................ 8,514 189,910 1,613 862 645
MAYFIELD FUND........... 918,919 333,222 191,846 120,575 162,796
Mayfield Associates... 36,757 13,329 7,674 2,326
Mayfield Associates
Fund II............. 5,000 1,379
Mayfield VI........... 882,162 319,893 184,172 129,829
Mayfield VII.......... 115,575 29,262
J.P. MORGAN CAPITAL..... 830,197 31,238
SEQUOIA CAPITAL......... 258,962 73,935 42,113 14,857 10,414
Sequoia Capital IV.... 234,638 66,541 37,401 13,307 8,572
Sequoia Tech. Partners
II.................. 14,865 4,437 2,827 930 1,105
Sequoia XVIII......... 9,459
Sequoia XX............ 2,957
Sequoia XXI........... 1,885
Sequoia XXIII......... 620
Sequoia XXIV.......... 737
TECHNOLOGY PARTNERS..... 66,666 151,512 216,216 125,682 164,654 43,194 18,469
Tech Partners West
Fund II............. 33,333 60,606 108,108 6,460
Tech Partners West
Fund III............ 33,333 60,606 108,108 6,460
Tech Partners West
Fund IV............. 125,682 164,654 5,549
TPW Venture Partners
IX.................. 30,300
Technology Partners
II.................. 8,639
Technology Partners
III................. 8,639
Technology Partners
IV.................. 25,916
WONGFRATRIS COMPANY..... 266,667 90,909 40,540 157,876 96,242 34,342 17,201
J.E. Ardell............. 10,000
Christina Darwall....... 16,000
Perry................... 20,000
Michael Crosno.......... 36,363
Mario Rosati............ 454
Sally Rosati Banks...... 455
WS Investments.......... 8,181
GC&H Partners........... 5,000
William Hart............ 6,060
Stanford University..... 12,000
Steven Russell.......... 2,500
Other Preferred Holders*
======= ======= ========= ========= ========= ======= =======
Totals:......... 413,333 324,237 2,589,273 1,200,000 1,600,000 316,600 301,900
- ---------------
* Does not include Warrants for Preferred Stock
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EXHIBIT G-1
FORM OF VIEWSTAR AFFILIATE AGREEMENT
THIS AFFILIATE AGREEMENT (this "Agreement") is being executed and delivered
by ("Affiliate") as of October , 1995 in favor of and for the
benefit of CAERE CORPORATION, a Delaware corporation ("Caere").
RECITALS
A. Affiliate is a shareholder [and an officer and director] of ViewStar
Corporation, a California corporation ("ViewStar").
B. Caere, ViewStar Acquisition Corp., a California corporation and a wholly
owned subsidiary of Caere ("Merger Sub"), ViewStar, Affiliate and certain other
shareholders of ViewStar have entered into an Agreement and Plan of Merger and
Reorganization dated as of October 9, 1995 (the "Reorganization Agreement")
providing for the merger of Merger Sub with and into ViewStar (the "Merger").
The Reorganization Agreement contemplates that, upon consummation of the Merger,
all outstanding shares of capital stock of ViewStar ("ViewStar Stock") will be
converted into the right to receive shares of common stock of Caere ("Caere
Common Stock"). It is accordingly contemplated that Affiliate will receive
shares of Caere Common Stock in the Merger.
C. It is a condition of the Reorganization Agreement that Affiliate execute
this Agreement.
D. Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings given to them in the Reorganization Agreement.
AGREEMENT
1. ACCOUNTING TREATMENT. Affiliate understands and agrees that it is
intended that the Merger will be treated as a "pooling of interests" in
accordance with generally accepted accounting principles and the applicable
General Rules and Regulations published by the Securities and Exchange
Commission (the "SEC"). Affiliate further understands that Affiliate may be
deemed to be an "affiliate" of ViewStar: (a) for purposes of application of the
pooling-of-interests requirements and (b) within the meaning of Rule 145 ("Rule
145") promulgated under the Securities Act of 1933, as amended (the "Securities
Act"), although nothing contained herein should be construed as an admission of
either such conclusion. Accordingly, the shares of ViewStar Stock held, and
Caere Common Stock to be held, may only be disposed of in conformity with the
limitations described herein.
2. RELIANCE UPON REPRESENTATIONS, WARRANTIES AND COVENANTS. Affiliate has
been informed that the treatment of the Merger as a pooling of interests for
financial accounting purposes is dependent upon the accuracy of Affiliate's
representations and warranties set forth herein, and upon Affiliate's compliance
with Affiliate's covenants set forth herein. Affiliate understands that the
representations, warranties and covenants of Affiliate set forth herein will be
relied upon by Caere, ViewStar and their respective counsel and accounting
firms.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF AFFILIATE. Affiliate
represents, warrants and covenants as follows:
(A) AUTHORITY. Affiliate has full power and authority to execute this
Agreement, to make the representations, warranties and covenants herein
contained and to perform Affiliate's obligations hereunder.
(B) SHARE OWNERSHIP. Exhibit A attached hereto accurately sets forth
all shares of ViewStar Stock owned by Affiliate, including all ViewStar
Stock as to which Affiliate has sole or shared voting or investment power
and all rights, options and warrants to acquire ViewStar Stock owned or
held by Affiliate.
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(C) RULE 145. Affiliate will not sell, transfer, exchange, pledge or
otherwise dispose of, or make any offer or agreement relating to any of the
foregoing with respect to, any shares of Caere Common Stock that Affiliate
may acquire upon conversion of ViewStar Stock in the Merger, or any
securities that may be paid as a dividend or otherwise distributed thereon
or with respect thereto or issued or delivered in exchange or substitution
therefor (all such shares and other securities of Caere being herein
sometimes collectively referred to as "Restricted Securities"), or any
option, right or other interest with respect to any Restricted Securities,
unless:
(i) such transaction is permitted pursuant to Rule 145(c) and
145(d) under the Securities Act;
(ii) counsel representing Affiliate, which counsel is reasonably
satisfactory to Caere, shall have advised Caere in a written opinion
letter reasonably satisfactory to Caere and Caere's legal counsel, and
upon which Caere and its legal counsel may rely, that no registration
under the Securities Act would be required in connection with the
proposed sale, transfer or other disposition;
(iii) a registration statement under the Securities Act covering
the Caere Common Stock proposed to be sold, transferred or otherwise
disposed of, describing the manner and terms of the proposed sale,
transfer or other disposition, and containing a current prospectus,
shall have been filed with the SEC and made effective under the
Securities Act; or
(iv) an authorized representative of the SEC shall have rendered
written advice to Affiliate (sought by Affiliate or counsel to
Affiliate, with a copy thereof and all other related communications
delivered to Caere) to the effect that the SEC would take no action, or
that the staff of the SEC would not recommend that the SEC take any
action, with respect to the proposed disposition if consummated.
(D) POOLING OF INTERESTS. Notwithstanding any other provision of this
Agreement to the contrary, Affiliate will not sell, transfer, exchange,
pledge or otherwise dispose of, or in any other way reduce Affiliate's risk
of ownership or investment in, or make any offer or agreement relating to
any of the foregoing with respect to, any ViewStar Stock or any rights,
options or warrants to purchase ViewStar Stock, or any Restricted
Securities or other securities of Caere:
(i) during the thirty-day period immediately preceding the Closing
Date of the Merger; and
(ii) until such time after the Effective Time of the Merger as
Caere has publicly released a report including the combined financial
results of Caere and ViewStar for a period of at least thirty days of
combined operations of Caere and ViewStar within the meaning of
Accounting Series Release No. 130, as amended, of the SEC. Nothing in
this paragraph will be deemed to prohibit charitable contributions of
such securities without consideration to transferees who agree to all of
the restrictions in this Agreement.
4. LIMITED RESALES. Affiliate understands that, in addition to the
restrictions imposed under Section 3 of this Agreement, the provisions of Rule
145 limit Affiliate's public resales of Restricted Securities, in the manner set
forth in subsections (a), (b) and (c) below:
(a) Unless and until the restriction "cut-off" provisions of Rule
145(d)(2) or Rule 145(d)(3) set forth below become available, public
resales of Restricted Securities may only be made by Affiliate in
compliance with the requirements of Rule 145(d)(1). Rule 145(d)(1) permits
such resales only: (i) while Caere meets the public information
requirements of Rule 144(c); (ii) in brokers' transactions or in
transactions with a market maker; and (iii) where the aggregate number of
Restricted Securities sold at any time together with all sales of
restricted Caere Stock sold for Affiliate's account during the preceding
three-month period does not exceed the greater of (A) 1% of the Caere
Common Stock outstanding or (B) the average weekly volume of trading in
Caere Common Stock on all national securities exchanges, or reported
through the automated quotation system of a registered securities
association, during the four calendar weeks preceding the date of receipt
of the order to execute the sale.
G-1-2
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(b) Affiliate may make unrestricted resales of Restricted Securities
pursuant to Rule 145(d)(2) if: (i) Affiliate has beneficially owned (within
the meaning of Rule 144(d) under the Securities Act) the Restricted
Securities for at least two years after the Effective Time of the Merger;
(ii) Affiliate is not an affiliate of Caere; and (iii) Caere meets the
public information requirements of Rule 144(c).
(c) Affiliate may make unrestricted resales of Restricted Securities
pursuant to Rule 145(d)(3) if Affiliate has beneficially owned (within the
meaning of Rule 144(d) under the Securities Act) the Restricted Securities
for at least three years and is not, and has not been for at least three
months, an affiliate of Caere.
(d) Caere acknowledges that the provisions of Section 3(c) of this
Agreement will be satisfied as to any sale by the undersigned of the
Restricted Securities pursuant to Rule 145(d), by a broker's letter and a
letter from the undersigned with respect to that sale stating that each of
the above-described requirements of Rule 145(d)(1) has been met or is
inapplicable by virtue of Rule 145(d)(2) or Rule 145(d)(3); provided,
however, that Caere has no reasonable basis to believe such sales were not
made in compliance with such provisions of Rule 145(d).
5. LEGENDS AND STOP TRANSFER. Affiliate also understands and agrees that
stop transfer instructions will be given to Caere's transfer agent with respect
to certificates evidencing the Restricted Securities and that there will be
placed on the certificates evidencing the Restricted Securities legends stating
in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED, SOLD,
PLEDGED, EXCHANGED, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN
ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
AND THE OTHER CONDITIONS SPECIFIED IN THAT CERTAIN AFFILIATE AGREEMENT
DATED AS OF OCTOBER , 1995 AMONG CAERE, VIEWSTAR AND AFFILIATE, A COPY OF
WHICH AFFILIATE AGREEMENT MAY BE INSPECTED BY THE HOLDER OF THIS
CERTIFICATE AT THE OFFICES OF CAERE. CAERE WILL FURNISH, WITHOUT CHARGE, A
COPY THEREOF TO THE HOLDER OF THIS CERTIFICATE UPON WRITTEN REQUEST
THEREFOR."
After release of the report described in Section 3(d)(iii) hereof, certificates
evidencing Restricted Securities may be surrendered for cancellation and
reissuance with a legend referring only to the applicability of Rule 145(d)
restrictions.
6. AGREEMENT TO VOTE SHARES. At every meeting of the shareholders of
ViewStar called with respect to the Merger, and at any adjournment thereof, and
in every written consent solicited with respect to the Merger, Affiliate shall
vote all ViewStar Stock owned or controlled by the undersigned in favor of
approval of the Merger and any matters that could reasonably be expected to
facilitate the Merger.
7. NOTICES. All notices and other communications pursuant to this
Agreement shall be in writing and shall be deemed given if delivered personally,
sent by confirmed facsimile, sent by nationally recognized
G-1-3
180
overnight courier or mailed by registered or certified mail (return receipt
requested), postage prepaid, to the parties as follows (or at such other address
for a party as shall be specified by like notice):
IF TO Caere: Caere Corporation
100 Cooper Court
Los Gatos, California 95030
Attn: Chief Executive Officer
Facsimile No.: (408) 395-5263
With a copy to: Cooley Godward Castro
Huddleson & Tatum
Five Palo Alto Square
Palo Alto, California 94306
Attn: Lee F. Benton, Esq.
Facsimile No.: (415) 857-0663
IF TO At the address or facsimile set forth
AFFILIATE: beneath Affiliate's signature below.
8. SPECIFIC PERFORMANCE. Affiliate agrees that irreparable damages 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 Caere shall be entitled to injunctive relief to
prevent breaches of the provisions of this Agreement, and to enforce
specifically the terms and provisions hereof, in addition to any other remedy to
which Caere may be entitled at law or in equity.
9. TERMINATION. This Agreement shall be terminated and shall be of no
further force and effect if the Reorganization Agreement is validly terminated
in accordance with its terms without the Merger having occurred. The
representations, warranties, covenants and other provisions contained in this
Agreement shall survive the Merger.
10. SEVERABILITY. In the event that any provision of this Agreement, or
the application of any such provision to any person, entity or set of
circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this Agreement, and the
application of such provision to persons, entities or circumstances other than
those as to which it is determined to be invalid, unlawful, void or
unenforceable, shall not be impaired or otherwise affected and shall continue to
be valid and enforceable to the fullest extent permitted by law.
11. GOVERNING LAW. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of the State of California,
excluding that body of law pertaining to conflicts of laws.
12. WAIVER. No failure on the part of Caere to exercise any power, right,
privilege or remedy under this Agreement, and no delay on the part of Caere in
exercising any power, right, privilege or remedy under this Agreement, shall
operate as a waiver of such power, right, privilege or remedy; and no single or
partial exercise of any such power, right, privilege or remedy shall preclude
any other or further exercise thereof or of any other power, right, privilege or
remedy. Caere shall not be deemed to have waived any claim arising out of this
Agreement, or any power, right, privilege or remedy under this Agreement, unless
the waiver
of such claim, power, right, privilege or remedy is expressly set forth in a
written instrument duly executed and delivered on behalf of Caere; and any such
waiver shall not be applicable or have any effect except in the specific
instance in which it is given.
13. CAPTIONS. The captions contained in this Agreement are for convenience
of reference only, shall not be deemed to be a part of this Agreement and shall
not be referred to in connection with the construction or interpretation of this
Agreement.
14. FURTHER ASSURANCES. Affiliate shall execute and/or cause to be
delivered to Caere such instruments and other documents and shall take such
other actions as Caere may reasonably request to effectuate the intent and
purposes of this Agreement.
G-1-4
181
15. ENTIRE AGREEMENT. This Agreement, the Reorganization Agreement and the
other agreements referred to in the Reorganization Agreement set forth the
entire understanding of Affiliate and Caere relating to the subject matter
hereof and thereof and supersede all prior agreements and understandings between
Affiliate and Caere relating to the subject matter hereof and thereof.
16. AMENDMENTS. This Agreement may not be amended, modified, altered, or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of Caere and Affiliate.
17. BINDING NATURE. This Agreement will be binding upon Affiliate and
Affiliate's representatives, executors, administrators, estate, heirs,
successors and assigns, and shall inure to the benefit of Caere and its
successors and assigns.
18. ATTORNEYS' FEES AND EXPENSES. If any legal action or other legal
proceeding relating to the enforcement of any provision of this Agreement is
brought against Affiliate, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements in addition to any other
relief to which the prevailing party may be entitled.
IN WITNESS WHEREOF, Affiliate has caused this Agreement to be duly executed
on the day and year first above written.
[AFFILIATE]
Signature:
--------------------------------------
Print Name:
--------------------------------------
Title:
--------------------------------------
[if applicable]
Address:
--------------------------------------
--------------------------------------
--------------------------------------
Attention:
------------------------------------------------------------------------------
Facsimile No.:
-------------------------------------------------------------------------
G-1-5
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EXHIBIT A
Shares of ViewStar Stock Beneficially Owned by Affiliate:
Common Stock:
- --------------------------------------
Series A Preferred Stock:
- -----------------------------------------------------------------------
Series B Preferred Stock:
- -----------------------------------------------------------------------
Series C Preferred Stock:
- -----------------------------------------------------------------------
Series D Preferred Stock:
- -----------------------------------------------------------------------
Series E Preferred Stock:
- -----------------------------------------------------------------------
Options to purchase shares of Common Stock
Warrants to purchase shares of Common Stock
G-1-6
183
EXHIBIT G-2
CAERE AFFILIATE AGREEMENT
THIS AFFILIATE AGREEMENT (this "Agreement") is being executed and delivered
by ("Affiliate") as of October 9, 1995 in favor of and
for the benefit of CAERE CORPORATION, a Delaware corporation ("Caere").
RECITALS
A. Affiliate is a stockholder [and an officer and director] of Caere
Corporation, a Delaware corporation ("Caere").
B. Caere, ViewStar Acquisition Corp., a California corporation and a wholly
owned subsidiary of Caere ("Merger Sub"), Viewstar Corporation, a California
corporation ("Viewstar") Affiliate and certain stockholders of Viewstar have
entered into an Agreement and Plan of Merger and Reorganization dated as of
October 9, 1995 (the "Reorganization Agreement") providing for the merger of
Merger Sub with and into Viewstar (the "Merger"). The Reorganization Agreement
contemplates that, upon consummation of the Merger, all outstanding shares of
capital stock of Viewstar will be converted into the right to receive shares of
common stock of Caere ("Caere Common Stock").
C. It is a condition of the Reorganization Agreement that Affiliate execute
this Agreement.
D. Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings given to them in the Reorganization Agreement.
AGREEMENT
1. ACCOUNTING TREATMENT. Affiliate understands and agrees that it is
intended that the Merger will be treated as a "pooling of interests" in
accordance with generally accepted accounting principles and the applicable
General Rules and Regulations published by the Securities and Exchange
Commission (the "SEC"). Affiliate further understands that Affiliate may be
deemed to be an "affiliate" of Caere for purposes of application of the
pooling-of-interests requirements, although nothing contained herein should be
construed as an admission of either such conclusion. Accordingly, the shares of
Caere Common Stock that Affiliate holds, may only be disposed of in conformity
with the limitations described herein.
2. RELIANCE UPON REPRESENTATIONS, WARRANTIES AND COVENANTS. Affiliate has
been informed that the treatment of the Merger as a pooling of interests for
financial accounting purposes is dependent upon the accuracy of Affiliate's
representations and warranties set forth
herein, and upon Affiliate's compliance with Affiliate's covenants set forth
herein. Affiliate understands that the representations, warranties and covenants
of Affiliate set forth herein will be relied upon by Caere, Viewstar and their
respective counsel and accounting firms.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF AFFILIATE. Affiliate
represents, warrants and covenants as follows:
(A) AUTHORITY. Affiliate has full power and authority to execute this
Agreement, to make the representations, warranties and covenants herein
contained and to perform Affiliate's obligations hereunder.
(B) SHARE OWNERSHIP. Exhibit A attached hereto accurately sets forth
all shares of Caere Common Stock owned by Affiliate, including all Caere
Common Stock as to which Affiliate has sole or shared voting or investment
power and all rights, options and warrants to acquire Caere Common Stock
owned or held by Affiliate (collectively, the "Caere Securities").
(C) POOLING OF INTERESTS. Notwithstanding any other provision of this
Agreement to the contrary, Affiliate will not sell, transfer, exchange,
pledge or otherwise dispose of, or in any other way reduce Affiliate's risk
of ownership or investment in, or make any offer or agreement relating to
any of the
G-2-1
184
foregoing with respect to, any Caere Securities or any rights, options or
warrants to purchase any Caere Securities:
(i) during the thirty-day period immediately preceding the Closing
Date of the Merger; and
(ii) until such time after the Effective Time of the Merger as
Caere has publicly released a report including the combined financial
results of Caere and Viewstar for a period of at least thirty days of
combined operations of Caere and Viewstar within the meaning of
Accounting Series Release No. 130, as amended, of the SEC. Nothing in
this paragraph will be deemed to prohibit charitable contributions of
such securities without consideration to transferees who agree to all of
the restrictions in this Agreement.
4. STOP TRANSFER. Affiliate also understands and agrees that stop transfer
instructions will be given to Caere's transfer agent with respect to
certificates evidencing the Caere Securities. After release of the report
described in Section 3(c)(ii) hereof, such stop transfer instructions will be
promptly removed.
5. AGREEMENT TO VOTE SHARES. At every meeting of the stockholders of Caere
called with respect to the Merger, and at any adjournment thereof, and in every
written consent solicited with respect to the Merger, Affiliate shall vote all
Caere Common Stock owned or controlled by Affiliate in favor of approval of the
Merger and any matters that could reasonably be expected to facilitate the
Merger.
6. NOTICES. All notices and other communications pursuant to this
Agreement shall be in writing and shall be deemed given if delivered personally,
sent by confirmed facsimile, sent by nationally recognized overnight courier or
mailed by registered or certified mail (return receipt requested), postage
prepaid, to the parties as follows (or at such other address for a party as
shall be specified by like notice):
IF TO Caere: Caere Corporation
100 Cooper Court
Los Gatos, California 95030
Attn: Chief Executive Officer
Facsimile No.: (408) 395-5263
With a copy to: Cooley Godward Castro Huddleson & Tatum
Five Palo Alto Square
Palo Alto, California 94306
Attn: Lee F. Benton, Esq.
Facsimile No.: (415) 857-0663
IF TO
AFFILIATE: At the address or facsimile set forth beneath Affiliate's
signature below.
7. SPECIFIC PERFORMANCE. Affiliate agrees that irreparable damages 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 Caere shall be entitled to injunctive relief to
prevent breaches of the provisions of this Agreement, and to enforce
specifically the terms and provisions hereof, in addition to any other remedy to
which Caere may be entitled at law or in equity.
8. TERMINATION. This Agreement shall be terminated and shall be of no
further force and effect if the Reorganization Agreement is validly terminated
in accordance with its terms without the Merger having occurred. The
representations, warranties, covenants and other provisions contained in this
Agreement shall survive the Merger.
9. SEVERABILITY. In the event that any provision of this Agreement, or the
application of any such provision to any person, entity or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to persons, entities or circumstances other than those as to which it is
determined to be invalid, unlawful, void or unenforceable, shall not be impaired
or otherwise affected and shall continue to be valid and enforceable to the
fullest extent permitted by law.
10. GOVERNING LAW. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of the State of California,
excluding that body of law pertaining to conflicts of laws.
G-2-2
185
11. WAIVER. No failure on the part of Caere to exercise any power, right,
privilege or remedy under this Agreement, and no delay on the part of Caere in
exercising any power, right, privilege or remedy under this Agreement, shall
operate as a waiver of such power, right, privilege or remedy; and no single or
partial exercise of any such power, right, privilege or remedy shall preclude
any other or further exercise thereof or of any other power, right, privilege or
remedy. Caere shall not be deemed to have waived any claim arising out of this
Agreement, or any power, right, privilege or remedy under this Agreement, unless
the waiver of such claim, power, right, privilege or remedy is expressly set
forth in a written instrument duly executed and delivered on behalf of Caere;
and any such waiver shall not be applicable or have any effect except in the
specific instance in which it is given.
12. CAPTIONS. The captions contained in this Agreement are for convenience
of reference only, shall not be deemed to be a part of this Agreement and shall
not be referred to in connection with the construction or interpretation of this
Agreement.
13. FURTHER ASSURANCES. Affiliate shall execute and/or cause to be
delivered to Caere such instruments and other documents and shall take such
other actions as Caere may reasonably request to effectuate the intent and
purposes of this Agreement.
14. ENTIRE AGREEMENT. This Agreement, the Reorganization Agreement and the
other agreements referred to in the Reorganization Agreement set forth the
entire understanding of Affiliate and Caere relating to the subject matter
hereof and thereof and supersede all prior agreements and understandings between
Affiliate and Caere relating to the subject matter hereof and thereof.
15. AMENDMENTS. This Agreement may not be amended, modified, altered, or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of Caere and Affiliate.
16. BINDING NATURE. This Agreement will be binding upon Affiliate and
Affiliate's representatives, executors, administrators, estate, heirs,
successors and assigns, and shall inure to the benefit of Caere and its
successors and assigns.
17. ATTORNEYS' FEES AND EXPENSES. If any legal action or other legal
proceeding relating to the enforcement of any provision of this Agreement is
brought against Affiliate, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements in addition to any other
relief to which the prevailing party may be entitled.
IN WITNESS WHEREOF, Affiliate has caused this Agreement to be duly executed
on the day and year first above written.
[AFFILIATE]
Signature:
--------------------------------------
Print Name:
--------------------------------------
Title:
--------------------------------------
[if applicable]
Address:
--------------------------------------
--------------------------------------
--------------------------------------
Attention:
------------------------------------------------------------------------------
Facsimile No.:
-------------------------------------------------------------------------
G-2-3
186
EXHIBIT A
Shares of Caere Common Stock Beneficially Owned by Affiliate:
Common Stock:
Options to purchase shares of Common Stock
Warrants to purchase shares of Common Stock
187
EXHIBIT G-3
PERSONS TO EXECUTE AFFILIATE AGREEMENTS
VIEWSTAR AFFILIATES CAERE AFFILIATES
- -------------------------------------- --------------------------------------
D. Kirkwood Bowman Serge L. Blanc
Steven Brooks Dan D. Borozan
Gayle Crowell James K. Dutton
Christina Darwall Dean A. Hovey
Shirish Hardikar Steven C. Humphreys
Inman & Bowman Sidney S. Kahn
Institutional Venture Partners Chad B. Kinzelberg
J.P. Morgan Investment Corporation Lawrence F. Lunetta
Kamran Kheirolomoon Cary H. Masatsugu
Mayfield Fund Wayne E. Rosing
F. Gibson Myers, Jr. Blanche M. Sutter
Robert Pender Robert G. Teresi
Mark Perry Frederick W. Zuckerman
Hon Wong
Wongfratris Company
G-3-1
188
EXHIBIT J
RELEASE
THIS RELEASE ("Release") is executed and delivered as of October 9, 1995,
by the parties on the signature page hereto (all of whom are referred to
collectively as the "Releasors," and each of whom is referred to individually as
a "Releasor") in favor of, and for the benefit of, VIEWSTAR CORPORATION, a
California corporation (the "Company"), CAERE CORPORATION, a Delaware
corporation ("Parent"), and the other Releasees (as defined in Section 2).
RECITALS
A. Contemporaneously with the execution and delivery of this Release,
pursuant to an Agreement and Plan of Merger and Reorganization (the
"Reorganization Agreement") dated as of October 9, 1995, by and among the
Company, Parent, ViewStar Acquisition Corp., a California corporation and a
wholly owned subsidiary of Parent ("Merger Sub"), the Releasors and certain
other shareholders of the Company, Merger Sub is merging with and into the
Company (the "Merger"). As a result of the Merger of Merger Sub and the Company,
the Company's shareholders are receiving shares of Common Stock of Parent in
exchange for their shares of stock of the Company, and the Company is becoming a
wholly owned subsidiary of Parent.
B. Parent has required, as a condition to consummating the transactions
contemplated by the Reorganization Agreement, that the Releasors execute and
deliver this Release.
AGREEMENT
In order to induce Parent to consummate the transactions contemplated by
the Reorganization Agreement, and for other valuable consideration (the receipt
and sufficiency of which are hereby acknowledged by the Releasors), the
Releasors, severally and not jointly, hereby covenant and agree as follows:
1. RELEASE. Each Releasor, for himself, herself, or itself and for each of
such Releasor's Associated Parties (as defined in Section 2), hereby generally,
irrevocably, unconditionally and completely releases and forever discharges each
of the Releasees (as defined in Section 2) from, and hereby irrevocably,
unconditionally and completely waives and relinquishes, each of the Released
Claims (as defined in Section 2).
2. DEFINITIONS.
(a) The term "Associated Parties," when used herein with respect to a
Releasor, shall mean and include: (i) such Releasor's predecessors, successors,
executors, administrators, heirs and estate; and (ii) such Releasor's past,
present and future assigns, agents and representatives.
(b) The term "Releasees" shall mean and include: (i) Parent; (ii) the
Company; (iii) each of the direct and indirect subsidiaries of Parent or
Company; (iv) each other affiliate of Parent or the Company; and (v) the
successors and past, present and future assigns, directors, officers, employees,
agents, attorneys and representatives of the respective entities identified or
otherwise referred to in clauses "(i)" through "(iv)" of this sentence, other
than the Releasors.
(c) The term "Claims" shall mean and include all past, present and future
disputes, claims, controversies, demands, rights, obligations, liabilities,
actions and causes of action of every kind and nature, including: (i) any
unknown, unsuspected or undisclosed claim; (ii) any claim or right that may be
asserted or exercised by a Releasor in such Releasor's capacity as a
shareholder, director, officer or employee of the Company or in any other
capacity; and (iii) any claim, right or cause of action based upon any breach of
any express, implied, oral or written contract or agreement between the Releasor
and the Company.
(d) The term "Released Claims" shall mean and include each and every Claim
that (i) any Releasor or any Associated Party of any Releasor may have had in
the past, may now have or may have in the future against any of the Releasees,
including, without limitation, the bridge loan made to the Company by such
Releasor assuming payment in accordance with its terms upon effectiveness of the
Merger, and (ii) has arisen
J-1
189
or arises directly or indirectly out of, or relates directly or indirectly to,
any circumstance, agreement, activity, action, omission, event or matter
occurring or existing on or prior to the date of this Release (excluding only
(1) such Releasor's rights, if any, against Parent under the Reorganization
Agreement and applicable securities laws and (2) such Releasor's rights, if any,
against Parent under any stock option agreement set forth in the Company's
Disclosure Schedule delivered to Parent pursuant to the Reorganization Agreement
and any promissory note being assumed by Parent in connection therewith
[Perry/Kheirolomoom employment agreements] contemporaneously with the execution
and delivery of this Release).
3. CIVIL CODE SECTION 1542. Each Releasor (a) represents, warrants and
acknowledges that such Releasor has been fully advised by Releasor's attorney of
the contents of Section 1542 of the Civil Code of the State of California, and
(b) hereby expressly waives the benefits thereof and any rights such Releasor
may have thereunder. Section 1542 of the Civil Code of the State of California
provides as follows:
"A release does not extend to claims which the creditor does not know
or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the
debtor."
Each Releasor also hereby waives the benefits of, and any rights such Releasor
may have under, any statute or common law principle of similar effect in any
jurisdiction.
4. REPRESENTATIONS AND WARRANTIES. Each Releasor understands that the
representations, warranties and covenants set forth herein will be relied upon
by Parent and the Company, and their respective counsel and accounting firms.
Each Releasor represents, warrants, understands and agrees that:
(a) such Releasor has not assigned, transferred, conveyed or otherwise
disposed of any Claim against any of the Releasees, or any direct or
indirect interest in any such Claim, in whole or in part;
(b) to the best of such Releasor's knowledge, no other person or
entity has any interest in any of the Released Claims;
(c) no Associated Party of such Releasor has or had any Claim against
any of the Releasees;
(d) no Associated Party of such Releasor will in the future have any
Claim against any Releasee that arises directly or indirectly from or
relates directly or indirectly to any circumstance, agreement, activity,
action, omission, event or matter occurring or existing on or before the
date of this Release;
(e) this Release has been duly and validly executed and delivered by
such Releasor;
(f) this Release is a valid and binding obligation of such Releasor
and such Releasor's Associated Parties, and is enforceable against such
Releasor and each of such Releasor's Associated Parties in accordance with
its terms;
(g) there is no action, suit, proceeding, dispute, litigation, claim,
complaint or investigation by or before any court, tribunal, governmental
body, governmental agency or arbitrator pending or, to the best of the
knowledge of such Releasor, threatened against such Releasor or any of such
Releasor's Associated Parties that challenges or would challenge the
execution and delivery of this Release or the taking of any of the actions
required to be taken by such Releasor under this Release;
(h) neither the execution and delivery of this Release nor the
performance hereof will (i) result in any violation or breach of any
agreement or other instrument to which such Releasor or any of such
Releasor's Associated Parties is a party or by which such Releasor or any
of such Releasor's Associated Parties is bound, or (ii) to the best of such
Releasor's knowledge, result in a violation or any law, rule, regulation,
treaty, ruling, directive, order, arbitration award, judgment or decree to
which such Releasor or any of such Releasor's Associated Parties is
subject; and
(i) no authorization, instruction, consent or approval of any person
or entity is required to be obtained by such Releasor or any of such
Releasor's Associated Parties in connection with the execution and delivery
of this Release or the performance hereof.
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5. INDEMNIFICATION. Without in any way limiting any of the rights or
remedies otherwise available to any Releasee, each Releasor shall indemnify and
hold harmless each Releasee against and from any loss, damage, injury, decline
in value, liability, claim, demand, settlement, judgment, award, fine, penalty,
tax, fee (including reasonable attorneys' fees), charge, cost (including costs
of investigation) or expense that is directly or indirectly suffered or incurred
at any time by such Releasee, or to which such Releasee otherwise becomes
subject at any time, and that arises from or as a result of, or are directly or
indirectly connected with (a) any failure on the part of such Releasor to
observe, perform or abide by, or any other breach of, any restriction, covenant,
obligation, representation, warranty or other provision contained herein, (b)
the assertion or purported assertion of any of the Released Claims by such
Releasor or any of such Releasor's Associated Parties, or (c) any inaccuracy or
breach of any representation or warranty set forth in this Release.
6. MISCELLANEOUS.
(A) NOTICES. Any notice or other communication required or permitted to be
delivered to a party under this Release shall be in writing and shall be deemed
properly delivered, given and received when delivered (by hand, by registered
mail, by courier or express delivery service or by facsimile) to the address or
facsimile telephone number set forth beneath the name of such party below (or to
such other address or facsimile telephone number as such party shall have
specified in a written notice given to the other parties hereto):
IF TO THE COMPANY:
ViewStar Corporation
1101 Marina Village Parkway
Alameda, CA 94501
Attention: President
Facsimile: (510) 337-2222
IF TO PARENT:
Caere Corporation
100 Cooper Court
Los Gatos, CA 95030
Attention: Chief Financial Officer
Facsimile: (408) 395-5263
IF TO ANY RELEASOR:
At the address set forth below such
Releasor's signature.
(B) SEVERABILITY. If any provision of this Release or any part of any such
provision is held under any circumstances to be invalid or unenforceable in any
jurisdiction, then (i) such provision or part thereof shall, with respect to
such circumstances and in such jurisdiction, be deemed amended to conform to
applicable laws so as to be valid and enforceable to the fullest possible
extent, (ii) the invalidity or unenforceability of such provision or part
thereof under such circumstances and in such jurisdiction shall not affect the
validity or enforceability of such provision or part thereof under any other
circumstances or in any other jurisdiction, and (iii) such invalidity or
enforceability of such provision or part thereof shall not affect the validity
or enforceability of the remainder of such provision or the validity or
enforceability of any other provision of this Release. If any provision of this
Release or any part of such provision is held to be unenforceable against any
Releasor, then the unenforceability of such provision or part thereof against
such Releasor shall not affect the enforceability thereof against any other
Releasor. Each provision of this Release is separable from every other provision
of this Release, and each part of each provision of this Release is separable
from every other part of such provision.
(C) GOVERNING LAW. This Release shall be construed in accordance with, and
governed in all respects by, the laws of the State of California, without giving
effect to principles of conflicts of laws.
(D) WAIVER. No failure on the part of any party to exercise any power,
right, privilege or remedy under this Release, and no delay on the part of any
party in exercising any power, right, privilege or remedy under
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this Release, shall operate as a waiver of such power, right, privilege or
remedy; and no single or partial exercise of any such power, right, privilege or
remedy shall preclude any other or further exercise thereof or of any other
power, right, privilege or remedy. No party shall be deemed to have waived any
claim arising out of this Release, or any power, right, privilege or remedy
under this Release, unless the waiver of such claim, power, right, privilege or
remedy is expressly set forth in a written instrument duly executed and
delivered on behalf of such party; and any such waiver shall not be applicable
or have any effect except in the specific instance in which it is given.
(E) CAPTIONS. The captions contained in this Release are for convenience
and reference only, shall not be deemed to be a part of this Release and shall
not be referred to in connection with the construction or interpretation of this
Release.
(F) COUNTERPARTS. This Release may be executed in several counterparts,
each of which shall constitute an original and all of which, when taken
together, shall constitute one agreement.
(G) FURTHER ASSURANCES. Each party hereto shall execute and/or cause to be
delivered to the other party hereto such instruments and other documents and
shall take such other actions as such other party may reasonably request to
effectuate the intent and purposes of this Release.
(H) ENTIRE AGREEMENT. This Release sets forth the entire understanding of
the parties relating to the subject matter hereof and supersedes all prior
agreements and understandings between the parties relating to the subject matter
hereof.
(I) AMENDMENTS. This Release may not be amended, modified, altered, or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of the Company, Parent and the Releasors.
(J) BINDING NATURE. This Release will be binding upon and inure to the
benefit of Parent and the Company and their respective successors and assigns
and the Releasors and their representatives, executors, administrators, estate,
heirs, successors and assigns.
(K) ATTORNEYS' FEES AND EXPENSES. If any legal action or other legal
proceeding relating to the enforcement of any provision of this Release is
brought by any Releasor or Releasee, the prevailing party shall be entitled to
recover reasonable attorneys' fees, costs and disbursements, in addition to any
other relief to which the prevailing party may be entitled.
(L) EFFECTIVENESS OF RELEASE. This Release shall be effective with respect
to, and shall be binding upon and enforceable against, each Releasor who
executes this Release, regardless of whether any of the other Releasors executes
this Release. This Release shall be contingent upon and effective upon the
effectiveness of the Merger. This Release shall be void if the Merger has not
occurred on or before March 31, 1996 or if the Reorganization Agreement is
terminated for any reason prior thereto.
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IN WITNESS WHEREOF, the Releasors have caused this Release to be executed
as of the date first above written.
RELEASORS:
MAYFIELD FUND
By:
F. Gibson Myers, Jr., General
Partner
Address:
INMAN & BOWMAN
By:
D. Kirkwood Bowman, General
Partner
Address:
WONGFRATRIS COMPANY
By:
Hon Wong, General Partner
Address:
Kamran Kheirolomoom
Address:
Mark Perry
Address:
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EXHIBIT K
GENERAL ESCROW AGREEMENT
THIS GENERAL ESCROW AGREEMENT (the "Escrow Agreement") is entered into as
of , 1995 (the "Closing Date"), by and among: CAERE CORPORATION, a
Delaware corporation ("Parent"); VIEWSTAR CORPORATION, a California corporation
("ViewStar"); (the "Indemnifying Shareholders' Agent"), as agent
of the shareholders and vested optionholders of ViewStar, all of whom are listed
on Attachment A (the "Indemnifying Shareholders"); and STATE STREET BANK AND
TRUST COMPANY ("Escrow Agent").
RECITALS
A. Parent, ViewStar, ViewStar Acquisition Corp., a California corporation
and a wholly-owned subsidiary of Parent ("Sub") and certain shareholders of
ViewStar are entering into an Escrow Agreement and Plan of Merger and
Reorganization dated October 9, 1995 (the "Reorganization Agreement"), pursuant
to which Sub is merging with and into ViewStar in a transaction in which the
issued and outstanding capital stock of ViewStar will be exchanged for shares of
Common Stock of Parent ("Parent Common Stock"), resulting in ViewStar becoming a
wholly-owned subsidiary of Parent.
B. The Reorganization Agreement contemplates the establishment of an escrow
arrangement to secure the indemnification and other obligations of ViewStar
under the Reorganization Agreement and various related agreements. As a
condition precedent to Parent's execution of the Reorganization Agreement and
related agreements and to more fully secure unto Parent the benefits of the
Merger, Parent has required that ViewStar and the Indemnifying Shareholders'
Agent enter into this Escrow Agreement as set forth in Section 9.2 of the
Reorganization Agreement; and ViewStar and the Indemnifying Shareholders' Agent
have agreed to enter into this Escrow Agreement on behalf of the Indemnifying
Shareholders, in order to induce Parent to consummate the Merger.
AGREEMENT
The parties to this Escrow Agreement, intending to be legally bound, agree
as follows:
SECTION 1. DEFINED TERMS.
Capitalized terms used and not otherwise defined in this Escrow Agreement
shall have the meanings assigned to them in the Reorganization Agreement.
SECTION 2. ESCROW.
2.1 SHARES TO BE PLACED IN ESCROW. Parent shall issue on the Closing Date,
a certificate for ten percent (10%) of the aggregate number of shares of Parent
Common Stock to be issued to ViewStar shareholders in the Merger and shall issue
a certificate for 10% of all shares of Parent Common Stock to be issued to
holders of Vested Option Shares, when such shares are issued (the "Escrow
Shares"), in the name of Escrow Agent or its nominee, evidencing the shares of
Parent Common Stock to be held in escrow in accordance with this Escrow
Agreement. The Escrow Shares shall be held as a trust fund and shall not be
subject to any lien, attachment, trustee process or any other judicial process
of any creditor of any party hereto. Escrow Agent agrees to accept delivery of
the Escrow Shares and to hold the Escrow Shares in escrow (the "Escrow"),
subject to the terms and conditions of this Escrow Agreement.
2.2 INDEMNIFICATION. ViewStar and the Indemnifying Shareholders have
agreed in Section 9 of the Reorganization Agreement to indemnify and hold
harmless the Indemnitees from and against Damages. The Indemnifying Shareholders
agree that the Escrow Shares shall be security for such indemnity obligation,
subject to the limitations, and in the manner provided in this Escrow Agreement.
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2.3 VOTING OF SHARES. On any matter brought before the Parent stockholders
for a vote, Escrow Agent shall vote the Escrow Shares as directed by the
Indemnifying Shareholders individually. Each Indemnifying Shareholder shall have
the right to direct the vote of the number of shares resulting from the
multiplication of the Indemnifying Shareholder's percentage set forth on
Attachment A by the total number of Escrow Shares held by Escrow Agent on the
record date for the vote.
2.4 DIVIDENDS, ETC. Any cash distributable as a dividend in respect of any
Escrow Shares shall be distributed to the record owner of such Escrow Shares.
Any other cash, securities or other property distributable (whether by way of
dividend, stock split or otherwise) in respect of or in exchange for any Escrow
Shares shall not be distributed to the record owner of such Escrow Shares, but
rather shall be held by Escrow Agent in the Escrow. At the time any Escrow
Shares are required to be released from the Escrow to any Person pursuant to
this Escrow Agreement, any cash, securities or other property previously
distributed in respect of or in exchange for such Escrow Shares shall be
released from the Escrow to such Person.
2.5 TRANSFERABILITY. The interests of Indemnifying Shareholders in the
Escrow and in the Escrow Shares shall not be assignable or transferable, other
than by operation of law. No transfer of any of such interests by operation of
law shall be recognized or given effect until Escrow Agent shall have received
written notice of such transfer.
2.6 FRACTIONAL SHARES. No fractional shares of Parent Common Stock shall
be retained in or released from the Escrow pursuant to this Escrow Agreement. In
connection with any release of shares from the Escrow, Escrow Agent shall be
permitted to "round down" or to follow such other rounding procedures as Escrow
Agent reasonably determines to be appropriate in order to avoid (i) retaining
any fractional share in the Escrow or (ii) releasing any fractional share from
the Escrow.
SECTION 3. CLAIM PROCEDURES.
3.1 CLAIM NOTICE. If Parent determines in good faith that there is or has
been a possible inaccuracy in or breach of any representation, warranty,
covenant or other provision set forth in any of the Reorganization Agreement or
related agreements, or in any document or instrument delivered pursuant thereto
or in connection therewith, and if Parent is entitled, under the terms of the
Reorganization Agreement, to make a claim against the Escrow with respect to
such possible inaccuracy or breach, then Parent may deliver to both the
Indemnifying Shareholders' Agent and Escrow Agent a written notice of such
possible inaccuracy or breach (a "Claim Notice") setting forth (i) a brief
description of the circumstances supporting Parent's belief that such possible
inaccuracy or breach exists or has occurred, and (ii) to the extent possible, a
non-binding, preliminary estimate of the aggregate dollar amount of all Damages
that have arisen and may arise as a result of such possible inaccuracy or breach
(such aggregate amount being referred to as the "Claim Amount").
3.2 RESPONSE NOTICE. Within 15 days after the delivery of a Claim Notice
to the Indemnifying Shareholders' Agent, the Indemnifying Shareholders' Agent
shall deliver to Escrow Agent a written notice (the "Response Notice")
containing: (i) instructions to the effect that Escrow Shares having a Fair
Market Value (as defined in Section 6 of this Escrow Agreement) equal to the
entire Claim Amount set forth in such Claim Notice are to be released from the
Escrow to Parent; or (ii) instructions to the effect that Escrow Shares having a
Fair Market Value equal to a specified portion (but not the entire amount) of
the Claim Amount set forth in such Claim Notice are to be released from the
Escrow to Parent, together with a statement that the remaining portion of such
Claim Amount is being disputed; or (iii) a statement that the entire Claim
Amount set forth in such Claim Notice is being disputed. If no Response Notice
is received by Escrow Agent from the Indemnifying Shareholders' Agent within 15
days after the delivery of a Claim Notice to the Indemnifying Shareholders'
Agent, then the recipient of such Claim Notice shall be deemed to have given
instructions that Escrow Shares having a Fair Market Value equal to the entire
Claim Amount set forth in such Claim Notice are to be released to Parent from
the Escrow.
3.3 RELEASE OF ESCROW SHARES TO PARENT.
(a) If the Indemnifying Shareholders' Agent gives (or is deemed to have
given) instructions that Escrow Shares having a Fair Market Value equal to the
entire Claim Amount set forth in a Claim Notice are to be
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released from the Escrow to Parent, then Escrow Agent shall, promptly following
the required delivery date for the Response Notice, transfer, deliver and assign
to Parent, from the Escrow, such number of Escrow Shares having a Fair Market
Value equal to such Claim Amount (or such lesser number of Escrow Shares as is
then held in Escrow).
(b) If a Response Notice delivered by the Indemnifying Shareholders' Agent
in response to a Claim Notice contains instructions to the effect that Escrow
Shares having a Fair Market Value equal to a specified portion (but not the
entire amount) of the Claim Amount set forth in such Claim Notice are to be
released from the Escrow to Parent, then (i) Escrow Agent shall, promptly
following the required delivery date for the Response Notice, transfer, deliver
and assign to Parent, from the Escrow, such number of Escrow Shares having a
Fair Market Value equal to such specified portion of such Claim Amount, and (ii)
the procedures set forth in Section 3.3(c) of this Escrow Agreement shall be
followed with respect to the remaining portion of such Claim Amount.
(c) If a Response Notice delivered by the Indemnifying Shareholders' Agent
in response to a Claim Notice contains a statement that all or a portion of the
Claim Amount set forth in such Claim Notice is being disputed (such Claim Amount
or the disputed portion thereof being referred to as the "Disputed Amount"),
then, notwithstanding anything contained in Section 5 of this Escrow Agreement,
Escrow Agent shall continue to hold in the Escrow (in addition to any other
Escrow Shares permitted to be retained in the Escrow, whether in connection with
any other dispute or otherwise) Escrow Shares having a Fair Market Value equal
to 125% of the Disputed Amount. Such Escrow Shares shall continue to be held in
the Escrow until such time as (i) Parent and the Indemnifying Shareholders'
Agent execute a settlement agreement containing instructions regarding the
release of such shares, or (ii) Escrow Agent receives a copy of an arbitrators'
award (pursuant to Section 3(e) hereof) containing instructions to Escrow Agent
regarding the release of such Escrow Shares. Escrow Agent shall thereupon
release such Escrow Shares from the Escrow in accordance with the instructions
set forth in such settlement agreement or arbitrators' award. The parties
acknowledge that it is appropriate to retain more than 100% of the Claim Amount
in the Escrow in recognition of the fact that Parent may have underestimated the
aggregate amount of the actual and potential Damages arising from a particular
Breach.
(d) In the event that any Response Notice indicates that there is a
Disputed Amount, the Indemnifying Shareholders' Agent and Parent (acting on its
own behalf or on behalf of Sub or ViewStar) shall, for a period of 60 days,
attempt in good faith to resolve the rights of the respective parties with
respect to such claims. If the Indemnifying Shareholders' Agent and Parent
should so agree, a notice setting forth such agreement shall be signed by both
parties and sent to Escrow Agent who shall thereupon transfer, deliver and
assign to Parent such number of Escrow Shares held in Escrow as have a Fair
Market Value equal to the agreed upon amount (or such lesser number of shares as
is then held in Escrow).
(e) If no agreement with respect to a Disputed Amount can be reached
pursuant to Section 3(d), either Parent or the Indemnifying Shareholders' Agent
may demand arbitration of the matter unless the amount of Damages at issue is
the subject of pending litigation (or alternative dispute resolution) with a
third party, in which event arbitration shall not be commenced until such
litigation is concluded or both parties request arbitration. Arbitration shall
be held in San Jose, California under the rules then in effect of the Judicial
Arbitration and Mediation Services, Inc. Arbitration will be conducted by three
arbitrators, one selected by Parent, one selected by the Indemnifying
Shareholders' Agent and the third selected by the first two arbitrators.
Arbitration will be limited to determining, to the extent in dispute by the
parties, the existence and amount, if any, of indemnifiable Damages under
Section 9 of the Reorganization Agreement. The decision of the arbitrators shall
be final and binding on the parties and shall be evidenced by an arbitrators'
order delivered to Escrow Agent. The non-prevailing party shall pay the
reasonable expenses (including attorneys' fees) of the prevailing party and the
fees and administrative expenses associated with the arbitration. For purposes
of this Section 3.3(e), the non-prevailing party shall be deemed to be Parent if
it receives less than 51% of the Disputed Amount, otherwise it shall be the
Indemnifying Shareholders. In no event shall the arbitrator's award exceed 125%
of the Disputed Amount.
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SECTION 4. THIRD PARTY CLAIMS.
In the event Parent becomes aware of any third-party claim which Parent
believes may result in a claim for indemnification, Parent shall notify the
Indemnifying Shareholders' Agent of such claim and the Indemnifying
Shareholders' Agent shall be entitled, at his expense or the expense of the
Indemnifying Shareholders or any of them, to participate in the defense of such
claim. Parent shall have the right, in its sole discretion, to settle any such
claim. Parent shall consult with the Indemnifying Shareholders' Agent concerning
any such settlement and shall request the consent of the Indemnifying
Shareholders' Agent to any such settlement, which shall not be unreasonably
withheld. If Parent settles any such claim without the consent of the
Indemnifying Shareholders' Agent, such settlement shall not be determinative of
the amount of liability of the Indemnifying Shareholders.
SECTION 5. RELEASE OF SHARES TO INDEMNIFYING SHAREHOLDERS.
5.1 SHARES TO BE RELEASED. Escrow Agent shall release, to the Indemnifying
Shareholders from the Escrow upon receipt of a notice ("Notice") executed by
Parent and the Indemnifying Shareholders' Agent, all Escrow Shares then held in
the Escrow, except for any Escrow Shares that are to be retained in the Escrow
in accordance with Section 3.3(c) of this Escrow Agreement, on the date 135 days
after the Closing Date. The Notice shall provide Escrow Agent with evidence of
the satisfaction of the conditions of this Section 5.1
5.2 PROCEDURES FOR RELEASING SHARES. Any release of shares to the
Indemnifying Shareholders pursuant to Section 5.1 of this Escrow Agreement may
be effected by mailing stock certificates to the Indemnifying Shareholders in
accordance with the percentages set forth for each Indemnifying Shareholder on
Attachment A.
SECTION 6. VALUATION OF SHARES HELD IN ESCROW.
For purposes of this Escrow Agreement, the "Fair Market Value" of the
Escrow Shares shall be deemed to be equal to the number of Escrow Shares
multiplied by the Designated Parent Stock Price (adjusted as appropriate to
reflect any stock split, reverse stock split, stock dividend or similar
transaction effected by Parent after the Closing Date).
SECTION 7. FEES AND EXPENSES.
7.1 At the Effective Time, upon initial deposit of the Escrow Shares, an
initial fee of $1,500 will be payable to Escrow Agent by Parent. Escrow Agent
will also be entitled to reimbursement for extraordinary expenses incurred in
performance of its duties hereunder. Each of (i) Parent and (ii) the
Indemnifying Shareholders shall be liable for one-half ( 1/2) of such amounts
and Parent shall be entitled to reimbursement from the Escrow Shares of the
Indemnifying Shareholders' share of any such extraordinary expenses, if such
share is paid by Parent. Escrow Agent shall send all bills to both Parent and
the Indemnifying Shareholders' Agent.
7.2 Parent shall pay the customary and ordinary fees and expenses of Escrow
Agent for the services to be rendered by Escrow Agent hereunder. Extraordinary
expenses of Escrow Agent (including fees and expenses, including reasonable
attorneys fees and expenses) incurred in performance of its duties hereunder
shall be paid in accordance with Section 7.1 above.
7.3 Except as may otherwise be provided herein, all expenses (including
attorneys' fees) incurred by any Indemnifying Shareholder (other than the
Indemnifying Shareholders' Agent) in connection with this Escrow Agreement shall
be borne by such Indemnifying Shareholder.
7.4 Upon a notice in writing delivered to Escrow Agent by Parent in respect
of Section 7.1, Escrow Agent shall transfer, deliver and assign to Parent, in
reimbursement of fees and expenses pursuant to the second sentence of Section
7.1, such number of Escrow Shares held in the Escrow which have a Fair Market
Value equal to the amount to be reimbursed.
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SECTION 8. DUTIES OF ESCROW AGENT; LIMITATION OF ESCROW AGENT'S LIABILITY.
8.1 The sole duty of Escrow Agent, other than as herein specified, shall be
to receive and hold the Escrow Shares, subject to disbursement in accordance
with this Escrow Agreement. Escrow Agent shall not be liable for losses due to
acts of God, war, loss of electrical power or the failure of communication
devices.
8.2 Escrow Agent shall incur no liability with respect to any action taken
or suffered by it in reliance upon any notice, direction, instruction, consent,
statement or other documents believed by it to be genuine and duly authorized,
nor for other action or inaction except its own willful misconduct or
negligence. The Escrow Agent shall not be responsible for the validity or
sufficiency of this Escrow Agreement. In all questions arising under the Escrow
Agreement, Escrow Agent may rely on the advice of counsel, and for anything
done, omitted or suffered in good faith by Escrow Agent based on such advice,
Escrow Agent shall not be liable to anyone. Escrow Agent shall not be required
to take any action hereunder involving any expense unless the payment of such
expense is made or provided for in a manner reasonably satisfactory to it.
8.3 Parent and the Indemnifying Shareholders, jointly and severally, hereby
agree to indemnify Escrow Agent for, and hold it harmless against, any loss,
liability or expense incurred without negligence or willful misconduct on the
part of Escrow Agent, arising out of or in connection with its carrying out of
its duties hereunder. As among themselves, each of (i) Parent and (ii) the
Indemnifying Shareholders shall be liable for one-half ( 1/2) of such amounts
and Parent shall be entitled to reimbursement from the Escrow Shares and/or
jointly and severally from the Indemnifying Shareholders of the Indemnifying
Shareholders' share of any such loss, liability or expense, if such share is
paid by Parent.
SECTION 9. GENERAL.
9.1 CONFIRMATION OF APPOINTMENT OF INDEMNIFYING SHAREHOLDERS' AGENT. The
parties hereto confirm the appointment and authority of the Indemnifying
Shareholders' Agent as set forth in Section 10.1 of Reorganization Agreement
with respect to all matters relating to this Escrow Agreement. Any successor to
the Indemnifying Shareholders' Agent who is appointed in accordance with the
provisions of Section 10.1 of the Reorganization Agreement shall be deemed to be
the "Indemnifying Shareholders' Agent" for purposes of this Escrow Agreement.
The Indemnifying Shareholders' Agent may be removed by the Indemnifying
Shareholders who received a majority of the shares of Parent Common Stock in the
Merger (including shares of Parent Common Stock issuable upon exercise of
Assumed Options). Any document executed or action taken by the Indemnifying
Shareholders' Agent shall be final, binding and conclusive upon all of the
Indemnifying Shareholders. Parent, Sub, ViewStar and Escrow Agent may rely upon
any act, decision, consent or instruction of the Indemnifying Shareholders'
Agent as being the act, decision, consent or instruction of each and all of the
Indemnifying Shareholders; and Parent, Sub, ViewStar and Escrow Agent are hereby
relieved from any liability to any person for any acts done by them in
accordance with any act, decision, consent or instruction of the Indemnifying
Shareholders' Agent.
9.2 OTHER AGREEMENTS. Nothing in this Escrow Agreement is intended to
limit any of Parent's rights, or any obligation of any Indemnifying Shareholder
or ViewStar, under the Reorganization Agreement or under any other agreement
contemplated thereby.
9.3 NOTICES. Any notice or other communication required or permitted to be
delivered to any party under this Escrow Agreement shall be in writing and shall
be deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other
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address or facsimile telephone number as such party shall have specified in a
written notice given to the other parties hereto):
IF TO THE INDEMNIFYING SHAREHOLDERS' AGENT:
F. Gibson Myers, Jr.
Mayfield Fund
2800 Sand Hill Road, Suite 250
Menlo Park, CA 94025
Facsimile:
WITH A COPY TO:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Attention: Robert B. Jack, Esq.
Facsimile: (415) 493-6811
IF TO PARENT:
Caere Corporation
100 Cooper Court
Los Gatos, CA 95030
Attention: Chief Financial Officer
Facsimile: (408) 395-5263
WITH A COPY TO:
Cooley Godward Castro Huddleson & Tatum
Five Palo Alto Square
3000 El Camino Real
Palo Alto, California 94306
Attention: Lee F. Benton, Esq.
Facsimile: (415) 857-0663
IF TO ESCROW AGENT:
State Street Bank and Trust Company
P.O. Box 778
Boston, MA 02102
Attention: Corporate Trust Department
Facsimile: (617) 664-5742
IF TO VIEWSTAR:
ViewStar Corporation
1101 Marina Village Parkway
Alameda, CA 94501
Attention:
Facsimile: (510) 337-2222
WITH A COPY TO:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Attention: Robert B. Jack, Esq.
Facsimile: (415) 493-6811
9.4 COUNTERPARTS. This Escrow Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
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9.5 HEADINGS. The underlined headings contained in this Escrow Agreement
are for convenience of reference only, shall not be deemed to be a part of this
Escrow Agreement and shall not be referred to in connection with the
construction or interpretation of this Escrow Agreement.
9.6 GOVERNING LAW. This Escrow Agreement shall be construed in accordance
with, and governed in all respects by, the internal laws of the State of
California, without giving effect to principles of conflicts of laws.
9.7 SUCCESSORS AND ASSIGNS; PARTIES IN INTEREST.
(A) Subject to Section 2.5 of this Escrow Agreement, this Escrow Agreement
shall be binding upon: ViewStar and its successors and assigns (if any); the
Indemnifying Shareholders' Agent and the Indemnifying Shareholders and their
respective estates, successors and assigns (if any); and Parent and its
successors and assigns (if any). This Escrow Agreement shall inure to the
benefit of: ViewStar; the Indemnifying Shareholders; Parent; the other
Indemnitees; and the respective successors (if any) of the foregoing.
(B) Parent may freely assign any or all of its rights under this Escrow
Agreement, in whole or in part, to any other Person without obtaining the
consent or approval of any other party hereto or of any other Person. Escrow
Agent may not delegate its obligations under this Escrow Agreement to any other
Person without the prior consent of Parent and the Indemnifying Shareholders'
Agent. None of the Indemnifying Shareholders, the Indemnifying Shareholders'
Agent or ViewStar shall be permitted to assign any of his, her or its rights or
delegate any of his, her or its obligations under this Escrow Agreement without
Parent's prior written consent.
9.8 AMENDMENT AND WAIVERS. Any term or provision of this Escrow Agreement
may be amended, and the observance of any term of this Escrow Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively) only by a writing signed by the party to be bound thereby;
provided that this Escrow Agreement may be amended on behalf of all of the
Indemnifying Shareholders by the Indemnifying Shareholders' Agent.
Notwithstanding any rights that may be created in any third party under the
terms of this Escrow Agreement, no such amendment or waiver will require the
consent of such third party to be effective. The waiver by a party of any breach
hereof or default in the performance hereof will not be deemed to constitute a
waiver of any other default or any succeeding breach or default. No failure on
the part of any party to exercise any power, right, privilege or remedy under
this Escrow Agreement, and no delay on the part of any party in exercising any
power, right, privilege or remedy under this Escrow Agreement, shall operate as
a waiver of such power, right, privilege or remedy; and no single or partial
exercise of any such power, right, privilege or remedy shall preclude any other
or further exercise thereof or of any other power, right, privilege or remedy.
9.9 SEVERABILITY. In the event that any provision of this Escrow
Agreement, or the application of any such provision to any Person or set of
circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this Escrow Agreement, and the
application of such provision to Persons or circumstances other than those as to
which it is determined to be invalid, unlawful, void or unenforceable, shall not
be impaired or otherwise affected and shall continue to be valid and enforceable
to the fullest extent permitted by law.
9.10 ENTIRE AGREEMENT. This Escrow Agreement and the Reorganization
Agreement and the other agreements contemplated in the Reorganization Agreement
set forth the entire understanding of the parties relating to the subject matter
hereof and thereof and supersede all prior agreements and understandings among
or between any of the parties relating to the subject matter hereof and thereof.
9.11 CONSTRUCTION.
(A) For purposes of this Escrow Agreement, whenever the context requires:
the singular number shall include the plural, and vice versa; the masculine
gender shall include the feminine and neuter genders; the feminine gender shall
include the masculine and neuter genders; and the neuter gender shall include
the masculine and feminine genders.
(B) The parties hereto agree that any rule of construction to the effect
that ambiguities are to be resolved against the drafting party shall not be
applied in the construction or interpretation of this Escrow Agreement.
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(C) As used in this Escrow Agreement, the words "include" and "including,"
and variations thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words "without limitation."
(D) Except as otherwise indicated, all references in this Escrow Agreement
to "Sections" are intended to refer to Sections of this Escrow Agreement.
9.12 ATTORNEYS' FEES. Should suit be brought to enforce or interpret any
part of this Escrow Agreement, the prevailing party will be entitled to recover,
as an element of the costs of suit and not as damages, reasonable attorneys'
fees to be fixed by the court, including, without limitation, costs, expenses
and fees on any appeal. The prevailing party will be entitled to recover its
costs of suit, regardless of whether such suit proceeds to final judgment.
9.13 FURTHER ASSURANCES. Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances as may be reasonably requested by
any other party to evidence and reflect the transactions described herein and
contemplated hereby and to carry into effect the intents and purposes of this
Escrow Agreement.
9.14 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS. No provisions of this
Escrow Agreement are intended, nor will be interpreted, to provide or create any
third party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, stockholder, partner or any party hereto or any other
person or entity unless specifically provided otherwise herein, and, except as
so provided, all provisions hereof will be personal solely between the parties
to this Escrow Agreement.
9.15 RESIGNATION OR REPLACEMENT OF ESCROW AGENT. Parent may substitute a
successor escrow agent for Escrow Agent upon thirty days advance written notice
to the Indemnifying Shareholders' Agent and Escrow Agent. Such replacement
Escrow Agent shall be a bank or similar financial institution. Escrow Agent may
resign upon 30 days advance written notice to Parent and the Indemnifying
Shareholders' Agent. Within such 30 day period, Parent shall appoint a successor
Escrow Agent in accordance with this Section 9.15. If Parent has not appointed a
successor Escrow Agent within such period, Escrow Agent may petition any court
of competent jurisdiction to name a successor escrow agent.
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IN WITNESS WHEREOF, the parties have executed this Escrow Agreement as of
the date first above written.
CAERE CORPORATION,
a Delaware corporation
By:
--------------------------------------
Print Name:
--------------------------------------
Title:
--------------------------------------
VIEWSTAR CORPORATION, INC.,
a California corporation
By:
--------------------------------------
Print Name:
--------------------------------------
Title:
--------------------------------------
INDEMNIFYING SHAREHOLDERS' AGENT
Signature:
--------------------------------------
Print Name:
--------------------------------------
STATE STREET BANK AND TRUST COMPANY,
ESCROW AGENT
By:
--------------------------------------
Print Name:
--------------------------------------
Title:
--------------------------------------
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ATTACHMENT A
Indemnifying Shareholder Percentage of Escrow Shares
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EXHIBIT N
MERGER EXPENSES ESCROW AGREEMENT
This MERGER EXPENSES ESCROW AGREEMENT (the "Escrow Agreement") is entered
into as of , 1995 (the "Closing Date"), by and among: CAERE
CORPORATION, a Delaware corporation ("Parent"); VIEWSTAR CORPORATION, a
California corporation ("ViewStar"); (the "Indemnifying
Shareholders' Agent"), as agent of the shareholders and vested optionholders of
ViewStar, all of whom are listed on Attachment A (the "Indemnifying
Shareholders"); and STATE STREET BANK AND TRUST COMPANY ("Escrow Agent").
RECITALS
A. Parent, ViewStar, ViewStar Acquisition Corp., a California corporation
and a wholly-owned subsidiary of Parent ("Sub") and certain shareholders of
ViewStar are entering into an Escrow Agreement and Plan of Merger and
Reorganization dated October 9, 1995 (the "Reorganization Agreement"), pursuant
to which Sub is merging with and into ViewStar in a transaction in which the
issued and outstanding capital stock of ViewStar will be exchanged for shares of
Common Stock of Parent ("Parent Common Stock"), resulting in ViewStar becoming a
wholly-owned subsidiary of Parent.
B. The Reorganization Agreement contemplates the establishment of an escrow
arrangement to secure the indemnification and other obligations of ViewStar
under the Reorganization Agreement and various related agreements. As a
condition precedent to Parent's execution of the Reorganization Agreement and
related agreements and to more fully secure unto Parent the benefits of the
Merger, Parent has required that ViewStar and the Indemnifying Shareholders'
Agent enter into this Escrow Agreement as set forth in Section 10.4 of the
Reorganization Agreement; and ViewStar and the Indemnifying Shareholders' Agent
have agreed to enter into this Escrow Agreement on behalf of the Indemnifying
Shareholders, in order to induce Parent to consummate the Merger.
AGREEMENT
The parties to this Escrow Agreement, intending to be legally bound, agree
as follows:
SECTION 1. DEFINED TERMS.
Capitalized terms used and not otherwise defined in this Escrow Agreement
shall have the meanings assigned to them in the Reorganization Agreement.
SECTION 2. ESCROW.
2.1 SHARES TO BE PLACED IN ESCROW. Parent shall issue on the Closing Date
a certificate for three percent (3%) of the aggregate number of shares of Parent
Common Stock to be issued to ViewStar shareholders in the Merger and shall issue
a certificate for 3% of all shares of Parent Common Stock to be issued to
holders of Vested Option Shares, when such shares are issued (the "Escrow
Shares"), in the name of Escrow Agent or its nominee, evidencing the shares of
Parent Common Stock to be held in escrow in accordance with this Escrow
Agreement. The Escrow Shares shall be held as a trust fund and shall not be
subject to any lien, attachment, trustee process or any other judicial process
of any creditor of any party hereto. Escrow Agent agrees to accept delivery of
the Escrow Shares and to hold the Escrow Shares in escrow (the "Escrow"),
subject to the terms and conditions of this Escrow Agreement.
2.2 INDEMNIFICATION. ViewStar and the Indemnifying Shareholders have
agreed in Section 10 of the Reorganization Agreement to indemnify and hold
harmless the Indemnitees from and against Company Excess Merger Expenses
("Merger Expenses"). The Indemnifying Shareholders agree that the Escrow Shares
shall be security for such indemnity obligation, subject to the limitations, and
in the manner provided in this Escrow Agreement.
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2.3 VOTING OF SHARES. On any matter brought before the Parent stockholders
for a vote, Escrow Agent shall vote the Escrow Shares as directed by the
Indemnifying Shareholders individually. Each Indemnifying Shareholder shall have
the right to direct the vote of the number of shares resulting from the
multiplication of the Indemnifying Shareholder's percentage set forth on
Attachment A by the total number of Escrow Shares held by Escrow Agent on the
record date for the vote.
2.4 DIVIDENDS, ETC. Any cash distributable as a dividend in respect of any
Escrow Shares shall be distributed to the record owner of such Escrow Shares.
Any other cash, securities or other property distributable (whether by way of
dividend, stock split or otherwise) in respect of or in exchange for any Escrow
Shares shall not be distributed to the record owner of such Escrow Shares, but
rather shall be held by Escrow Agent in the Escrow. At the time any Escrow
Shares are required to be released from the Escrow to any Person pursuant to
this Escrow Agreement, any cash, securities or other property previously
distributed in respect of or in exchange for such Escrow Shares shall be
released from the Escrow to such Person.
2.5 TRANSFERABILITY. The interests of Indemnifying Shareholders in the
Escrow and in the Escrow Shares shall not be assignable or transferable, other
than by operation of law. No transfer of any of such interests by operation of
law shall be recognized or given effect until Escrow Agent shall have received
written notice of such transfer.
2.6 FRACTIONAL SHARES. No fractional shares of Parent Common Stock shall
be retained in or released from the Escrow pursuant to this Escrow Agreement. In
connection with any release of shares from the Escrow, Escrow Agent shall be
permitted to "round down" or to follow such other rounding procedures as Escrow
Agent reasonably determines to be appropriate in order to avoid (i) retaining
any fractional share in the Escrow or (ii) releasing any fractional share from
the Escrow.
SECTION 3. CLAIM PROCEDURES.
3.1 CLAIM NOTICE. If Parent determines in good faith that the Merger
Expenses have been incurred as set forth in Sections 10.3 and 10.4 of the
Reorganization Agreement, and if Parent is entitled, under the terms of the
Reorganization Agreement, to make a claim against the Escrow with respect to
such Merger Expenses, then Parent may deliver to both the Indemnifying
Shareholders' Agent and Escrow Agent a written notice of such Merger Expenses (a
"Claim Notice") setting forth (i) a brief description of the circumstances
supporting Parent's belief that such Merger Expenses have been incurred, and
(ii) to the extent possible, a non-binding, preliminary estimate of the
aggregate dollar amount of all Merger Expenses that have arisen and may arise
(such aggregate amount being referred to as the "Claim Amount").
3.2 RESPONSE NOTICE. Within 15 days after the delivery of a Claim Notice
to the Indemnifying Shareholders' Agent, the Indemnifying Shareholders' Agent
shall deliver to Escrow Agent a written notice (the "Response Notice")
containing: (i) instructions to the effect that Escrow Shares having a Fair
Market Value (as defined in Section 6 of this Escrow Agreement) equal to the
entire Claim Amount set forth in such Claim Notice are to be released from the
Escrow to Parent; or (ii) instructions to the effect that Escrow Shares having a
Fair Market Value equal to a specified portion (but not the entire amount) of
the Claim Amount set forth in such Claim Notice are to be released from the
Escrow to Parent, together with a statement that the remaining portion of such
Claim Amount is being disputed; or (iii) a statement that the entire Claim
Amount set forth in such Claim Notice is being disputed. If no Response Notice
is received by Escrow Agent from the Indemnifying Shareholders' Agent within 15
days after the delivery of a Claim Notice to the Indemnifying Shareholders'
Agent, then the recipient of such Claim Notice shall be deemed to have given
instructions that Escrow Shares having a Fair Market Value equal to the entire
Claim Amount set forth in such Claim Notice are to be released to Parent from
the Escrow.
3.3 RELEASE OF ESCROW SHARES TO PARENT.
(A) If the Indemnifying Shareholders' Agent gives (or is deemed to have
given) instructions that Escrow Shares having a Fair Market Value equal to the
entire Claim Amount set forth in a Claim Notice are to be released from the
Escrow to Parent, then Escrow Agent shall, promptly following the required
delivery date for the Response Notice, transfer, deliver and assign to Parent,
from the Escrow, such number of Escrow Shares
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having a Fair Market Value equal to such Claim Amount (or such lesser number of
Escrow Shares as is then held in Escrow).
(B) If a Response Notice delivered by the Indemnifying Shareholders' Agent
in response to a Claim Notice contains instructions to the effect that Escrow
Shares having a Fair Market Value equal to a specified portion (but not the
entire amount) of the Claim Amount set forth in such Claim Notice are to be
released from the Escrow to Parent, then (i) Escrow Agent shall, promptly
following the required delivery date for the Response Notice, transfer, deliver
and assign to Parent, from the Escrow, such number of Escrow Shares having a
Fair Market Value equal to such specified portion of such Claim Amount, and (ii)
the procedures set forth in Section 3.3(c) of this Escrow Agreement shall be
followed with respect to the remaining portion of such Claim Amount.
(C) If a Response Notice delivered by the Indemnifying Shareholders' Agent
in response to a Claim Notice contains a statement that all or a portion of the
Claim Amount set forth in such Claim Notice is being disputed (such Claim Amount
or the disputed portion thereof being referred to as the "Disputed Amount"),
then, notwithstanding anything contained in Section 5 of this Escrow Agreement,
Escrow Agent shall continue to hold in the Escrow (in addition to any other
Escrow Shares permitted to be retained in the Escrow, whether in connection with
any other dispute or otherwise) Escrow Shares having a Fair Market Value equal
to 125% of the Disputed Amount. Such Escrow Shares shall continue to be held in
the Escrow until such time as (i) Parent and the Indemnifying Shareholders'
Agent execute a settlement agreement containing instructions regarding the
release of such shares, or (ii) Escrow Agent receives a copy of an arbitrators'
award (pursuant to Section 3(e) hereof) containing instructions to Escrow Agent
regarding the release of such Escrow Shares. Escrow Agent shall thereupon
release such Escrow Shares from the Escrow in accordance with the instructions
set forth in such settlement agreement or arbitrators' award. The parties
acknowledge that it is appropriate to retain more than 100% of the Claim Amount
in the Escrow in recognition of the fact that Parent may have underestimated the
aggregate amount of the actual and potential Merger Expenses arising from a
particular Claim Amount.
(D) In the event that any Response Notice indicates that there is a
Disputed Amount, the Indemnifying Shareholders' Agent and Parent (acting on its
own behalf or on behalf of Sub or ViewStar) shall, for a period of 60 days,
attempt in good faith to resolve the rights of the respective parties with
respect to such claims. If the Indemnifying Shareholders' Agent and Parent
should so agree, a notice setting forth such agreement shall be signed by both
parties and sent to Escrow Agent who shall thereupon transfer, deliver and
assign to Parent such number of Escrow Shares held in Escrow as have a Fair
Market Value equal to the agreed upon amount (or such lesser number of shares as
is then held in Escrow).
(E) If no agreement with respect to a Disputed Amount can be reached
pursuant to Section 3(d), either Parent or the Indemnifying Shareholders' Agent
may demand arbitration of the matter unless the amount of Merger Expenses at
issue is the subject of pending litigation (or alternative dispute resolution)
with a third party, in which event arbitration shall not be commenced until such
litigation is concluded or both parties request arbitration. Arbitration shall
be held in San Jose, California under the rules then in effect of the Judicial
Arbitration and Mediation Services, Inc. Arbitration will be conducted by three
arbitrators, one selected by Parent, one selected by the Indemnifying
Shareholders' Agent and the third selected by the first two arbitrators.
Arbitration will be limited to determining, to the extent in dispute by the
parties, the existence and amount, if any, of indemnifiable Merger Expenses
under Section 10 of the Reorganization Agreement. The decision of the
arbitrators shall be final and binding on the parties and shall be evidenced by
an arbitrators' order delivered to Escrow Agent. The non-prevailing party shall
pay the reasonable expenses (including attorneys' fees) of the prevailing party
and the fees and administrative expenses associated with the arbitration. For
purposes of this Section 3.3(e), the non-prevailing party shall be deemed to be
Parent if it receives less than 51% of the Disputed Amount, otherwise it shall
be the Indemnifying Shareholders. In no event shall the arbitrator's award
exceed 125% of the Disputed Amount.
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SECTION 4. THIRD PARTY CLAIMS.
In the event Parent becomes aware of any third-party claim which Parent
believes may result in a claim for indemnification, Parent shall notify the
Indemnifying Shareholders' Agent of such claim and the Indemnifying
Shareholders' Agent shall be entitled, at his expense or the expense of the
Indemnifying Shareholders or any of them, to participate in the defense of such
claim. Parent shall have the right, in its sole discretion, to settle any such
claim. Parent shall consult with the Indemnifying Shareholders' Agent concerning
any such settlement and shall request the consent of the Indemnifying
Shareholders' Agent to any such settlement, which shall not be unreasonably
withheld. If Parent settles any such claim without the consent of the
Indemnifying Shareholders' Agent, such settlement shall not be determinative of
the amount of liability of the Indemnifying Shareholders.
SECTION 5. RELEASE OF SHARES TO INDEMNIFYING SHAREHOLDERS.
5.1 SHARES TO BE RELEASED. Escrow Agent shall release, to the Indemnifying
Shareholders from the Escrow upon receipt of a notice ("Notice") executed by
Parent and the Indemnifying Shareholders' Agent, all Escrow Shares then held in
the Escrow, except for any Escrow Shares that are to be retained in the Escrow
in accordance with Section 3.3(c) of this Escrow Agreement, no later than the
date 90 days after the Closing Date.
5.2 PROCEDURES FOR RELEASING SHARES. Any release of shares to the
Indemnifying Shareholders pursuant to Section 5.1 of this Escrow Agreement may
be effected by mailing stock certificates to the Indemnifying Shareholders in
accordance with the percentages set forth for each Indemnifying Shareholder on
Attachment A.
SECTION 6. VALUATION OF SHARES HELD IN ESCROW.
For purposes of this Escrow Agreement, the "Fair Market Value" of the
Escrow Shares shall be deemed to be equal to the number of Escrow Shares
multiplied by the Designated Parent Stock Price (adjusted as appropriate to
reflect any stock split, reverse stock split, stock dividend or similar
transaction effected by Parent after the Closing Date).
SECTION 7. FEES AND EXPENSES.
7.1 At the Effective Time, upon initial deposit of the Escrow Shares, an
initial fee of $1,500 will be payable to Escrow Agent by Parent. Escrow Agent
will also be entitled to reimbursement for extraordinary expenses incurred in
performance of its duties hereunder. Each of (i) Parent and (ii) the
Indemnifying Shareholders shall be liable for one-half ( 1/2) of such amounts
and Parent shall be entitled to reimbursement from the Escrow Shares of the
Indemnifying Shareholders' share of any such extraordinary expenses, if such
share is paid by Parent. Escrow Agent shall send all bills to both Parent and
the Indemnifying Shareholders' Agent.
7.2 Parent shall pay the customary and ordinary fees and expenses of Escrow
Agent for the services to be rendered by Escrow Agent hereunder. Extraordinary
expenses of Escrow Agent (including fees and expenses, including reasonable
attorneys fees and expenses) incurred in performance of its duties hereunder
shall be paid in accordance with Section 7.1 above.
7.3 Except as may otherwise be provided herein, all expenses (including
attorneys' fees) incurred by any Indemnifying Shareholder (other than the
Indemnifying Shareholders' Agent) in connection with this Escrow Agreement shall
be borne by such Indemnifying Shareholder.
7.4 Upon a notice in writing delivered to Escrow Agent by Parent in respect
of Section 7.1, Escrow Agent shall transfer, deliver and assign to Parent, in
reimbursement of fees and expenses pursuant to the second sentence of Section
7.1, such number of Escrow Shares held in the Escrow which have a Fair Market
Value equal to the amount to be reimbursed.
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SECTION 8. DUTIES OF ESCROW AGENT; LIMITATION OF ESCROW AGENT'S LIABILITY.
8.1 The sole duty of Escrow Agent, other than as herein specified, shall be
to receive and hold the Escrow Shares, subject to disbursement in accordance
with this Escrow Agreement. Escrow Agent shall not be liable for losses due to
acts of God, war, loss of electrical power or the failure of communication
devices.
8.2 Escrow Agent shall incur no liability with respect to any action taken
or suffered by it in reliance upon any notice, direction, instruction, consent,
statement or other documents believed by it to be genuine and duly authorized,
nor for other action or inaction except its own willful misconduct or
negligence. The Escrow Agent shall not be responsible for the validity or
sufficiency of this Escrow Agreement. In all questions arising under the Escrow
Agreement, Escrow Agent may rely on the advice of counsel, and for anything
done, omitted or suffered in good faith by Escrow Agent based on such advice,
Escrow Agent shall not be liable to anyone. Escrow Agent shall not be required
to take any action hereunder involving any expense unless the payment of such
expense is made or provided for in a manner reasonably satisfactory to it.
8.3 Parent and the Indemnifying Shareholders, jointly and severally, hereby
agree to indemnify Escrow Agent for, and hold it harmless against, any loss,
liability or expense incurred without negligence or willful misconduct on the
part of Escrow Agent, arising out of or in connection with its carrying out of
its duties hereunder. As among themselves, each of (i) Parent and (ii) the
Indemnifying Shareholders shall be liable for one-half ( 1/2) of such amounts
and Parent shall be entitled to reimbursement from the Escrow Shares and/or
jointly and severally from the Indemnifying Shareholders of the Indemnifying
Shareholders' share of any such loss, liability or expense, if such share is
paid by Parent.
SECTION 9. GENERAL.
9.1 CONFIRMATION OF APPOINTMENT OF INDEMNIFYING SHAREHOLDERS' AGENT. The
parties hereto confirm the appointment and authority of the Indemnifying
Shareholders' Agent as set forth in Section 10.1 of Reorganization Agreement
with respect to all matters relating to this Escrow Agreement. Any successor to
the Indemnifying Shareholders' Agent who is appointed in accordance with the
provisions of Section 10.1 of the Reorganization Agreement shall be deemed to be
the "Indemnifying Shareholders' Agent" for purposes of this Escrow Agreement.
The Indemnifying Shareholders' Agent may be removed by the Indemnifying
Shareholders who received a majority of the shares of Parent Common Stock in the
Merger (including shares of Parent Common Stock issuable upon exercise of
Assumed Options). Any document executed or action taken by the Indemnifying
Shareholders' Agent shall be final, binding and conclusive upon all of the
Indemnifying Shareholders. Parent, Sub, ViewStar and Escrow Agent may rely upon
any act, decision, consent or instruction of the Indemnifying Shareholders'
Agent as being the act, decision, consent or instruction of each and all of the
Indemnifying Shareholders; and Parent, Sub, ViewStar and Escrow Agent are hereby
relieved from any liability to any person for any acts done by them in
accordance with any act, decision, consent or instruction of the Indemnifying
Shareholders' Agent.
9.2 OTHER AGREEMENTS. Nothing in this Escrow Agreement is intended to
limit any of Parent's rights, or any obligation of any Indemnifying Shareholder
or ViewStar, under the Reorganization Agreement or under any other agreement
contemplated thereby.
9.3 NOTICES. Any notice or other communication required or permitted to be
delivered to any party under this Escrow Agreement shall be in writing and shall
be deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):
IF TO THE INDEMNIFYING SHAREHOLDERS' AGENT:
F. Gibson Meyers, Jr.
Mayfield Fund
2800 Sand Hill Road, Suite 250
Menlo Park, CA 94025
Facsimile:
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WITH A COPY TO:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Attention: Robert B. Jack, Esq.
Facsimile: (415) 493-6811
IF TO PARENT:
Caere Corporation
100 Cooper Court
Los Gatos, CA 95030
Attention: Chief Financial Officer
Facsimile: (408) 395-5263
WITH A COPY TO:
Cooley Godward Castro Huddleson & Tatum
Five Palo Alto Square
3000 El Camino Real
Palo Alto, California 94306
Attention: Lee F. Benton, Esq.
Facsimile: (415) 857-0663
IF TO ESCROW AGENT:
State Street Bank and Trust Company
P.O. Box 778
Boston, MA 02102
Attention: Corporate Trust Department
Facsimile: (617) 664-5742
IF TO VIEWSTAR:
ViewStar Corporation
1101 Marina Village Parkway
Alameda, CA 94501
Attention:
Facsimile: (510) 337-2222
WITH A COPY TO:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Attention: Robert B. Jack, Esq.
Facsimile: (415) 493-6811
9.4 COUNTERPARTS. This Escrow Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
9.5 HEADINGS. The underlined headings contained in this Escrow Agreement
are for convenience of reference only, shall not be deemed to be a part of this
Escrow Agreement and shall not be referred to in connection with the
construction or interpretation of this Escrow Agreement.
9.6 GOVERNING LAW. This Escrow Agreement shall be construed in accordance
with, and governed in all respects by, the internal laws of the State of
California, without giving effect to principles of conflicts of laws.
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9.7 SUCCESSORS AND ASSIGNS; PARTIES IN INTEREST.
(A) Subject to Section 2.5 of this Escrow Agreement, this Escrow Agreement
shall be binding upon: ViewStar and its successors and assigns (if any); the
Indemnifying Shareholders' Agent and the Indemnifying Shareholders and their
respective estates, successors and assigns (if any); and Parent and its
successors and assigns (if any). This Escrow Agreement shall inure to the
benefit of: ViewStar; the Indemnifying Shareholders; Parent; the other
Indemnitees; and the respective successors (if any) of the foregoing.
(B) Parent may freely assign any or all of its rights under this Escrow
Agreement, in whole or in part, to any other Person without obtaining the
consent or approval of any other party hereto or of any other Person. Escrow
Agent may not delegate its obligations under this Escrow Agreement to any other
Person without the prior consent of Parent and the Indemnifying Shareholders'
Agent. None of the Indemnifying Shareholders, the Indemnifying Shareholders'
Agent or ViewStar shall be permitted to assign any of his, her or its rights or
delegate any of his, her or its obligations under this Escrow Agreement without
Parent's prior written consent.
9.8 AMENDMENT AND WAIVERS. Any term or provision of this Escrow Agreement
may be amended, and the observance of any term of this Escrow Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively) only by a writing signed by the party to be bound thereby;
provided that this Escrow Agreement may be amended on behalf of all of the
Indemnifying Shareholders by the Indemnifying Shareholders' Agent.
Notwithstanding any rights that may be created in any third party under the
terms of this Escrow Agreement, no such amendment or waiver will require the
consent of such third party to be effective. The waiver by a party of any breach
hereof or default in the performance hereof will not be deemed to constitute a
waiver of any other default or any succeeding breach or default. No failure on
the part of any party to exercise any power, right, privilege or remedy under
this Escrow Agreement, and no delay on the part of any party in exercising any
power, right, privilege or remedy under this Escrow Agreement, shall operate as
a waiver of such power, right, privilege or remedy; and no single or partial
exercise of any such power, right, privilege or remedy shall preclude any other
or further exercise thereof or of any other power, right, privilege or remedy.
9.9 SEVERABILITY. In the event that any provision of this Escrow
Agreement, or the application of any such provision to any Person or set of
circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this Escrow Agreement, and the
application of such provision to Persons or circumstances other than those as to
which it is determined to be invalid, unlawful, void or unenforceable, shall not
be impaired or otherwise affected and shall continue to be valid and enforceable
to the fullest extent permitted by law.
9.10 ENTIRE AGREEMENT. This Escrow Agreement and the Reorganization
Agreement and the other agreements contemplated in the Reorganization Agreement
set forth the entire understanding of the parties relating to the subject matter
hereof and thereof and supersede all prior agreements and understandings among
or between any of the parties relating to the subject matter hereof and thereof.
9.11 CONSTRUCTION.
(A) For purposes of this Escrow Agreement, whenever the context requires:
the singular number shall include the plural, and vice versa; the masculine
gender shall include the feminine and neuter genders; the feminine gender shall
include the masculine and neuter genders; and the neuter gender shall include
the masculine and feminine genders.
(B) The parties hereto agree that any rule of construction to the effect
that ambiguities are to be resolved against the drafting party shall not be
applied in the construction or interpretation of this Escrow Agreement.
(C) As used in this Escrow Agreement, the words "include" and "including,"
and variations thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words "without limitation."
(D) Except as otherwise indicated, all references in this Escrow Agreement
to "Sections" are intended to refer to Sections of this Escrow Agreement.
N-7
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9.12 ATTORNEYS' FEES. Should suit be brought to enforce or interpret any
part of this Escrow Agreement, the prevailing party will be entitled to recover,
as an element of the costs of suit and not as damages, reasonable attorneys'
fees to be fixed by the court, including, without limitation, costs, expenses
and fees on any appeal. The prevailing party will be entitled to recover its
costs of suit, regardless of whether such suit proceeds to final judgment.
9.13 FURTHER ASSURANCES. Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances as may be reasonably requested by
any other party to evidence and reflect the transactions described herein and
contemplated hereby and to carry into effect the intents and purposes of this
Escrow Agreement.
9.14 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS. No provisions of this
Escrow Agreement are intended, nor will be interpreted, to provide or create any
third party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, stockholder, partner or any party hereto or any other
person or entity unless specifically provided otherwise herein, and, except as
so provided, all provisions hereof will be personal solely between the parties
to this Escrow Agreement.
9.15 RESIGNATION OR REPLACEMENT OF ESCROW AGENT. Parent may substitute a
successor escrow agent for Escrow Agent upon thirty days advance written notice
to the Indemnifying Shareholders' Agent and Escrow Agent. Such replacement
Escrow Agent shall be a bank or similar financial institution. Escrow Agent may
resign upon 30 days advance written notice to Parent and the Indemnifying
Shareholders' Agent. Within such 30 day period, Parent shall appoint a successor
Escrow Agent in accordance with this Section 9.15. If Parent has not appointed a
successor Escrow Agent within such period, Escrow Agent may petition any court
of competent jurisdiction to name a successor escrow agent.
N-8
211
IN WITNESS WHEREOF, the parties have executed this Escrow Agreement as of
the date first above written.
CAERE CORPORATION,
a Delaware corporation
By:
--------------------------------------
Print Name:
--------------------------------------
Title:
--------------------------------------
VIEWSTAR CORPORATION, INC.,
a California corporation
By:
--------------------------------------
Print Name:
--------------------------------------
Title:
--------------------------------------
INDEMNIFYING SHAREHOLDERS' AGENT
Signature:
--------------------------------------
Print Name:
--------------------------------------
STATE STREET BANK AND TRUST COMPANY,
ESCROW AGENT
By:
--------------------------------------
Print Name:
--------------------------------------
Title:
--------------------------------------
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212
ATTACHMENT A
INDEMNIFYING SHAREHOLDER PERCENTAGE OF ESCROW SHARES
- --------------------------------------------- ---------------------------------------------
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213
APPENDIX B
October 8, 1995
PRIVILEGED AND CONFIDENTIAL
Board of Directors
Caere Corporation
100 Cooper Court
Los Gatos, CA 95030
Members of the Board:
You have asked our opinion with respect to the fairness to Caere
Corporation ("Caere"), from a financial point of view and as of the date hereof,
of the Consideration (as defined below) to be paid in the proposed merger of
Viewstar Corporation ("Viewstar") and a wholly-owned subsidiary of Caere,
pursuant to the draft Agreement and Plan of Merger, dated as of October 5, 1995
(the "Agreement"). Under the terms of the Agreement, a wholly-owned subsidiary
of Caere will merge with and into Viewstar (the "Merger"), and upon consummation
of the Merger, Viewstar will become a wholly-owned subsidiary. In the Merger,
assuming the average closing sale price of Caere common stock for the ten
consecutive trading days ending on the third trading day preceding the Closing
Date (the "Ten Day Average Price") is greater than or equal to $8.50 and less
than or equal to $13.73, Caere will issue approximately 3.4 million shares of
Caere common stock and options to acquire Caere common stock (subject to
reduction for specified items) (the "Consideration") in exchange for all
outstanding Viewstar preferred stock, common stock, warrants and vested options.
If the Ten Day Average Price is less than $8.50 or greater than $13.73, the
Consideration will be adjusted as specified in the Agreement. In addition,
unvested options to acquire Viewstar common stock will be converted into options
to acquire shares of Caere common stock on similar terms. Ten percent of the
aggregate shares of Caere common stock to be issued in the Merger will be placed
in escrow to secure the indemnification and other obligations of Viewstar under
the Agreement. The Merger is intended to qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended, and to be accounted for as a "pooling of interests." The terms and
conditions of the Merger are set out more fully in the Agreement.
For purposes of this opinion we have: (i) reviewed financial information on
Caere and Viewstar furnished to us by both companies, including certain internal
financial analyses and forecasts prepared by the management of Caere and
Viewstar; (ii) reviewed publicly available information; (iii) held discussions
with the management of Caere and Viewstar concerning the businesses, past and
current business operations, financial condition and future prospects of both
companies, independently and combined, including certain information prepared by
the management of Caere and Viewstar concerning potential synergies that could
result from this Merger; (iv) reviewed the Agreement; (v) reviewed the stock
price and trading history of Caere; (vi) reviewed the contribution by each
company to pro forma combined revenue, operating income, pre-tax income and net
income; (vii) reviewed the valuations of publicly traded companies which we
deemed comparable to Caere and Viewstar; (viii) compared the financial terms of
the Merger with other transactions which we deemed relevant; (ix) analyzed the
pro forma earnings per share of the combined company; and (x) made such other
studies and inquiries, and reviewed such other data, as we deemed relevant.
In connection with our opinion, we have not however independently verified
any of the foregoing information and have relied on all such information being
complete and accurate in all material respects. Furthermore, we did not obtain
any independent appraisal of the properties or assets and liabilities of Caere
or Viewstar. With respect to the financial and operating forecasts (and the
assumptions and bases therefor) of Caere and Viewstar which we have reviewed, we
have assumed that such forecasts have been reasonably prepared in good faith on
the basis of reasonable assumptions, reflect the best available estimates and
judgments of such respective managements and that such projections and forecasts
will be realized in the amounts and in the time periods currently estimated by
the managements of Caere and Viewstar. In addition, we have relied upon
estimates and judgments of Caere and Viewstar managements as to the future
financial performance of both companies, including the possible synergies
resulting from the Merger. Further, we have assumed that the historical
financial statements of Caere and ViewStar that we have reviewed have been
214
Board of Directors
Caere Corporation
October 8, 1995
prepared and presented in accordance with generally accepted accounting
principles ("GAAP") and that, as a result of the nine month audit of ViewStar,
the historical financial statements of ViewStar reviewed by us will not be
adjusted or restated as a result of circumstances that would adversely affect
the ability of ViewStar to achieve the results set forth in the financial
forecasts of ViewStar that we have reviewed. We have also assumed that the
audited financial statements for the nine months ended, and as of, September 30,
1995 will be consistent with the unaudited financial information reviewed by us.
We have also assumed that the Merger will be accounted for as a "pooling of
interests" under GAAP. While we believe that our review, as described within, is
an adequate basis for the opinion that we express, this opinion is necessarily
based upon market, economic, and other conditions that exist and can be
evaluated as of the date of this letter, and on information available to us as
of the date hereof.
Robertson, Stephens & Company may, from time to time, trade in the shares
of the common stock of Caere. Furthermore, Robertson, Stephens & Company has
acted as financial advisor to Caere in connection with the Merger for which fees
are due and payable contingent upon the closing of the Merger.
Our opinion is directed to the Board of Directors of the Company and is not
intended to be and does not constitute a recommendation to any stockholder of
the Company as to how such stockholder should vote on the proposed Merger. We
hereby consent, however, to the inclusion of this opinion as an exhibit to any
proxy or registration statement distributed in connection with the Merger.
Based upon and subject to the foregoing considerations, it is our opinion,
as investment bankers, that, as of the date hereof, the Consideration to be paid
is fair to Caere from a financial point of view.
Very truly yours,
ROBERTSON, STEPHENS & COMPANY, L.P.
By: /s/ ROBERTSON, STEPHENS & COMPANY,
INC.
------------------------------------
Authorized Signatory
215
APPENDIX C
DIV. 1 TITLE 1
GENERAL CORPORATION LAW
SECTION 1300. REORGANIZATION OR SHORT-FORM MERGER, DISSENTING SHARES;
CORPORATE PURCHASE AT FAIR MARKET VALUE; DEFINITIONS
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision (b). The fair market value shall be determined
as of the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split, reverse
stock split, or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o) of
Section 25100 or (B) listed on the list of OTC margin stocks issued by the
Board of Governors of the Federal Reserve System, and the notice of meeting
of share- holders to act upon the reorganization summarizes this section
and Sections 1301, 1302, 1303 and 1304; provided, however, that this
provision does not apply to any shares with respect to which there exists
any restriction on transfer imposed by the corporation or by any law or
regulation; and provided, further, that this provision does not apply to
any class of shares described in * * * subparagraph (A) or (B) if demands
for payment are filed with respect to 5 percent or more of the outstanding
shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in * * * subparagraph
(A) or (B) of paragraph (1) (without regard to the provisos in that
paragraph), were voted against the reorganization, or which were held of
record on the effective date of a short-form merger; provided, however,
that * * * subparagraph (A) rather than * * * subparagraph (B) of this
paragraph applies in any case where the approval required by Section 1201
is sought by written consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record. (Added by
Stats. 1975, c. 682 Section 7 eff. Jan. 1, 1977. Amended by Stats.19976, c. 641,
Section 21.3, eff. Jan. 1, 1977; Stats. 1982, c. 36, p. 69, Section 3, eff. Feb.
17, 1982; Stats. 1990, c. 1018 (A.B. 2259), Section 2; Stats.1993, c. 543 (A.B.
2063), Section 13.)
CROSS REFERENCES
Application of this chapter to transactions consummated after effective
date of new law, see Section 2313. Foreign corporations subject to this chapter,
see Section 2115.
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DIV. 1 TITLE 1
SECTION 1301. NOTICE TO HOLDERS OF DISSENTING SHARES IN REORGANIZATIONS; DEMAND
FOR PURCHASE; TIME; CONTENTS
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval accompanied by a copy of Sections
1300, 1302, 1303, 1304 and this section, a statement of the price determined by
the corporation to represent the fair market value of the dissenting shares, and
a brief description of the procedure to be followed if the shareholder desires
to exercise the shareholder's right under such sections. The statement of price
constitutes an offer by the corporation to purchase at the price stated any
dissenting shares as defined in subdivision (b) of Section 1300, unless they
lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price. (Added
by Stats.1975, c. 682, Section 7 eff. Jan. 1, 1977. Amended by Stats.1976, c.
641, Section 21.6, eff. Jan. 1, 1977; Stats.1980, c. 501, p. 1052, Section 5;
Stats.1980, c. 1155, p. 3831, Section 1.)
CROSS REFERENCES
SAVINGS ASSOCIATION MERGERS, INFORMATION FURNISHED TO MINORITY
STOCKHOLDERS, SEE FINANCIAL CODE SECTION 5760.
SECTION 1302. SUBMISSION OF SHARE CERTIFICATES FOR ENDORSEMENT;
UNCERTIFICATED SECURITIES
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to shareholder, the shareholder shall submit to the corporation at its
principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares. (Added by Stats.1975, c. 682,
Section 7, eff. Jan. 1, 1977. Amended by Stats.1986, c. 766, Section 23.)
2.
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DIV. 1 TITLE 1
SECTION 1303. PAYMENT OF AGREED PRICE WITH INTEREST; AGREEMENT FIXING FAIR
MARKET VALUE; FILING; TIME OF PAYMENT
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement. (Added by Stats.1975, c. 682, Section 7,
eff. Jan. 1, 1977. Amended by Stats.1980, c. 501, p. 1053, Section 6;
Stats.1986, c. 766, Section 24.)
SECTION 1304. ACTION TO DETERMINE WHETHER SHARES ARE DISSENTING SHARES
OR FAIR MARKET VALUE; LIMITATION; JOINDER, CONSOLIDATION;
DETERMINATION OF ISSUES; APPOINTMENT OF APPRAISERS.
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both may intervene in any action
pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If
the status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares. (Added by
Stats.1975, c. 682, Section 7, eff. Jan. 1, 1977.)
CROSS REFERENCES
Consolidation of actions, see Code of Civil Procedure Section 1048
Defendants, joinder, see Code of Civil Procedure Sections 379, 382. Designation
of parties, sec Code of Civil Procedure Section 308. Dissolution, determination
of fair' value of shares. see Section 2000. Form of action, see Code of Civil
Procedure Section 307. Intervention, see Code of Civil Procedure Section 387.
Limitation of six months, see Code of Civil Procedure Section 341. Plaintiffs,
joinder, see Code of Civil Procedure Sections 378, 382. Trial of issues, see
Code of Civil Procedure Section 591 et seq.
SECTION 1305. REPORT OF APPRAISERS; CONFIRMATION, DETERMINATION BY COURT;
JUDGMENT; PAYMENT; APPEAL COSTS
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
3.
218
DIV. 1 TITLE 1
(b) If a majority of the appraisers appointed fail to make and file a
report within 10 days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301). (Added by Stats.1975, c. 682, Section 7, eff. Jan. 1, 1977. Amended by
Stats.1976, c. 641, Section 22, eff. Jan. 1, 1977; Stats.1976, c. 235, p. 1068,
Section 16; Stats.1986, c. 766, Section 25.)
CROSS REFERENCES
Costs, generally, see Code of Civil Procedure Section 1021 et seq. Manner
of giving and entering judgment, see Code of Civil Procedure Section 664 et seq.
Relief granted to plaintiff, scope, see Code of Civil Procedure Section 580.
SECTION 1306. PREVENTION OF IMMEDIATE PAYMENT; STATUS AS CREDITORS; INTEREST
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5. (Added by Stats.1975, c. 682,
Section 7, eff. Jan. 1, 1977)
CROSS REFERENCES
Dividends and reacquisitions of shares, see Section 500 et seq.
SECTION 1307. DIVIDENDS ON DISSENTING SHARES
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor. (Added by Stats.1975, c. 682, Section 7, eff. Jan. 1, 1977.)
4.
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DIV. 1 TITLE 1
CROSS REFERENCES
Dividends, see Section 500 et seq.
SECTION 1308. RIGHTS OF DISSENTING SHAREHOLDERS PENDING VALUATION; WITHDRAWAL OF
DEMAND FOR PAYMENT
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto. (Added by Stats.1975, c. 682, Section 7, eff. Jan. 1, 1977.)
SECTION 1309. TERMINATION OF DISSENTING SHARES AND SHAREHOLDER STATUS
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder;s demand for purchase of the dissenting shares. (Added
by Stats.1975, c. 682, Section 7, eff. Jan. 1, 1977.)
SECTION 1310. SUSPENSION OF RIGHT TO COMPENSATION OR VALUATION PROCEEDINGS;
LITIGATION OF SHAREHOLDERS' APPROVAL
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceeding under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation. (Added by Stats.1975, c. 682, Section 7, eff. Jan. 1, 1977.)
CROSS REFERENCES
Short-form mergers, see Section 1110.
SECTION 1311. EXEMPT SHARES
This chapter, except Section 1312, does not apply to classes of shares
whose terms and provisions specifically set forth the amount to be paid in
respect to such shares in the event of a reorganization or merger. (Added by
Stats. 1975, c. 682, Section 7 eff. Jan. 1, 1977. Amended by Stats.1988, c. 919,
Section 8.)
SECTION 1312. RIGHT OF DISSENTING SHAREHOLDER TO ATTACK, SET ASIDE OR RESCIND
MERGER OR REORGANIZATION; RESTRAINING ORDER OR INJUNCTION;
CONDITIONS
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
fight at law or in equity to attack the validity of the
5.
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DIV. 1 TITLE 1
reorganization or short-form merger, or to have the reorganization or short-form
merger set aside or rescinded, except in an action to test whether the number of
shares required to authorize or approve the reorganization have been legally
voted in favor thereof; but any holder of shares of a class whose terms and
provisions specifically set forth the amount to be paid in respect to them in
the event of a reorganization or short-form merger is entitled to payment in
accordance with those terms and provisions or, if the principal terms of the
reorganization are approved pursuant to subdivision (b) of Section 1202, is
entitled to payment in accordance with the terms and provisions of the approved
reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholders shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled. (Added by Stats.1975, c. 682,
Section 7, eff. Jan. 1, 1977. Amended Stats.1976, c. 641, Section 22.5, eff.
Jan. 1, 1977; Stats.1988, c. 919, Section 9.)
6.