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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
(RULE 14d-101)
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SOLICITATION/RECOMMENDATION STATEMENT UNDER
SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
DATA RESEARCH ASSOCIATES, INC.
(Name of Subject Company)
DATA RESEARCH ASSOCIATES, INC.
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of Class of Securities)
237853106
(CUSIP Number of Class of Securities)
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MICHAEL J. MELLINGER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
DATA RESEARCH ASSOCIATES, INC.
1276 NORTH WARSON ROAD
ST. LOUIS, MISSOURI 63132-1806
(314) 432-1100
(Name, Address and Telephone Number of Person Authorized
to Receive Notice and Communications on Behalf of the Person(s) Filing
Statement)
COPY TO:
ROBERT H. WEXLER, ESQ.
GALLOP, JOHNSON & NEUMAN, L.C.
101 SOUTH HANLEY, SUITE 1600
ST. LOUIS, MISSOURI 63105
(314) 615-6000
/ / Check the box if the filing relates solely to preliminary communications
prior to the commencement of a tender offer.
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ITEM 1. SUBJECT COMPANY INFORMATION
The name of the subject company is Data Research Associates, Inc., a
corporation incorporated in Missouri ("Data Research"). The address of the
principal executive and operating offices of Data Research is 1276 North Warson
Road, P.O. Box 8495, St. Louis, Missouri 63132-1806. The business telephone
number of Data Research is (314) 432-1100.
The title of the classes of equity securities to which this
Solicitation/Recommendation Statement on Schedule 14D-9 (together with the
Exhibits and Annexes hereto, this "Schedule 14D-9") relates is the common stock,
par value $0.01 per share (the "Common Stock"), of Data Research. As of
July 20, 2001, there were 4,500,204 shares of Common Stock issued and
outstanding.
ITEM 2. IDENTITY AND BACKGROUND OF FILING PERSON
The name, business address and business telephone of Data Research, which is
the subject company and the person filing this statement, are set forth in
Item 1 above, which information is incorporated herein by reference.
This Schedule 14D-9 relates to the tender offer of McGuire
Acquisition Inc., a Delaware corporation ("Purchaser") and an indirect
wholly-owned subsidiary of SIRSI Holdings Corp., a Delaware corporation
("Parent"), to purchase all of the issued and outstanding shares of Common Stock
of Data Research for $11.00 per share net to the seller in cash (the "Offer
Price") upon the terms and subject to the conditions set forth in Purchaser's
Offer to Purchase, dated July 25, 2001 (the "Offer to Purchase"), and in the
related Letter of Transmittal (the "Letter of Transmittal," which, together with
the Offer to Purchase and any amendments or supplements thereto collectively
constitute the "Offer"). The Offer is described in a Tender Offer Statement on
Schedule TO (as it may be amended and supplemented from time to time, the
"Schedule TO"), filed by Purchaser, Parent and SIRSI Corporation with the
Securities and Exchange Commission (the "SEC") on July 25, 2001, pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
The Offer is being made pursuant to the Agreement and Plan of Merger, dated
May 16, 2001 as amended on June 27, July 12 and July 24, 2001 (the "Merger
Agreement"), by and among Data Research, Purchaser and Parent, which has been
filed as Exhibit 2.1 to the Form 8-K filed by Data Research with the SEC on
May 21, 2001 and is incorporated herein by reference. Following the purchase of
at least 75% of the outstanding shares of Common Stock on a fully diluted basis
by Purchaser, Purchaser will merge (the "Merger") with and into Data Research,
with Data Research as the surviving corporation becoming an indirect,
wholly-owned subsidiary of Parent. At the effective time of the Merger (the
"Effective Time"), each issued and outstanding share of Common Stock (other than
shares of Common Stock owned by Parent, Purchaser, any other subsidiary of
Parent or Data Research as treasury stock, and shares of Common Stock held by
shareholders who have objected to the Merger, demanded payment of the fair value
of their shares of Common Stock under applicable Missouri law and, as of the
Effective Time, have neither effectively withdrawn nor lost the right to such
demand) will be converted into the right to receive the Offer Price. The Merger
Agreement is summarized in "The Tender Offer--Merger Agreement; Support
Agreement; Employment Agreements; Confidentiality Agreement" of the Offer to
Purchase which is filed as Exhibit (a)(1)(A) to the Schedule TO.
The principal executive offices of Purchaser are at 101 Washington Street
SE, Huntsville, Alabama 35801-4827.
ITEM 3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS
Except as described in this Schedule 14D-9 or incorporated herein by
reference, as of the date of this Schedule 14D-9, there exists no material
contract, agreement, arrangement or understanding or actual or potential
conflict of interest between Data Research or its affiliates and (a) Data
Research, its executive officers, directors or affiliates or (b) Purchaser, its
executive officers, directors or affiliates.
Certain contracts, arrangements, or understandings between Data Research or
its affiliates and certain of Data Research's directors, executive officers and
affiliates are more fully described in Data Research's Information Statement
attached to this Schedule 14D-9 as Annex A (the "Information
Statement"). The Information Statement is being furnished to Data Research
shareholders pursuant to Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder in connection with Purchaser's right (after acceptance
for payment of, and payment by Purchaser for, any shares of Common Stock
pursuant to the Offer that results in Parent and its subsidiaries owning
beneficially at least a majority of the then outstanding shares of Common Stock)
to designate persons to the Board of Directors of Data Research (the "Board")
other than at a meeting of the Data Research shareholders. The Information
Statement is incorporated herein by reference.
MERGER AGREEMENT.
The summary of the Merger Agreement and the description of the conditions of
the Offer and the Merger contained in "The Tender Offer--Merger Agreement;
Support Agreement; Employment Agreements; Confidentiality Agreement" and "The
Tender Offer--Conditions of Our Offer" of the Offer to Purchase, which is filed
as Exhibit (a)(1)(A) to the Schedule TO, are incorporated herein by reference.
The summary and description are qualified in their entirety by reference to the
Merger Agreement, which, has been filed as Exhibit 2.1 to the Form 8-K filed by
Data Research with the SEC on May 21, 2001, and by reference to the amendments
to the Merger Agreement, which have been filed as Exhibits (d)(2), (d)(3) and
(d)(4) to the Schedule TO, each of which is incorporated herein by reference.
CONFIDENTIALITY AGREEMENT.
On February 5, 2001, Data Research entered into a confidentiality agreement
pursuant to which Data Research agreed to supply certain information to Parent
and Parent agreed to treat such information as confidential and to use such
information solely in connection with the evaluation of a possible transaction
with Data Research (the "Confidentiality Agreement"). The Confidentiality
Agreement was subsequently amended to provide for the scope of the conduct of
SIRSI Corporation's customer due diligence. The summary of the Confidentiality
Agreement contained in "The Tender Offer--Merger Agreement; Support Agreement;
Employment Agreements; Confidentiality Agreement" of the Offer to Purchase,
which is filed as Exhibit (a)(1)(A) to the Schedule TO, is incorporated herein
by reference. The summary of the Confidentiality Agreement is qualified in its
entirety by reference to the Confidentiality Agreement and the amendment to the
Confidentiality Agreement, which have been attached as Exhibit (d)(7) and (d)(8)
to the Schedule TO, respectively, and incorporated herein by reference.
SUPPORT AGREEMENT.
The two principal shareholders of Data Research, both of whom are directors
of Data Research, and their respective spouses entered into a support agreement
with Parent and Purchaser (the "Support Agreement"). Each party to the Support
Agreement granted Parent and Purchaser a proxy to vote their shares of Common
Stock and agreed to tender their shares of Common Stock in the Offer. The shares
of Common Stock held by the parties to the Support Agreement represent in the
aggregate approximately 53.2% of the outstanding shares of Common Stock on a
fully diluted basis as of July 20, 2001. The summary of the Support Agreement
contained in "The Tender Offer--Merger Agreement; Support Agreement; Employment
Agreements; Confidentiality Agreement" of the Offer to Purchase, which is filed
as Exhibit (a)(1)(A) to the Schedule TO, is incorporated herein by reference.
The summary is qualified in its entirety by reference to the Support Agreement,
which has been filed as Exhibit 10.2 to the Form 8-K filed by Data Research with
the SEC on May 21, 2001 and is incorporated herein by reference.
AGREEMENTS WITH EXECUTIVES.
Michael J. Mellinger is a party to an employment and consulting agreement
(the "Mellinger Agreement") with SIRSI Corporation, a wholly-owned subsidiary of
Parent, which will become effective
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on the date Parent is entitled to appoint directors to the Board. The Mellinger
Agreement provides for a six month employment term followed by a six month
consulting term. The summary of the Mellinger Agreement contained in "The Tender
Offer--Merger Agreement; Support Agreement; Employment Agreements;
Confidentiality Agreement" of the Offer to Purchase, which is filed as
Exhibit (a)(1)(A) to the Schedule TO, is incorporated herein by reference. The
summary is qualified in its entirety by reference to the Mellinger Agreement,
which has been filed as Exhibit 10.1 to the Form 8-K filed by Data Research with
the SEC on May 21, 2001 and is incorporated herein by reference.
Prior to the execution of the Merger Agreement, various officers of Data
Research entered into employment agreements with Data Research (collectively,
the "Employment Agreements"). The Employment Agreements memorialized the
employment relationship between Data Research and each such officer. The
Employment Agreements also provide for an additional payment to each officer if
he or she is terminated without cause within a certain time period after a
change of control. The consummation of the Offer would constitute such a change
of control. This summary is qualified in its entirety by reference to the Form
of Employment Agreement, which has been filed as Exhibit (e)(9) to this
Schedule 14D-9 and is incorporated herein by reference.
INDEMNIFICATION.
The Merger Agreement provides that, for a period of four years following the
Effective Time, Data Research, as the surviving corporation in the Merger (the
"Surviving Corporation") will indemnify, defend and hold harmless each person
who is now, has been or becomes prior to the Effective Time, a director or
officer of Data Research or its subsidiaries, to the fullest extent permitted
under applicable Missouri law, the terms of the articles of incorporation and
bylaws of Data Research and any agreement, against all losses, damages,
liabilities, costs, fees and expenses, including reasonable fees and
disbursements of counsel, and judgments, fines, losses, liabilities and amounts
paid in any settlement effected with the written consent of Parent or the
Surviving Corporation, arising out of actions or omissions occurring at or prior
to the Effective Time. Such indemnification rights will continue in full force
and effect for a period of four years from the Effective Time; provided,
however, that all rights to indemnification in respect of any indemnified
liabilities asserted or made within that four year period will continue until
the disposition of those indemnified liabilities.
For a period of four years after the Effective Time, Parent has agreed to
maintain the directors' and officers' insurance policy of Data Research in
effect to the extent that such liability insurance can be maintained for a cost
of not more than one hundred fifty percent of the aggregate premiums paid by
Data Research for the twelve months prior to May 16, 2001, on an annualized
basis (the "Maximum Cost"); provided, however, that if such insurance cannot be
so obtained at or below such cost, Parent shall maintain as much of such
insurance as can be so obtained at the Maximum Cost. Parent may substitute the
current directors' and officers' insurance policy of Data Research with a
different policy of substantially equivalent coverage and amounts, with terms no
less favorable to the former directors or officers.
EFFECTS OF THE OFFER AND THE MERGER ON STOCK OPTIONS AND WARRANTS.
The Merger Agreement provides that outstanding and exercisable stock options
and warrants of Data Research which have a per share exercise price of less than
$11.00 will be either (i) cancelled at the Effective Time in exchange for an
amount of cash equal to the product of (A) the excess, if any, of the Offer
Price over the exercise price per share of such stock option or warrant and
(B) the number of shares of Common Stock subject to such stock option or warrant
immediately prior to its cancellation (the "Net Amount") or (ii) will be
converted immediately prior to the Effective Time into the right to receive the
Net Amount. Except for such payment, Data Research shall not make any payment on
options or warrants without the reasonable consent of the Parent.
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The 1992 Stock Option Plan of Data Research and the 2001 Stock Option Plan
of Data Research (collectively, the "Option Plans") and any outstanding option
or warrant (other than those subject to acceleration as described below), to the
extent unvested, shall at the Effective Time become obligations of the surviving
corporation to the Merger. Each such option and warrant shall continue to have,
and be subject to, the same terms and conditions set forth in the Option Plans
and in the option or warrant agreement, in each case to the extent applicable.
Each such option and warrant will be converted into the right to receive an
amount in cash equal to the Net Amount at the time such option or warrant
becomes exercisable in accordance with its terms. The option or warrant becomes
exercisable on the earlier of the scheduled vesting date and the termination of
the holder's employment by the surviving corporation without cause.
Certain unvested options representing an aggregate of 54,000 shares of
Common Stock shall accelerate and vest upon the Effective Time of the Merger and
shall thereupon be treated as currently exercisable options.
In the Merger Agreement, Data Research provided representations and
warranties to the effect that it obtained valid and binding agreements from
holders of its stock options and warrants exercisable for shares of Common Stock
at any time up to the Effective Time pursuant to which such holders agreed not
to exercise their stock options or warrants until the later of the Effective
Time or the termination of the Merger Agreement.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
RECOMMENDATION OF THE BOARD.
At a meeting held on May 15, 2001, the Board, by unanimous vote of all
members:
(1) determined that each of the Merger Agreement, the Offer, the Merger
and the transactions contemplated by the Merger Agreement, including the
Offer and the Merger, is fair to, advisable and in the best interests of,
Data Research and its shareholders;
(2) approved the Merger Agreement and the transactions contemplated by
the Merger Agreement; and
(3) recommended that holders of Common Stock tender their shares in the
Offer and, if required, approve and adopt the Merger Agreement in all
respects.
In considering the recommendation of the Board with respect to the Offer and
the Merger, Data Research's shareholders should be aware that some members of
the Board and management have interests in the Offer and the Merger that are in
addition to the interests of Data Research's shareholders generally. The Board
was aware of these interests and considered them, among other matters, in
approving the Merger Agreement, the Offer and the Merger.
In connection with such actions taken by it, the Board took action to exempt
the transaction from the application Sections 351.407 and 351.459 of The General
and Business Corporation Law of Missouri, relating to certain restrictions of an
acquiring person of a Missouri public corporation on such persons voting rights
with respect to the stock acquired and on future business combinations between
the acquiring person and the acquired Missouri corporation (respectively, the
"Control Share Provision" and the "Interested Shareholder Provision").
The Control Share Provision provides, among other things, that if shares are
acquired in an acquisition which (but for the application of the Control Share
Provision) would grant the holder of those shares (when combined with the vote
of such holder's affiliates or group) the right to vote in an election of
directors a percentage of the total vote which exceeds certain thresholds
described within the Control Share Provision, then the acquired shares shall
only have such voting rights as are granted by resolution approved by the
shareholders. The Control Share Provision will not apply, however, if the
issuing corporation has so provided in its bylaws or its articles of
incorporation prior to the acquisition of the shares at issue. Prior to the
execution of the Merger Agreement, the bylaws of Data Research
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were amended to provide that the Control Share Provision would not apply to the
Merger contemplated by the Offer or the Support Agreement.
The Interested Shareholder Provision prohibits business combination
transactions involving a Missouri corporation and an "interested shareholder"
(defined generally as any person that directly or indirectly beneficially owns
20% or more of the outstanding voting stock of the subject corporation) for five
years following the date (the "Acquisition Date") such person became an
"interested shareholder" unless, prior to the Acquisition Date, the board of
directors of the subject corporation approved the transactions in which such
person became an "interested shareholder" or the business combination. Because
the board of directors of Data Research, at the special meeting held May 15,
2001, approved the Merger Agreement and the transactions contemplated thereby,
the Interested Shareholder Provision is inapplicable to the Purchaser or the
Parent in connection with the Support Agreement, the Offer and the Merger.
A letter to the shareholders communicating the Board's recommendation is
included as Exhibit (a)(1) to this Schedule 14D-9 and is incorporated herein by
reference.
BACKGROUND OF THE OFFER AND THE MERGER.
On January 30, 2001, William K. Luby a director of Purchaser, Parent and
SIRSI Corporation, first contacted Crescendo Capital Partners, LLC, the
financial advisor of Data Research ("Crescendo"), regarding SIRSI Corporation's
interest in acquiring Data Research. Crescendo promptly informed Data Research's
senior management about SIRSI Corporation's interest.
On February 1, 2001, Crescendo, at the request of Data Research, informed
Mr. Luby of Data Research's willingness to pursue conversations with SIRSI
Corporation and provide SIRSI Corporation with information about Data Research,
if the parties executed an acceptable confidentiality agreement. On February 5,
2001, the parties executed the Confidentiality Agreement.
On February 14, 2001, senior management of Data Research, in a regular
meeting of the Board, first apprised the Board of SIRSI Corporation's interest
in acquiring Data Research.
On February 26, 2001 Michael J. Mellinger, Chairman, President and Chief
Executive Officer of Data Research, and Duncan O'Brien and Stewart O'Brien of
Crescendo, met with Mr. Luby and Patrick Sommers, President and Chief Executive
Officer of SIRSI Corporation, in St. Louis, Missouri to discuss a potential
transaction between Data Research and SIRSI Corporation.
On March 6, 2001, SIRSI Corporation's representatives and Data Research's
representatives held a telephonic meeting to discuss SIRSI Corporation's
interest in acquiring Data Research. At the meeting, Data Research suggested
that SIRSI Corporation submit a formal written proposal to acquire Data
Research.
On March 21, 2001 Crescendo received, on behalf of Data Research, a written
non-binding proposal from Parent's legal counsel regarding SIRSI Corporation's
desire to acquire 100% of the outstanding shares of Common Stock of Data
Research for $46.4 million (or for $10.00 per share assuming 4.64 million shares
of Common Stock outstanding at such time), subject to its satisfaction with Data
Research's contingent liabilities (the "First Proposal"). SIRSI Corporation's
proposal contemplated a tender offer followed by a merger of the Purchaser with
and into Data Research. The First Proposal requested that Mr. Mellinger be
retained as a consultant for four years and Mr. Mellinger would serve on SIRSI
Corporation's board of directors. The First Proposal contemplated that Data
Research would not have any outstanding indebtedness at closing and the
acquisition price would be financed with $21 million of Data Research's cash and
borrowings under a new senior bank credit facility. The First Proposal did not
contain the conditions to the offer or other material terms that were left open
for negotiation. Following receipt of the First Proposal, Data Research provided
SIRSI Corporation with non-public information concerning Data Research's
historical financial performance and condition, its customers and its prospects.
5
Over the course of the next few days, Mr. Mellinger polled certain members
of the Board to discuss the First Proposal. Mr. Mellinger and the polled
directors agreed that the First Proposal merited further consideration and
discussion, but that the proposed price did not sufficiently reflect the true
value of Data Research.
On March 26, 2001, Crescendo advised Mr. Luby that, in Data Research's
opinion, the $10 per Share proposal did not adequately reflect Data Research's
value. Crescendo and Mr. Luby also discussed other aspects of the proposal,
including SIRSI Corporation's due diligence and the proposed financing
structure.
On April 6, 2001, Data Research's and SIRSI Corporation's representatives
met at the St. Louis, Missouri office of Data Research to discuss the proposed
transaction. Specifically, the group discussed Parent's review of the publicly
available information on Data Research and the revenue potential for Data
Research's new Taos product line.
On April 10, 2001, Mr. Luby and Crescendo met in Kansas City, Missouri to
discuss in greater detail the proposed terms of a transaction between Data
Research and SIRSI Corporation. At the meeting, the parties discussed valuations
for Data Research in excess of $10.00 per share. Based on those and the prior
discussions between Data Research and SIRSI Corporation, and their respective
financial advisors, Mr. Luby indicated that SIRSI Corporation would submit a
revised proposal to Data Research.
On April 12 and 13, 2001, Data Research and Crescendo provided additional
financial information regarding Data Research to SIRSI Corporation.
On April 16, 2001, Crescendo received, on behalf of Data Research, a written
revised non-binding proposal from SIRSI Corporation with a new proposed purchase
price of $11.00 per share (the "Second Proposal"). The Second Proposal included
the following:
- SIRSI Corporation would not consummate the acquisition unless Data
Research had no outstanding indebtedness and had at least $22 million in
cash at the time of the closing of SIRSI Corporation's offer.
- The Principal Shareholders would agree to tender into an offer made to all
shareholders and vote in favor of any merger.
- SIRSI Corporation would retain Mr. Mellinger as a consultant for two years
at a rate equal to $150,000 per annum.
- SIRSI Corporation would finance the acquisition with $22 million of Data
Research's cash and with borrowings under a new senior bank credit
facility.
- If SIRSI Corporation did not receive the contemplated financing but all of
the other conditions to SIRSI Corporation's offer were satisfied, SIRSI
Corporation would pay $500,000 to Data Research as a termination fee.
On April 19, 2001, at a regular meeting of the Board, senior management of
Data Research updated the Board as to the status of the negotiations concerning
the proposed transaction. Following the meeting, Data Research delivered the
following proposed changes to the Second Proposal (such modified proposal being
referred to as the "Third Proposal"):
- SIRSI Corporation would acknowledge the number of outstanding options and
warrants that Data Research would be obligated to honor following the
consummation of the Merger.
- The Principal Shareholders would state their intention to tender into the
offer but would not agree to tender into the offer or vote in favor of the
Merger.
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- Data Research would not commit to have a fixed amount of cash at closing,
but would limit its uses of cash pending closing of the Merger.
- SIRSI Corporation would pay Data Research a termination fee of $2 million
if SIRSI Corporation failed to receive binding commitment letters in
regard to the financing prior to an agreed upon date.
- Data Research would pay SIRSI Corporation a termination fee of $2 million
if it failed to complete the deal with SIRSI Corporation due to the
existence of a more attractive, unsolicited offer to acquire Data
Research.
- Upon resolution of all issues, the parties would execute definitive
agreements and would deposit the signed agreements into escrow for a two
business day period during which SIRSI Corporation would be given the
opportunity to discuss Data Research's business and Data Research's
products with the University of California at Los Angeles and at least two
other customers of Data Research. At the end of the two business day
period, if SIRSI Corporation notified Data Research that it was satisfied
with its discussions, the agreements would be released from escrow.
- SIRSI Corporation would acknowledge that Data Research planned on entering
into employment agreements with five members of its management team,
including Mr. Mellinger.
Between April 19, 2001 and April 23, 2001, representatives of Data Research
and Crescendo, and the representatives of SIRSI Corporation, negotiated the
terms of the Third Proposal. On April 24, 2001, the parties agreed to a revised
proposal reflecting substantially the terms set forth above except as follows
(the "Fourth Proposal"):
- At closing, SIRSI Corporation would pay holders of vested Data Research
options an amount equal to the excess of $11.00 per share over the per
share exercise price.
- SIRSI Corporation would pay a termination fee of $1 million if SIRSI
Corporation failed to receive binding commitment letters in regard to the
financing prior to an agreed upon date. The parties did not agree on
whether there would be a financing condition in the Merger Agreement
following receipt of such commitment letters.
- The Principal Shareholders would agree to tender into the offer and vote,
in their capacity as shareholders, in favor of the Merger.
- SIRSI Corporation would retain Mr. Mellinger as an employee for six months
following closing and for an additional six months thereafter as a
consultant. SIRSI Corporation would pay Mr. Mellinger $25,000 per month
during the employment and consulting terms. Following the consulting term,
SIRSI Corporation would pay Mr. Mellinger $100,000 per annum for a three
year period in exchange for his agreement not to compete with SIRSI
Corporation and its subsidiaries.
Each proposal was subject to substantial conditions, including SIRSI
Corporation's satisfaction with the results of its due diligence. SIRSI
Corporation informed Data Research that for it to incur costs and expenses for
its due diligence activities, Data Research must agree not to solicit or
negotiate with any third parties for a limited period of time. On April 24,
2001, Data Research executed an exclusivity letter pursuant to which it agreed
not to solicit competing offers or negotiate with third parties until May 11,
2001.
On April 24, 2001, management of Data Research concluded that the terms
specified in the Fourth Proposal, while not necessarily acceptable to Data
Research in all respects, were sufficiently satisfactory to merit the execution
of the Fourth Proposal and the granting of an exclusivity period to Parent
ending on May 11, 2001, during which time a definitive agreement could be
negotiated and due
7
diligence performed. Accordingly, Data Research and an affiliate of Parent
executed the Fourth Proposal and related exclusivity letter.
On April 29, 2001, SIRSI Corporation provided to Data Research a draft
merger agreement.
On April 30, 2001, SIRSI Corporation and its various representatives met in
St. Louis, Missouri, with Data Research and its various representatives to
conduct formal due diligence on Data Research.
From May 2, 2001 until the signing of the Merger Agreement, the legal and
financial advisors of Data Research and SIRSI Corporation engaged in extensive
negotiations over the terms of the draft merger agreement.
On May 7, 2001, SIRSI Corporation and its various representatives met again
in St. Louis, Missouri, with Data Research and its various representatives to
conduct additional due diligence on Data Research.
On May 10, 2001, the Board met in a special meeting to receive a
presentation from senior management on the status of the negotiations of the
terms and conditions of the proposed transaction and to review the steps
necessary to execute the merger agreement and consummate the transactions. At
the meeting the Board also received presentations from Gallop, Johnson & Neuman,
L.C. ("Gallop"), the legal advisor to Data Research, and Crescendo on the legal
and financial aspects, respectively, of the proposed transactions.
On May 11, 2001, in light of the progress in the negotiation and due
diligence processes, Data Research and Parent agreed to extend the end of the
exclusivity period in the exclusivity letter to May 14, 2001.
On May 13, 2001, the Board met again to receive a report from senior
management and Gallop on the status of the negotiations. Senior management and
Gallop informed the Board that while many of the issues outstanding on the date
of the prior Board meeting had been resolved, certain issues, including the
termination and termination fee issue and the fiduciary-out issue, had not been
resolved and that discussions as to price were still continuing. Management also
added that the issue of customer due diligence had been agreed to in concept.
On May 14, 2001, Data Research and Parent agreed to amend the exclusivity
letter and Confidentiality Agreement to provide for the scope of the conduct of
the customer due diligence and extended the exclusivity period to May 16, 2001.
On May 16, 2001 Data Research was advised by SIRSI Corporation that SIRSI
Corporation's customer due diligence was completed to its satisfaction.
On May 15, 2001, the Board met to consider the proposed tender offer, merger
and merger agreement with Parent for the acquisition of Data Research at $11.00
per share in cash, and to receive final presentations from senior management,
Gallop and Crescendo. Senior management outlined the final terms of the proposed
tender offer, merger and merger agreement to the Board and presented to the
Board the results of senior management's analysis of, among other things, the
library automation industry in general, the historical performance of Data
Research, the proposed transaction, alternatives available to Data Research,
including the possibility of remaining independent, and the impact of the
proposed transactions on the Data Research shareholders, employees and
customers. Gallop then delivered to the Board a presentation outlining the legal
aspects of the proposed transactions, with an emphasis on the fiduciary duties
of the Board to the Data Research shareholders. The Board then requested that
Crescendo deliver its opinion with respect to the fairness, from a financial
point of view, to the Data Research shareholders of the consideration proposed
to be paid by Parent. Crescendo delivered to the Board its oral opinion to the
effect that, as of such date, and based upon and subject to certain matters and
assumptions, the $11.00 per share consideration to be received by the Data
Research shareholders was fair, from a financial point of view, to the Data
Research shareholders.
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Following the presentations, the Board approved the proposed tender offer from
and merger with Parent.
On May 16, 2001, the parties executed the Merger Agreement. Concurrently
with the execution of the Merger Agreement, the Support Agreement and Mellinger
Agreement were executed. The following morning, a joint press release was issued
announcing the execution of the Merger Agreement.
On or about June 25, 2001, Data Research was informed that SIRSI Corporation
was not able to arrange senior debt financing from its prospective lender
adequate to consummate the transactions. In response, the parties considered
various options, including SIRSI Corporation's proposal to reduce the per Share
cash price to be paid in the Offer and the Merger to $10 per share. During this
period, on two occasions, the parties extended the deadline for obtaining
commitment letters for the senior debt financing and for commencing the Offer.
SIRSI Corporation informed Data Research that they would be able to obtain
equity contributions and loans from Parent's shareholders and Patrick Sommers,
the President and Chief Executive Officer of Purchaser, Parent and SIRSI
Corporation. The proposed equity contributions and loans, along with the senior
debt financing from SIRSI Corporation's lender, along with available cash from
SIRSI Corporation and Data Research, would provide sufficient funds to
consummate the Offer at the $11.00 per share purchase price and pay related fees
and expenses.
In addition, prior to commencing the Offer, the parties amended the Merger
Agreement for, among other things, the following:
- Data Research provided representations and warranties to the effect that
it obtained agreements from holders of its outstanding stock options and
warrants exercisable for shares of Common Stock at any time up to the
Effective Time and that such agreements provide that such holders will not
exercise such stock options and warrants until the later of the Effective
Time and the termination of the Merger Agreement.
- The parties deleted the requirement to file a notification under
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended because
the transaction size will not meet the requisite threshold.
- Upon consummation of the Offer and acceptance by SIRSI Corporation for
payment of shares of Common Stock tendered pursuant to the Offer (without
giving effect to any subsequent offering period), Data Research will
provide Parent with a bridge loan in an amount of up to $18.7 million less
the amount of Data Research's transaction expenses.
On July 25, 2001, the Purchaser commenced the Offer.
REASONS FOR THE RECOMMENDATION OF THE BOARD OF DIRECTORS.
In reaching its recommendation described above, the Board considered a
number of factors, including the following:
1. COMPANY OPERATING AND FINANCIAL CONDITION. The Board considered the
current and historical financial condition and results of operations of Data
Research, as well as the prospects and strategic objectives of Data
Research, including the risks involved in achieving those prospects and
objectives, and the current and expected conditions in the industry in which
Data Research's business operates.
2. TRANSACTION FINANCIAL TERMS/PREMIUM TO MARKET PRICE. The Board
considered the relationship of the Offer Price to the historical market
prices of the Common Stock and the 86% premium over the $5.91 closing price
of the Common Stock on Nasdaq on May 16, 2001 (the last trading day prior to
the announcement of the merger agreement with Parent) represented by the
Offer Price. The Board also considered the fact that the Common Stock had
been thinly traded for
9
a long period of time and the effect thereof on the prospects of significant
upward movement in the market price in the foreseeable future.
3. STRATEGIC ALTERNATIVES. The Board considered the presentation of
senior management and the Board's review with respect to trends in the
industry in which Data Research's business operates and the strategic
alternatives available to Data Research, including the alternative to remain
an independent public company, the possibility of acquisitions of or mergers
with other companies in the industry, as well as the risks and uncertainties
associated with such alternatives. The Board considered the results of the
process that had been conducted by Crescendo to assist the Board in
determining levels of interest of potential strategic partners and its
evaluation of these strategic alternatives including the fact that Data
Research had not received any proposal that offered value superior to the
Offer and the Merger. The Board also considered management's belief that
Data Research and Parent have compatible corporate cultures, the
complementary nature of the two companies' products and customer bases, and
the experience, size and financial strength of Parent.
4. CRESCENDO FAIRNESS OPINION. The Board considered presentations from
Crescendo and the oral opinion of Crescendo (which was subsequently
confirmed in a written opinion, dated as of May 15, 2001) to the effect
that, as of such date, based upon and subject to the considerations and
assumptions set forth therein, the $11.00 per share to be received by Data
Research shareholders pursuant to the Offer and the Merger is fair from a
financial point of view to such holders. A copy of the written opinion
rendered by Crescendo to the Board, setting forth the procedures followed,
the matters considered and the assumptions made by Crescendo in arriving at
its opinion, is attached as Annex B hereto and incorporated herein by
reference. Shareholders are urged to read this opinion in its entirety. The
Board was aware that Crescendo holds a warrant and is entitled to certain
fees described in Item 5 upon the consummation of the Offer.
5. TIMING OF COMPLETION. The Board considered the anticipated timing
of consummation of the transactions contemplated by the Merger Agreement,
and the structure of the transaction as a tender offer for all of the shares
of Common Stock, which should allow shareholders to receive the transaction
consideration in a relatively short timeframe, followed by the Merger in
which shareholders will receive the same consideration as received by
shareholders who tender their shares in the Offer.
6. ALTERNATIVE TRANSACTIONS. The Board considered that under the terms
of the Merger Agreement, although Data Research is prohibited from
soliciting alternative acquisition proposals from third parties, Data
Research may engage in negotiations with, and may furnish non-public
information to, a third party concerning an acquisition proposal if, among
other things, (i) Data Research receives an unsolicited bona fide offer,
(ii) the transaction is likely to be funded and consummated in accordance
with the terms of the offer and (iii) the Board determines in good faith
that failure to take such actions would violate its fiduciary duties to the
Data Research shareholders based on the advice of its financial advisor that
such acquisition proposal is superior to the Offer and the Merger, from a
financial point of view, for the Data Research shareholders and after having
consulted with outside legal counsel. The Board considered that the terms of
the Merger Agreement permit Data Research to terminate the Merger Agreement
to enter into such a superior transaction involving Data Research if, among
other things, Data Research is not in breach of the "no solicitation"
provision of the Merger Agreement, Data Research gives Parent notice that it
intends to enter into an agreement for such superior transaction and Data
Research pays Parent a $2 million termination fee concurrently with entering
into such binding written agreement.
10
7. POTENTIAL CONFLICTS OF INTEREST. The Board was aware of the
potential conflicts of interest between Data Research, on the one hand, and
certain of Data Research's officers and directors, on the other hand, in the
Offer and the Merger, as described in Item 3 above.
The foregoing includes the material factors considered by the Board. In view
of its many considerations, the Board did not find it practical to, and did not,
quantify or otherwise assign relative weights to the various individual factors
considered. In addition, individual members of the Board may have given
different weights to the various factors considered. After weighing all of these
considerations, the Board determined to approve the Merger Agreement and
recommend that the Data Research shareholders tender their shares of Common
Stock in the Offer.
INTENT TO TENDER.
Except as described in this paragraph, after reasonable inquiry and to the
best of Data Research's knowledge, each executive officer, director, affiliate
and subsidiary of Data Research currently intends, subject to compliance with
applicable law including Section 16(b) of the Exchange Act, to tender all shares
of Common Stock held of record or beneficially owned by such person or entity to
Purchaser in the Offer. Stock options held by directors and executive officers
as of the Effective Time will be cancelled and, to the extent that they have a
per share exercise price below the Offer Price, converted into cash or the right
to receive cash in the future as described in Item 3 above.
ITEM 5. PERSONS/ASSETS RETAINED, EMPLOYED, COMPENSATED OR USED
The Board engaged Crescendo on April 20, 2000 for the purpose of rendering
financial advisory services to Data Research in connection with its
consideration of a possible transaction with a strategic and/or financial
partner. The engagement of Crescendo by Data Research was expanded on August 3,
2000, at which time Data Research granted a warrant to purchase 50,000 shares of
Common Stock to Crescendo, which warrant is exercisable at the Effective Time.
In connection with the Offer, Data Research requested Crescendo to undertake an
analysis to enable Crescendo to provide an opinion to the Board for its
consideration as to the fairness to Data Research's shareholders, from a
financial point of view, of the consideration to be received by Data Research's
shareholders in the Offer and the Merger. Pursuant to the terms of their
engagement, Data Research paid Crescendo an opinion fee of $75,000. No portion
of this opinion fee was contingent upon the closing of the Merger or whether
Crescendo rendered a favorable opinion with respect to the proposed Merger. Data
Research also agreed to pay Crescendo a transaction fee of approximately
$600,000 (against which the opinion fee is fully creditable) upon completion of
the Offer. Data Research also has agreed to reimburse Crescendo for reasonable
out-of-pocket expenses and to indemnify Crescendo and related parties against
certain liabilities arising out of their engagement.
Neither Data Research nor any person acting on its behalf has employed,
retained or compensated any other person to make solicitations or
recommendations to shareholders on its behalf concerning the Offer or the
Merger, except that such solicitations or recommendations may be made by
directors, officers or employees of Data Research, for which no additional
compensation will be paid.
ITEM 6. INTERESTS IN SECURITIES OF THE SUBJECT COMPANY
The Data Research Stock Purchase Plan purchased 650 shares of Common Stock
from Data Research on May 31, 2001, at a price of $10.27 per share. The Data
Research Dividend Reinvestment Plan purchased 13 shares of Common Stock from
Data Research on June 15, 2001, at a price of $10.56 per share.
With the exception of the transactions set forth in this Item 6, no
transactions in the Common Stock have been effected during the past 60 days by
Data Research or, to the knowledge of Data Research, by an executive officer,
director, affiliate or subsidiary of Data Research.
11
ITEM 7. PURPOSE OF THE TRANSACTION AND PLANS OR PROPOSALS
Except as described in the Schedule TO and Item 3 of this Schedule 14D-9, no
negotiation is being undertaken or is underway by Data Research in response to
the Offer that relates to or would result in (i) an extraordinary transaction,
such as a merger or reorganization, involving Data Research or any subsidiary of
Data Research, (ii) a purchase, sale or transfer or a material amount of assets
by Data Research or any subsidiary of Data Research, (iii) a tender offer for or
other acquisition of securities by or of Data Research or (iv) any material
change in the present capitalization or dividend policy of Data Research.
Except as described in the Schedule TO and under Item 3 and Item 4 of this
Schedule 14D-9, there are no transactions, board resolutions, agreements in
principle or signed contracts in response to the Offer and the Merger that
relate to or would result in one or more of the matters referred to in the
preceding paragraph.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
GENERAL BUSINESS CORPORATION LAW OF MISSOURI.
The Offer and the Merger are subject to certain provisions of Missouri law
relating to appraisal rights, business combinations with "interested
shareholders" and take over bids. A discussion of these laws is set forth in
"The Tender Offer--Legal Matters and Regulatory Approvals", "The Tender
Offer--State Takeover Laws" and "The Tender Offer--Rights of Dissenting
Shareholders" of the Offer to Purchase which is filed as Exhibit (a)(1)(A) to
the Schedule TO, and a copy of the Missouri shareholder appraisal right statute
(Section 351.455) is included as Schedule II to the Schedule TO and incorporated
herein by reference.
INFORMATION PROVIDED PURSUANT TO RULE 14F-1 UNDER THE EXCHANGE ACT.
The Information Statement attached as Annex A to this Schedule 14D-9 is
being furnished to Data Research's shareholders in connection with the
designation by Purchaser of persons to the Board other than at a meeting of Data
Research's shareholders, and such information is incorporated herein by
reference.
FORWARD-LOOKING STATEMENTS.
In the interest of providing shareholders with certain information regarding
Data Research's future plans and operations, certain statements set forth in
this Schedule 14D-9 relate to management's future plans and objectives. Such
statements are forward-looking statements. Although any forward-looking
statements contained in this Schedule 14D-9 or otherwise expressed by or on
behalf of Data Research are, to the knowledge and in the judgment of the
officers and directors of Data Research, expected to prove true and come to
pass, there can be no assurances that any of these expectations will prove
correct or that any of the actions that are planned will be taken.
Forward-looking statements involve known and unknown risks and uncertainties
which may cause Data Research's actual performance and financial results in
future periods to differ materially from any projection, estimate or forecasted
result.
ITEM 9. EXHIBITS
(a)(1)* Letter to shareholders of Data Research, dated July 25, 2001
(a)(2) Offer to Purchase dated July 25, 2001 (incorporated by
reference to Exhibit (a)(1)(A) to Schedule TO
("Schedule TO") filed by Purchaser with respect to Data
Research on July 25, 2001)
12
(a)(3) Form of Letter of Transmittal for Common Stock (incorporated
herein by reference to Exhibit (a)(1)(B) to Schedule TO)
(a)(4) Form of Notice of Guaranteed Delivery for Common Stock
(incorporated by reference to Exhibit (a)(1)(C) to
Schedule TO)
(a)(5) Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees (incorporated by reference to
Exhibit (a)(1)(E) to Schedule TO)
(a)(6) Form of Letter to Clients for Use by Brokers, Dealers,
Commercial Banks, Trust Companies and Other Nominees
(incorporated by reference to Exhibit (a)(1)(F) to
Schedule TO)
(a)(7) Guidelines for Certification of Taypayer Identification
Number of Substitute Form W-9 (incorporated by reference to
Exhibit (a)(1)(D) to Schedule TO)
(a)(8) Summary Advertisement as published in THE WALL STREET
JOURNAL on July 25, 2001 (incorporated by reference to
Exhibit (a)(5)(E) to Schedule TO)
(a)(9) Joint Press Release dated May 17, 2001 (incorporated by
reference to press release filed under cover of Schedule
14D-9 by Data Research on May 17, 2001)
(a)(10) Joint Press Release dated June 27, 2001 (incorporated by
reference to press release filed under cover of Schedule
14D-9 by Data Research on June 28, 2001)
(a)(11) Joint Press Release dated July 13, 2001 (incorporated by
reference to press release filed under cover of Schedule
14D-9 by Data Research on July 13, 2001)
(a)(12) Press Release dated July 25, 2001, issued by SIRSI
Corporation (incorporated by reference to Exhibit (a)(5)(D)
of Schedule TO)
(a)(13)* Opinion of Crescendo, dated as of May 15, 2001 (included as
Annex B to this Schedule 14D-9)
(e)(1) Agreement and Plan of Merger dated May 16, 2001, by and
among Data Research, Parent and Purchaser (incorporated by
reference to Exhibit 2.1 to the Form 8-K filed by Data
Research on May 21, 2001)
(e)(2) First Amendment to the Agreement and Plan of Merger dated
June 27, 2001, by and among Data Research, Parent and
Purchaser (incorporated by reference to Exhibit (d)(2) to
Schedule TO)
(e)(3) Second Amendment to the Agreement and Plan of Merger dated
July 12, 2001, by and among Data Research, Parent and
Purchaser (incorporated by reference to Exhibit (d)(3) to
Schedule TO)
(e)(4) Third Amendment to the Agreement and Plan of Merger dated
July 24, 2001, by and among Data Research, Parent and
Purchaser (incorporated by reference to Exhibit (d)(4) to
Schedule TO)
(e)(5) Support Agreement dated May 16, 2001, by and among Data
Research, Parent, Purchaser and those shareholders listed on
the signature page thereto (incorporated by reference to
Exhibit 10.2 to the Form 8-K filed by Data Research on
May 21, 2001)
(e)(6) Employment and Consulting Agreement dated May 16, 2001, by
and among Parent and Michael J. Mellinger (incorporated by
reference to Exhibit 10.1 to the Form 8-K filed by Data
Research on May 21, 2001)
13
(e)(7) Confidentiality Agreement dated February 5, 2001 by and
between Data Research and SIRSI Corporation, a wholly-owned
subsidiary of Parent, as amended (incorporated by reference
to Exhibit (d)(7) to Schedule TO)
(e)(8) Amendment to Confidentiality Agreement dated July 10, 2001,
by and between Data Research and SIRSI Corporation
(incorporated by Reference to Exhibit (d)(8) to
Schedule TO)
(e)(9) Form of Employment Agreement
(e)(10)* Information Statement of Data Research, dated July 25, 2001
(included as Annex A to this Schedule 14D-9)
- ------------------------
* Included in materials delivered to shareholders of Data Research
14
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
DATA RESEARCH ASSOCIATES, INC.
By: /s/ MICHAEL J. MELLINGER
-----------------------------------------
Name: Michael J. Mellinger
Title: CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
Dated: July 25, 2001
15
ANNEX A
Dated: July 25, 2001
DATA RESEARCH ASSOCIATES, INC.
1276 NORTH WARSON ROAD
ST. LOUIS, MISSOURI 63132
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED, AND RULE 14F-1 THEREUNDER
NO VOTE OR OTHER ACTION OF DATA RESEARCH'S SHAREHOLDERS IS REQUIRED IN
CONNECTION WITH THIS INFORMATION STATEMENT. NO PROXIES ARE BEING SOLICITED AT
THIS TIME AND YOU ARE REQUESTED NOT TO SEND A PROXY TO DATA RESEARCH.
This Information Statement is being mailed on or about July 25, 2001, as
part of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of Data Research Associates, Inc. ("Data Research") to the
holders of record of shares of common stock, par value $0.01 per share (the
"Common Stock"). You are receiving this Information Statement in connection with
the possible election or appointment of persons designated by McGuire
Acquisition Inc., a Delaware corporation (the "Purchaser") and an indirect
wholly-owned subsidiary of SIRSI Holdings Corp., a Delaware corporation
("Parent"), to a majority of the seats on the Board of Directors of Data
Research (the "Board"). Capitalized terms used herein and not otherwise defined
herein shall have the meanings ascribed to them in the Schedule 14D-9.
Data Research, Parent and the Purchaser entered into the Merger Agreement
dated as of May 16, 2001, as amended, pursuant to which the Purchaser commenced
an offer to purchase all of Data Research's outstanding shares of Common Stock
(the "Offer"). The Offer is currently scheduled to expire at 12:00 midnight, New
York City time, on August 21, 2001. The Offer, the Merger (as defined in the
Merger Agreement), and the Merger Agreement are more fully described in the
Schedule 14D-9, to which this Information Statement is attached as Annex A.
The Merger Agreement requires Data Research to cause directors designated by
the Purchaser to be elected to the Board under the circumstances described
therein upon the acceptance for payment of, and payment by the Purchaser for,
any shares of Common Stock pursuant to the Offer.
This Information Statement is required by Section 14(f) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14f-1
thereunder. The information set forth herein supplements certain information set
forth in the Schedule 14D-9. You are urged to read this Information Statement
carefully. You are not, however, required to take any action at this time.
The information contained in this Information Statement (including
information incorporated by reference) concerning the Purchaser and the
Purchaser's designees has been furnished to Data Research by the Purchaser and
Data Research assumes no responsibility for the accuracy or completeness of such
information.
A-1
GENERAL INFORMATION REGARDING DATA RESEARCH
The Common Stock is the only class of voting securities of Data Research
outstanding. As of July 20, 2001, there were (i) 4,500,204 shares of Common
Stock outstanding, and (ii) 134,000 shares of Common Stock subject to issuance
upon exercise of outstanding exercisable stock options and warrants. Each share
of Common Stock is entitled to one vote. The Board currently consists of five
members. The officers of Data Research serve at the discretion of the Board.
RIGHT TO DESIGNATE DIRECTORS AND PURCHASER'S DESIGNEES
The Merger Agreement provides that promptly after the later to occur of
(1) the purchase of and payment for any shares of Common Stock by Parent or any
of its subsidiaries as a result of which Parent and its subsidiaries
beneficially own at least a majority of the then outstanding shares of Common
Stock and (2) compliance with Section 14(f) of the Exchange Act, and Rule 14f-1
promulgated thereunder, Parent will be entitled to designate such number of
directors on the Board as will give Parent representation on the Board equal to
at least the number of directors, rounded up to the next whole number, that
equals the product of (i) the total number of directors on the Board (giving
effect to the directors designated as described in this sentence) multiplied by
(ii) a fraction, the numerator of which is the number of shares of Common Stock
that Parent and its subsidiaries beneficially own when calculating this
fraction, and the denominator of which is the total number of shares of Common
Stock then outstanding. Data Research will, upon request of Parent, use its best
efforts promptly either to increase the size of the Board or to secure the
resignations of such number of its incumbent directors, or both as is necessary
to enable such designees of Parent to be so elected or appointed to the Board,
and Data Research will take all actions available to Data Research to cause such
designees of Parent to be so elected or appointed at that time. At that time,
Data Research will, if requested by Parent, also take all action necessary to
cause persons designated by Parent to be proportionately represented on each
committee of the Board, each board of directors (or similar body) of each
subsidiary of Data Research, and each committee (or similar body) of each such
board of directors.
The parties have agreed that, in the event that Parent's designees are
elected or appointed to the Board, at least two directors who were directors on
May 16, 2001 and who are not executives of Data Research will remain on the
Board. The affirmative vote of a majority of such directors will be required
(after the acceptance for payment of shares of Common Stock pursuant to the
Offer and prior to the Effective Time of the Merger) in order for Data Research
to (1) amend or terminate the Merger Agreement, (2) exercise or waive any of its
rights, benefits or remedies under the Merger Agreement if such exercise or
waiver would adversely affect holders of shares of Common Stock (other than us
or our Parent) or (3) take any other action under or in connection with the
Merger Agreement if such action would adversely affect holders of shares of
Common Stock (other than Purchaser or Parent).
The Purchaser has informed Data Research that it will choose the Purchaser's
designees from the persons listed below. The Purchaser has further informed Data
Research that each of the individuals listed below has consented to act as a
director, if so designated. None of the Purchaser's designees currently is a
director of or holds any position with Data Research. The Purchaser has advised
Data Research that, to the best of the Purchaser's knowledge, none of the
Purchaser's designees or any of their affiliates beneficially owns any equity
securities or rights to acquire any such securities of Data Research, nor has
any such person been involved in any transaction with Data Research or any of
its directors, executive officers or affiliates that is required to be disclosed
pursuant to the rules and regulations of the Securities and Exchange Commission
other than with respect to transactions between the Purchaser and Data Research
that have been described in the Schedule TO or the Schedule 14D-9.
A-2
The Purchaser has informed Data Research that the name, age as of July 20,
2001, position with Purchaser, Parent, SIRSI Corporation, or an affiliate
thereof, and five-year employment history of each of the Purchaser's designees
is set forth below.
NAME AGE POSITION
- ---- -------- ----------------------------------------------------------
William K. Luby...... 41 Managing Partner, Seaport Capital, LLC; Director of
Purchaser; Director of Parent; Director of SIRSI
Corporation
James Young.......... 47 Chairman of the Board of Purchaser; Executive Officer and
Director of Parent; Executive Officer and Director of
SIRSI Corporation
Patrick Sommers...... 54 President and Chief Executive Officer of Purchaser;
President, Chief Executive Officer of Parent; President
and Chief Executive Officer of SIRSI Corporation
Larry D. Smith....... 54 Director of Purchaser
Heidi Daileader...... 29 Associate, Seaport Capital, LLC; Director of Parent;
Director of SIRSI Corporation
Michael Murdock...... 45 Director of Parent; Director of SIRSI Corporation
Jacky Young.......... 50 Director of Parent; Director of SIRSI Corporation
Allison Mulhern...... 42 Director of Parent; Director of SIRSI Corporation; Partner
Seaport Capital
James Collis......... 38 Executive Vice President Seaport Capital, LLC; Director of
Parent; Director of SIRSI Corporation
Set forth below are descriptions of the backgrounds of each of Purchaser's
designees:
Mr. Luby has served as a Director of Purchaser since April 2001 and Managing
Partner of Seaport Capital LLC, a limited liability company formed to manage
Seaport Capital Partners II, L.P., CEA Capital Partners USA, L.P. and CEA
Capital Partners USA CI, L.P. ("Seaport Capital") since October of 1996. Prior
thereto, Mr. Luby was the Managing Director of Chase Capital from January 1994
to April 1996.
Mr. Young has been Chairman of the Board of Purchaser since April 2001, an
Executive Officer and Director of Parent since September 1999, and an Executive
Officer and Director of SIRSI Corporation since 1980. Prior thereto, Mr. Young
served as the President and Chief Executive Officer of SIRSI Corporation from
1980 to January 2001.
Mr. Sommers has served as a Director, President and Chief Executive Officer
of Purchaser since April 2001, President and Chief Executive Officer of Parent
since January 2001, and President and Chief Executive Officer of SIRSI
Corporation since January 2001. Prior thereto, Mr. Sommers served as President,
Chief Executive Officer and a Director of the Dialog Corporation from April 2000
to December 2000. He was the Chief Operating Officer of the Dialog Corporation
from October 1998 to April 2000. Mr. Sommers served as Chairman of the Board and
Chief Executive Officer of Medicus Systems Corporation from February 1996 to
June 1998. From 1992 to 1996, he served as President of Ceridian Employer
Services.
Mr. Smith has been a director of Purchaser since April 2001. He has been the
Chief Financial Officer of Parent since September 1999 and of SIRSI Corporation
since June 1993. Mr. Smith was the Controller of SIRSI Corporation from August
1990 to June 1993.
A-3
Ms. Daileader has been a Director of Parent and of SIRSI Corporation since
September 1999. She has been an associate of Seaport Capital, and its
predecessor, since January 1998. Prior thereto, she attended Columbia Business
School since August 1996.
Mr. Murdock has been a Director of Parent since September 1999 and of SIRSI
Corporation since 1980. Mr. Murdock was the Chief Technology Officer of SIRSI
Corporation from 1994 to 2000. He was Vice-President of SIRSI Corporation from
1980 to 1994.
Ms. Young has been a Director of Parent since September 1999 and of SIRSI
Corporation since 1980. Ms. Young was the President of SIRSI Corporation from
1994 to January 2001. She was a Vice-President of SIRSI Corporation from 1980
until 1994.
Ms. Mulhern has been a Director of Parent and of SIRSI Corporation since
January 2001. She has been a Partner at Seaport Capital since March of 1998.
Ms. Mulhern was the Managing Director of BT Securities from November 1985 to
March 1998.
Mr. Collis has been a Director of Parent and of SIRSI Corporation since
September 1999. He has been an Executive Vice President of Seaport Capital since
February 2000. Prior to Seaport Capital, Mr. Collis served as Executive Vice
President of CEA Management Corp., a corporation formed to manage CEA Capital
Partners USA, L.P. and CEA Capital Partners USA CI, L.P. Before joining CEA
Management Corp., Mr. Collis was a principal at Chase Manhattan Bank beginning
in December 1996.
A-4
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
On July 20, 2001, the following represented beneficial ownership of Common
Stock by (i) each of the current directors of Data Research, (ii) each of the
executive officers named in the Summary Compensation Table (see "Executive
Compensation" below), (iii) all current directors and executive officers of Data
Research as a group and (iv) all persons known to Data Research who may,
individually or as a group, be deemed to be the beneficial owners of more than
5% of the Common Stock (each director, officer and 5% shareholder having sole
voting and investment power over the shares listed opposite his, her or its name
except as set forth in the footnotes hereto):
AMOUNT AND NATURE PERCENT
NAME OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS
- ------------------------ ----------------------- --------
DIRECTORS--
F. Gilbert Bickel III....................................... 742,550(1) 16.5%
Donald P. Gallop............................................ 25,141(2) *
Marilyn Gell Mason.......................................... 8,505(3) *
Michael J. Mellinger........................................ 1,867,947(4) 41.5%
Howard L. Wood.............................................. 25,141(5) *
EXECUTIVE OFFICERS (WHO ARE NOT DIRECTORS)--
Katharine W. Kilper......................................... 38,985(6) *
DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP--
(9 individuals)............................................. 2,723,041(7) 60.5%
5% SHAREHOLDERS--
Schwartz Investment Counsel, Inc. ..........................
3707 West Maple Road
Bloomfield Hills, Michigan 48301 347,500(8) 7.7%
- ------------------------
* Represents less than 1% of the class.
(1) Includes 75,000 shares held by Martha Bickel, wife of Mr. Bickel, and 14,600
shares held by his children, as to which shares Mr. Bickel disclaims
beneficial ownership, and currently exercisable options to acquire 12,000
shares of Common Stock. Mr. Bickel's address is 1276 North Warson Road, St.
Louis, Missouri 63132.
(2) Includes 9,000 shares held in the name of Gallop, Johnson & Neuman, L.C.,
the law firm of which Mr. Gallop is Chairman, and currently exercisable
options to acquire 12,000 shares of Common Stock.
(3) Includes 500 shares held by Robert M. Mason, husband of Ms. Mason, and
currently exercisable options to acquire 6,000 shares of Common Stock.
(4) Includes 36,150 shares held by Polly C. Mellinger, wife of Mr. Mellinger,
and 2,000 shares held by his children, as to which shares Mr. Mellinger
disclaims beneficial ownership, and currently exercisable options to acquire
12,000 shares of Common Stock. Mr. Mellinger's address is 1276 North Warson
Road, St. Louis, Missouri 63132.
(5) Includes currently exercisable options to acquire 12,000 shares of Common
Stock.
(6) Includes currently exercisable options to acquire 22,000 shares of Common
Stock.
(7) Includes currently exercisable options to acquire 95,250 shares of Common
Stock.
(8) Information provided by Schwartz Investment Counsel.
A-5
DIRECTORS OF DATA RESEARCH
Biographical information concerning Data Research's current directors as of
July 20, 2001, is as follows:
SERVICE AS
NAME AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
- ---- -------- ------------------------------------ --------------
CLASS A DIRECTORS--
F. Gilbert Bickel III............... 57 Vice President since April 1988 of 1979
Merrill Lynch, Pierce, Fenner &
Smith, Incorporated, a full-service
brokerage firm. Director of Summit
Marketing Group, Inc.
Michael J. Mellinger................ 52 Chairman of the Board since 1975
April 1992 and President and Chief
Executive Officer of Data Research
since 1975; Treasurer of Data
Research from April 1992 to
February 1995.
CLASS B DIRECTORS--
Donald P. Gallop(1)................. 68 Attorney-at-law and Chairman of the 1992
law firm of Gallop, Johnson &
Neuman, L.C. for more than the last
five years; Director of Falcon
Products, Inc.
CLASS C DIRECTORS--
Marilyn Gell Mason.................. 56 Consultant to libraries and 1999
providers of library systems since
April 1999. Director of the
Cleveland Public Library 1986 to
April 1999.
Howard L. Wood...................... 62 Consultant to Charter 1992
Communications, Inc. of which he was
formerly Vice-Chairman from 1993 to
November 1999. Co-founder and
Director of Charter
Communications, Inc. Director of
Gaylord Entertainment Corporation.
- ------------------------
(1) See "Compensation Committee Interlocks and Insider Participation" below for
further information.
A-6
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During fiscal 2000, four meetings and two telephonic meetings of the Board
of Directors were held. During such fiscal year, each director attended 75% or
more of the aggregate of (i) the total number of meetings of the Board of
Directors held during the period for which he or she has been a director and
(ii) the total number of meetings held by all committees of the Board of
Directors on which he or she served during the period for which he or she
served.
The Board of Directors of Data Research had a standing Audit Committee
consisting of Mesdames Cotton and Mason and Messrs. Bickel, Gallop and Wood.
Carole Cotton resigned as a director of Data Research in February 2001. The
Audit Committee now consists of the remaining four persons. The Audit Committee
reviews the results and scope of the audit and services provided by Data
Research's independent public accountants. The Audit Committee also reviews Data
Research's procedures with respect to maintaining books and records, the
adequacy and implementation of internal auditing, accounting and financial
controls, and the policies concerning financial reporting and business
practices. The Board of Directors has determined that the members of the Audit
Committee are "independent" under Rule 4200(a)(15) of the National Association
of Securities Dealers listing standards. The Audit Committee has adopted a
written charter. During fiscal 2000, three Audit Committee meetings were held.
The Board of Directors of Data Research had a standing Compensation
Committee consisting of Mesdames Cotton and Mason and Mr. Gallop. Following the
resignation of Ms. Cotton, the Compensation Committee consists of Ms. Mason and
Mr. Gallop, each of whom are non-employee directors and are independent. One
vacancy currently exists on the Compensation Committee. The purpose of the
Compensation Committee is to act on behalf of the Board of Directors with
respect to the compensation of directors and executive officers. The
Compensation Committee also administers Data Research's stock option and other
benefit plans. During fiscal 2000, one Compensation Committee meeting was held.
Data Research has no standing nominating committee or other committee
performing a similar function.
DIRECTORS' COMPENSATION
Data Research pays an annual fee of $12,000 to directors who are not
employees of Data Research. In addition, Data Research pays non-employee
directors $1,000 for each Board of Directors meeting attended in person, $500
for each telephonic Board meeting attended and $500 for each committee meeting
attended. Data Research also reimburses directors for out-of-pocket expenses
incurred in connection with their attendance at Board and committee meetings.
Directors' fees of $92,500 were paid during fiscal 2000. Additionally, directors
participate in Data Research's Director Stock Option Plan. Historically, such
directors have each received annually options to acquire 3,000 shares of Data
Research's common stock, exercisable in accordance with the terms of Data
Research's Director Stock Option Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2000, the Compensation Committee of the Board was comprised of three
Directors, consisting of Donald P. Gallop, Marilyn Gell Mason and Carole Cotton.
None of these Directors is or was an officer of Data Research or any of its
subsidiaries at any time now or in the past. Ms. Cotton resigned as a director
of Data Research in February, 2001. Mr. Gallop, a director of Data Research, is
Chairman of the law firm of Gallop, Johnson & Neuman, L.C., which provided legal
services to Data Research during the fiscal year ended September 30, 2000, and
is expected to provide legal services to Data Research in the future.
A-7
EXECUTIVE OFFICERS OF DATA RESEARCH
The executive officers of Data Research are:
NAME AGE POSITION
- ---- -------- ------------------------------------------------------
Michael J. Mellinger....... 52 Chairman, President and Chief Executive Officer
Katharine W. Kilper........ 58 Vice-President, Chief Financial Officer and Treasurer
Michael A. Casale.......... 39 Vice-President
Andrew Morrice............. 40 Vice-President
C. Berit Nelson............ 34 Vice-President
Set forth below are descriptions of the backgrounds of the executive officers of
Data Research:
Mr. Mellinger has served as President, Chief Executive Officer, and Director
of Data Research since 1975 and served as Treasurer of Data Research from
April 1992 to February 1995. Mr. Mellinger was elected Chairman of the Board in
April 1992.
Ms. Kilper was elected Chief Financial Officer and Treasurer of Data
Research in February 1995. She has served as Vice-President of Data Research
since May 1991 and served as Controller of Data Research from April 1989 to
February 1995.
Mr. Casale was elected Vice-President of Data Research in February 2000 and
manages Data Research's customer service department. He served as Director of
Customer Service of Data Research from May 1999 to February 2000 and as Branch
Manager of Data Research's Monterey, California, office from 1995 to May 1999.
From 1994 to 1995, he worked in the Monterey customer support area.
Mr. Morrice was elected Vice-President of Data Research in November 2000.
From November 1999 to November 2000 he managed Australian customer service of a
US software company. He served as branch manager of Data Research's Australian
office from 1994 to 1999.
Ms. Nelson was elected Vice-President of Data Research in February 2000 and
manages Data Research's software development and testing groups. She joined Data
Research in 1990 as a trainer and subsequently worked in various capacities in
Data Research's sales area until being named Taos Product Manager in
March 1998. She served as Software Manager from January 1999 until her election
as a Vice-President.
Each of the executive officers is a party to an employment agreement with
Data Research. Mr. Mellinger's employment agreement expires September 30, 2002,
with an automatic five-year renewal, unless terminated by Mr. Mellinger or Data
Research upon the occurrence of certain events. The other executive officers
have entered into employment agreements that provide for their employment with
Data Research for a term ending on April 18, 2003, with an automatic renewal
unless terminated by the individual executive officer or Data Research upon the
occurrence of certain events.
A-8
EXECUTIVE COMPENSATION
The following table sets forth the aggregate cash compensation paid for
services rendered during the 1998, 1999, and 2000 fiscal years by (i) Data
Research's Chief Executive Officer and (ii) Data Research's four other most
highly compensated executive officers who were serving as executive officers at
the end of the 2000 fiscal year (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
---------------
ANNUAL COMPENSATION AWARDS
----------------------------------------------- ---------------
OTHER ANNUAL SECURITIES ALL OTHER
BONUS COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) ($) (1) ($) (2) OPTIONS/SARS(#) ($) (2)(3)
- --------------------------- -------- ---------- -------- ------------ --------------- ------------
Michael J. Mellinger........ 2000 422,900 -0- 3,000 2,000
Chairman of the Board, 1999 413,000 -0- 3,000 2,000
President, and 1998 408,000 -0- 3,000 1,500
Chief Executive Officer
Katharine W. Kilper......... 2000 151,200 -0- 10,000 2,540
Vice President, 1999 139,013 -0- 10,000 2,540
Chief Financial 1998 122,440 -0- 10,000 2,040
Officer and Treasurer
- ------------------------
(1) Executive officers of Data Research, other than Mr. Mellinger, are entitled
to receive bonuses annually at the discretion of the Board of Directors of
Data Research. Amounts are earned and accrued during the fiscal years
indicated, and are paid subsequent to the end of each fiscal year. See
"Employment Agreements" below regarding Mr. Mellinger's employment agreement
with respect to his future bonuses, if any.
(2) The named executive officers received certain perquisites during fiscal
2000, none of which in the aggregate exceeded the lesser of $50,000 or 10%
of such officer's total salary and bonus for such fiscal year.
(3) Fiscal 2000 compensation includes matching Company contributions to Data
Research's 401(k) Profit Sharing Plan of $2,000 each for Mr. Mellinger and
Ms. Kilper and matching Company contributions to Data Research's Stock
Purchase Plan of $540 for Ms. Kilper.
A-9
OPTION/SAR GRANTS IN THE LAST FISCAL YEAR
POTENTIAL REALIZABLE
VALUE AT
INDIVIDUAL GRANTS ASSUMED ANNUAL
--------------------------------------------------------------- RATES OF STOCK PRICE
NUMBER OF % OF TOTAL APPRECIATION FOR
SECURITIES UNDERLYING OPTIONS/SARS OPTION TERM(4)
OPTIONS/ SARS GRANTED TO EXERCISE OR ------------------------------
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION 0% 5% 10%
NAME # FISCAL YEAR ($/SH) (3) DATE ($) ($) ($)
- ---- --------------------- ------------ ----------- ---------- -------- -------- --------
Michael J. Mellinger......... 3,000(1) 4.0% 8.50 11/11/03 -0- 5,495 11,835
Katharine W. Kilper.......... 10,000(2) 14.0% 8.50 01/01/05 -0- 18,533 39,449
- ------------------------
(1) The option listed was granted on November 11, 1999, to Mr. Mellinger in his
capacity as a director of Data Research under Data Research's Director Stock
Option Plan and became fully exercisable six months after the date of grant.
(2) The option listed was granted on November 11, 1999, to each vice president
under Data Research's 1992 Stock Option Plan and becomes exercisable the
next January 1 after the second anniversary of the grant.
(3) Exercise or base price is equal to the closing sales price as reported on
the Nasdaq Stock Market (NASDAQ National Market System) on the date of
grant.
(4) The dollar amounts under these columns result from calculations at 0% and at
the 5% and 10% rates set by the Securities and Exchange Commission and,
therefore, are not intended to forecast possible future appreciation, if
any, of the price of Data Research's Common Stock.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
VALUE OF
NUMBER OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS/ OPTIONS/SARS
SHARES SARS AT FY-END (#) AT FY-END ($)
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- ---- --------------- ------------ --------------------- -------------
Michael J. Mellinger................... -0- -0- 9,000/0 0/0
Katharine W. Kilper.................... -0- -0- 12,000/20,000 0/0
BENEFIT PLANS
Data Research sponsors a defined contribution 401(k) plan covering full-time
employees in the United States who have at least one month of service and are
21 years of age or older. An employee can defer up to 15% of covered
compensation under the plan. The plan provides for a maximum annual Company
match of $2,000 plus discretionary Company profit sharing contributions. In
April 1994, Data Research included Data Research's common stock as an investment
election under the plan and at that time reserved 100,000 shares of common stock
for future issuance under the plan. Data Research also sponsors a group
retirement plan covering Canadian employees who have at least six months of
service. Under the group retirement plan, Data Research annually matches
employee contributions up to $2,000 per participant. Contributions made by Data
Research to these plans for the years ended September 30, 2000, 1999, and 1998,
were $266,000, $215,000, and $250,000, respectively.
Data Research sponsors a stock purchase plan covering directors, officers,
and substantially all employees. Under the plan, each participant can contribute
up to 10% of his or her salary per relevant pay period or, in the case of a
non-employee director, the greater of 10% of such director's monthly fees or $50
per month, to purchase Company common stock. Data Research will match up to 15%
of
A-10
participants' contributions. The plan can be terminated at any time by the Board
of Directors. Data Research reserved 100,000 shares of common stock for future
issuance under the plan. Data Research made contributions under the stock
purchase plan of $12,000, $16,000 and $15,000 for the years ended September 30,
2000, 1999, and 1998, respectively.
EMPLOYMENT AGREEMENTS
Data Research is a party to an employment agreement with Mr. Mellinger,
which agreement expires September 30, 2002 (the "Mellinger Agreement"), with an
automatic five-year renewal, unless terminated by Mr. Mellinger or Data Research
upon the occurrence of certain events. Pursuant to the Mellinger Agreement,
Mr. Mellinger has agreed to serve as the President and Chief Executive Officer
of Data Research in exchange for annual base compensation of $400,000 (the "Base
Compensation"), as may be increased each fiscal year by the Board of Directors
and payable no less frequently than monthly. For fiscal 1997 and thereafter,
Mr. Mellinger's bonus, if any, shall be determined in accordance with the terms
of a formula (the "Bonus Formula") to be determined for each fiscal year by the
Compensation Committee. For the fiscal year ended September 30, 2000, the bonus
was to be in the amount of 7.5% of the increase in Data Research's income before
income taxes and bonuses for such fiscal year compared to the prior fiscal year,
determined by Data Research's independent auditors in accordance with generally
accepted accounting principles, consistently applied, and payable within ninety
(90) days of the end of such fiscal year. The Mellinger Agreement provides that
Mr. Mellinger is entitled to an additional bonus of (i) 150% of the Base
Compensation in the event Mr. Mellinger's employment with Data Research is
terminated for reasons other than for cause, permanent disability or death or
there occurs a significant reduction in the position, duties or responsibilities
of Mr. Mellinger (collectively, "Termination") within one year following a
"Change in Control" (as defined in the Mellinger Agreement), (ii) 100% of Base
Compensation if Termination occurs within the second year following a Change in
Control, and (iii) 50% of Base Compensation if Termination occurs within the
third year following a Change in Control.
Data Research is a also party to an employment agreement with Ms. Kilper,
which agreement expires April 18, 2003 (the "Kilper Agreement"), with an
automatic one-year renewal, unless terminated by Ms. Kilper or Data Research
upon the occurrence of certain events. Pursuant to the Kilper Agreement,
Ms. Kilper has agreed to serve as the Vice President and Chief Financial Officer
of Data Research in exchange for annual base compensation of $156,500 (the "Base
Compensation"), as may be increased each fiscal year by the Board of Directors.
Ms. Kilper's bonus, if any, shall be determined at the sole discretion of the
Board of Directors. The Kilper Agreement provides that Ms. Kilper is entitled to
an amount, payable within sixty (60) days, equal to (i) 150% of the Base
Compensation in the event Ms. Kilper's employment with Data Research is
terminated for reasons other than for cause, permanent disability or death or
there occurs a significant reduction in the position, duties or responsibilities
of Ms. Kilper (collectively, "Termination") within one year following a "Change
in Control" (as defined in the Kilper Agreement) and (ii) 75% of Base
Compensation if Termination occurs within the second year following a Change in
Control.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
Pursuant to an equipment lease which expired on April 15, 1996, Data
Research leased its office phone equipment from Davandy Management, Inc.
("Davandy"). Upon expiration of the lease Data Research did not exercise its
option to purchase the equipment at fair market value but has continued to lease
the equipment on a month-to-month basis at a monthly rate of $1,640. During
fiscal 2000, Davandy received $19,680 in payments from Data Research for the use
of such equipment. Michael J. Mellinger, Data Research's President and Chief
Executive Officer, is the president and sole shareholder of Davandy.
A-11
Management of Data Research believes that the terms and conditions of the
above-described transactions and those described under the heading "Compensation
Committee Interlocks and Insider Participation" were no less favorable to Data
Research than those which would have been available to Data Research in
comparable transactions with unaffiliated persons.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Data Research believes that each of its officers, Directors and greater than
ten-percent owners complied with all Section 16(a) filing requirements
applicable to them with respect to transactions during fiscal 2000.
BOARD COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors (the "Committee") is
composed of three outside directors and is responsible for developing and
approving Data Research's compensation program for the Chief Executive Officer
and the other executive officers of Data Research. The Committee also
administers the Data Research Associates, Inc. 1992 Stock Option Plan ("the 1992
Plan"). The overall objectives of Data Research's executive compensation program
are to provide total compensation that will attract and retain highly qualified
executives and to link executive compensation to corporate performance.
Data Research's executive compensation policies include the following:
- Compensation levels should be competitive with other software and
technology companies of comparable size;
- Compensation should be directly related to Data Research's achievement of
both short and long-term corporate performance goals and to the individual
executive's contribution to achieving those goals;
- Ownership of Data Research's Common Stock provides a link between
executives and shareholders by creating incentives for the executives to
achieve the long-term goal of creating shareholder value.
The Committee feels that it can best reach its objectives through a
compensation package that includes three elements: (1) base salary; (2) annual
cash bonuses; and (3) long-term incentives in the form of stock options. The
Chief Executive Officer, Michael J. Mellinger, makes recommendations to the
Committee on all elements of the compensation package for the executive officers
other than himself.
BASE SALARIES
In order to attract and retain executives, Data Research strives to offer
competitive salaries and employee benefits, including its Employee Stock
Purchase Plan, 401(k) Profit Sharing Plan, health care plans and other employee
benefit programs. The Committee sets base salary levels for executives based on
the responsibilities of the position held and the experience of the individual,
and by reference to a self-selected group of software and technology companies
of comparable size and to Data Research's competitors, when such information is
available. The Committee also consults published studies of executive
compensation in publicly held companies.
Base salaries are adjusted annually based on the Social Security
Administration's cost-of-living adjustment (COLA) calculation. Base salaries are
also reviewed annually with regard to Data Research's performance for the year
and the responsibilities of the individual executive.
Under the terms of the Mellinger Agreement, Mr. Mellinger's base salary for
the fiscal year ended September 30, 1997, the first year of the Mellinger
Agreement, was set at $400,000. The Mellinger
A-12
Agreement provides that the Committee may raise Mr. Mellinger's base salary
after considering his individual performance, the total compensation paid to the
chief executive officers of similar companies of comparable size to Data
Research's and such other factors as deemed relevant by the Board of Directors
of Data Research.
In determining Mr. Mellinger's base salary for fiscal 2000, the Committee
took into consideration that although total revenues for fiscal 1999, as well as
revenue from two of the three sources from which Data Research's revenues are
derived, declined from the previous year, Data Research's service revenue
increased over fiscal 1998. Additionally, the Committee recognized that the
general release and shipment of Data Research's Taos software in the fourth
quarter of fiscal 1999 generated year-over-year revenue growth during fourth
quarter in all three categories of revenue-hardware, software and services.
Based upon these factors, Mr. Mellinger's base salary for fiscal 2000 was set at
$422,900, an increase of 2.4% over fiscal 1999.
ANNUAL BONUSES
For fiscal 2000, the Committee determined bonuses for Data Research's
executives, including Mr. Mellinger, based on formulas determined at the
beginning of fiscal 2000 which provided for each officer to receive a bonus
linked to an increase in corporate earnings. Since corporate earnings in fiscal
2000 decreased from earnings in fiscal 1999 the Committee did not award a bonus
to Mr. Mellinger or Data Research's other executives.
STOCK OPTIONS
Since its initial public offering in 1992, the Board of Directors of Data
Research has realized the importance of providing executives and other key
employees incentives to maximize Data Research's financial performance and align
their interests with those of Data Research's shareholders. Through the 1992
Plan, Data Research has encouraged its executives to acquire and hold Data
Research's Common Stock. Executive officers, along with all of Data Research's
other employees, also are eligible to participate in the Data Research
Associates, Inc. Stock Purchase Plan, an ongoing stock acquisition program under
which an employee may defer a portion of his or her salary to acquire shares of
Common Stock. Data Research matches a portion of the employee's deferral.
In fiscal 2000 the Committee granted options under the 1992 Plan to each of
the executive officers (excluding the Chief Executive Officer). In determining
how many options should be granted to each officer, the Committee considered the
entire compensation package of each officer and the recommendation of
Mr. Mellinger.
Respectfully submitted,
COMPENSATION COMMITTEE OF THE BOARD OF
DATA RESEARCH ASSOCIATES, INC.
CAROLE COTTON
DONALD P. GALLOP
MARILYN GELL MASON
A-13
PERFORMANCE GRAPH
Set forth below is a line graph comparing the annual percentage change in
the cumulative total shareholder return on Data Research's Common Stock against
the cumulative total returns of the Center for Research in Security Prices
("CRSP") Index for the Nasdaq Stock Market (U.S. Companies) and the CRSP Index
for Nasdaq Computer and Data Processing Stocks.
[Performance Graph]
LEGEND
CRSP TOTAL RETURNS INDEX FOR: 09/1995 09/1996 09/1997 09/1998 09/1999 09/2000
- ----------------------------- -------- -------- -------- -------- -------- --------
Data Research Associates, Inc. 100.0 139.7 150.4 145.9 90.7 65.9
Nasdaq Stock Market (US Companies) 100.0 118.7 162.9 165.5 270.4 359.0
Nasdaq Computer and Data Processing Stocks 100.0 124.0 167.8 217.5 369.3 464.3
SIC 7370--7379 US & Foreign
NOTES:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the
previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading
day, the preceding trading day is used.
D. The index level for all series was set to $100.0 on 09/29/1995.
A-14
ANNEX B
CRESCENDO CAPITAL PARTNERS, LLC
300 WEST 11TH STREET
KANSAS CITY, MISSOURI 64105
TELEPHONE: (816) 512-2925
FAX: (816) 512-2945
PERSONAL AND CONFIDENTIAL
May 15, 2001
Board of Directors
Data Research Associates, Inc.
1276 North Warson Road
St. Louis, MO 63132-1806
Attention: Mr. Michael J. Mellinger
Chairman, President and Chief Executive Officer
To the Board of Directors:
You have requested our opinion as to the fairness from a financial point of
view to the holders of the outstanding shares of Common Stock, par value $0.01
per share (the "Common Shares"), of Data Research Associates, Inc. (the
"Company") of the $11.00 per Common Share in cash (the "Consideration") to be
received by such holders pursuant to the Agreement and Plan of Merger, to be
dated as of May 16, 2001, by and among SIRSI Holdings Corp. (the "Parent"),
McGuire Acquisition Inc. (the "Purchaser") and the Company (the "Agreement").
Subject to certain conditions precedent, the Agreement provides for a tender
offer for all of the Common Shares (the "Tender Offer") pursuant to which the
Purchaser will pay $11.00 in cash for each Common Share accepted. The Agreement
further provides that, following completion of the Tender Offer, the Purchaser
will be merged with and into the Company (the "Merger") and each outstanding
Common Share (other than shares owned by the Company or the Purchaser) will be
converted into the right to receive the same consideration paid for such shares
pursuant to the Tender Offer.
Crescendo Capital Partners, LLC, as part of its investment banking business,
is engaged in the valuation of businesses and their securities in connection
with mergers and acquisitions, private placements and valuations for corporate
and other purposes. We are familiar with the Company, having provided certain
investment banking services to the Company from time to time. We have acted as
financial advisor to the Company in connection with, and have participated in
certain of the negotiations leading to, the Agreement. We will receive a fee for
our services, a significant portion of which is contingent upon consummation of
the contemplated transaction. We have also acted as financial advisor to the
Company and to its Board of Directors in rendering this opinion and will receive
a fee upon delivery of this opinion.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Shareholders and Annual Reports of Form 10-K of the
Company for the five years ended September 30, 2000; certain interim reports to
shareholders and Quarterly Reports on Form 10-Q; certain other communications
from the Company to its shareholders; and certain internal financial analyses
for the Company prepared by its management. We also have held discussions with
members of the senior management of the Company regarding its past and current
business operations, financial condition and future prospects. In addition, we
have reviewed the reported price and trading activity for the Common Shares and
indices reflecting overall public market conditions, reviewed the financial
terms of certain recent business combinations in the library automation industry
and performed such other studies and analyses as we considered appropriate.
B-1
Data Research Associates, Inc.
May 15, 2001
Page 2
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of this opinion.
This opinion is for the use of the Board of Directors of the Company in its
evaluation of the contemplated transaction and does not constitute a
recommendation to any shareholder as to whether such shareholder should tender
shares or how such shareholder should vote on any matters relating to the
contemplated transaction.
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion that, as of the date hereof, the
Consideration in cash to be received by the holders of Common Shares in the
Tender Offer and the Merger is fair from a financial point of view to such
holders.
Very truly yours,
CRESCENDO CAPITAL PARTNERS, LLC
*By: /s/ Duncan M. O'Brien, Jr.
Duncan M. O'Brien, Jr.
PRESIDENT
B-2