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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
CARNEGIE GROUP, INC.
(Name of Subject Company)
CARNEGIE GROUP, INC.
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class of Securities)
143497 10 5
(Cusip Number of Class of Securities)
DENNIS YABLONSKY PRESIDENT AND CHIEF EXECUTIVE OFFICER CARNEGIE GROUP, INC.
FIVE PPG PLACE PITTSBURGH, PENNSYLVANIA 15222 (412) 642-6900
(Name and Address and Telephone Number of Person Authorized to Receive Notice
and Communications on Behalf of the Person(s) Filing Statement)
WITH A COPY TO:
MARLEE S. MYERS, ESQ.
ERIC D. KLINE, ESQ.
MORGAN, LEWIS & BOCKIUS LLP
ONE OXFORD CENTRE, 32ND FLOOR
PITTSBURGH, PENNSYLVANIA 15219 (412) 560-3300
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Carnegie Group, Inc., a Delaware
corporation (the "Company"), and the address of the principal executive
offices of the Company is Five PPG Place, Pittsburgh, Pennsylvania 15222. The
title of the class of equity securities to which this statement relates is the
common stock, par value $.01 per share, of the Company (the "Shares").
ITEM 2. TENDER OFFER OF THE PURCHASER.
This statement relates to a tender offer by Logica, Inc., a Delaware
corporation ("Parent"), and Logica Acquisition Corp., a Delaware corporation
and wholly-owned subsidiary of Parent (the "Purchaser"), disclosed in a Tender
Offer Statement on Schedule 14D-1, dated October 7, 1998 (the "Schedule 14D-
1"), to purchase all outstanding Shares at $5.00 per Share, net to the seller
in cash, less applicable withholding taxes, if any, upon the terms and subject
to the conditions set forth in the Offer to Purchase, dated October 7, 1998
(the "Offer to Purchase"), and the related Letter of Transmittal (which
together constitute the "Offer").
Parent has formed the Purchaser in connection with the Offer and the Merger
Agreement (as such term is hereinafter defined). Parent is a wholly-owned
subsidiary of Logica plc, a public limited company organized under the laws of
England ("Logica plc" and, together with its subsidiaries, "Logica").
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of September 30, 1998 (the "Merger Agreement"), among Parent, the Purchaser
and the Company. The Merger Agreement provides, among other things, that as
soon as practicable after the consummation of the Offer and satisfaction or
waiver of certain conditions, the Purchaser will be merged with and into the
Company (the "Merger"), with the Company as the surviving corporation (the
"Surviving Corporation"). A copy of the Merger Agreement is attached hereto as
Exhibit (c)(1) and incorporated herein by reference.
Based on the information in the Schedule 14D-1, the principal executive
offices of each of Parent and the Purchaser are located at 32 Hartwell Avenue,
Lexington, Massachusetts 02173.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
statement, are set forth in Item 1 above.
(b) Each material contract, agreement, arrangement and understanding between
the Company or its affiliates and its executive officers, directors or
affiliates is described below.
The Purpose of the Offer. The purpose of the Offer and the Merger is for
Parent to acquire control of, and the entire equity interest in, the Company.
The Offer and the Merger Agreement are intended to increase the likelihood
that the Merger will be effected as promptly as practicable. The purpose of
the Merger is to acquire all outstanding Shares not tendered and purchased
pursuant to the Offer.
The Merger Agreement. The Merger Agreement provides for the commencement of
the Offer as promptly as practicable after the date of the Merger Agreement,
but in any event not later than five business days following the public
announcement of the Offer. The obligation of Parent to cause the Purchaser to
commence the Offer and to accept for payment any Shares tendered pursuant to
the Offer is subject to the satisfaction of certain conditions, which are
described below.
The Merger. The Merger Agreement provides that, as soon as practicable
following fulfillment or waiver of the conditions described below under
"Conditions to the Merger," the Purchaser will be merged with and into the
Company, which will be the Surviving Corporation, and each then-outstanding
Share not owned by Parent, the Purchaser or any other direct or indirect
subsidiary of Parent (other than those Shares held in the treasury of the
Company and Shares held by holders who perfect any appraisal rights that they
may have under the Delaware General Corporation Law (the "DGCL")) will be
canceled and retired and be converted into a right to receive the Merger
Consideration.
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Vote Required to Approve Merger. Under the DGCL, the Merger requires the
approval of the holders of at least a majority of outstanding Shares. If the
Minimum Share Condition (as hereinafter defined) is satisfied, the Purchaser
will own a majority of the Shares and accordingly will have sufficient voting
power to effect the approval of the Merger by holders of Shares without the
affirmative vote of any other such holder.
The Company has agreed in the Merger Agreement to take all action necessary
in accordance with applicable law and its Restated Certificate of
Incorporation and Amended and Restated By-Laws to convene a meeting of its
stockholders promptly after the purchase of Shares pursuant to the Offer to
consider and vote upon the approval of the Merger, if such stockholder
approval is required by applicable law. Parent and the Purchaser have agreed
in the Merger Agreement that, at any such meeting, all of the Shares then
beneficially owned by Parent, the Purchaser or any other direct or indirect
subsidiary of Parent will be voted in favor of the Merger. Under the Merger
Agreement, subject to the applicable fiduciary duties of the Board of
Directors of the Company (the "Company Board"), the Company will recommend
that the Company's stockholders approve the Merger if such stockholder
approval is required.
Conditions to the Merger. The Merger Agreement provides that the obligations
of the Company, Parent and the Purchaser to consummate the Merger are subject
to the satisfaction of the following conditions: (i) the stockholders of the
Company will have duly approved the Merger and adopted the Merger Agreement,
if and as required by applicable law; (ii) the Purchaser will have accepted
for payment and purchased all Shares validly tendered and not withdrawn
pursuant to the Offer, and such Shares will satisfy the Minimum Share
Condition (the Minimum Share Condition being satisfied upon there being
validly tendered and not withdrawn prior to the expiration of the Offer that
number of Shares which would represent at least a majority of all outstanding
Shares on a fully diluted basis); (iii) all necessary approvals,
authorizations and consents of any governmental or regulatory entity required
to consummate the Merger will have been obtained and remain in full force and
effect, and all waiting periods relating to such approvals, authorizations and
consents will have expired or been terminated; (iv) the consummation of the
Merger will not be precluded by any preliminary or permanent injunction or
other order, decree or ruling issued by a court of competent jurisdiction or
by a governmental, regulatory or administrative agency or commission or any
statute, rule, regulation or executive order promulgated or enacted by any
governmental authority which would make the consummation of the Merger illegal
or otherwise prevent the consummation of the Merger; and (v) any applicable
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations promulgated thereunder
(collectively, the "HSR Act") will have expired or been terminated.
Termination of the Merger Agreement. The Merger Agreement may be terminated
and the Merger may be abandoned, notwithstanding any prior approval of the
Merger Agreement or of the Merger by the stockholders of the Company, (i) by
the mutual consent of Parent or the Purchaser and the Company; (ii) by Parent
and the Purchaser, on the one hand, or the Company, on the other hand, if the
Offer is terminated, withdrawn or expires pursuant to its terms without any
Shares having been purchased thereunder, provided, however, that the right to
terminate the Merger Agreement pursuant to this clause will not be available
(a) to any party if such party materially breaches the Merger Agreement, or
(b) if an order, decree or ruling or any action (which order, decree, ruling
or other action the Company, Parent and the Purchaser will use their best
efforts to lift) by any Governmental Entity (as such term is defined in the
Merger Agreement) permanently restrains, enjoins or otherwise prohibits the
acceptance for payment of, or payment for, Shares pursuant to the Offer or the
Merger, (iii) by the Company, (a) if (I) Parent or the Purchaser fails to
commence the Offer on or prior to five business days following the date of the
initial public announcement of the Offer, (II) Parent or the Purchaser will
not have purchased Shares pursuant to the Offer by December 31, 1998, or (III)
the Offer will have been terminated without Parent or the Purchaser having
purchased any Shares in the Offer, (b) in connection with the Company entering
into a definitive agreement to effect a Superior Proposal (as such term is
hereinafter defined), provided, however, that written notice will have been
provided by the Company to Parent not later than 12:00 noon two business days
in advance of any date the Company intends to exercise its termination rights
and enter into such agreement (which notice will specify proposed terms of
such agreement and the identity of the persons making such proposal), and
provided further, however, that the Company, prior to any such termination,
will have made payment to Parent of the Termination Fee and Parent Expenses
(as such terms are hereinafter defined), or (c) if
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Parent or the Purchaser breaches in any material respect any of their
respective representations, warranties, covenants or other agreements
contained in the Merger Agreement, which breach cannot be or has not been
cured within 15 days after the giving of written notice to Parent or the
Purchaser, except, in any case, for breaches which are not reasonably likely
to affect adversely Parent's or the Purchaser's ability to consummate the
Offer or the Merger, provided, however, that no cure period will be applicable
under any circumstances to (iii)(a) above; (iv) by Parent and the Purchaser,
if (a) prior to the commencement of the Offer, due to an occurrence that if
occurring after the commencement of the Offer would result in a failure to
satisfy any of the offer conditions set forth in the Merger Agreement, under
circumstances in which such failure could not reasonably be expected to be
cured within 15 days after the giving of written notice by Parent or the
Purchaser, Parent or the Purchaser fails to commence the Offer on or prior to
five business days following the date of the initial public announcement of
the Offer, (b) prior to the purchase of Shares pursuant to the Offer, the
Company breaches any representation, warranty, covenant or other agreement
contained in the Merger Agreement which breach (I) cannot be or has not been
cured within 15 days after the giving of written notice to the Company, and
(II) would give rise to the failure of an offer condition set forth in
paragraph (c) or (e) of Annex A of the Merger Agreement; or (c) prior to the
purchase of Shares pursuant to the Offer, Parent or the Purchaser is entitled
to terminate the Offer as a result of (I) an occurrence that would result in a
failure to satisfy any of the offer conditions set forth in the Merger
Agreement, or (II) in the case of the offer conditions set forth in paragraphs
(c) and (e) of Annex A of the Merger Agreement, the failure of any such
condition under circumstances in which such failure could not reasonably be
expected to be cured within 15 days after the giving of written notice to the
Company.
Other Offers. The Company has agreed in the Merger Agreement that except as
explicitly permitted under the Merger Agreement, the Company will not (and
will cause each of its subsidiaries not to), directly or indirectly, and will
not authorize or permit any of the respective officers, directors, employees
or any investment banker, financial advisor, attorney, accountant or other
representative retained by it to, directly or indirectly, solicit, initiate or
encourage (including by way of furnishing non-public information), or take any
other action to facilitate, any inquiries or the making of any proposal or
offer that constitutes, or may reasonably be expected to lead to, any
Acquisition Proposal (as such term is hereinafter defined), or participate in
any discussions or negotiations regarding an Acquisition Proposal.
Notwithstanding anything contained in the Merger Agreement, the Company will
not be prohibited by the Merger Agreement from (i) furnishing non-public
information to, or entering into discussions or negotiations with, any person
or entity that makes an unsolicited written Acquisition Proposal that would
reasonably likely lead to a Superior Proposal if, and only to the extent that,
(a) the Company Board, after consultation with and based upon the advice of
independent legal counsel, determines in good faith that the failure to take
such action could reasonably be expected to be a breach of the Company Board's
fiduciary duties under applicable law and (b) prior to furnishing such non-
public information to, or entering into discussions or negotiations with, such
person or entity, the Company receives from such person or entity an executed
confidentiality agreement in reasonably customary form on terms not more
favorable to such person or entity than the terms contained in the
Confidentiality Agreement (as hereinafter defined); (ii) complying with Rule
14e-2 promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), with regard to a tender or exchange offer; (iii) making such
disclosure to the Company's stockholders, as in the good faith judgment of the
Company Board, after consultation with and based upon the advice of
independent legal counsel is required by applicable law; or (iv) withdrawing
or modifying its recommendations, consents or approvals with respect to the
Offer, the Merger Agreement and the Merger, approving or recommending an
Acquisition Proposal to its stockholders or causing the Company to enter into
any letter of intent, agreement in principle, acquisition agreement or other
agreement with respect to an Acquisition Proposal (except for the
Confidentiality Agreement) if there is a Superior Proposal outstanding, and
the Company Board, after consultation with and based upon the advice of
independent legal counsel, determines in good faith that the failure to take
such action could reasonably be expected to be a breach of the Company Board's
fiduciary duties under applicable law. The Company has agreed in the Merger
Agreement that it will promptly (but in any event within one day) advise
Parent orally and in writing of any Acquisition Proposal (including amendments
or proposed amendments) or any inquiry regarding
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the making of an Acquisition Proposal including any request for information,
the material terms and conditions of such request, Acquisition Proposal or
inquiry. In addition, the Company has agreed that it will promptly (but in any
event within one day) keep Parent fully informed of the status and details
(including amendments or proposed amendments) of any such request, Acquisition
Proposal or inquiry.
For purposes of the Merger Agreement, the term "Acquisition Proposal" shall
mean any proposed or actual (i) merger, consolidation or similar transaction
involving the Company, (ii) sale, lease or other disposition, directly or
indirectly, by merger, consolidation, share exchange or otherwise, of any
assets of the Company or any of its subsidiaries representing 15% or more of
the consolidated assets of the Company and its subsidiaries, (iii) issue, sale
or other disposition of (including by way of merger, consolidation, share
exchange or any similar transaction) securities (or options, rights or
warrants to purchase, or securities convertible into, such securities)
representing 15% or more of the votes associated with the outstanding
securities of the Company, (iv) transaction in which any person shall acquire
beneficial ownership (as such term is defined in Rule 13d-3 under the Exchange
Act), or the right to acquire beneficial ownership, or any "group" (as such
term is defined under the Exchange Act) shall have been formed which
beneficially owns or has the right to acquire beneficial ownership of, 15% or
more of the outstanding Shares, (v) recapitalization, restructuring,
liquidation, dissolution, or other similar type of transaction with respect to
the Company or any of the Company's subsidiaries, or (vi) transaction which is
similar in form, substance or purpose to any of the transactions contemplated
by the Offer and the Merger Agreement; provided, however, that the term
"Acquisition Proposal" shall not include the Offer, the Merger Agreement and
the transactions contemplated thereby.
For purposes of the Merger Agreement, the term "Superior Proposal" means any
bona fide Acquisition Proposal, which is not subject to the receipt of any
necessary financing and which the Company Board determines in its good faith
judgment, based on the advice from an independent financial advisor, is
superior to the Company's stockholders from a financial point of view to the
Offer and the Merger.
Fees and Expenses. Except as otherwise provided in the Merger Agreement,
whether or not the Offer or the Merger is consummated, all fees, costs and
expenses incurred in connection with the Offer, the Merger Agreement and the
transactions contemplated thereby will be paid by the party incurring such
cost or expense. Notwithstanding the foregoing, upon consummation of the
Merger, Parent may be reimbursed by the Company for all costs and expenses
incurred by Parent and the Purchaser in connection with the Offer, the Merger
Agreement and the transactions contemplated thereby. If the Merger Agreement
is terminated as a result of (i) a willful breach by the Company of any
representation, warranty, covenant or other agreement contained in the Merger
Agreement prior to the purchase of Shares pursuant to the Offer, which breach
(a) cannot be or has not been cured within 15 days after giving written notice
to the Company, or (b) would give rise to the failure of an offer condition
set forth in paragraph (c) or (e) of Annex A to the Merger Agreement; or (ii)
the Company entering into a definitive agreement to effect a Superior
Proposal, provided, however, that written notice will have been provided by
the Company to Parent no later than 12:00 noon two business days in advance of
any date that it intends to exercise its termination rights and enter into
such agreement (which notice shall specify proposed terms of such agreement
and the identity of the persons making such proposal), and provided further,
however, that the Company, prior to any such termination, will make a cash
payment to Parent of $2,000,000 (the "Termination Fee") plus Parent's out-of-
pocket costs and expenses, including without limitation, fees and
disbursements of its outside legal counsel, investment bankers, accountants
and other consultants retained by or on behalf of Parent together with the
other out-of-pocket costs incurred by it in connection with analyzing,
structuring, participating in the negotiations of the terms and conditions,
arranging financing, conducting due diligence, and other activities related to
the Offer and the Merger and the transactions contemplated thereby, including,
without limitation, commitment fees paid to potential lenders (collectively,
the "Parent Expenses") provided, however, that the aggregate amount of all
Parent Expenses to be reimbursed by the Company shall not exceed $1,000,000.
Any Termination Fee or Parent Expenses will be payable by the Company to
Parent (by wire transfer of immediately available funds to an account
designated by Parent) within two business days after demand by Parent.
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Conduct of the Company's Business Until the Effective Time. The Merger
Agreement provides that during the period from the date of the Merger
Agreement until the time at which the Merger is effective (the "Effective
Time"), except as otherwise provided in the Merger Agreement, the Company
will, and will cause each of its subsidiaries to, conduct their respective
businesses in the regular and ordinary course, consistent with past practice,
use their best efforts to preserve intact the present business organization of
the Company and each of its subsidiaries, to keep available the services of
each of their present advisors, managers, officers and employees, and to
preserve the goodwill of those having business relationships with the Company
or its subsidiaries. The Merger Agreement further provides that, from the date
of the Merger Agreement until the Effective Time, except as consented in
writing to by Parent, or as expressly provided in the Merger Agreement, the
Company will not, and will not permit any of its subsidiaries to, (i)(a)
declare, set aside or pay any dividend or other distribution (whether in cash,
stock, or property or any combination thereof) in respect of any of its
capital stock, (b) split, combine or reclassify any of its capital stock, or
(c) repurchase, redeem or otherwise acquire any of its securities, except, in
the case of clause (c), for the acquisition of Shares from holders of Options
(as hereinafter defined) in full or partial payment of the exercise price
payable by such holders upon exercise of Options outstanding on the date of
the Merger Agreement; (ii) authorize for issuance, issue, sell, deliver or
agree or commit to issue, sell or deliver (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to purchase
or otherwise) any stock of any class or any other securities (including
indebtedness having the right to vote) or equity equivalents (including,
without limitation, stock appreciation rights) (other than the issuance of
Shares upon the exercise of Options outstanding on the date of the Merger
Agreement in accordance with their present terms); (iii) acquire, sell, lease,
encumber, transfer or dispose of any assets outside the ordinary course of
business which are material to the Company or any of its subsidiaries (whether
by asset acquisition, stock acquisition or otherwise), except pursuant to
obligations in effect on the date of the Merger Agreement which have been
disclosed in writing to Parent and the Purchaser prior to the date of the
Merger Agreement; (iv)(a) incur any amount of indebtedness for borrowed money,
guarantee any indebtedness, issue or sell debt securities or warrants or
rights to acquire any debt securities, guarantee (or become liable for) any
debt of others, make any loans, advances or capital contributions, mortgage,
pledge or otherwise encumber any material assets, create or suffer any
material lien thereupon other than in the ordinary course of business
consistent with prior practice, or (b) incur any short-term indebtedness for
borrowed money, except, in each such case, pursuant to credit facilities in
existence on the date of the Merger Agreement which have been disclosed in
writing to Parent and the Purchaser prior to the date of the Merger Agreement
and set forth in the Company disclosure schedules to the Merger Agreement, and
as necessary to carry on the Company's business in the usual, regular and
ordinary course, consistent with past practice; (v) pay, discharge or satisfy
any claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than any payment, discharge or
satisfaction (a) in the ordinary course of business consistent with past
practice, or (b) in connection with the Offer, the Merger Agreement and the
transactions contemplated thereby; (vi) change any of the accounting
principles or practices used by it (except as required by generally accepted
accounting principles, in which case written notice shall be provided to
Parent and Purchaser prior to any such change); (vii) except as required by
law, (a) enter into, adopt, amend or terminate any Company Benefit Plan (as
such term is defined in the Merger Agreement), (b) enter into, adopt, amend or
terminate any agreement, arrangement, plan or policy between the Company or
any of its subsidiaries and one or more of their directors or officers, or (c)
except for normal increases in the ordinary course of business consistent with
past practice, increase in any manner the compensation or fringe benefits of
any director, officer or employee or pay any benefit not required by any
Company Benefit Plan or arrangement as in effect as of the date hereof; (viii)
adopt any amendments to the Restated Certificate of Incorporation of the
Company and the Amended and Restated Bylaws of the Company, except as
expressly provided by the terms of this Agreement; (ix) enter into a new
agreement or amend any existing agreement which could reasonably be expected
to have a Company Material Adverse Effect (as such term is hereinafter
defined); (x) adopt a plan of complete or partial liquidation or resolutions
providing for or authorizing such a liquidation or a dissolution, merger,
consolidation, restructuring, recapitalization or reorganization; (xi) enter
into or amend, extend or otherwise alter any collective bargaining agreement;
(xii) settle or compromise any litigation (whether or not commenced prior to
the date of the Merger Agreement) other than settlements or compromises or
litigation where the amount paid (after giving effect to insurance proceeds
actually received) in settlement or compromise does not exceed $10,000; (xiii)
grant any new or modified severance or termination arrangement or increase or
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accelerate any benefits payable under its severance or termination pay
policies in effect on the date hereof, except as required under the present
terms of any employment agreement or severance agreement in effect on the date
of the Merger Agreement; (xiv) enter into any transaction, contract or
arrangement with any affiliate, except as required under the present terms of
any contract or arrangement with any such affiliate in effect on the date of
the Merger Agreement; (xv) enter into any other material agreement outside the
ordinary course of business; (xvi) enter into an agreement to take any of the
actions stated in clauses (i) through (xv) above; or (xvii) authorize any of,
or commit or agree to take any of, or take any corporate action in furtherance
of, any of the actions stated in clauses (i) through (xv) above.
Board Representation. The Merger Agreement provides that, promptly upon the
purchase of Shares pursuant to the Offer, Parent will be entitled to designate
such number of directors, rounded up to the next whole number, on the
Company's Board as is equal to the product of (i) the total number of
directors on the Company Board (after giving effect to the directors
designated by Parent pursuant to this sentence) and (ii) the percentage that
the total votes represented by such number of Shares in the election of
directors of the Company so purchased bears to the total votes represented by
the number of Shares outstanding. In furtherance thereof, the Company will,
upon request by Parent, promptly increase the size of the Company Board and/or
exercise its best efforts to secure the resignations of such number of its
directors as is necessary to enable Parent's designees to be elected to the
Company Board and will take all actions to cause Parent's designees to be so
elected to the Company Board. At such time, the Company will also cause
persons designated by Parent to constitute at least the same percentage
(rounded up to the next whole number) as is on the Company Board of (a) each
committee of the Company Board, (b) each board of directors (or similar body)
of each of the Company's subsidiaries, and (c) each committee (or similar
body) of each such board. The Company will take, at its expense, all action
required pursuant to Section 14(f) and Rule 14f-1 of the Exchange Act in order
to fulfill its obligations and will include in the Schedule 14D-9 to its
stockholders such information with respect to the Company and its officers and
directors as is required by such Section 14(f) and Rule 14f-1. Parent will
supply to the Company in writing and be solely responsible for any information
with respect to itself and its nominees, officers, directors and affiliates
required by such Section 14(f) and Rule 14f-1. The foregoing provisions are in
addition to and do not limit any rights which the Purchaser, Parent or any of
their affiliates may have as a holder or beneficial owner of Shares as a
matter of law with respect to the election of directors or otherwise. In the
event that Parent's designees are elected to the Company Board, until the
Effective Time, the Company Board will have at least three directors who are
directors on the date hereof (the "Independent Directors"), provided that, in
such event, if the number of Independent Directors will be reduced below three
for any reason whatsoever, any remaining Independent Directors (or Independent
Director, if there be only one remaining) will be entitled to designate
persons to fill such vacancies who will be deemed to be Independent Directors
for purposes of this Agreement or, if no Independent Director then remains,
the other directors will designate three persons to fill such vacancies who
will not be stockholders, affiliates or associates of Parent or Purchaser and
such persons will be deemed to be Independent Directors for purposes of the
Merger Agreement. Notwithstanding anything in the Merger Agreement to the
contrary, in the event that Parent's designees are elected to the Company
Board, after the acceptance for payment of Shares pursuant to the Offer and
prior to the Effective Time, the affirmative vote of a majority of the
Independent Directors will be required to (i) amend or terminate the Merger
Agreement by the Company, (ii) exercise or waive any of the Company's rights,
benefits or remedies hereunder, or (iii) extend the time for performance of
Parent's and the Purchaser's respective obligations hereunder.
Options. The Merger Agreement provides that each option (collectively, the
"Options") granted under the Company's 1989 Stock Option Plan (the "1989
Plan"), 1995 Stock Option Plan (the "1995 Plan") and Long-Term Incentive Stock
Option Plan (the "Long-Term Plan" and, together with the 1989 Plan and the
1995 Plan, the "Stock Option Plans") which is outstanding (whether or not
currently exercisable), as of immediately prior to the Effective Time and
which has not been exercised or canceled prior thereto will at the Effective
Time, be canceled and upon the surrender and cancellation of the option
agreement presenting such Option and delivery of an Option Termination (as
such term is defined in the Merger Agreement), Parent shall pay to the holder
thereof cash in an amount equal to the product of (i) the number of Shares
provided for in such Option and (ii) the excess, if any, of the Merger
Consideration over the exercise price per Share provided for in such Option,
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which cash payment will be treated as compensation and will be net of any
applicable federal or state withholding tax (the "Option Consideration"). The
Company will take all actions necessary to ensure that (i) all Options, to the
extent not exercised prior to the Effective Time, will terminate and be
canceled as of the Effective Time and thereafter be of no further force or
effect, (ii) no Options are granted after the date of the Merger Agreement,
and (iii) at the Effective Time, the Stock Option Plans and all Options issued
thereunder will terminate.
The Merger Agreement further provides that except as may be otherwise agreed
to by Parent or the Purchaser and the Company, the Stock Option Plans and the
Company's 1995 Employee Stock Purchase Plan (the "Purchase Plan") will
terminate as of the Effective Time, the provisions in any other plan, program
or arrangement providing for the issuance or grant of any other interest in
respect of the capital stock of the Company or any of its subsidiaries will be
deleted as of the Effective Time, and no holder of Options or any participant
in any Stock Option Plan or the Purchase Plan or any other plans, programs or
arrangements will have any right thereunder to acquire any equity securities
of the Company, the Surviving Corporation or any subsidiary thereof. In
connection with the foregoing, Parent, the Purchaser and the Company agreed
that participants in the Purchase Plan will not be entitled to purchase any
shares under the Purchase Plan for the period beginning October 1, 1998 and
ending on the Effective Time, and after the Effective Time, any amounts which
have been withheld from participants under the Purchase Plan will be returned
without interest to such participants.
Employee Benefits. The Merger Agreement provides that except as may
otherwise be agreed to by the parties to the Merger Agreement, after the
closing of the Merger, Parent will cause the Purchaser or the Company to honor
all obligations under the existing terms of the employment and severance
agreements to which the Company or any of its subsidiaries is currently a
party. For a period of up to twelve months following the Effective Time as
determined by Parent in its sole discretion (the "Transition Period"),
employees of the Company will continue to participate in the employee benefit
plans of the Company on substantially similar terms to those currently in
effect. Following the Transition Period, the Company's employees will be
permitted to participate in the employee benefit plans of Parent as in effect
on the date thereof on terms substantially similar to those provided to
employees of Parent. The Merger Agreement further provides that if any
employee of the Company or of any of the Company's subsidiaries becomes a
participant in any employee benefit plan, practice or policy of Parent, any of
its affiliates or the Surviving Corporation, such employee will be given
credit under such plan for all service prior to the Effective Time with the
Company and the Company's subsidiaries and prior to the time such employee
becomes such a participant, for purposes of eligibility (including, without
limitation, waiting periods) and vesting but not for any other purposes for
which such service is either taken into account or recognized (including,
without limitation, benefit accrual); provided, however, that such employee
will be given credit for such service for purposes of any vacation policy. In
addition, if any employees of the Company or any of the Company's subsidiaries
employed as of the closing date of the Merger become covered by a medical plan
of Parent, any of its affiliates or the Surviving Corporation, such medical
plan will not impose any exclusion on coverage for preexisting medical
conditions with respect to these employees.
Indemnification. The Merger Agreement provides that all rights to
indemnification existing in favor of, and all limitations on the personal
liability of the directors, officers, employees and agents of the Company and
its subsidiaries provided for in the Restated Certificate of Incorporation of
the Company and the Amended and Restated Bylaws of the Company as in effect as
of the date of the Merger Agreement with respect to matters occurring prior to
the Effective Time, and including the Offer and the Merger will continue in
full force and effect for a period of not less than six years from the
Effective Time; provided however, that all rights to indemnification in
respect of any claims (a "Claim") asserted or made within such period will
continue until the disposition of such Claim. The Merger Agreement further
provides that at or prior to the Effective Time, Parent will purchase
directors' and officers' liability insurance coverage for the Company's
directors and officers which will provide such directors and officers with
coverage for six years following the Effective Time of not less than the
existing coverage under, and have other terms not materially less favorable to
the insured persons than the directors' and officers' liability insurance
coverage presently maintained by the Company; provided, however, that in any
event the total aggregate cost of such policy shall not exceed $250,000 (the
"Maximum Amount");
7
and provided, further, that if such coverage cannot be obtained for such cost,
the Company will maintain, for such six-year period, the maximum amount of
comparable coverage as will be available for the Maximum Amount on such terms.
Representations and Warranties. In the Merger Agreement, the Company made
customary representations and warranties to Parent and the Purchaser with
respect to, among other things, its organization and qualification, its
capitalization, its authority relative to the Merger Agreement, filings made
by the Company with the
Commission, the absence of certain changes or events, litigation, payment of
taxes, maintenance of its books and records, title to properties, intellectual
property, environmental matters, labor matters, employee benefit plans,
related party matters, Year 2000 compliance, suppliers and customers and
insurance.
Also in the Merger Agreement, Parent made representations and warranties to
the Company with respect to, among other things, its organization and
qualification, its authority relative to the Merger Agreement, necessary
consents and approvals and the availability of funds to consummate the Offer
and the Merger.
The Tender Agreements. Concurrently with the execution of the Merger
Agreement, Parent, the Purchaser and the executive officers and directors of
the Company who beneficially own Shares (collectively referred to as the
"Stockholder Parties" and each a "Stockholder Party") entered into Tender
Agreements (the "Tender Agreements"). The following is a summary of certain
provisions of the Tender Agreements.
Pursuant to the Tender Agreements, the Stockholder Parties agreed to, not
later than the fifth business day after commencement of the Offer, validly
tender (or cause the record owner of such shares to validly tender) pursuant
to the Offer and not withdraw an aggregate of 1,200,976 Shares owned by the
Stockholder Parties (together with any Shares acquired by the Stockholder
Parties after the date of the Tender Agreements and prior to the termination
thereof, whether upon the exercise of Options, or by means of purchase,
dividend, distribution or otherwise), representing approximately 18.3% of the
total Shares outstanding.
Each Stockholder Party agreed pursuant to the Tender Agreements that it
would, during the term of the Tender Agreements, vote the Shares owned by it
at any meeting of the stockholders of the Company, however called, or in
connection with any written consent (i) in favor of the Merger and any actions
in furtherance thereof, and (ii) against any Acquisition Proposal and against
any action or agreement that would impede, frustrate, prevent or nullify the
Tender Agreements, or result in a breach in any respect of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Merger Agreement or which would result in any of the offer
conditions set forth in Annex A to the Merger Agreement or set forth in
Article VIII of the Merger Agreement not being fulfilled. Each Stockholder
Party covenanted and agreed that, except as contemplated by the Tender
Agreements and the Merger Agreement, it shall not (i) transfer (which term
includes, without limitation, any sale, gift, pledge or other disposition), or
consent to any transfer of, any or all of such Stockholder Party's Shares,
Options or any interest therein, (ii) enter into any contract, option or other
agreement or understanding with respect to any transfer of any or all of such
Shares, Options or any interest therein, (iii) grant any proxy, power-of-
attorney or other authorization in or with respect to such Shares or Options,
(iv) deposit such Shares or Options into a voting trust or enter into a voting
agreement or arrangement with respect to such Shares or Options, or (v) take
any other action that would in any way restrict, limit or interfere with the
performance of its obligations under the Tender Agreements or the transactions
contemplated by the Tender Agreements or the Merger Agreement.
The Tender Agreements further provide that in order to induce Parent and the
Purchaser to enter into the Merger Agreement, each Stockholder Party shall
grant to Parent an irrevocable option (a "Stock Option") to purchase such
Stockholder Party's Shares (the "Option Shares") at an amount (the "Purchase
Price") equal to $5.00 per share. If (i) the Offer is terminated, abandoned or
withdrawn by Parent or the Purchaser (due to the failure of the offer
conditions set forth in paragraph (g) or (h) of Annex A to the Merger
Agreement), or (ii) the Merger Agreement is terminated by the Company pursuant
to Section 9.1(c)(ii) of the Merger Agreement, each Stock Option shall, in any
such case, become exercisable, in whole or in part, upon the first to occur of
any such event and remain exercisable in whole or in part until the date which
is 60 days after the date of the
8
occurrence of such event (the "60 Day Period"), so long as: (i) all waiting
periods under the HSR Act required for the purchase of the Option Shares upon
such exercise will have expired or been waived, and (ii) there will not be in
effect any preliminary or final injunction or other order issued by any
Governmental Entity prohibiting the exercise of the Stock Options pursuant to
the Merger Agreement; provided, however, that if all HSR Act waiting periods
have not expired or been waived or there is in effect any such injunction or
order, in each case on the expiration of the 60 Day Period, the 60 Day Period
will be extended until five (5) business days after the later of (a) the date
of expiration or waiver of all HSR Act waiting periods or (b) the date of
removal or lifting of such injunction or order. In the event that Parent
wishes to exercise a Stock Option, Parent will send a written notice (the
"Notice") to the Stockholder Parties identifying the place and date (not less
than two nor more than five (5) business days from the date of the Notice) for
the closing of such purchase.
Each Stockholder Party agreed, in the capacity as a Stockholder Party or
otherwise, that neither such Stockholder Party nor any of its subsidiaries or
affiliates shall (and such Stockholder Party shall use its best efforts to
cause its officers, directors, employees, representatives and agents,
including, but not limited to, investment bankers, attorneys and accountants,
not to), directly or indirectly, encourage, solicit, participate in or
initiate discussions or negotiations with, or provide any information to, any
corporation, partnership, person or other entity or group (other than Parent,
any of its affiliates or representatives) concerning any Acquisition Proposal
or take any other action prohibited by Section 7.4 of the Merger Agreement.
Each Stockholder Party will immediately cease any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any Acquisition Proposal and will immediately communicate to Parent the
terms of any proposal, discussion, negotiation or inquiry (and will disclose
any written materials received by such Stockholder Party in connection with
such proposal, discussion, negotiation or inquiry) and the identity of the
party making such proposal or inquiry which it may receive in respect of any
such transaction.
Under the Tender Agreements, each Stockholder Party irrevocably granted to
and appointed Parent, Corey Torrence and Douglas Webb, or either of them, in
their respective capacities as officers of Parent, and any individual who
shall succeed to any such office of Parent, and each of them individually,
such Management Stockholder's proxy and attorney-in-fact (with full power of
substitution), for and in the name, place and stead of such Management
Stockholder, to vote such Stockholder Party's Shares, or grant a consent or
approval in respect of the Shares in favor of any or all of the transactions
contemplated by the Merger Agreement and Tender Agreements and against any
Acquisition Proposal. Each Stockholder Party waived any rights of appraisal or
rights to dissent from the Merger.
The Tender Agreements contain certain representations and warranties of the
parties. Each Stockholder Party severally represented that it is the record
and Beneficial Owner (as such term is defined in the Tender Agreements) of the
Shares and has sole voting and dispositive powers with respect to the
Stockholder Party Shares. In addition, Parent, the Purchaser and the
Stockholder Parties made representations regarding their organization and
qualification, authority relative to the Tender Agreements and absence of
conflicts.
Employment Agreement with Dennis Yablonsky. In connection with the Offer and
the Merger, Parent and Dennis Yablonsky have entered into an at will
employment agreement (the "Yablonsky Employment Agreement") which is
conditioned and becomes effective only upon the consummation of the Merger.
Under the Yablonsky Employment Agreement, Mr. Yablonsky agreed to serve as the
Executive Vice President of the Carnegie Group division of Parent. The
Yablonsky Employment Agreement provides that Mr. Yablonsky will receive,
subject to certain conditions, an initial annual salary of $240,000, and Mr.
Yablonsky will be eligible for performance bonuses to be determined annually
by Parent. In addition to the performance bonuses to be determined annually by
Parent, Mr. Yablonsky will be entitled, for the fiscal year ending December
31, 1998, to receive a bonus to which he would otherwise have been entitled
under the Company's current bonus plan. Pursuant to the Merger Agreement, Mr.
Yablonsky will receive cash in exchange for his Options which have an exercise
price less than the Offer Price (i.e., $5.00 per Share). With respect to each
Option held by Mr. Yablonsky having an exercise price greater than or equal to
the Offer Price, Mr. Yablonsky will receive an option (a "Logica Option") to
acquire ordinary shares of Logica plc ("Ordinary Shares") in an amount equal
9
to (i) the product of the number of Shares represented by the Option and the
exercise price of such Option, divided by (ii) the exchange rate in U.S.
Dollars per British pounds, (iii) such result divided by the market price of
an Ordinary Share as of the Effective Time (such calculation, the "Option
Formula"). Under the Yablonsky Employment Agreement, in the event
Mr. Yablonsky terminates his employment with Parent with an effective date
that is before or after the Anniversary Date (as such term is defined in the
Yablonsky Employment Agreement), Mr. Yablonsky will not be entitled to receive
any compensation or other payments from Parent. However, in the event Mr.
Yablonsky terminates his employment with Parent with an effective date on the
date which is the Anniversary Date (as such term is defined in the Yablonsky
Employment Agreement), Parent will continue to pay Mr. Yablonsky's salary at
the rate in effect as of the closing date of the Merger (the "Closing Date")
and benefits for a period of twelve (12) months from the termination date. The
Yablonsky Employment Agreement further provides that in the event Parent
terminates Mr. Yablonsky's employment with an effective date that is (i) on or
before the Anniversary Date, Parent will continue to pay Mr. Yablonsky's
salary at the rate in effect as of the Closing Date until the second
anniversary of the Closing Date and benefits for a period of twelve (12)
months after the termination date, (ii) after the Anniversary Date and before
the date which is eighteen (18) months after the Closing Date, Parent will
continue to pay Mr. Yablonsky's salary at the rate in effect as of the Closing
Date and benefits until the second anniversary of Closing Date, or (iii) after
the date which is eighteen (18) months after the Closing Date, Parent will
continue to pay Mr. Yablonsky's salary at the rate in effect as of the Closing
Date and benefits for a period of six (6) months after the termination date.
Employment Agreement with John Manzetti. In connection with the Offer and
the Merger, Parent and John Manzetti have entered into an at will employment
agreement (the "Manzetti Employment Agreement") which is conditioned and
becomes effective only upon the consummation of the Merger. Under the Manzetti
Employment Agreement, Mr. Manzetti agreed to serve as the Senior Vice
President--Finance and Government Operations of the Carnegie Group division of
Parent. The Manzetti Employment Agreement provides that Mr. Manzetti will
receive, subject to certain conditions, an initial annual salary of $200,004,
and Mr. Manzetti will be eligible for performance bonuses to be determined
annually by Parent. In addition to the performance bonuses to be determined
annually by Parent, Mr. Manzetti will be entitled, for the fiscal year ending
December 31, 1998, to receive a bonus to which he would otherwise have been
entitled under the Company's current bonus plan. Pursuant to the Merger
Agreement, Mr. Manzetti will receive cash in exchange for his Options which
have an exercise price less than the Offer Price. With respect to each Option
held by Mr. Manzetti having an exercise price greater than or equal to the
Offer Price, Mr. Manzetti will be entitled to receive Logica Options
determined pursuant to the Option Formula. Under the Manzetti Employment
Agreement, in the event Mr. Manzetti terminates his employment with Parent
with an effective date that is before or after the Nine-Month Anniversary Date
(as such term is defined in the Manzetti Employment Agreement), Mr. Manzetti
will not be entitled to receive any compensation or other payments from
Parent. However, in the event Mr. Manzetti terminates his employment with
Parent with an effective date on the date which is the Nine-Month Anniversary
Date, Parent will continue to pay Mr. Manzetti's salary at the rate in effect
as of the Closing Date and benefits for a period of nine (9) months from the
termination date. The Manzetti Employment Agreement further provides that in
the event Parent terminates Mr. Manzetti's employment with an effective date
that is (i) on or before the Nine-Month Anniversary Date, Parent will continue
to pay Mr. Manzetti's salary at the rate in effect as of the Closing Date
until the date that is eighteen (18) months after the Closing Date and
benefits for a period of nine (9) months after the termination date, or (ii)
after the Nine-Month Anniversary Date, Parent will continue to pay Mr.
Manzetti's salary at the rate in effect as of the Closing Date and benefits
for a period of six (6) months after the termination date.
Employment Agreement with Bruce Russell. In connection with the Offer and
the Merger, Parent and Bruce Russell have entered into an at will employment
agreement (the "Russell Employment Agreement") which is conditioned and
becomes effective only upon the consummation of the Merger. Under the Russell
Employment Agreement, Dr. Russell agreed to serve as the Senior Vice
President--Engineering of the Carnegie Group division of Parent. The Russell
Employment Agreement provides that Dr. Russell will receive, subject to
conditions, an initial annual salary of $200,004, and Dr. Russell will be
eligible for performance bonuses to be determined annually by Parent. In
addition to the performance bonuses to be determined annually by Parent,
10
Dr. Russell will be entitled, for the fiscal year ending December 31, 1998, to
receive a bonus to which he would otherwise have been entitled under the
Company's current bonus plan. Pursuant to the Merger Agreement, Dr. Russell
will receive cash in exchange for his Options which have an exercise price
less than the Offer Price. With respect to each Option held by Dr. Russell
having an exercise price greater than or equal to the Offer Price, Dr. Russell
will be entitled to receive Logica Options determined pursuant to the Option
Formula. Under the Russell Employment Agreement, in the event Dr. Russell
terminates his employment with Parent with an effective date that is before or
after the Nine-Month Anniversary Date (as such term is defined in the Russell
Employment Agreement), Dr. Russell will not be entitled to receive any
compensation or other payments from Parent. However, in the event Dr. Russell
terminates his employment with Parent with an effective date on the date which
is the Nine-Month Anniversary Date, Parent will continue to pay Dr. Russell's
salary at the rate in effect as of the Closing Date and benefits for a period
of nine (9) months from the termination date. The Russell Employment Agreement
further provides that in the event Parent terminates Dr. Russell's employment
with an effective date that is (i) on or before the Nine-Month Anniversary
Date, Parent will continue to pay Dr. Russell's salary at the rate in effect
as of the Closing Date until the date that is eighteen (18) months after the
Closing Date and benefits for a period of nine (9) months after the
termination date, or (ii) after the Nine-Month Anniversary Date, Parent will
continue to pay Dr. Russell's salary at the rate in effect as of the Closing
Date and benefits for a period of six (6) months after the termination date.
Employment Agreement with Raymond Kalustyan. In connection with the Offer
and the Merger, Parent and Raymond Kalustyan have entered into an at will
employment agreement (the "Kalustyan Employment Agreement") which is
conditioned and becomes effective only upon the consummation of the Merger.
Under the Kalustyan Employment Agreement, Mr. Kalustyan agreed to serve as the
Vice President of the Carnegie Group division of Parent. The Kalustyan
Employment Agreement provides that Mr. Kalustyan will receive, subject to
certain conditions, an initial annual salary of $150,000, and Mr. Kalustyan
will be eligible for performance bonuses to be determined annually by Parent.
In addition to the performance bonuses to be determined annually by Parent,
Mr. Kalustyan will be entitled to receive, (i) for the fiscal year ending
December 31, 1998, a bonus to which he would otherwise have been entitled
under the Company's current bonus plan, and (ii) at the Effective Time, a one-
time bonus of $50,000 payable in one lump sum. Pursuant to the Merger
Agreement, Mr. Kalustyan will receive cash in exchange for his Options which
have an exercise price less than the Offer Price. Under the Kalustyan
Employment Agreement, in the event Mr. Kalustyan terminates his employment
with Parent with an effective date that is before or after the Seventh-Month
Anniversary Date (as such term is defined in the Kalustyan Employment
Agreement), Mr. Kalustyan will not be entitled to receive any compensation or
other payments from Parent. However, in the event Mr. Kalustyan terminates his
employment with Parent with an effective date on the date which is the
Seventh-Month Anniversary Date, Parent will continue to pay Mr. Kalustyan's
salary at the rate in effect as of the Closing Date and benefits for a period
of six (6) months from the termination date. The Kalustyan Employment
Agreement further provides that in the event Parent terminates Mr. Kalustyan's
employment with an effective date that is (i) on or before the Seventh-Month
Anniversary Date, Parent will continue to pay Mr. Kalustyan's salary at the
rate in effect as of the Closing Date until the date that is thirteen (13)
months after the Closing Date and benefits for a period of six (6) months
after the termination date, or (ii) after the Seventh-Month Anniversary Date,
Parent will continue to pay Mr. Kalustyan's salary at the rate in effect as of
the Closing Date and benefits for a period of six (6) months after the
termination date.
Each of the Merger Agreement, the Tender Agreements, the Yablonsky
Employment Agreement, the Manzetti Employment Agreement, the Russell
Employment Agreement and the Kalustyan Employment Agreement (such employment
agreements, the "Employment Agreements") contains other terms and conditions.
The foregoing description of certain terms and provisions of such agreements
is qualified in its entirety by reference to the text of such agreements,
which are filed as exhibits to this Schedule 14D-9, which may be examined at,
and copies thereof may be obtained from, the offices of the Securities and
Exchange Commission (the "Commission") at 450 Fifth Street, N.W., Washington,
D.C. 20549, and are available via the Commission's Electronic Data Gathering,
Analysis and Retrieval ("EDGAR") system, which may be accessed at
http:www.sec.gov.
11
Miscellaneous. No appraisal rights are available in connection with the
Offer. However, if the Merger is consummated, stockholders of the Company may
have certain rights under Delaware law to demand appraisal of, and seek the
payment in cash of the fair value of, their Shares. Such rights, if the
statutory procedures are complied with, could lead to a judicial determination
of the fair value (which, under Delaware law, excludes any element of value
arising from the accomplishment or expectation of the Merger) required to be
paid in cash to such dissenting holders for their Shares. Any such judicial
determination of the fair value of Shares could be based upon considerations
other than or in addition to the price paid in the Offer and the market value
of the Shares. The value so determined could be more or less than the purchase
price per Share pursuant to the Offer or the consideration per Share to be
paid in the Merger. The foregoing summary of the rights of dissenting
stockholders does not purport to be a complete statement of the procedures to
be followed by stockholders desiring to exercise their dissenters' rights. The
preservation and exercise of appraisal rights are conditioned on strict
adherence to the applicable provisions of Delaware law. A more complete
description of appraisal rights under Delaware law will be sent to
stockholders if a proxy solicitation is required to effect the Merger.
The Merger will have to comply with any federal law applicable at the time.
In the event that the Merger is consummated more than one year after
termination of the Offer and the Purchaser has become an affiliate of the
Company as a result of the Offer, or the Merger provides for the payment of
consideration less than that paid pursuant to the Offer, and in certain other
circumstances, the Purchaser may be required to comply with Rule 13e-3 under
the Exchange Act. If applicable, Rule 13e-3 would require, among other things,
that certain financial information concerning the Company and certain
information relating to the fairness of such transaction and the consideration
offered to minority stockholders be filed with the Commission and distributed
to minority stockholders prior to the consummation of such transaction. The
Purchaser does not believe that Rule 13e-3 will be applicable to the Merger.
Upon the completion of the Offer, Logica intends to conduct a detailed
review of the Company and its assets, corporate structure, dividend policy,
capitalization, operations, properties, policies, management, and personnel
and consider, subject to the terms of the Merger Agreement, what, if any,
changes would be desirable in light of the circumstances which then exist and
reserves the right to effect such actions or changes could include changes in
the Company's business, corporate structure, Certificate of Incorporation,
By-Laws, capitalization, Company Board, management or dividend policy,
although Logica has no current plans with respect to any of such matters,
except as disclosed in the Offer to Purchase. Upon consummation of the Offer,
Logica intends to elect its representatives to the Company Board as provided
for in the Merger Agreement.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation of the Board of Directors. The Company Board has
determined that the Offer and the Merger are fair to and in the best interests
of the Company and its stockholders, has unanimously approved the Merger
Agreement and the transactions contemplated thereby and unanimously recommends
that all holders of Shares tender their Shares pursuant to the Offer.
(b) Background; Reasons for the Recommendation. On May 26, 1998, Thomas
Miranda, the Vice President--Customer Contact Solutions of the Communications
Division of Parent, Mike Maloney, the Executive Vice President of the
Communications Division of Parent, and Dennis Yablonsky, the President and
Chief Executive Officer of the Company, met to discuss a possible working
partnership between Logica and the Company that would enhance the ability of
both companies to better serve their clients. In the course of such
discussions, Logica became more informed about the Company and its management,
facilities and technical abilities and became interested in a more formal
partnership arrangement with the Company. As a result of the May 26 meeting,
Logica believed that exploring a potential business combination with the
Company would be attractive to both Logica and the Company.
On July 1, 1998, Mario Anid, the Corporate Development Director and a member
of the Executive Committee of Logica plc, Corey Torrence, the President and
Chief Executive Officer of Parent, and Mr. Maloney met with Mr. Yablonsky,
John Manzetti, the Executive Vice President and Chief Financial Officer of the
12
Company, and a representative of the Company's financial advisors, to discuss
the potential benefits of a business combination between Logica and the
Company. During July and August of 1998, similar discussions continued between
representatives of Logica and the Company for the purpose of further exploring
a possible strategic transaction. These discussions focused primarily on
topics relating to business integration, ongoing business strategy and
financial matters.
At a meeting held on August 19, 1998, Messrs. Anid, Torrence, Yablonsky and
Manzetti discussed possible structures for a transaction. At that meeting,
Logica indicated that it was willing to proceed by means of a cash tender
offer for all of the outstanding Shares. Logica also indicated that its
preliminary evaluation of an offer price was in the range of $5.50 to $5.75
per Share.
On August 25, 1998, Mr. Manzetti telephoned Mr. Anid and indicated that a
third party had expressed an interest in a potential stock transaction with
the Company at a value of $6.00 per Share. Mr. Manzetti informed Mr. Anid of
his view that the Company Board would look more favorably on a cash offer of
$6.00 per Share than on any potential stock transaction at that price. The
Company Board met later on August 25 to discuss the status of the discussions
between Logica and the Company. At that meeting, representatives of Updata
Capital, Inc. ("Updata") and Parker/Hunter Incorporated ("Parker/Hunter")
commented upon the negotiations with Logica and also discussed the indication
of interest in a potential stock transaction from such third party. The
Company Board, with the advice of Updata and Parker/Hunter, determined that
such other indication of interest would be less advantageous from a financial
point of view to the Company's stockholders than a cash offer from Parent.
After discussion and advice from the Company's financial and legal advisors,
the Company Board authorized Company management to pursue discussions with
Parent if Parent indicated it would be willing, subject to its diligence
investigation, to consider a price of $6.00 per Share. Mr. Manzetti telephoned
Mr. Anid on August 25, 1998 to convey the sense of the Company Board, and Mr.
Anid responded shortly thereafter that Parent would consider a price of $6.00
per Share.
On August 27, 1998, Parent and the Company entered into a confidentiality
agreement (the "Confidentiality Agreement"), which provides generally that
each of the parties and their respective representatives will keep
confidential any non-public information furnished to them in connection with
the mutual consideration of a potential transaction involving the acquisition
of the Company by Parent. In addition, the Confidentiality Agreement
prohibited, with certain exceptions, the Company or any of its representatives
from participating in negotiations with any party other than Parent with
respect to a merger, consolidation, business combination, sale of all or
substantially all assets, tender offer or other similar transaction involving
the Company, until September 22, 1998 (the "Exclusivity Period"). The
Confidentiality Agreement also provided that, with certain exceptions, until
the date that is the earlier of six months from the date of the
Confidentiality Agreement or the date on which the Company and Parent entered
into a definitive agreement concerning a transaction between the companies,
neither Parent nor any of its representatives would, among other things,
acquire any securities of the Company or seek to effect a tender offer, merger
or other business combination transaction involving the Company.
Thereafter, business representatives from Parent began to review the
Company's contracts and held discussions with the Company's management about
its present business and future prospects. Subsequently, the Parent's legal
advisors conducted a similar review.
On September 15, 1998, Mr. Anid met with Messrs. Yablonsky and Manzetti and
informed them that, based on its review of the Company's business operations
and prospects, Parent would be prepared to go forward at a price of $5.00 per
Share, but would not be willing to pay a price of $6.00 per Share. During this
period, Logica also negotiated with Messrs. Yablonsky, Manzetti and Kalustyan,
and Dr. Russell concerning their willingness to forego certain severance
benefits to which they otherwise would be contractually entitled following the
execution of the Merger Agreement. In exchange for foregoing such amounts,
Logica proposed that these individuals would enter into at will employment
agreements pursuant to which these individuals would (i) initially maintain
their existing salaries, (ii) be entitled to bonus payments if certain
performance criteria were achieved, (iii) receive Logica Options and (iv)
receive certain severance benefits (which were less than those to
13
which they were entitled under their existing severance agreements) if their
employment was terminated during certain periods. The Company Board met on
September 17, 1998 with its financial and legal advisors to consider the
revised price. After discussion of both the price and the terms of the
proposed transaction, the Company Board authorized Company management to
continue discussions with Parent at the lower price, provided that the terms
of the transaction were acceptable.
On September 17, following the Company Board meeting, Mr. Yablonsky
telephoned Mr. Anid and indicated that, following numerous discussions with
the Company's legal and financial advisors, the Company was willing to agree
to a price of $5.00 per Share if the parties could agree on the other
unresolved terms of the Merger Agreement and related documentation.
On September 22, 1998, Parent and the Company executed an amendment to the
Confidentiality Agreement, the purpose of which was to extend the Exclusivity
Period until September 30, 1998.
The Company Board held additional meetings with the Company's financial and
legal advisors on September 28 and September 29 to discuss the price and the
terms of the transaction. At the meeting on September 29, representatives of
Updata and Parker/Hunter gave separate presentations analyzing the proposed
transaction, and each delivered its oral opinion (which oral opinions were
subsequently confirmed in writing) that the consideration to be received by
the stockholders of the Company was fair to such stockholders from a financial
point of view. At the same meeting, the Company's legal counsel described the
terms of the proposed transaction and the legal ramifications to the Company.
The Company Board, after considering such legal aspects and after discussing
and considering the opinions of the financial advisors, determined that the
Offer and the Merger are fair to and in the best interests of the Company and
its stockholders, approved the Merger Agreement and recommended that all
stockholders tender their Shares pursuant to the Offer.
On the evening of September 30, immediately prior to executing the Merger
Agreement, the Chairman of the Company Board received an electronic mail
message from an individual who indicated an interest in discussing a possible
acquisition proposal at a price of $6.00 per Share. Such individual had, on
September 23, telephoned another Company Board member with a similar
suggestion and alluded to the possibility of obtaining financing for his
proposal. The terms mentioned in the telephone call and the electronic mail
message were both highly conditional and preliminary, and it appeared from
both communications that any proposal, unlike that of Parent, would be
conditioned on such individual's ability to obtain financing and on a
diligence investigation by such individual and by any possible financing
source. In addition, discussions with such individual would have violated the
Company's obligations under the Confidentiality Agreement, and the Company
Board did not believe that the highly conditional nature of the communications
warranted further discussions with this individual.
The Merger Agreement, the Tender Agreements and the Employment Agreements
were executed and delivered by all parties on the evening of September 30,
1998, and the Company and Parent publicly announced the transaction before the
commencement of trading on October 1, 1998.
On October 7, 1998, Parent commenced the Offer. In recommending that all
holders of Shares tender such Shares pursuant to the Offer, and in approving
the Merger Agreement and the transactions contemplated thereby, the Company
Board considered the following factors:
(a) presentations by management of the Company regarding the Company's
business, financial condition, results of operations and prospects;
(b) concerns expressed by Company management over the relatively high
turnover in technical personnel in 1998 as compared with prior years, and the
difficulties attracting and retaining qualified technical personnel in a
competitive marketplace;
(c) increasing competition in the information technology services
marketplace from larger, better financed companies able to offer clients "one
stop shopping" for their information technology services needs;
14
(d) the decline of the Share price in 1998 from a high of approximately
$4.47 to a recent low of $1.50 and the fact that the Shares were trading at a
substantial discount from the price of the Company's initial public offering
in 1995;
(e) the opinions of Updata and Parker/Hunter to the effect that, as of the
date of such opinions, the Offer Price is fair to the holders of the Shares
from a financial point of view;
(f) the fact that the Offer and the Merger are not conditioned on the
ability of Parent to obtain financing;
(g) the fact that while the Merger Agreement contains constraints that may
hinder a third party from making an alternative acquisition proposal, the
Merger Agreement permits the Company Board, in the exercise of its fiduciary
duties, to negotiate with a third party whom it believes, upon the advice of
its financial advisors, is reasonably likely to make a proposal that is
superior to the Company's stockholders from a financial point of view and is
not subject to a financing condition, and to accept such a proposal (subject
only to the payment to Parent of the Termination Fee and the Parent Expenses);
and
(h) the requirement under the Merger Agreement that Parent, after accepting
Shares in the Offer, will commence a proxy solicitation (if required under
applicable Delaware law) to acquire all remaining Shares at a price of $5.00
per Share.
The Company Board did not assign relative weights to the factors set forth
above, nor did it determine that any one factor was of particular importance.
Rather, the Company Board reached its determination based on the totality of
the circumstances and the advice presented to and considered by the Company
Board.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company entered into a letter agreement with Updata, dated May 15, 1997
(the "Updata Agreement"), pursuant to which the Company engaged Updata as a
financial advisor. Pursuant to terms of the Updata Agreement, Updata agreed to
review and analyze proposed transactions, and, if fair, to render a written
fairness opinion to the Company in connection with a potential sale or merger
of the Company. The Company agreed to pay Updata a retainer fee of $25,000,
plus a transaction fee of $250,000 (against which fee the retainer fee is
applied), payable upon the closing of the Merger. The Company also agreed,
whether or not the transaction is completed, (i) to reimburse Updata for its
reasonable out-of-pocket expenses, subject to the Company's review, and (ii)
to indemnify Updata against certain liabilities, with respect to which the
parties entered into an indemnification agreement dated May 15, 1997. Expenses
incurred to date are approximately $9,000.
The Company entered into a letter agreement with Parker/Hunter, dated June
3, 1997 (the "Parker/Hunter Agreement"), pursuant to which the Company engaged
Parker/Hunter as a financial advisor. Pursuant to the terms of the
Parker/Hunter Agreement, Parker/Hunter agreed to review and analyze proposed
transactions, and, if fair, to render a written fairness opinion to the
Company in connection with a potential sale or merger of the Company. The
Company agreed to pay Parker/Hunter a retainer fee of $25,000, plus an opinion
fee equal to $250,000 (against which fee the retainer fee is applied), payable
upon the delivery of the written fairness opinion. The Company also agreed,
whether or not the transaction is completed, (i) to reimburse Parker/Hunter
for its reasonable out-of-pocket expenses, including the reasonable fees and
expenses of Parker/Hunter's legal counsel, which legal fees will not exceed
$7,500, and (ii) to indemnify Parker/Hunter against certain liabilities.
Expenses incurred to date are approximately $10,000. In addition,
Parker/Hunter in the past has provided investment banking services to the
Company and has received customary fees for such services. Further, in the
ordinary course of its business, Parker/Hunter may actively trade the Shares
for its own account and for the accounts of its customers and accordingly may
at any time hold a long or short position in such Shares.
Except as disclosed herein, neither the Company nor any person acting on its
behalf currently intends to employ, retain or compensate any other person to
make solicitations or recommendations to holders of Shares on the Company's
behalf concerning the Offer or the Merger.
15
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) No transaction in the Shares has been effected during the past 60 days
by the Company, or to the best of the Company's knowledge, by any executive
officer, director, affiliate or subsidiary of the Company.
(b) To the best of the Company's knowledge, each executive officer, director
and affiliate of the Company currently intends to tender all Shares over which
he or she has dispositive power to the Purchaser.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as set forth in Items 3(b) or 4(b) above, the Company is not
engaged in any negotiation in response to the Offer that relates to or would
result in (i) an extraordinary transaction, such as a merger or
reorganization, involving the Company or any subsidiary of the Company; (ii) a
purchase, sale or transfer of a material amount of assets by the Company or
any subsidiary of the Company; (iii) a tender offer for or other acquisition
of securities by or of the Company; or (iv) any material change in the present
capitalization or dividend policy of the Company.
(b) Except as set forth in Items 3(b) or 4(b) above, there are no
transactions, Board resolutions, agreements in principle or signed contracts
in response to the Offer that relate to or would result in one or more of the
events referred to in Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
(a) Section 203 of the DGCL. Section 203 of the DGCL, in general,
prohibits a Delaware corporation such as the Company from engaging in a
"Business Combination" (defined as a variety of transactions, including
mergers) with an "Interested Stockholder" (defined generally as a person
that is the beneficial owner of 15% or more of a corporation's outstanding
voting stock) for a period of three years following the date that such
person became an Interested Stockholder unless (a) prior to the date such
person became an Interested Stockholder, the board of directors of the
corporation approved either the Business Combination or the transaction
that resulted in the stockholder becoming an Interested Stockholder, (b)
upon consummation of the transaction that resulted in the stockholder
becoming an Interested Stockholder, the Interested Stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding stock held by directors who are also
officers of the corporation and employee stock ownership plans that do not
provide employees with the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer or
(c) on or subsequent to the date such person became an Interested
Stockholder, the Business Combination is approved by the board of directors
of the corporation and authorized at a meeting of stockholders, and not by
written consent, by the affirmative vote of the holders of at least 66 2/3%
of the outstanding voting stock of the corporation not owned by the
Interested Stockholder.
The provisions of Section 203 of the DGCL are not applicable to any of
the transactions contemplated by the Merger Agreement or the Tender
Agreements because the Merger Agreement and the transactions contemplated
thereby have been approved by the Company Board, and the Tender Agreements
have, for purposes of Section 203 of the DGCL, been approved by the Company
Board.
The summary of Section 203 of the DGCL contained herein does not purport
to be exhaustive and is qualified in its entirety by reference to the
actual text of Section 203 of the DGCL.
(b) Certain Regulatory Matters. Consummation of the Merger is conditioned
upon certain matters relating to the Exon-Florio Act, which grants to the
President of the United States the authority to review any business
combination that could result in foreign control over persons engaged in
interstate commerce
16
in the United States. The Exon-Florio Act is administered by the Committee
on Foreign Investment in the United States ("CFIUS"), which has the
authority to review whether a proposed acquisition by a foreign investor
poses a threat to national security and to recommend to the President
whether such a proposed acquisition should be blocked.
The Purchaser and the Company have not yet determined whether CFIUS has
jurisdiction and therefore whether a filing is appropriate with regard to
the transactions contemplated by the Merger Agreement. Although the
Purchaser believes that the transactions contemplated by the Merger
Agreement should not raise any national security concerns, there can be no
assurance that CFIUS will not determine to conduct an investigation of the
proposed transaction and, if an investigation is commenced, there can be no
assurance regarding the outcome of such investigation. If the results of
such investigation are adverse to the Purchaser, the Purchaser may not be
obligated to accept for payment or pay for any Shares tendered pursuant to
the Offer.
The Offer and Merger are subject to the HSR Act, which provides that
certain acquisition transactions may not be consummated unless certain
information has been furnished to the Federal Trade Commission ("FTC") and
the Antitrust Division of the Department of Justice ("Antitrust Division")
and certain waiting period requirements have been satisfied. Each of Logica
and the Company intends to file a Notification and Report Form under the
HSR Act with respect to the Offer on or about October 8, 1998.
Under the provisions of the HSR Act applicable to the Offer, the purchase
of Shares pursuant to the Offer may not be consummated until the expiration
of a 15-calendar day waiting period following the filing by Logica and the
Company. Accordingly, assuming the filing is in substantial compliance with
the HSR Act, the waiting period will expire at 11:59 p.m., New York City
time, on October 23, 1998 (assuming an October 8, 1998 filing date), unless
earlier terminated by the FTC and the Antitrust Division. However, if
either the FTC or the Antitrust Division requests additional information or
documents from Logica or the Company within such initial waiting period,
the initial waiting period would be extended for an additional ten days
from the date of substantial compliance by Logica or the Company, as the
case may be with such request. Thereafter, the waiting period may be
extended only by a court order or with the consent of Logica or the
Company, as the case may be. Each of the parties has requested that the FTC
and the Antitrust Division grant early termination of the applicable
waiting period, but there can be no assurance that such request will be
granted.
The FTC and the Antitrust Division frequently scrutinize the legality
under the antitrust laws of transactions such as the Purchaser's
acquisition of Shares pursuant to the Offer. At any time before or after
the Purchaser's acceptance for payment of Shares, the FTC or the Antitrust
Division could take such action under the antitrust laws as it deems
necessary or desirable in the public interest, including seeking to enjoin
the acquisition of Shares pursuant to the Offer or otherwise or seeking
divestiture of Shares acquired by Purchaser or divestiture of substantial
assets of Purchaser or its subsidiaries. Private parties and state attorney
generals may also bring legal action under the antitrust laws under certain
circumstances. Based upon the Purchaser's discussions with the Company and
its examination of publicly available information with respect to the
Company, Purchaser believes that the acquisition by Purchaser of the Shares
will not violate the antitrust laws. Nevertheless, there can be no
assurance that a challenge to the Offer on antitrust grounds will not be
made, or, if such a challenge is made, of the result.
(c) Information Statement. The Information Statement attached as Schedule
I hereto is being furnished in connection with the possible designation by
the Purchaser, pursuant to the Merger Agreement, of certain persons to be
appointed to the Company Board other than at a meeting of the Company's
stockholders.
17
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit (a)(1) Offer to Purchase dated October 7, 1998/1/*
Exhibit (a)(2) Letter of Transmittal/1/*
Exhibit (a)(3) Letter to Stockholders of Carnegie Group, Inc. dated October
7, 1998 from Dennis Yablonsky, President and Chief Executive
Officer of Carnegie Group, Inc.
Exhibit (a)(4) Opinion of Updata Capital, Inc., dated September 30, 1998/1/*
Exhibit (a)(5) Opinion of Parker/Hunter Incorporated, dated September 30,
1998/1/*
Exhibit (a)(6) Press Release issued by Carnegie Group, Inc., dated October 1,
1998/2/
Exhibit (c)(1) Agreement and Plan of Merger dated as of September 30, 1998 by
and among Logica Inc., Logica Acquisition Corp. and Carnegie
Group, Inc./2/
Exhibit (c)(2) Tender Agreement dated as of September 30, 1998 by and among
Logica Inc., Logica Acquisition Corp., Carnegie Group, Inc.
and Raj Reddy, Anuradha Reddy, Anuradha Reddy as Trustee of
the Geetha Reddy Trust and Anuradha Reddy as Trustee of the
Shyamala Reddy Trust/2/
Exhibit (c)(3) Tender Agreement dated as of September 30, 1998 by and among
Logica Inc., Logica Acquisition Corp., Carnegie Group, Inc.
and Jaime Carbonell, Jaime Carbonell as Custodian for Diana
Carbonell, Jaime Carbonell as Custodian for Isabelle
Carbonell, Jaime Carbonell as Custodian for Ruben Carbonell,
Jaime Carbonell as Custodian for Rachel Carbonell, Jaime
Carbonell in Trust for Diana Carbonell, Jaime Carbonell in
Trust for Isabelle Carbonell, Jaime Carbonell in Trust for
Ruben Carbonell and Jaime Carbonell in Trust for Rachel
Carbonell/2/
Exhibit (c)(4) Tender Agreement dated as of September 30, 1998 by and among
Logica Inc., Logica Acquisition Corp., Carnegie Group, Inc.
and Mark S. Fox, Tressa S. Fox and Tressa S. Fox in Trust for
Jacob Fox/2/
Exhibit (c)(5) Tender Agreement dated as of September 30, 1998 by and among
Logica Inc., Logica Acquisition Corp., Carnegie Group, Inc.
and Dennis Yablonsky and Veronica Yablonsky/2/
Exhibit(c)(6) Tender Agreement dated as of September 30, 1998 by and among
Logica Inc., Logica Acquisition Corp., Carnegie Group, Inc.
and John W. Manzetti/2/
Exhibit (c)(7) Employment Agreement dated as of September 30, 1998 between
Logica Inc. and Dennis Yablonsky1
Exhibit (c)(8) Employment Agreement dated as of September 30, 1998 between
Logica Inc. and John Manzetti1
Exhibit (c)(9) Employment Agreement dated as of September 30, 1998 between
Logica Inc. and Bruce Russell1
Exhibit (c)(10) Employment Agreement dated as of September 30, 1998 between
Logica Inc. and Raymond Kalustyan1
Exhibit (c)(11) Mutual Confidential Non-Disclosure Agreement dated August 27,
1998 between Carnegie Group, Inc. and Logica Inc., as amended
by letter dated September 22, 19981
Exhibit (c)(12) Severance Termination Agreement dated as of September 30, 1998
between Carnegie Group, Inc. and Dennis Yablonsky1
Exhibit (c)(13) Severance Termination Agreement dated as of September 30, 1998
between Carnegie Group, Inc. and John Manzetti1
Exhibit (c)(14) Severance Termination Agreement dated as of September 30, 1998
between Carnegie Group, Inc. and Bruce Russell1
Exhibit (c)(15) Severance Termination Agreement dated as of September 30, 1998
between Carnegie Group, Inc. and Raymond Kalustyan1
Exhibit (c)(16) Loan Termination Agreement dated as of September 30, 1998
between Carnegie Group, Inc. and Dennis Yablonsky1
- --------
*Included in copies mailed to stockholders by Carnegie Group, Inc., Logica
Inc. or Logica Acquisition Corp.
/1/Filed herewith.
/2/Previously filed as an exhibit to the Form 8-K filed with the Securities
and Exchange Commission by Carnegie Group, Inc. on October 6, 1998.
18
SIGNATURE
After reasonable 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.
Dated: October 7, 1998 Carnegie Group, Inc.
By: /s/ John W. Manzetti
----------------------------------
JOHN W. MANZETTI
CHIEF FINANCIAL OFFICER
19
SCHEDULE I
CARNEGIE GROUP, INC.
FIVE PPG PLACE
PITTSBURGH, PENNSYLVANIA 15222
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
----------------
This Information Statement is being mailed on or about October 7, 1998 as
part of the Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of Carnegie Group, Inc., a Delaware corporation (the
"Company"), to the holders of shares of common stock, par value $.01 per
share, of the Company (the "Shares"). You are receiving this Information
Statement in connection with the possible election of the Purchaser Designees
(as hereinafter defined) to all of the seats on the Board of Directors of the
Company (the "Company Board").
The Company, Logica Inc., a Delaware corporation ("Parent"), and Logica
Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of
Parent (the "Purchaser"), entered into an Agreement and Plan of Merger dated
as of September 30, 1998 (the "Merger Agreement"), pursuant to which (i)
Parent has caused the Purchaser to commence a tender offer (the "Offer") for
all outstanding Shares at the price of $5.00 per Share, net to the seller in
cash, without interest, and (ii) the Purchaser will be merged with and into
the Company (the "Merger"). As a result of the Offer and the Merger, the
Company will become a wholly-owned subsidiary of Parent.
The Merger Agreement requires the Company to take such action to cause the
Purchaser Designees to be elected to the Company Board under the circumstances
described therein. See "Right to Designate Directors; Purchaser Designees."
You are urged to read this Information Statement carefully. You are not,
however, required to take any action.
Pursuant to the Merger Agreement, the Purchaser commenced the Offer on
Wednesday, October 7, 1998. The Offer is scheduled to expire at 12:00
midnight, New York City time, on Wednesday, November 4, 1998, unless the Offer
is extended.
The information contained in this Information Statement concerning Parent,
the Purchaser and the Purchaser Designees has been furnished to the Company by
Parent, and the Company assumes no responsibility for the accuracy or
completeness of such information.
RIGHT TO DESIGNATE DIRECTORS; PURCHASER DESIGNEES
Promptly upon the purchase of Shares pursuant to the Offer, Parent shall be
entitled to designate such number of directors, rounded up to the next whole
number, on the Company Board as is equal to the product of (a) the total
number of directors on the Company Board (after giving effect to the directors
designated by Parent pursuant to this sentence) and (b) the percentage that
the total votes represented by such number of Shares in the election of
directors of the Company so purchased bears to the total votes represented by
the number of Shares outstanding. In furtherance thereof, the Company shall,
upon request by Parent, promptly increase the size of the Company Board and/or
exercise its best efforts to secure the resignations of such number of its
directors as is necessary to enable Parent's designees to be elected to the
Company Board and shall take all actions to cause Parent's designees to be so
elected to the Company Board. At such time, the Company shall also cause
persons designated by Parent to constitute at least the same percentage
(rounded up to the next whole number) as is on the Company Board of (i) each
committee of the Company Board, (ii) each board of directors (or similar body)
S-1
of each subsidiary of the Company and (iii) each committee (or similar body)
of each such board. Each Purchaser Designee will serve as a director until
such director's successor is elected and qualified or until such director's
earlier resignation or removal.
As of the date of this Information Statement, the Purchaser has not
determined who will be the Purchaser Designees. However, Purchaser Designees
will be selected from among the directors and executive officers of Logica
plc, Parent and the Purchaser. Certain information regarding the candidates as
Purchaser Designees is contained in Annex I and Annex II annexed hereto.
None of the Purchaser Designees (i) is currently a director of, or holds any
position with, the Company, (ii) has a familial relationship with any
directors or executive officers of the Company or (iii) to the best knowledge
of Parent, beneficially owns any securities (or rights to acquire such
securities) of the Company. The Company has been advised by Parent that, to
the best of Parent's knowledge, none of the Purchaser Designees has been
involved in any transactions with the Company or any of its directors,
executive officers or affiliates which are required to be disclosed pursuant
to the rules and regulations of the Securities and Exchange Commission (the
"Commission"), except as may be disclosed herein or in the Schedule 14D-9.
It is expected that the Purchaser Designees may assume office at any time
following the purchase by the Purchaser of such number of shares which
satisfies the Minimum Share Condition (as defined in the Merger Agreement),
which purchase cannot be earlier than November 4, 1998, and that, upon
assuming office, the Purchaser Designees will thereafter constitute at least a
majority of the Company Board.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The Shares are the only class of voting securities of the Company
outstanding. Each Share is entitled to one vote per Share on each matter
properly brought before an annual or special meeting of stockholders of the
Company. As of October 1, 1998, there were 6,556,424 Shares outstanding.
DIRECTORS OF THE COMPANY
The Restated Certificate of Incorporation and the Amended and Restated By-
Laws of the Company provide that the number of directors (which is to be not
less than three) is to be determined from time to time by resolution of the
Company Board. The total number of directors constituting the Company Board is
currently six persons.
Pursuant to the Company's Restated Certificate of Incorporation, the members
of the Company Board are divided into three classes, designated Class I, Class
II and Class III directors. Each class is to consist, as nearly as may be
possible, of one-third of the total number of directors constituting the
entire Company Board.
There are no family relationships among any of the directors or executive
officers of the Company. As indicated above, certain of the current directors
will resign effective immediately following the purchase of at least a
majority of the then-outstanding Shares by the Purchaser pursuant to the Offer
and will be replaced by the Purchaser Designees.
EXECUTIVE OFFICERS OF THE COMPANY
The names of the current executive officers of the Company, their ages as of
October 1, 1998 and certain other information about them are set forth below.
NAME AGE POSITION
- ---- --- --------
Dennis Yablonsky........ 45 President, Chief Executive Officer and Director
John W. Manzetti........ 50 Executive Vice President, Chief Financial Officer, Treasurer
Secretary and Director
Bruce D. Russell........ 52 Senior Vice President
Raymond B. Kalustyan.... 42 Vice President
S-2
Mr. Yablonsky has served as President and Chief Executive Officer and as a
director of the Company since August 1987. Before joining the Company, Mr.
Yablonsky was President and Chief Operating Officer of Cincom Systems of
Cincinnati, Ohio, a privately-held company that markets software products to
the manufacturing, government and academic markets.
Mr. Manzetti has served as Executive Vice President, Chief Financial Officer
and Treasurer and as a director of the Company since February 1995. Prior to
becoming an Executive Vice President, Mr. Manzetti served as Vice President,
Finance and Administrative Services and Chief Financial Officer from October
1988 to February 1993, and as Vice President and Division Manager and Chief
Financial Officer from February 1993 to February 1995. Mr. Manzetti has been
Secretary since February 1989.
Dr. Russell has served as Senior Vice President, Software Delivery since
December 1997. Prior to becoming Senior Vice President, he served as Executive
Vice President, Chief Operating Officer and as a director of the Company since
February 1995. Prior to becoming an Executive Vice President, Dr. Russell
served as Vice President and Division Manager from January 1989 through
January 1995.
Mr. Kalustyan has served as Vice President, Business Development since June
1998. Before joining the Company, Mr. Kalustyan was National Director, Capital
Markets Practice for Unisys Corporation ("Unisys") prior to which he was
National Director, Sales and Marketing for Insurance and Diversified Financial
Services for Unisys. Before joining Unisys, he was a director of business
development for Arthur Andersen LLP.
BOARD OF DIRECTORS AND COMMITTEES
The Company Board met seven times during the year ended December 31, 1997.
The Company Board has an Audit Committee and a Compensation Committee. The
Company Board does not have a standing Nominating Committee.
The Audit Committee is responsible for nominating the Company's independent
auditors for approval by the Company Board, reviewing the scope, results and
costs of the audit with the Company's independent auditors and reviewing the
financial statements and accounting practices of the Company. The members of
the Audit Committee are Dr. Reddy and Mr. Chatfield. The Audit Committee met
once during 1997.
The Compensation Committee is responsible for administering the Company's
1989 Stock Option Plan, its Long-Term Incentive Plan, its 1995 Stock Option
Plan and its 1995 Employee Stock Purchase Plan and for recommending other
compensation decisions to the Company Board. The members of the Compensation
Committee are Dr. Reddy and Mr. Chatfield. The Compensation Committee met
twice during 1997.
No director attended fewer than 75% of the total number of meetings of the
Company Board and the meetings of any committee of the Company Board on which
he or she served during the fiscal year ended December 31, 1997, other than
James G. Carbonell, who attended 71% of such meetings.
Parent has informed the Company that the Purchaser Designees have not yet
determined whether, or if, any committees of the Company Board will continue
after the present Company Board members are replaced. Board meetings will be
held consistent with the past practice of Parent with respect to its
subsidiaries.
S-3
EXECUTIVE COMPENSATION
COMPENSATION SUMMARY
The following table sets forth information regarding compensation of certain
executive officers (the "Named Executive Officers") of the Company for the
years ended December 31, 1997, 1996 and 1995.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION OTHER SECURITIES
---------------- ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS
- --------------------------- ---- -------- ------- ------------ ------------
Dennis Yablonsky.............. 1997 $225,255 $12,000 $234,232(1) 10,000
President and Chief Executive 1996 217,506 30,000 -- --
Officer
1995 207,501 72,996 -- 65,000
John W. Manzetti.............. 1997 177,501 9,000 -- 10,000
Executive Vice President, 1996 167,505 25,000 -- --
Chief
Financial Officer, Treasurer 1995 157,506 49,496 -- 45,000
and Secretary
Bruce D. Russell.............. 1997 188,508 9,000 -- 10,000
Senior Vice President 1996 181,758 25,000 -- --
1995 171,756 49,496 -- 45,000
- --------
(1) Amount reimbursed for the payment of taxes incurred in connection with the
exercise of options.
STOCK OPTIONS
The Company currently maintains three stock option plans under which stock
option awards have been made and, in the case of the 1995 Stock Option Plan,
may be made, to eligible employees of the Company: the 1989 Stock Option Plan,
the Long-Term Incentive Plan and the 1995 Stock Option Plan. The number of
Shares authorized to be issued under the 1995 Stock Option Plan, and the terms
of outstanding stock options under the 1989 Stock Option Plan, the Long-Term
Incentive Plan and the 1995 Stock Option Plan, may be adjusted to prevent
dilution or enlargement of rights in the event of any stock dividend,
reorganization, reclassification, recapitalization, stock split, combination,
merger, consolidation or other relevant capitalization change. On September 8,
1995, the Board terminated the 1989 Stock Option Plan and the Long-Term
Incentive Plan and directed that Options which expire or terminate unexercised
under these plans shall become available for award under the 1995 Stock Option
Plan. As of October 1, 1998, the numbers of options granted and outstanding
under the 1989 Stock Option Plan, the Long-Term Incentive Plan and the 1995
Stock Option Plan were 522,001, 340,000 and 696,875, respectively.
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATE OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(4)
OPTIONS EMPLOYEES BASE PRICE EXPIRATION ----------------------
NAME GRANTED(#)(1) IN FY(2) ($/SH)(3) DATE 5%($) 10%($)
- ---- ------------- ---------- ----------- ---------- ---------- -----------
Dennis Yablonsky........ 10,000 6.5% $6.38 02/10/07 $40,123 $101,681
John W. Manzetti........ 10,000 6.5% 6.38 02/10/07 40,123 101,681
Bruce D. Russell........ 10,000 6.5% 6.38 02/10/07 40,123 101,681
- --------
(1) The options granted are incentive stock options that become exercisable in
increments of 25% per year beginning on the first anniversary of the date
of grant or immediately in the event of a Change in Control (as
hereinafter defined).
S-4
(2) Based on an aggregate of 154,000 shares subject to options granted to
employees during 1997.
(3) The exercise price per share equaled the fair market value of the Shares
on the date of grant, based on the closing price of the Shares on The
Nasdaq National Market as of such date.
(4) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of appreciation of 5% and 10% compounded
annually from the date the respective options were granted to their
expiration date. The 5% and 10% rates of appreciation are specified by the
rules of the Securities and Exchange Commission and are not presented to
forecast possible future appreciation, if any, in the price of the Shares.
The actual gains, if any, on the stock option exercise will depend on the
future performance of the Shares, the optionee's continued employment
through vesting periods and the date on which the options are exercised.
The following table sets forth certain information with respect to the
exercise of options by the Named Executive Officers in the last fiscal year
and the value of options held by the Named Executive Officers on December 31,
1997.
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT FISCAL IN-THE-MONEY OPTIONS AT
SHARES VALUE YEAR-END(#) FISCAL YEAR-END($)(2)
ACQUIRED ON REALIZED ------------------------- -------------------------
NAME EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
Dennis Yablonsky........ 108,000 $726,300 289,316 77,684 $210,627 $59,373
John W. Manzetti........ 40,000 170,000 117,316 67,684 109,377 59,373
Bruce D. Russell........ -- -- 207,316 67,684 176,877 59,373
- --------
(1) Represents the difference between the closing price per Share on date of
exercise as reported on The Nasdaq National Market and the exercise price
of the options, multiplied by the number of Shares issued upon exercise of
the options. The value realized was determined without considering any
taxes which may have been owed.
(2) Represents the difference between the closing price per Share as reported
on The Nasdaq National Market on December 31, 1997 ($2.94) and the
exercise price of the options, multiplied by the number of Shares issuable
upon exercise of the options.
ARRANGEMENTS REGARDING TERMINATION OF EMPLOYMENT
Each of Mr. Yablonsky, Mr. Manzetti, Dr. Russell and Mr. Kalustyan have
entered into Employment Agreements with Parent. See "Agreements with Parent
and the Purchaser--Employment Agreement with Dennis Yablonsky," "--Employment
Agreement with John Manzetti," "--Employment Agreement with Bruce Russell" and
"--Employment Agreement with Raymond Kalustyan" in Item 3 of the Schedule 14D-
9. In addition, each of such employees previously had entered into a Severance
Agreement with the Company, which agreement provided for severance pay and the
immediate vesting and exercisability of all options in the event of a "Change
of Control," the definition of which includes the commencement of the Offer.
The Severance Agreements have been terminated in connection with the Offer,
although the exercisability of the options remains in force.
COMPENSATION OF DIRECTORS
Directors do not receive compensation for serving as members of the Company
Board or committees thereof or reimbursement of travel or other expenses
relating to attendance at meetings of the Company Board or committees thereof.
S-5
Upon his appointment to the Company Board in May 1992, Mr. Chatfield was
granted options to purchase 4,000 Shares at an exercise price of $1.65 per
Share, and in March 1995, Mr. Chatfield was granted options to purchase 2,000
Shares at an exercise price of $4.65 per Share. All of these stock options are
subject to a vesting schedule, and unexercised options terminate 90 days after
Mr. Chatfield ceases to be a director.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
From January 1, 1997 through December 31, 1997, the Compensation Committee
of the Company Board consisted of Dr. Reddy, Mr. Chatfield and Tracie Muesing,
who resigned her position on the Company Board, effective as of May 11, 1998.
The Compensation Committee is empowered to recommend to the Company Board
compensation decisions for the Company's executive officers.
CERTAIN TRANSACTIONS
During 1997, the Company derived revenue of approximately $3.4 million from
the provision of software services to US WEST Communications, Inc. ("US
WEST"). The Company is a party to certain existing agreements pursuant to
which it will provide software services to US WEST in 1999. US WEST is a
subsidiary of US WEST, Inc., which, based on information publicly filed by US
WEST and described in the Company's Proxy Statement for 1998, is a beneficial
owner of more than 5% of the Shares. In addition, Tracie Muesing, an officer
of US WEST, had served on the Company Board since August 1995 until her
resignation from the Company Board, effective May 11, 1998.
Mr. Yablonsky is party to a loan agreement with the Company dated September
11, 1997 pursuant to which the Company loaned Mr. Yablonsky the principal sum
of $325,000 in connection with the payment of liabilities for income and
employment taxes incurred upon the exercise of a signing bonus stock option
granted to Mr. Yablonsky in 1987. As of August 31, 1998, the outstanding
balance due under the loan agreement, including accrued interest, was
$347,608.77. Under the terms of the loan agreement, in the event of a "Change
in Control," all remaining principal sum as of the date of such Change in
Control, together with all accrued and unpaid interest, will be deemed to have
been paid in full, as was the case upon the commencement of the Offer. Mr.
Yablonsky and the Company entered into a Loan Termination Agreement dated as
of September 30, 1998 to set forth the terms of the loan forgiveness and to
thereafter terminate the loan agreement.
On December 15, 1997, the Company and John Manzetti, a director and
executive officer of the Company, entered into a loan agreement pursuant to
which the Company loaned Mr. Manzetti the principal sum of $250,000, bearing
interest at a rate of 6.39%. As of August 31, 1998, the outstanding balance
due under the loan agreement, including accrued interest, was $263,312.50. The
terms of the loan agreement require repayment on December 30, 1999. The
Employment Agreement dated September 30, 1998 between Parent and Mr. Manzetti,
however, amends the loan agreement as follows: (i) the principal sum, together
with interest, is now required to be repaid in a single installment on the
third anniversary of the Closing Date (as defined therein); (ii) one-half of
the Net Portion of any bonus amount otherwise payable under Mr. Manzetti's
Employment Agreement (a "Bonus Amount") shall, in lieu of being paid to Mr.
Manzetti, be credited against the principal sum due under the loan agreement
("Net Portion" referring to that portion of any Bonus Amount that remains
after Parent has withheld all federal, state and local taxes required to be
withheld from such Bonus Amount); and (iii) in the event of any termination of
Mr. Manzetti's employment, any salary otherwise payable as severance pay
shall, in lieu of being paid to Mr. Manzetti, be credited against the
principal sum then outstanding, plus any accrued interest due thereon.
The Company and Carnegie Mellon University ("CMU"), through its Center for
Machine Translation (the "Center"), are parties to a License and Affiliate
Agreement dated January 31, 1991 (as amended, the "License Agreement") and a
Subcontract Agreement dated February 1, 1991 (as amended, the "Subcontract
Agreement"). The Center is headed by Dr. Jaime Carbonell, a director and
stockholder of the Company. Under the License Agreement, CMU granted to the
Company several perpetual, non-exclusive, worldwide licenses, some of which
are royalty-bearing, to use and distribute certain base software. Also,
pursuant to the License
S-6
Agreement, the Company became an "affiliate" of the Center, entitled to
certain "affiliate benefits," which include access to Center personnel and
computational resources, copies of technical reports, manuals and other
publications produced by the Center, and copies of any improvements,
modifications, enhancements, revisions, translations, extensions, corrections
and adaptions to such base software. The term of the License Agreement and the
Subcontract agreement continued through December 31, 1997. Pursuant to the
Subcontract Agreement, the Company engages CMU, through the Center, to perform
certain software development services and to furnish certain deliverable
items. All of the deliverables developed under the Subcontract Agreement
belong exclusively to the Company. Expenses incurred under the Subcontract
Agreement and the License Agreement were approximately $400,000 during 1997.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Shares as of October 1, 1998 held by each person who is known
by the Company to have been the beneficial owner of more than five percent of
the Shares on such date, by each director and Named Executive Officer of the
Company and by all directors and executive officers of the Company as a group
(based on 6,556,424 Shares outstanding as of such date). This information does
not reflect the effects, if any, on beneficial ownership as a result of the
obligations of the Stockholder Parties pursuant to the Tender Agreements to
tender and vote their Shares in connection with the Offer and the Merger, nor
does it reflect the effect of accelerated vesting of options as a result of
the Offer. See "Agreements with Parent and the Purchaser--Tender Agreements"
in Item 3 of the Schedule 14D-9 and "Arrangements Regarding Termination of
Employment."
SHARES OWNED
BENEFICIALLY
------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT
- ------------------------------------ ------- -------
US WEST, Inc................................................. 400,000(1) 6.1%
7800 East Orchard Road
Englewood, CO 80111
Quaker Capital Partners I, L.P. 384,200(2) 5.9%
The Arrott Building
401 Wood Street, Suite 1300
Pittsburgh, PA 15222
Raj Reddy.................................................... 413,000(3) 6.3%
c/o School of Computer Science
Carnegie Mellon University
Pittsburgh, PA 15213
Jaime G. Carbonell........................................... 387,200(4) 5.9%
c/o School of Computer Science
Carnegie Mellon University
Pittsburgh, PA 15213
Mark S. Fox.................................................. 372,776(5) 5.7%
c/o Department of Industrial Engineering
University of Toronto
4 Taddle Creek Road
Toronto, Ontario, Canada
Dennis Yablonsky............................................. 434,394(6) 6.6%
c/o Carnegie Group, Inc.
Five PPG Place
Pittsburgh, PA 15222
S-7
SHARES OWNED
BENEFICIALLY
--------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT
- ------------------------------------ --------- -------
Bruce D. Russell....................................... 239,394(7) 3.7%
John W. Manzetti....................................... 189,394(8) 2.9%
Glen F. Chatfield...................................... 5,000(7) *
All directors and executive officers as a group (8
persons).............................................. 2,041,158(9) 31.1%
- --------
* Less than 1%
(1) Based on information contained in a Schedule 13G filed by US WEST, Inc.
with the Securities and Exchange Commission on February 14, 1996. As US
WEST, Inc.'s representative in its dealings as a stockholder of the
Company, Tracie Muesing has shared voting power with respect to such
shares. Ms. Muesing has resigned from the Company Board effective May 11,
1998.
(2) Based on information contained in a Schedule 13D filed by Quaker Capital
Partners I, L.P. with the Securities and Exchange Commission on August 12,
1998.
(3) Includes 40,000 Shares issuable upon the exercise of options. Also
includes 100,000 Shares owned by Dr. Reddy's spouse and 200,000 Shares
held by Dr. Reddy's spouse as trustee for trusts for the benefit of Dr.
Reddy's children. Dr. Reddy disclaims beneficial ownership of all 300,000
such Shares.
(4) Includes 40,000 Shares issuable upon the exercise of options. Also
includes 24,000 Shares held by Dr. Carbonell as custodian for his children
under the Pennsylvania Uniform Gifts to Minors Act. Dr. Carbonell
disclaims beneficial ownership of all 24,000 such Shares.
(5) Includes 40,000 Shares issuable upon the exercise of options. Also
includes 1,100 Shares owned by Dr. Fox's spouse and 1,100 Shares held by
Dr. Fox's spouse as custodian for his child under the Pennsylvania Uniform
Gifts to Minors Act. Dr. Fox disclaims beneficial ownership of all 2,200
such Shares.
(6) Includes 326,394 Shares issuable upon the exercise of options.
(7) Consists of Shares issuable upon the exercise of options.
(8) Includes 149,394 Shares issuable upon the exercise of options.
(9) Includes 840,182 Shares issuable upon the exercise of options.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee determines compensation for the Named Executive
Officers.
GENERAL COMPENSATION PHILOSOPHY
The Company's compensation philosophy is that a significant portion of an
executive's income should be based upon financial performance of the Company.
In addition, compensation should reflect not only short-term performance but
should also provide long-term incentives designed to tie the executive's
economic return to the return of the Company's stockholders. Finally, the
Committee believes that as a technology-based company, the Company must
encourage and reward development of new technologies that contribute to the
Company's growth.
S-8
COMPONENTS OF COMPENSATION
The components of compensation for the Company's executive officers, which
are designed to reflect the compensation philosophy, are addressed below:
(a) Salary. The Company's salary policy is designed to provide salaries to
its executives that have a modest competitive edge over the "market" for
similar technology-based companies. Consideration is given to both general
industry and computer services/software or high technology industry surveys to
determine the appropriate level of salary increases. In addition, the
Committee considers salary and other compensation provided by a group of
comparable companies. For 1997, the Compensation Committee set salaries for
the principal executive officers that represented increases ranging from 3.6%
to 6.0% over their respective 1997 salaries.
(b) Short-Term Incentive Compensation/Bonus Pool. The Company's senior
management executive compensation program is designed to provide short term
incentive bonuses for the achievement of specified performance goals. For
1997, the Compensation Committee approved the allocation of a specified dollar
amount for each executive as an "A Pool" and a "B Pool." The amounts payable
from each pool are based on the following performance criteria: corporate
profit growth (50% of each pool), corporate revenue growth (25%), backlog
(15%) and the creation of new technologies coupled with achievement of a
specified level of revenue from continuing technology (10%). The A Pool is
payable based on the extent to which target goals are achieved, while the B
Pool is payable only if Company performance exceeds one or more of the target
goals. To the extent an A Pool target is not met with respect to one
performance criterion, a pro rata portion of the A Pool allocated to that
criterion may be paid, but only if a minimum threshold is exceeded. In 1997,
the profit growth and revenue growth levels and backlog were below the
threshold and target amounts and the technology growth/revenues from
continuing technology target was met. As a result, each of the principal
executives received 20% of his total A Pool and 0% of his total B Pool.
(c) Profit Sharing. All employees of the Company participate in the
Company's profit sharing plan and receive an equal amount, regardless of their
capacity with the Company. The amount distributed is based on a fixed formula
related to pre-tax profits.
(d) Long-Term Incentive Plan. In 1991, options were granted to all executive
officers under the Carnegie Group, Inc. Long-Term Incentive Plan. The purpose
of this stock option plan was to provide an incentive for the Company's key
management employees to increase their ownership interest in the Company and
to achieve long-term corporate objectives by exerting their efforts to
accelerate the growth of revenue, profit and technology creation. To achieve
this purpose, options were granted with vesting provisions that would not
permit exercise for an extended period of time (nine to ten years), but with
the opportunity to accelerate vesting based on the achievement of profit
growth, revenue growth and technology creation coupled with specified revenue
growth from continuing technology.
Under the plan, an "Annual Available Pool" equal to one-fifth of the
executive's options granted under the plan is used as a base amount for
determining the number of shares underlying the option as to which vesting may
be accelerated in a particular year. The base amount is multiplied by a
percentage (the "Applicable Percentage") allocated to each of the profit
growth, revenue growth and technology creation/revenues from continuing
technology components. The Applicable Percentage ranges from zero to 150% and
is based on a predetermined formula applied to the Company's performance in
these areas. The product of the base amount and the Applicable Percentage is
multiplied by a factor (the "Applicable Factor") of 50% in the case of the
profit growth component, 30% in the case of the revenue growth component and
20% in the case of the technology creation/revenues from continuing technology
component. The profit growth, revenue growth and technology creation/revenue
from continuing technology components as adjusted by their respective
Applicable Factors are added to determine the percentage of the "Annual
Available Pool" subject to accelerated vesting. For 1997, based on the
achievement of the technology/revenues from continuing technology goal,
vesting equal to 20% of the pool was obtained. Accordingly, a number of shares
equal to 20% of the shares in the "Annual Available Pool" qualified for
accelerated vesting and become exercisable in equal increments over the
following
S-9
three year period. For example, in the case of Messrs. Yablonsky, Russell and
Manzetti, each of whom had 24,000 shares in the "Annual Available Pool" (one
fifth of the 360,000 shares underlying options initially granted to them under
the plan), accelerated vesting was earned with respect to 4,800 shares, with
1,600 shares vesting in each of 1998, 1999 and 2000.
(e) 1995 Stock Option Plan. As is the case with the Long-Term Incentive
Plan, the 1995 Stock Option Plan is designed to provide incentive for the
enhancement of stockholder value, since the full benefit of stock option
grants typically is not realized unless there has been appreciation in per
share values over several years. In connection with grants last year pursuant
to the plan, the determination of the number of options to be granted was not
based on any specific criteria. However, the committee determined that the
grant of options in 1997 was appropriate in recognition of the contribution of
the executive officers over the past several years and as an incentive to
their continued contribution to the Company's success in future years.
COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
Reference is made to the discussion above with respect to objective criteria
applicable to compensation for executive officers, including Dennis Yablonsky,
the Company's President and Chief Executive Officer.
The Committee believes, based on the information discussed above under
"Salary," that Mr. Yablonsky's salary in 1997, which reflected an increase of
3.6% over his 1996 salary, is consistent with the Committee's policy to
provide a modest competitive edge over the "market" for similar technology-
based companies.
With regard to the senior management incentive compensation program, the
percentage of the A Pool and B Pool paid to Mr. Yablonsky were the same as the
percentages paid to the other principal executive officers. The dollar amount
of Mr. Yablonsky's aggregate bonus pool was higher than the other principal
executive officers, because Mr. Yablonsky's bonus pool reflects the level of
his responsibilities as the Company's principal executive officer.
Mr. Yablonsky's profit sharing payment and accelerated exercisable options
under the Long-Term Incentive Plan were based upon the same factors applicable
to the respective participants in those plans.
INTERNAL REVENUE CODE SECTION 162(M)
The Committee reviewed the potential consequences of Section 162(m) of the
Internal Revenue Code with respect to executive compensation. Section 162(m)
imposes a limit on tax deductions for annual compensation in excess of
$1,000,000 paid to any of the five most highly compensated executive officers.
The Company does not anticipate that Section 162(m) will have an adverse
effect on the Company in the short-term. In this regard, base salary and bonus
levels are expected to remain well below the $1,000,000 limitation in the
foreseeable future. In addition, the 1995 Stock Option Plan has been designed
to qualify potential benefits under that plan as "performance based"
compensation which may be excluded from the compensation used to determine the
$1,000,000 limitation. Over the longer term, the Committee will continue to
examine the effects of this tax provision and will monitor the level of
compensation paid to the executive officers in order to ameliorate, to the
extent possible, the potential adverse effects of Section 162(m).
DR. RAJ REDDYGLEN F. CHATFIELD
S-10
COMPARISON OF CUMULATIVE TOTAL RETURN SINCE NOVEMBER 29, 1995
The following graph shows the cumulative total stockholder return on the
Shares from November 29, 1995 (the first day of trading of the Shares upon the
Company's initial public offering) through December 31, 1997, as compared to
the returns of The Nasdaq National Market Composite Index and the Nasdaq
Computer and Data Processing Services Stock Index. The graph assumes that $100
was invested in the Shares on November 29, 1995 and in The Nasdaq National
Market Composite Index and the Nasdaq Computer and Data Processing Services
Stock Index and assumes reinvestment of dividends.
[GRAPH APPEARS HERE]
NOVEMBER 29, 1995 DECEMBER 31, 1995 DECEMBER 31, 1996 DECEMBER 31, 1997
----------------- ----------------- ----------------- -----------------
Carnegie Group, Inc. ..................... 100 103 74 31
Nasdaq National Market Composite Index.... 100 100 123 150
Nasdaq Computer and Data Processing
Services Stock Index.................... 100 98 121 149
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Securities Exchange Act of 1934, as amended, the
Company's directors, officers and persons who are directly or indirectly the
beneficial owners of more than 10% of the Shares are required to file with the
Commission, within specified monthly and annual due dates, a statement of
their initial beneficial ownership and all subsequent changes in ownership of
Shares. Rules of the Commission require such persons to furnish the Company
with copies of all Section 16(a) forms they file. Based solely upon a review
of such forms, the Company believes that, during the year ended December 31,
1997, all such persons complied with all applicable filing requirements, other
than Dennis Yablonsky, the Company's President and Chief Executive Officer,
who filed late one report with respect to the exercise of an option to
purchase 108,000 Shares.
S-11
ANNEX I
DIRECTORS AND EXECUTIVE OFFICERS OF THE PURCHASER AND PARENT
The following tables set forth the name, age, current business address and
present principal occupation and citizenship or employment, and material
occupations, positions, offices or employment for the past five years of each
director and executive officer of the Purchaser and Parent. The current
business address of each such person is 32 Hartwell Avenue, Lexington,
Massachusetts 02421, except the current business address for each of Mr. Given
and Dr. Read is Stephenson House, 75 Hampstead Road, London NW1 2PL, United
Kingdom. Each such person is a citizen of the United States except for Messrs.
Webb and Given, Dr. Read and Ms. Horsfall who are citizens of the United
Kingdom.
DIRECTORS AND EXECUTIVE OFFICERS OF THE PURCHASER
NAME AGE POSITION WITH THE PURCHASER
- ---- --- ---------------------------
Corey Torrence.................................. 40 President and Director
Douglas Webb.................................... 37 Vice President and Director
COREY TORRENCE. Mr. Torrence became the President and a Director of the
Purchaser in connection with its formation in September 1998. Mr. Torrence
joined Parent as President, Chief Executive Officer and a Director in October
1997 and has been an Executive Committee Member of Logica plc since October
1997. He was previously employed by AT&T Solutions, where he was Managing
Partner of the company's Supply Chain Management Consulting Practice from 1995
until 1997. Mr. Torrence served as Vice President and General Manager for the
U.S. Atlantic Region of SHL Systemhouse Inc. from 1993 until 1995.
DOUGLAS WEBB. Mr. Webb became the Vice President and a Director of the
Purchaser in connection with its formation in September 1998. Mr. Webb has
held the position of Chief Financial Officer of Parent since 1997 and has also
served as a Director of Parent since January 1996. From April 1997 to December
1997, Mr. Webb served as the Executive Vice President of the Communications
Division of Parent. From 1996 to 1997, he held the position of Chief Operating
Officer of Parent. From 1995 to 1996, he held the position of Chief Financial
Officer of Parent. He was also Group Financial Controller of Logica plc from
1994 to 1995. He was previously employed by Price Waterhouse, where he was
employed as a Senior Manager from 1990 to 1994.
DIRECTORS AND EXECUTIVE OFFICERS OF PARENT
NAME AGE POSITION WITH PARENT
- ---- --- --------------------
Corey Torrence....... 40 President, Chief Executive Officer and Director
Douglas Webb......... 37 Chief Financial Officer and Director
Karen Roche.......... 47 Executive Vice President--Financial Services Division
Mike Maloney......... 42 Executive Vice President--Communications Division
Pauline Horsfall..... 39 Vice President--Human Resources
Jim Cypert........... 62 Vice President--Asset and Resource Management and
Acting Vice President--Energy and Utilities Division
Dr. Martin Read...... 48 Director
Andrew Given......... 50 Director
COREY TORRENCE. Mr. Torrence joined Parent as President, Chief Executive
Officer and a Director in October 1997 and has been an Executive Committee
Member of Logica plc since October 1997. He was previously employed by AT&T
Solutions, where he was Managing Partner of the company's Supply Chain
Management Consulting Practice from 1995 until 1997. Mr. Torrence served as
Vice President and General Manager for the U.S. Atlantic Region of SHL
Systemhouse Inc. from 1993 until 1995.
DOUGLAS WEBB. Mr. Webb has held the position of Chief Financial Officer of
Parent since 1997 and has also served as a Director of Parent since January
1996. From April 1997 to December 1997, Mr. Webb served as the Executive Vice
President of the Communications Division of Parent. From 1996 to 1997, he held
the position of Chief Operating Officer of Parent. From 1995 to 1996, he held
the position of Chief Financial Officer of Parent. He was also Group Financial
Controller of Logica plc from 1994 to 1995. He was previously employed by
Price Waterhouse, where he was employed as a Senior Manager from 1990 to 1994.
KAREN ROCHE. Ms. Roche was appointed Executive Vice President--Financial
Services Division of Parent in 1997. She was previously employed as Vice
President--Financial Products Group of Parent from 1996 to 1997 and Vice
President--Wholesale Banking Division of Parent from 1993 to 1995.
MIKE MALONEY. Mr. Maloney joined Parent as Executive Vice President--
Communications Division in 1997. He was previously employed by Ameritech,
where he served in various capacities from 1995 to 1997, including: General
Manager--Managed Services, Acting Vice President--Alliance Business Sales, and
General Manager--Alliance Business Planning. Mr. Maloney served as Managing
Director--Networked Systems Management Business Development for SHL
Systemhouse from 1993 to 1995.
PAULINE HORSFALL. Ms. Horsfall joined Parent as Vice President--Human
Resources in 1997. She was previously employed by Logica plc, where she was
Management Development and Training Manager from 1995 to 1997. Ms. Horsfall
served as Director of Human Resources, Sensors Group for Thorn EMI Electronics
from 1993 to 1995.
JIM CYPERT. Mr. Cypert has served as Vice President--Asset and Resource
Management and Acting Vice President--Energy and Utilities Division of Logica
Inc. since 1998. At Parent, Mr. Cypert was also employed as Vice President--
Marketing for the Energy and Utilities Division from 1996-1998. From 1993 to
1996, Mr. Cypert was Vice President of Integration Services for the Synercom
Division at Parent.
DR. MARTIN READ. Dr. Read has been a Director of Parent since October 1993.
Since 1993, he has also been Managing Director and the Chief Executive of
Logica plc. From 1990 to 1993, Dr. Read served as Managing Director of GEC
Marconi Radar and Control Systems Limited and Associated Companies.
ANDREW GIVEN. Mr. Given has been a Director of Parent since April 1994. Mr.
Given has also been on the board of Logica plc as Group Finance Director since
April 1990 and has served as Company Secretary for Logica plc since June 1993.
ANNEX II
DIRECTORS AND EXECUTIVE OFFICERS OF LOGICA PLC
The following table sets forth the name, age, current business address and
present principal occupation or employment, and material occupations,
positions, offices or employment for the past five years of each director and
executive of Logica plc. The current business address of each such person is
Stephenson House, 75 Hampstead Road, London NW1 2PL, United Kingdom, except
the current business address for each of Messrs. Craig and De Meyere is
Wijnhaven 69, 3011 WJ Rotterdam, The Netherlands, and for Mr. Torrence is
32 Hartwell Avenue, Lexington, Massachusetts 02421. Each such person is a
citizen of the United Kingdom, except Mr. De Meyere, who is a citizen of the
Kingdom of Belgium, Mr. Mamsch, who is a citizen of Germany, Mr. Torrence, who
is a citizen of the United States of America and Mr. Vinken, who is a citizen
of The Netherlands.
NAME AGE POSITION
- ---- --- --------
Sir Frank Barlow........ 68 Non-Executive Chairman, Board Member, Executive Committee
Member and Non-Executive Director
Dr. Martin Read......... 48 Managing Director and Chief Executive, Board Member and
Executive Committee Member
Mario Anid.............. 40 Executive Committee Member and Corporate Development Director
Duncan Craig............ 49 Board Member, Executive Committee Member and Regional Director for
Continental European Operations
Wilfried De Meyere...... 45 Executive Committee Member and Regional Director
for Continental European Operations
Elizabeth Filkin........ 57 Non-Executive Director
Andrew Given............ 50 Board Member, Executive Committee Member, Group Finance
Director and Company Secretary
Royston Hoggarth........ 36 Executive Committee Member and Director of International
Lines of Business
Laurence Julien......... 52 Executive Committee Member and Supervisory Managing Director
of Logica UK Limited
Jim McKenna............. 43 Board Member, Executive Committee Member, Group Personnel
Director and Regional Director for Asia Pacific Region
Helmut Mamsch........... 53 Non-Executive Director
Sam Sassoon............. 53 Executive Committee Member and Supervisory
Managing Director of Logica UK Limited
Corey Torrence.......... 40 Executive Committee Member and President and Chief Executive
Officer of Logica Inc.
Dr. Pierre Vinken....... 70 Non-Executive Director
Richard Wakeling........ 51 Non-Executive Director
SIR FRANK BARLOW. Sir Frank joined the board as a Non-Executive Director in
January 1995 and became Chairman in November 1995. Among the many companies of
which Sir Frank serves as Director, he has served as a Director of the
Economist Newspaper Ltd since 1984 and served as Managing Director of Pearson
plc from 1986 until his retirement at the end of 1996. Sir Frank was knighted
in the Queen's New Year's Honours List 1998 for services to the newspaper
industry.
DR. MARTIN READ. Dr. Read joined the board as Managing Director and Chief
Executive in July 1993. He has also served as a Director of Parent since
October 1993. From 1990 to 1993, Dr. Read served as Managing Director of GEC
Marconi Radar and Control Systems Limited and associated companies.
MARIO ANID. Mr. Anid joined the Executive Committee in 1995 as Corporate
Development Director. He was previously Corporate Development Director at Sema
Group plc from 1993 until 1995.
DUNCAN CRAIG. Mr. Craig joined the board in 1991 and is Regional Director
for Continental European Operations. He joined Logica plc in 1971 and has been
based in The Netherlands since 1974.
WILFRIED DE MEYERE. Mr. De Meyere joined the Executive Committee in July
1998 as Regional Director for Continental European Operations. From 1994 to
1998, he was Managing Director of Logica BV. From 1992 to 1996, Mr. De Meyere
was the Chief Executive of Logica SA/NV.
ELIZABETH FILKIN. Ms. Filkin joined the board as a Non-Executive Director in
January 1995. Ms. Filkin has also been the Adjudicator for the Inland Revenue,
Customs and Excise, Contributions Agency and Contributions Unit Northern
Ireland since June 1993. She has also served as a Non-Executive Director at
the Britannia Building Society since 1992.
ANDREW GIVEN. Mr. Given joined the board as Group Finance Director in April
1990 and has served as the Company Secretary since June 1993. Mr. Given has
also served as a Director of Parent since April 1994.
ROYSTON HOGGARTH. Mr. Hoggarth joined the Executive Committee in December
1997, as Director of International Lines of Business, responsible for Finance,
Telecoms and Energy and Utilities. From 1993 to 1997, Mr. Hoggarth served as
General Manager at IBM, where he was responsible for the group's retail brands
worldwide.
LAURENCE JULIEN. Mr. Julien joined the Executive Committee in 1996 as
Supervisory Managing Director of Logica UK Limited. He joined Logica in 1980
and has held line management positions since 1984.
JIM MCKENNA. Mr. McKenna joined the Executive Committee in 1993 as Group
Personnel Director and was appointed to the board in February 1998. Since 1996
he has also been the Regional Director for the Asia Pacific Region. From 1985
to 1993, Mr. McKenna served as Personnel Director of GEC Marconi Radar and
Control Systems Limited and associated companies.
HELMUT MAMSCH. Mr. Mamsch joined the board as a Non-Executive Director in
September 1997. He has also served as Director of VEBA AG since January 1998
and a Director of MEMEC Inc. (USA) since May 1998. From 1989 until 1996, Mr.
Mamsch served as Director of Raab Karcher U.K., Ltd.
SAM SASSOON. Mr. Sassoon joined the Executive Committee in November 1996 as
a Supervisory Managing Director of Logica UK Limited. From January 1993 until
June 1996, Mr. Sassoon served as Vice President and General Manager of the
European outsourcing group of Unisys.
COREY TORRENCE. Mr. Torrence joined the Executive Committee in October 1997
as President and Chief Executive of Parent. He has also served as a Director
of Parent since October 1997. From 1995 until 1997, Mr. Torrence served as
Managing Partner of the Supply Chain Management Consulting Practice for AT&T
Solutions. From 1993 until 1995, Mr. Torrence served as Vice President and
General Manager for the U.S. Atlantic Region of SHL Systemhouse Inc.
PIERRE VINKEN. Mr. Vinken joined the board in April 1990 and is a Non-
Executive Director, having previously served on the board of directors for
Logica BV since 1985. He was formerly chairman of Reed Elsevier plc until his
retirement in 1995. He was also a director of Pearson plc and The Economist
Group.
RICHARD WAKELING. Mr. Wakeling joined the board as a Non-Executive Director
in January 1995. He is a Non-Executive Director of Staveley Industries, Oxford
Instruments, and Henderson Geared Income & Growth Trust. He is also Chairman
of Henderson Technology Trust.
EXHIBIT INDEX
Exhibit (a)(1) Offer to Purchase dated October 7, 1998/1/*
Exhibit (a)(2) Letter of Transmittal/1/*
Exhibit (a)(3) Letter to Stockholders of Carnegie Group, Inc. dated October
7, 1998 from Dennis Yablonsky, President and Chief Executive
Officer of Carnegie Group, Inc./1/*
Exhibit (a)(4) Opinion of Updata Capital, Inc., dated September 30, 1998/1/*
Exhibit (a)(5) Opinion of Parker/Hunter Incorporated, dated September 30,
1998/1/*
Exhibit (a)(6) Press Release issued by Carnegie Group, Inc., dated October 1,
1998/2/
Exhibit (c)(1) Agreement and Plan of Merger dated as of September 30, 1998 by
and among Logica Inc., Logica Acquisition Corp. and Carnegie
Group, Inc./2/
Exhibit (c)(2) Tender Agreement dated as of September 30, 1998 by and among
Logica Inc., Logica Acquisition Corp., Carnegie Group, Inc.
and Raj Reddy, Anuradha Reddy, Anuradha Reddy as Trustee of
the Geetha Reddy Trust and Anuradha Reddy as Trustee of the
Shyamala Reddy Trust/2/
Exhibit (c)(3) Tender Agreement dated as of September 30, 1998 by and among
Logica Inc., Logica Acquisition Corp., Carnegie Group, Inc.
and Jaime Carbonell, Jaime Carbonell as Custodian for Diana
Carbonell, Jaime Carbonell as Custodian for Isabelle
Carbonell, Jaime Carbonell as Custodian for Ruben Carbonell,
Jaime Carbonell as Custodian for Rachel Carbonell, Jaime
Carbonell in Trust for Diana Carbonell, Jaime Carbonell in
Trust for Isabelle Carbonell, Jaime Carbonell in Trust for
Ruben Carbonell and Jaime Carbonell in Trust for Rachel
Carbonell/2/
Exhibit (c)(4) Tender Agreement dated as of September 30, 1998 by and among
Logica Inc., Logica Acquisition Corp., Carnegie Group, Inc.
and Mark S. Fox, Tressa S. Fox and Tressa S. Fox in Trust for
Jacob Fox/2/
Exhibit (c)(5) Tender Agreement dated as of September 30, 1998 by and among
Logica Inc., Logica Acquisition Corp., Carnegie Group, Inc.
and Dennis Yablonsky and Veronica Yablonsky/2/
Exhibit(c)(6) Tender Agreement dated as of September 30, 1998 by and among
Logica Inc., Logica Acquisition Corp., Carnegie Group, Inc.
and John W. Manzetti/2/
Exhibit (c)(7) Employment Agreement dated as of September 30, 1998 between
Logica Inc. and Dennis Yablonsky1
Exhibit (c)(8) Employment Agreement dated as of September 30, 1998 between
Logica Inc. and John Manzetti1
Exhibit (c)(9) Employment Agreement dated as of September 30, 1998 between
Logica Inc. and Bruce Russell1
Exhibit (c)(10) Employment Agreement dated as of September 30, 1998 between
Logica Inc. and Raymond Kalustyan1
Exhibit (c)(11) Mutual Confidential Non-Disclosure Agreement dated August 27,
1998 between Carnegie Group, Inc. and Logica Inc., as amended
by letter dated September 22, 19981
Exhibit (c)(12) Severance Termination Agreement dated as of September 30, 1998
between Carnegie Group, Inc. and Dennis Yablonsky1
Exhibit (c)(13) Severance Termination Agreement dated as of September 30, 1998
between Carnegie Group, Inc. and John Manzetti1
Exhibit (c)(14) Severance Termination Agreement dated as of September 30, 1998
between Carnegie Group, Inc. and Bruce Russell1
Exhibit (c)(15) Severance Termination Agreement dated as of September 30, 1998
between Carnegie Group, Inc. and Raymond Kalustyan1
Exhibit (c)(16) Loan Termination Agreement dated as of September 30, 1998
between Carnegie Group, Inc. and Dennis Yablonsky1
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*Included in copies mailed to stockholders by Carnegie Group, Inc., Logica
Inc. or Logica Acquisition Corp.
/1/Filed herewith.
/2/Previously filed as an exhibit to the Form 8-K filed with the Securities
and Exchange Commission by Carnegie Group, Inc. on October 6, 1998.