SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) of the
Securities Exchange Act of 1934
<Table>
Filed by the Registrant[X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</Table>
SOFTWARE SPECTRUM, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $0.01 per share, and options to purchase Common
Stock
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
3,170,912 shares of Common Stock and 690,490 options to purchase shares
of Common Stock
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
The filing fee was determined by multiplying 0.000092 by the sum of:
(x) the product of 3,170,912 shares of Common Stock outstanding and the
merger consideration of $37.00 per share in cash plus (y) $15,468,908,
which is the aggregate amount anticipated to be paid to certain persons
holding options to purchase shares of Common Stock in consideration of
cancellation of such options.
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$132,792,652
- --------------------------------------------------------------------------------
(5) Total fee paid:
$12,216.92
- --------------------------------------------------------------------------------
[X] Fee previously paid with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
NOTICE OF SPECIAL MEETING
ON JUNE 18, 2002
AND PROXY STATEMENT
[SPECTRUM LOGO]
SOFTWARE SPECTRUM, INC.
2140 MERRITT DRIVE
GARLAND, TEXAS 75041
MAY 21, 2002
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders of
Software Spectrum, Inc. to be held on Tuesday, June 18, 2002, at 10:00 a.m.,
local time, at Software Spectrum's offices located at 2140 Merritt Drive,
Garland, Texas.
At the special meeting you will be asked to consider and vote upon a
proposal to approve a merger agreement, among Software Spectrum, Level 3
Communications, Inc. and its subsidiary, Eldorado Acquisition Three, Inc. If the
merger agreement is approved and we complete the merger, Software Spectrum will
become a subsidiary of Level 3 and you will receive $37 in cash for each share
of Software Spectrum common stock you own.
The Board of Directors has unanimously approved the merger agreement and the
merger. The Board of Directors believes that the merger agreement and the
proposed merger are fair to and in the best interests of Software Spectrum's
shareholders. Therefore, the Board of Directors recommends that you vote in
favor of the approval of the merger agreement and the merger. In making its
recommendation, our Board of Directors considered, among other things, the
written opinion of SunTrust Robinson Humphrey, a division of SunTrust Capital
Markets, Inc., Software Spectrum's financial advisor, that, as of the date of
the opinion, the $37 per share cash consideration to be offered to our
shareholders was fair to our shareholders from a financial point of view. We
have included a copy of SunTrust Robinson Humphrey's written opinion as Appendix
B to the accompanying proxy statement, and urge you to read it in its entirety.
The proposed merger is an important decision for Software Spectrum and its
shareholders. We cannot complete the merger unless holders of at least 66 2/3%
of all of the outstanding shares of Software Spectrum common stock vote to
approve the merger agreement and the merger. Shares of Software Spectrum common
stock representing approximately 30% of the voting power of Software Spectrum
have been committed to be voted in favor of approving the merger agreement and
the merger.
The attached notice of special meeting and proxy statement explain the
proposed merger and provide specific information concerning the special meeting.
Please read these materials carefully.
Whether or not you plan to attend the special meeting, I urge you to sign,
date, and promptly return the enclosed proxy card to ensure that your shares
will be voted at the special meeting. Failure to return an executed proxy card
will constitute, in effect, a vote against approval of the merger agreement and
the merger.
Sincerely,
/s/ JUDY C. ODOM
--------------------------------------
Judy C. Odom
Chief Executive Officer
SOFTWARE SPECTRUM, INC.
2140 MERRITT DRIVE
GARLAND, TEXAS 75041
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
DATE: Tuesday, June 18, 2002
TIME: 10:00 a.m., local time
PLACE: Software Spectrum's offices located at 2140 Merritt
Drive, Garland, Texas
ITEMS OF BUSINESS: 1. To consider and vote upon a proposal to approve
the Agreement and Plan of Merger, dated as of
May 1, 2002, by and among Level 3
Communications, Inc., Eldorado Acquisition
Three, Inc., and Software Spectrum, Inc., and to
approve the merger of Eldorado Acquisition with
and into Software Spectrum. In the merger each
share of Software Spectrum's common stock, par
value $0.01, outstanding immediately prior to
the merger (other than shares held by Level 3
and its subsidiaries and Software Spectrum and
its subsidiaries, which will be canceled, and
other than shares held by shareholders of
Software Spectrum common stock who perfect
dissenters' rights of appraisal under Texas
law), will be converted into the right to
receive $37 per share in cash, without interest.
2. To transact such other business as may properly
come before the special meeting or any
adjournment(s) thereof.
RECORD DATE: Only those persons who were holders of record of
Software Spectrum's common stock at the close of
business on May 20, 2002 are entitled to notice of,
and to vote at, the special meeting or any
adjournment(s) thereof. A complete list of the
shareholders entitled to vote at the meeting will
be open for inspection by any shareholder during
ordinary business hours for a period of 10 days
prior to the meeting at the corporate offices of
Software Spectrum, 2140 Merritt Drive, Garland,
Texas.
APPRAISAL RIGHTS: Under Texas law, appraisal rights will be available
to Software Spectrum's shareholders who do not vote
in favor of the approval of the merger agreement
and the merger. In order to exercise the appraisal
rights, Software Spectrum shareholders must follow
the procedures required by the Texas Business
Corporation Act, which are summarized under "The
Merger -- Appraisal Rights of Shareholders" in the
accompanying proxy statement.
VOTING: Your vote is important. Whether or not you plan to
attend the meeting, please ensure that your vote
will be counted by signing, dating, and promptly
returning the enclosed proxy card. If you hold your
shares in "street name," please instruct your
broker how to vote in accordance with your voting
instruction form. Failure to return an executed
proxy card will have the same effect as a vote
against approval of the merger agreement and the
merger.
By Order of the Board of Directors,
/s/ ROBERT D. GRAHAM
--------------------------------------
Robert D. Graham
Secretary
Garland, Texas
May 21, 2002
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY..................................................... 4
Parties to the Merger..................................... 4
Special Meeting of Shareholders........................... 4
The Merger and the Merger Agreement....................... 5
Opinion of Financial Advisor.............................. 7
Interests of Certain Persons in the Merger................ 8
Certain U.S. Federal Income Tax Consequences.............. 9
Voting Agreement.......................................... 9
Additional Information.................................... 9
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS... 10
PARTIES TO THE MERGER....................................... 11
Software Spectrum......................................... 11
Level 3 Communications.................................... 11
Eldorado Acquisition...................................... 11
SPECIAL MEETING OF SHAREHOLDERS............................. 12
General................................................... 12
Recommendation of our Board of Directors.................. 12
Record Date and Voting.................................... 12
Required Vote............................................. 12
Proxies; Revocation....................................... 13
Adjournments or Postponements............................. 13
PAYMENT OF CASH CONSIDERATION............................... 14
THE MERGER.................................................. 15
Background of the Merger.................................. 15
Purposes of the Merger; Certain Effects of the Merger..... 16
Reasons for the Merger; Recommendation of the Board of
Directors.............................................. 17
Opinion of Financial Advisor.............................. 18
Interests of Certain Persons in the Merger................ 29
Merger Financing; Source of Funds......................... 32
Certain U.S. Federal Income Tax Consequences.............. 32
Accounting Treatment...................................... 33
Appraisal Rights of Shareholders.......................... 33
Voting Agreement.......................................... 35
</Table>
<Table>
<Caption>
PAGE
----
THE MERGER AGREEMENT........................................ 36
Structure and Effective Time.............................. 36
Merger Consideration...................................... 36
Payment Procedures........................................ 36
Treatment of Software Spectrum Stock Options.............. 37
Charter and By-Laws....................................... 37
Directors and Officers.................................... 37
Representations and Warranties............................ 37
Covenants; Conduct of the Business of Software Spectrum
Prior to the Merger.................................... 37
No Solicitation........................................... 38
Employee Benefits......................................... 38
Indemnification and Insurance............................. 38
Software Spectrum's Board Recommendation; Shareholder's
Meeting................................................ 39
Conditions to the Merger.................................. 39
Termination............................................... 40
Termination Fee........................................... 40
The Rights Agreement...................................... 41
CERTAIN FINANCIAL PROJECTIONS............................... 42
REGULATORY APPROVALS........................................ 43
PRICE RANGE OF STOCK AND DIVIDENDS.......................... 44
STOCK OWNERSHIP OF PRINCIPAL SHAREHOLDERS................... 45
STOCK OWNERSHIP OF MANAGEMENT............................... 46
FUTURE SHAREHOLDER PROPOSALS................................ 47
WHERE YOU CAN FIND MORE INFORMATION......................... 48
Appendix A Merger Agreement
Appendix B Fairness Opinion
Appendix C Articles 5.11, 5.12 and 5.13 of the Texas
Business Corporation Act
</Table>
ii
QUESTIONS AND ANSWERS ABOUT THE MERGER
THE FOLLOWING QUESTIONS AND ANSWERS ARE INTENDED TO ADDRESS SOME COMMONLY
ASKED QUESTIONS REGARDING THE MERGER. THESE QUESTIONS AND ANSWERS MAY NOT
ADDRESS ALL QUESTIONS THAT MAY BE IMPORTANT TO YOU AS A SOFTWARE SPECTRUM
SHAREHOLDER. PLEASE REFER TO THE MORE DETAILED INFORMATION CONTAINED ELSEWHERE
IN THIS PROXY STATEMENT, THE APPENDICES TO THIS PROXY STATEMENT, AND THE
DOCUMENTS REFERRED TO OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT.
Q: WHY AM I RECEIVING THIS PROXY STATEMENT?
A: Our Board of Directors is furnishing this proxy statement to our shareholders
in connection with the solicitation of proxies to be voted at a special meeting
of shareholders, or at any adjournment of the special meeting.
Q: WHAT IS THE PROPOSED TRANSACTION?
A: Level 3 Communications, Inc. will acquire Software Spectrum, Inc. by causing
the merger of Eldorado Acquisition Three, Inc., an indirect wholly owned
subsidiary of Level 3, with and into Software Spectrum with Software Spectrum
shareholders to receive $37 per share in cash. Software Spectrum will be the
surviving corporation in the merger. Following this merger, Software Spectrum
will be an indirect wholly owned subsidiary of Level 3, and Software Spectrum's
shares will cease to be publicly traded.
Q: WHO ARE LEVEL 3 AND ELDORADO ACQUISITION?
A: Level 3 is a publicly held Delaware corporation engaged in the business of
international fiber optics communications and information services, including IP
(Internet Protocol) services, broadband transport, and colocation services. One
of Level 3's subsidiaries, CorpSoft, Inc. (also known as Corporate Software) is
engaged in the resale of software to businesses, similar to the business of
Software Spectrum. Eldorado Acquisition is a Delaware corporation formed for the
purpose of merging with Software Spectrum.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: Shareholders of Software Spectrum, other than Level 3 and its subsidiaries,
Software Spectrum and its subsidiaries and shareholders of Software Spectrum who
perfect dissenters' rights of appraisal under Texas law, will be entitled to
receive $37 in cash, without interest, for each share of Software Spectrum
common stock owned by them. The $37 per share merger price represents a 122%
premium over the $16.65 closing price of Software Spectrum's shares on May 1,
2002, the trading day prior to the announcement of the merger, and a 110%
premium over the $17.57 average closing price of the shares for the 90 days
prior to the announcement.
Q: WHAT IS THE RECOMMENDATION OF OUR BOARD OF DIRECTORS?
A: In the opinion of our Board of Directors, the terms and provisions of the
merger agreement and the proposed merger are fair to and in the best interests
of Software Spectrum's shareholders. Our Board of Directors recommends that you
vote FOR the approval of the merger agreement and the merger. Our Board of
Directors has unanimously approved the merger agreement and the merger.
Q: WHAT FACTORS DID OUR BOARD CONSIDER IN MAKING ITS RECOMMENDATION?
A: In making its determination, our Board of Directors took into account, among
other things, the cash consideration to be received by the holders of Software
Spectrum common stock in the merger and the current and historical market prices
of Software Spectrum common stock, Software Spectrum's ability to furnish
information and conduct negotiations should it receive a superior proposal, the
terms of the merger agreement, and the business, strategy and prospects of
Software Spectrum. To review the background and reasons for the merger in
greater detail, see pages 15 through 18.
Q: DID OUR BOARD OF DIRECTORS OBTAIN THE OPINION OF A FINANCIAL ADVISOR?
A: Our Board of Directors retained SunTrust Robinson Humphrey to provide a
fairness opinion. In its fairness opinion SunTrust stated that, as of May 1,
2002, based upon and subject to the factors and assumptions set forth in their
opinion, the $37 per share cash consideration to be received by you is fair from
a financial point of view.
1
Q: WHAT ARE THE DISADVANTAGES TO ME OF MERGING WITH ELDORADO ACQUISITION?
A: Following the proposed merger, the current holders of Software Spectrum's
common stock, other than Level 3 and its subsidiaries, will no longer have the
opportunity to benefit from any earnings or growth of Software Spectrum.
Q: WHAT REGULATORY APPROVALS AND FILINGS ARE NEEDED TO COMPLETE THE MERGER?
A: Before we can complete the merger, the parties will be required to await the
expiration or termination of the waiting period under any applicable foreign
antitrust law.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We expect that the requisite regulatory approvals and closing conditions will
be satisfied on or before June 18, 2002 and, assuming the merger is approved by
Software Spectrum's shareholders and the other closing conditions are satisfied
or waived, that the merger will be completed on or promptly after that date.
However, we cannot assure you that such requirements will be satisfied (or
waived where permitted by applicable law) or, if satisfied or waived, the date
by which they will be satisfied or waived.
Q: WHAT ARE THE ADVANTAGES TO ME OF MERGING SOFTWARE SPECTRUM WITH ELDORADO
ACQUISITION?
A: Shareholders will receive a significant premium over the market price of
Software Spectrum's common stock prior to the announcement of the merger, and
will not face the market and business risks associated with ownership of
Software Spectrum's stock and the implementation of Software Spectrum's
strategy.
Q: WHAT POTENTIAL CONFLICTS OF INTEREST DOES THE BOARD HAVE IN RECOMMENDING
APPROVAL OF THE MERGER AGREEMENT AND THE MERGER?
A: Robert P. Lee, a member of our Board of Directors, is a Managing Member of
and an owner of an equity interest in the parent company of Sheffield Merchant
Banking Group, which we hired to assist us in negotiating the merger agreement.
Sheffield will receive a $1.25 million fee plus reasonable expenses upon the
consummation of the merger.
Under the merger agreement, the directors of Software Spectrum will be entitled
to indemnification and insurance coverage rights after the consummation of the
merger. Our directors who hold options (whether vested or unvested) to purchase
shares of our common stock will be entitled to receive, for each share subject
to an option, an amount in cash equal to the excess of $37 over the exercise
price of the option.
Under pre-existing management continuity agreements, our directors who are also
executive officers of Software Spectrum will receive a special bonus if they
remain employed for at least one year following approval of the merger, and they
will be entitled to receive special severance benefits if their employment is
terminated under certain circumstances within two years after the approval of
the merger. The executives will also be guaranteed their existing level of
compensation and benefits for two years after the approval of the merger
(assuming continued employment).
Q: WHAT VOTE IS REQUIRED TO APPROVE THE MERGER AGREEMENT AND THE MERGER?
A: The holders of at least 66 2/3% of all outstanding shares of Software
Spectrum's common stock must vote to approve the merger agreement and the
merger. Shares of Software Spectrum common stock representing approximately 30%
of the voting power of Software Spectrum are committed to vote in favor of
approving the merger agreement and the merger.
Q: WHEN AND WHERE IS THE SPECIAL MEETING AND WHO CAN ATTEND?
A: The special meeting will take place at our offices at 2140 Merritt Drive,
Garland, Texas, on June 18, 2002, at 10:00 a.m., local time. Only shareholders
as of the May 20, 2002 record date for voting shares at the shareholders
meeting, their proxy holders, and invited guests may attend the special meeting.
If you wish to vote in person and your shares are held by a stockbroker, you
need to obtain a proxy from the broker authorizing you to vote your shares held
in the broker's name.
2
Q: HOW MANY SHARES ARE OUTSTANDING AND HOW MANY SHARES CAN I VOTE?
A: As of the close of business on May 20, 2002, 3,171,412 shares of common stock
were issued and outstanding. Every shareholder is entitled to one (1) vote for
each share of common stock held. In addition, as of the close of business on May
20, 2002, options to purchase 689,990 shares of common stock were outstanding
but had not been exercised; holders of unexercised options are not permitted to
vote the shares underlying such options.
Q: DO I HAVE DISSENTERS' RIGHTS OF APPRAISAL?
A: Under Texas law, you are entitled to dissenters' rights. If you do not vote
in favor of the merger and you properly elect to exercise your dissenters'
rights, as described under "The Merger -- Appraisal Rights of Shareholders" on
page 33 and Appendix C to this proxy statement, you may receive payment of the
"fair value" of your Software Spectrum common stock.
Q: HOW DO I GET PAID?
A: If the merger is approved and consummated, you will be mailed instructions,
which will explain how to exchange your share certificates for the merger
consideration. Do not send in your share certificates now.
Q: WHAT ARE THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO ME?
A: In general, upon the exchange of Software Spectrum shares for cash pursuant
to the merger, you will recognize gain or loss for U.S. federal income tax
purposes equal to the difference between the amount of cash received and your
adjusted tax basis in your Software Spectrum shares. Provided you hold your
Software Spectrum shares as a capital asset, that gain or loss will generally be
capital gain or loss. You are urged to consult with your tax advisor with
respect to the particular U.S. federal, state, local, and foreign income tax or
other tax consequences of the merger to you.
Q: WHEN WAS THIS PROXY STATEMENT MAILED?
A: This proxy statement was first mailed to shareholders on or about May 21,
2002.
WHO CAN HELP ANSWER MY QUESTIONS?
If you have more questions about this proxy statement or the merger, you should
contact:
Investor Relations
Software Spectrum, Inc.
2140 Merritt Drive
Garland, Texas 75041
(972) 840-6600
or
The Company's Information Agent
D.F. King & Co., Inc.
77 Water Street
New York, New York 10005
(800) 628-8510
3
SUMMARY
This summary, together with the preceding Questions and Answers About the
Merger section, highlights selected information in this proxy statement and does
not contain all of the information that might be important to you. You should
carefully read the entire proxy statement to fully understand the merger
agreement. The merger agreement is attached as Appendix A to this proxy
statement. We encourage you to read the merger agreement, as it is the legal
document that governs the merger.
PARTIES TO THE MERGER (PAGE 11)
Software Spectrum
- We are incorporated under the laws of the State of Texas. Our executive
offices are located at 2140 Merritt Drive, Garland, Texas 75041. Our
telephone number is (972) 840-6600.
- Software Spectrum is a global business-to-business software services
provider, marketer and reseller with sales locations, operations and
contact centers located in North America, Europe and Asia/ Pacific.
- Software Spectrum's common stock has traded on the Nasdaq National Market
since 1991 under the symbol "SSPE."
Level 3 Communications
- Level 3 Communications, Inc. is incorporated under the laws of the State
of Delaware. Its executive offices are located at 1025 Eldorado Blvd.,
Broomfield, Colorado 80021. Its telephone number is (720) 888-1000.
- Level 3 is engaged in the business of international fiber optic
communications and information services, including IP (Internet Protocol)
services, broadband transport, and colocation services. One of Level 3's
subsidiaries, CorpSoft, Inc. (also known as Corporate Software) is
engaged in the resale of software to businesses similar to the business
of Software Spectrum.
- Level 3's common stock has traded on the Nasdaq National Market since
1998 under the symbol "LVLT."
Eldorado Acquisition
- Eldorado Acquisition is a Delaware corporation and an indirect wholly
owned subsidiary of Level 3. Eldorado Acquisition has not engaged in any
business activity other than in connection with the merger and the
related transactions.
SPECIAL MEETING OF SHAREHOLDERS
General (page 12)
The special meeting will be held on June 18, 2002, at 10:00 a.m., local
time, at 2140 Merritt Drive, Garland, Texas. At the special meeting, you will be
asked to consider and vote upon a proposal to approve the merger and the merger
agreement, a copy of which is attached as Appendix A to this proxy statement.
Record Date and Voting (page 12)
The close of business on May 20, 2002 is the record date for determining
holders of shares of our common stock entitled to vote at the special meeting.
On the record date, there were 3,171,412 shares of Software Spectrum common
stock entitled to vote at the special meeting.
4
Required Vote (page 12)
An affirmative vote of the holders of at least two-thirds of the
outstanding shares of our common stock must be cast FOR the approval of the
merger agreement and the merger in order for the merger to be completed. Each
share of our common stock is entitled to one vote.
If your shares are held in "street name" by your broker, your broker will
vote your shares only if you provide instructions on how to vote. You should
follow the procedures provided by your broker regarding the voting of your
shares. If you do not instruct your broker to vote your shares or if you abstain
from voting, it will have the same effect as a vote against the approval of the
merger agreement and the merger.
Judy C. Odom, Chairman of the Board and Chief Executive Officer of Software
Spectrum, and Private Capital Management, L.P. (or PCM), have committed to vote
FOR the approval of the merger agreement and the merger. The shares of Software
Spectrum common stock beneficially owned by Ms. Odom and over which PCM has
voting authority represent approximately 30% of the outstanding shares of common
stock of Software Spectrum.
Proxies; Revocation (page 13)
You should complete, date and sign your proxy card and mail it in the
enclosed return envelope as soon as possible so that your shares may be
represented at the special meeting, even if you plan to attend the meeting in
person. Unless contrary instructions are indicated on your proxy, all of your
shares represented by valid proxies will be voted FOR the approval of the merger
agreement and the merger.
You may revoke your proxy at any time before the special meeting. A proxy
may be revoked prior to the vote at the special meeting by submitting a written
revocation to the secretary of Software Spectrum at 2140 Merritt Drive, Garland,
Texas 75041, or by submitting a new proxy, in either case, dated after the date
of the proxy that is being revoked. In addition, a proxy may also be revoked by
voting in person at the special meeting. Simply attending the special meeting
without voting will not revoke your proxy.
Please do not send us any of your stock certificates at this time. If the
merger is completed, we will send you written instructions for exchanging your
stock certificates for the merger consideration.
THE MERGER AND THE MERGER AGREEMENT
What You Will Receive in the Merger
You will receive $37 per share in cash in exchange for each share of our
common stock that you own. The $37 per share represents a significant premium
over the market price for our shares prevailing before the public announcement
of the merger agreement.
Background of the Merger (page 15)
For a description of the events leading to the approval of the merger
agreement by the Board of Directors and the reasons for such approval, you
should refer to "The Merger -- Background of the Merger" and "-- Reasons for the
Merger; Recommendation of the Board of Directors."
Purposes of the Merger; Certain Effects of the Merger (page 16)
The principal purpose of the merger is to enable Level 3 to acquire all of
the equity interest in Software Spectrum and provide you the opportunity to
receive a cash payment for your shares at a significant premium over the market
prices at which the common stock traded before the public announcement of the
merger agreement. Following closing, Software Spectrum will integrate its
operations with Corporate Software, a subsidiary of Level 3 that is engaged in
the resale of software to businesses similar to the business of Software
Spectrum.
The merger will terminate all equity interests in Software Spectrum held by
public shareholders, and Level 3 will be the sole beneficiary of any earnings
and growth of Software Spectrum following the
5
merger. Upon completion of the merger, our common stock will be delisted from
the Nasdaq National Market and will no longer be publicly traded.
Reasons for the Merger; Recommendation of the Board of Directors (page 17)
Our Board of Directors has determined that the merger agreement and the
merger are advisable and fair to you and in your best interests and recommends
that you vote "FOR" the approval of the merger agreement and the merger. In
making this determination, our Board of Directors took into account, among other
things, the opinion of our financial advisor, SunTrust Robinson Humphrey, to the
effect that, as of the date of the merger agreement and based upon and subject
to the factors and assumptions explained to the Board of Directors and set forth
in the opinion, the cash consideration to be received by you in the merger is
fair from a financial point of view.
Merger Financing; Source of Funds (page 32)
Level 3 has informed us that the aggregate consideration to be paid to our
shareholders and holders of options to purchase our shares will be financed
through cash on hand.
Appraisal Rights of Shareholders (page 33)
Our shareholders are entitled to dissenters rights under Articles 5.11,
5.12, and 5.13 of the Texas Business Corporation Act ("TBCA"). Holders of record
must follow the steps summarized under "The Merger -- Appraisal Rights of
Shareholders" properly and in a timely manner to perfect dissenters' rights.
Persons having a beneficial interest in common stock held of record in the name
of another person, such as a broker or nominee, must act promptly to cause the
record holder to take any of these required steps.
Under the TBCA, the shareholders who do not wish to accept the merger
consideration provided for in the merger agreement and who follow the procedures
set forth in Article 5.12 of the TBCA will be entitled to have their common
stock appraised and to receive payment in cash of the "fair value" of their
common stock, exclusive of any element of value arising from the accomplishment
or expectation of the merger, together with a fair rate of interest, if any, as
determined by a court. The "fair value" may be more or less than the merger
consideration. The full text of Articles 5.11, 5.12, and 5.13 is reprinted in
its entirety as Appendix C to this proxy statement.
Conditions to the Merger (page 39)
Each party's obligation to complete the merger depends on the satisfaction
of the following conditions:
- all waiting periods under U.S. or applicable foreign antitrust laws have
expired or been terminated;
- there is no injunction or other governmental order restraining or
prohibiting the merger; and
- the merger has been approved by holders of at least two-thirds of our
outstanding common stock.
In addition, the obligation of Level 3 to complete the merger is subject to
certain additional conditions including, among other things, the accuracy of our
representations and warranties, our compliance with material obligations
(including obligations related to our indebtedness and our foreign
subsidiaries), the absence of an order imposing material limitations on Level
3's acquisition, ownership or operation of Software Spectrum and the absence of
a banking moratorium or limitations by a U.S. governmental authority on the
extension of credit.
The obligation of Level 3 to complete the merger is not subject to a
financing condition or any additional corporate proceedings by Level 3, such as
the approval of its shareholders.
On May 15, 2002, Software Spectrum and Level 3 were notified that they had
received early termination of the Hart-Scott-Rodino waiting period.
6
Termination (page 40)
The merger agreement may be terminated by mutual written consent of Level 3
and Software Spectrum or by either Level 3 or Software Spectrum upon a final
permanent injunction, upon a failure to approve the merger by our shareholders,
or if the merger is not consummated by September 3, 2002.
The merger agreement may be terminated by Level 3 if there is a tender or
exchange offer for Software Spectrum and our Board of Directors fails to
recommend against such offer; if we have entered into an agreement for an
alternative transaction; if our Board recommends an alternative transaction or
withdraws or adversely modifies its recommendation of the Level 3 merger; or if
we breach representations, warranties or covenants in the merger agreement.
The merger agreement may be terminated by Software Spectrum if Level 3
breaches its representations, warranties or covenants in the merger agreement in
a manner that would have a material adverse effect on its ability to consummate
the merger.
Termination Fee (page 40)
We must pay to Level 3 a termination fee of $5 million plus reasonable
expense reimbursement of up to $1 million, if Level 3 terminates the merger
agreement because Software Spectrum has entered into, or our Board of Directors
has recommended, an alternative transaction involving a merger, a sale of more
than 10% of the consolidated assets of Software Spectrum and its subsidiaries,
the issuance, sale or disposition of securities representing more than 10% of
our voting power, or a transaction in which a person acquires beneficial
ownership of 15% or more of our outstanding common stock.
We must pay one-half of the $5 million termination fee plus the
reimbursement expense under the circumstances described below. Additionally, if
within nine months following the occurrence of any of the events described
below, Software Spectrum enters into a definitive agreement providing for or
consummates an alternative transaction involving more than 33% of our
consolidated assets, voting power or outstanding common stock, then upon the
closing of such transaction, Software Spectrum must pay to Level 3 the other
half of the termination fee.
- Level 3 terminates the merger agreement because any person has commenced
a tender or exchange offer to purchase shares representing more than 33%
of the outstanding shares of Software Spectrum, and our Board of
Directors fails to recommend against acceptance of such offer within ten
business days.
- Level 3 terminates the merger agreement because our Board of Directors
has withdrawn or adversely modified its recommendation of the merger.
- Level 3 terminates the merger agreement because Software Spectrum is in
breach of the merger agreement.
- Software Spectrum terminates the merger agreement for any reason (other
than because Level 3 is in breach of the merger agreement) at a time when
Level 3 could have terminated the merger agreement because Software
Spectrum is in breach of the merger agreement.
- After the date of the merger agreement, there is a publicly disclosed
takeover proposal involving more than 10% of our consolidated assets,
voting power or outstanding common stock, and thereafter Level 3 or
Software Spectrum terminates the merger agreement because our
shareholders fail to approve the merger or because the merger is not
consummated by September 3, 2002.
OPINION OF FINANCIAL ADVISOR (PAGE 18)
SunTrust Robinson Humphrey delivered an opinion on May 1, 2002 to our Board
of Directors that, as of that date and based upon and subject to the factors and
assumptions set forth in the opinion and reviewed with our Board of Directors,
the consideration to be received by you in the transactions contemplated by the
merger agreement is fair to you from a financial point of view. The opinion of
7
SunTrust is dated May 1, 2002, and opines as to the fairness as of that date
only. SunTrust is not obligated to update its opinion after the date thereof.
Events could occur prior to the date of the special meeting which could result
in a different valuation or conclusion if the opinion was reissued on that date.
In the event that there are material changes to the terms of the proposed
transactions or other material changes or conditions affecting Software Spectrum
or its business, our Board of Directors will consider the advisability of
requesting an updated fairness opinion at that time. As of the date of this
proxy statement, our Board of Directors does not believe any such material
changes have occurred.
SunTrust will receive $300,000 for its preparation and delivery of a
fairness opinion. The full text of the written opinion of SunTrust, which sets
forth a description of assumptions made, matters considered and limitations on
its review, is attached as Appendix B to this proxy statement. You are urged to
read this opinion carefully in its entirety.
Software Spectrum has also engaged the services of Sheffield Merchant
Banking Group, to act as its financial advisor and to render aid and assistance
in negotiating the merger agreement. Robert P. Lee, a member of our Board of
Directors, is a Managing Member of and an owner of an equity interest in the
parent company of Sheffield. Under the terms of our agreement with Sheffield,
Sheffield will be entitled to a transaction fee equal to $1,250,000 upon
consummation of the merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (PAGE 29)
In considering the recommendation of our Board of Directors with respect to
the merger, you should be aware that some of our executive officers and members
of the Board of Directors have interests in the transactions contemplated by the
merger agreement that are different from, or in addition to, the interests of
our shareholders generally. Our Board of Directors was aware of these interests
and considered them, among other matters, in making its recommendation. These
interests of our executive officers and members of the Board of Directors
include the following:
- Pursuant to pre-existing management continuity agreements, our executive
officers will receive a payment equal to their annual salary and bonus if
they remain employed for at least one year following approval of the
merger, and they will be entitled to special severance payments if their
employment is terminated under certain circumstances within two years
after approval of the merger. The executives will also be guaranteed
their existing level of compensation and benefits for two years after
approval of the merger (assuming continued employment).
- Mr. Lee, a member of our Board of Directors, is a Managing Member of and
an owner of an equity interest in the parent company of Sheffield.
Sheffield has been engaged by Software Spectrum to provide financial
advisory services in connection with the merger. Sheffield will be
entitled to a transaction fee equal to $1,250,000 upon consummation of
the merger.
- After the merger, our directors and officers will be indemnified for
events that occurred prior to the merger to the fullest extent permitted
under applicable law, and the indemnification provisions of our articles
of incorporation and by-laws may not be amended for six years. In
addition, our directors and officers will be entitled to liability
insurance coverage comparable to their existing coverage for a period of
three years, subject to certain conditions.
- Following the merger, Software Spectrum will integrate its operations
with Corporate Software, a subsidiary of Level 3. It is anticipated that
Ms. Odom will serve as the Chief Executive Officer of the integrated
company and Keith Coogan will serve as President and Chief Operating
Officer of the integrated company.
- As soon as practicable after the merger, holders of options to purchase
Software Spectrum common stock (whether vested or unvested) will be
entitled to receive, for each share subject to an option, an amount in
cash equal to the excess, of $37 over the exercise price of the option.
Our directors and executive officers are option holders.
8
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES (PAGE 32)
The exchange of Software Spectrum shares for cash in the merger will be a
taxable transaction for U.S. federal income tax purposes, and accordingly you
will recognize gain or loss equal to the difference between the cash received
and your tax basis in the Software Spectrum shares exchanged in the merger. In
general, you must calculate gain or loss separately for each block of Software
Spectrum shares that is exchanged in the merger. Provided you hold your Software
Spectrum shares as a capital asset, this gain or loss will be capital gain or
loss, which will be long-term capital gain or loss if you have held your
Software Spectrum shares for more than one year at the time of the merger.
You are urged to consult with your tax advisor with respect to the
particular U.S. federal, state, local, and foreign income tax or other tax
consequences of the merger to you.
VOTING AGREEMENT (PAGE 35)
PCM and Ms. Odom have entered into a voting agreement with Level 3 in which
they have agreed to vote FOR the approval of the merger agreement and the
merger. Ms. Odom is the Chairman of the Board and Chief Executive Officer of
Software Spectrum. PCM is a financial management partnership which has revocable
dispositive and/or voting power over Software Spectrum common stock held by its
clients. PCM's obligation to vote for the approval of the merger agreement and
the merger is subject to the right of its clients to revoke its voting
authority. The shares of Software Spectrum common stock owned by Ms. Odom and
those for which PCM has voting authority together represent approximately 30% of
the votes entitled to be cast at the special meeting on the proposal to approve
the merger agreement and the merger.
ADDITIONAL INFORMATION
If you have additional questions about this proxy statement or the merger
or would like additional copies of this proxy statement, you should call the
information agent, D.F. King & Co., Inc. toll free at (800) 628-8510, or our
investor relations department, at (972) 840-6600.
9
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement includes certain statements of Software Spectrum that
may constitute "forward-looking statements" and information relating to Software
Spectrum that are based upon the beliefs of management as well as assumptions
made by and information currently available to Software Spectrum within the
meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements include statements concerning plans, objectives, goals, strategies,
future events, or performance, and underlying assumptions and other statements
that are other than statements of historical facts, including statements
regarding completion of the proposed merger. When used in this document, the
words "expects," "anticipates," "estimates," "plans," "intends," "projects,"
"predicts," "believes," "may" or "should," and similar expressions, are intended
to identify forward-looking statements. These statements reflect the current
view of Software Spectrum's management with respect to future events, including
the completion of the proposed merger, and are subject to numerous risks,
uncertainties, and assumptions. Many factors could cause the actual results,
performance, or achievements of Software Spectrum to be materially different
from any future results, performance, or achievements that may be expressed or
implied by such forward-looking statements, including, among other things:
- the failure of Software Spectrum shareholders to approve the merger
agreement and the merger;
- a material adverse change in the business operations, financial condition
or prospects of Software Spectrum or its subsidiaries;
- the failure of Software Spectrum to satisfy conditions to the merger; and
- Software Spectrum's ability to continue to attract and retain
highly-skilled technical and management personnel in an intensely
competitive market.
Other factors and assumptions not identified above could also cause the
actual results to differ materially from those set forth in the forward-looking
statements. Although Software Spectrum's management believes these assumptions
are reasonable, no assurance can be given that they will prove correct.
Accordingly, you should not rely upon forward-looking statements as a prediction
of actual results. Further, Software Spectrum undertakes no obligation to update
forward-looking statements after the date they are made or to conform the
statements to actual results or changes in Software Spectrum's expectations.
The forward-looking statements should be read in conjunction with our
Annual Report on Form 10-K for the fiscal year ended April 30, 2001 and our
subsequent Quarterly Reports on Form 10-Q. Our Form 10-K and our Forms 10-Q are
on file with the SEC, and copies are available without charge upon written
request to Software Spectrum's Secretary at the address listed under Who Can
Help Answer My Questions on page 3.
All information contained in this proxy statement with respect to Level 3
and Eldorado Acquisition has been supplied or confirmed by Level 3.
10
PARTIES TO THE MERGER
SOFTWARE SPECTRUM
Software Spectrum is a global business-to-business software services
provider, marketer and reseller with sales locations, operations and contact
centers located in North America, Europe and Asia/Pacific. Software Spectrum
sells personal computer software through volume licensing and maintenance
agreements, or right-to-copy arrangements and full-packaged PC software
products. In addition, Software Spectrum provides contact center solutions to
software publishers, Internet service providers, original equipment
manufacturers and other organizations. Software Spectrum is a Texas corporation
and was incorporated in 1983. Software Spectrum's executive offices are located
at 2140 Merritt Drive, Garland, Texas 75041, telephone (972) 840-6600.
LEVEL 3 COMMUNICATIONS
Level 3 is a publicly held Delaware corporation engaged in the business of
international fiber optics communications and information services, including IP
services, broadband transport and colocation services. Level 3 offers
information services through its wholly owned subsidiaries. Level 3 was
incorporated as Peter Kiewit Sons', Inc. in 1941. Level 3's executive offices
are located at 1025 Eldorado Blvd., Broomfield, Colorado 80021, telephone (720)
888-1000.
ELDORADO ACQUISITION
Eldorado Acquisition is an indirect wholly owned subsidiary of Level 3.
Eldorado Acquisition was formed solely for the purpose of merging into Software
Spectrum. Eldorado Acquisition has not engaged in any business activity other
than in connection with the merger and the related transactions. Eldorado
Acquisition is a Delaware corporation and was incorporated in 2002. The
principal executive offices of Eldorado Acquisition are located at 1025 Eldorado
Blvd., Broomfield, Colorado 80021, telephone (720) 888-1000.
11
SPECIAL MEETING OF SHAREHOLDERS
GENERAL
This proxy statement is being furnished to Software Spectrum shareholders
as part of the solicitation of proxies by the Software Spectrum Board of
Directors for use at a special meeting to be held on Tuesday, June 18, 2002,
starting at 10:00 a.m., local time, at Software Spectrum's corporate offices at
2140 Merritt Drive, Garland, Texas. The purpose of the special meeting is for
the Software Spectrum shareholders to consider and vote upon a proposal to
approve the Agreement and Plan of Merger, dated as of May 1, 2002, by and among
Level 3, Eldorado Acquisition, and Software Spectrum and the merger. A copy of
the merger agreement is attached to this proxy statement as Appendix A. This
proxy statement and the enclosed form of proxy are first being mailed to
Software Spectrum shareholders on or about May 21, 2002.
RECOMMENDATION OF OUR BOARD OF DIRECTORS
Our Board of Directors has unanimously approved the merger and the merger
agreement and recommends that you vote FOR the approval of the merger agreement
and the merger. See "The Merger -- Reasons for the Merger; Recommendation of the
Board of Directors."
RECORD DATE AND VOTING
The holders of record of Software Spectrum's common stock as of the close
of business on May 20, 2002, the record date, are entitled to receive notice of,
and to vote at, the special meeting. On the record date, there were 3,171,412
shares of Software Spectrum common stock outstanding.
In order to carry on the business of the meeting, we must have a "quorum,"
or a majority of our outstanding shares represented at the meeting. The person
with the right to vote the shares must be present at the meeting or represented
by proxy. Shares owned by Software Spectrum (treasury shares) are not voted and
do not count for this purpose. Once a share is represented at the special
meeting, it will be counted for the purpose of determining a quorum at the
special meeting. If we do not have a quorum at the meeting, shareholders
entitled to vote have the power to adjourn the meeting without notice, other
than an announcement at the meeting, until a quorum is represented; however, if
a new record date is set for an adjourned meeting, then a new quorum will have
to be established.
REQUIRED VOTE
Completion of the merger requires the approval of the merger agreement and
the merger by the affirmative vote of the holders of at least 66 2/3% of the
outstanding shares of Software Spectrum common stock. Each share of Software
Spectrum common stock outstanding on May 20, 2002 entitles the holder to one
vote at the special meeting. You may vote by signing, dating, and completing the
enclosed proxy card and returning it in the enclosed self-addressed envelope by
mail or by attending the meeting and voting in person. We recommend you vote by
proxy even if you plan to attend the meeting; you can always change your vote at
the meeting if you desire. As of May 20, 2002, the directors and executive
officers of Software Spectrum, including Judy Odom, owned, in the aggregate,
194,682 shares of Software Spectrum common stock entitled to vote at the special
meeting, or approximately 6% of the outstanding shares of Software Spectrum on
that date. The directors and executive officers of Software Spectrum have
informed Software Spectrum that they intend to vote all of their shares of
Software Spectrum common stock FOR the approval of the merger agreement and the
merger.
Under the rules of the Nasdaq National Market, brokers who hold shares in
street name for customers have the authority to vote on "routine" proposals when
they have not received instructions from beneficial owners. However, these rules
preclude brokers from exercising their voting discretion with respect to the
approval of non-routine matters such as approval of the merger agreement and the
merger and thus, absent specific instructions from the beneficial owner of such
shares, brokers are not empowered to vote these shares with respect to the
approval of non-routine proposals (i.e., "broker non-votes").
12
Abstentions and properly executed broker non-votes will have the same effect as
votes against the approval of the merger agreement and the merger.
PROXIES; REVOCATION
If you vote your shares of Software Spectrum common stock by signing a
proxy, your shares will be voted at the special meeting as you indicate on your
proxy card. If no instructions are indicated on your signed proxy card, your
shares of Software Spectrum common stock will be voted FOR the approval of the
merger agreement and the merger.
You may receive more than one proxy or voting card depending on how you
hold your shares. Shares registered in your name are covered by one card. Shares
held for your account under Software Spectrum's Employee Stock Purchase Plan may
be covered by a separate card. If you also hold shares through a broker or
someone else, you may also get material from them asking how you want to vote.
Please respond to all of these requests.
You may revoke your proxy at any time before the special meeting. A proxy
may be revoked prior to the vote at the special meeting by submitting a written
revocation to the Corporate Secretary of Software Spectrum at 2140 Merritt
Drive, Garland, Texas 75041, or by submitting a new proxy, in either case, dated
after the date of the proxy that is being revoked. In addition, a proxy may also
be revoked by voting in person at the special meeting. Simply attending the
special meeting without voting will not revoke your proxy.
The Board of Directors is not currently aware of any other business to be
brought before the special meeting. If, however, other matters are properly
brought before the special meeting or there is any adjournment or postponement
of the special meeting, the persons appointed as proxies will have discretionary
authority to vote the shares represented by duly executed proxies in accordance
with their discretion and judgment.
Officers and employees of Software Spectrum may solicit proxies by
telephone or in person. However, they will not be paid for soliciting proxies.
Software Spectrum also will request that persons and entities holding shares in
their names or in the names of their nominees that are beneficially owned by
others send proxy materials to, and obtain proxies from, those beneficial
owners, and will reimburse those holders for their reasonable expenses in
performing those services. Software Spectrum has retained D.F. King & Co., Inc.
to assist it in the solicitation of proxies, using the means referred to above,
at an anticipated cost of $7,500, plus reimbursement of out-of-pocket expenses.
ADJOURNMENTS OR POSTPONEMENTS
Although it is not expected, the special meeting may be adjourned or
postponed for the purpose of soliciting additional proxies or for other reasons
as determined by the Software Spectrum Board of Directors. Any adjournment or
postponement may be made without notice, including by an announcement made at
the special meeting, by approval of the holders of a majority of the voting
power represented by the outstanding shares of Software Spectrum stock present
in person or represented by proxy at the special meeting, whether or not a
quorum exists. Any signed proxies received by Software Spectrum will be voted in
favor of an adjournment or postponement in these circumstances unless a written
note on the proxy by the shareholder directs otherwise. Any adjournment or
postponement of the special meeting for the purpose of soliciting additional
proxies or for other reasons will allow Software Spectrum shareholders who have
already sent in their proxies to revoke them at any time prior to their use.
13
PAYMENT OF CASH CONSIDERATION
The merger will become effective at the date and time when a properly
executed certificate of merger is filed with the Secretary of State of the State
of Delaware and a certificate of merger is issued to the surviving corporation
by the Secretary of State of the State of Texas, or at such later time as is
specified in the respective certificates of merger. We expect the filing of the
certificate of merger with the Secretary of State of the State of Delaware, the
delivery of the articles of merger to the Secretary of State of the State of
Texas and the effective time of the merger to occur as soon as practicable after
the special meeting, subject to approval of the merger agreement and the merger
by our shareholders and the satisfaction or waiver of the other conditions to
completing the transactions provided in the merger agreement.
We currently expect to complete the merger promptly following the special
meeting, although there can be no assurance of the date by which the merger will
be completed. See "The Merger Agreement -- Conditions to the Merger." Detailed
instructions with respect to the surrender of your stock certificates, together
with a transmittal form, will be forwarded to you promptly following the merger
by the paying agent appointed by Eldorado Acquisition. You should not submit
your stock certificates to the paying agent until you receive these materials.
The paying agent will send the merger consideration to you as promptly as
practicable following receipt by the paying agent of your certificates and other
required documents. No interest will be paid on the merger consideration.
YOU SHOULD NOT SEND IN YOUR STOCK CERTIFICATES UNTIL YOU RECEIVE A
TRANSMITTAL FORM. We will send transmittal forms to shareholders shortly after
the merger is completed. You should send your stock certificates only pursuant
to instructions that will be set forth in the transmittal form.
We strongly recommend that stock certificates and transmittal forms be
transmitted only by registered U.S. mail, return receipt requested,
appropriately insured for the risk of loss. Title to the certificates will pass
only upon delivery of the certificates to the paying agent. Prior to receiving
payment for their shares of Software Spectrum common stock, shareholders whose
certificates are lost, wrongfully taken or destroyed will be required to supply
an affidavit or other evidence that the certificate has been lost, wrongfully
taken or destroyed, evidence that the person is the beneficial owner of the
certificate claimed to be lost, wrongfully taken or destroyed and reasonable
indemnity against the claims of any third party.
14
THE MERGER
BACKGROUND OF THE MERGER
The software reselling industry is characterized by declining gross profit
margins and intense competition. Software Spectrum has responded to these
pressures through a combination of internal growth, growth through acquisitions,
and effective cost control. In recent years, business customers have required
their software vendors to provide increased levels of customer service and
web-based tools to help manage their organizations' software assets. In order to
compete effectively, Software Spectrum has sought to continue to lower its
operating costs as a percentage of sales, provide broader geographic coverage
and maintain a high level of customer service and technology that business
customers require. There has been increased consolidation within the industry as
increased operating efficiency and rapid growth have been required to maintain
profitability.
In January 2002, a representative of (i)Structure, a subsidiary of Level 3,
contacted Software Spectrum to express an interest in a possible business
combination with Software Spectrum. At a meeting at Software Spectrum's offices
held on January 8, 2002, the parties had a preliminary discussion regarding the
potential strategic merits of a combination. Following that meeting, no other
meetings or discussions with (i)Structure were held.
In late February 2002, following a public announcement by Level 3 of its
agreement to acquire Corporate Software, Howard Diamond, Chief Executive Officer
of Corporate Software and Keith Coogan, our President, scheduled a meeting to
discuss a possible combination of the two companies.
Level 3 completed its acquisition of Corporate Software on March 13, 2002.
On March 27, 2002, Ms. Odom and Mr. Coogan attended a meeting with Mr. Diamond,
together with Erik Moreno, Vice President Global Corporate Development of Level
3, and Jim Goodwin, an outside financial advisor to Level 3. At the March 27(th)
meeting, the representatives of Level 3 indicated that, subject to due diligence
and the negotiation of a definitive merger agreement, Level 3 was prepared to
offer $30 per share for all outstanding shares of Software Spectrum. Over the
next ten days, Software Spectrum and Level 3 negotiated with respect to the
value of Software Spectrum and the terms of a confidentiality agreement.
Following the March 27(th) meeting, Software Spectrum engaged Sheffield
Merchant Banking Group, an investment banking firm, to provide financial
advisory services to Software Spectrum in connection with the proposed
transaction. Sheffield Merchant Banking Group is a boutique investment banking
firm providing merger and acquisition advice to middle market companies, and
currently has seven managing directors, all from nationally recognized
investment banking firms. Robert Lee, a member of our Board of Directors, is a
Managing Member of and an owner of an equity interest in the parent company of
Sheffield, CRT Capital Group LLC. Prior to joining CRT and forming Sheffield
Merchant Banking Group, Mr. Lee was a Managing Director in the Mergers,
Acquisitions & Restructuring Department of Morgan Stanley Dean Witter. In 1996
Mr. Lee advised Software Spectrum in its acquisition of the Corporate,
Government and Education division of Egghead, Inc.
During the week of April 1, 2002, representatives of Level 3, Software
Spectrum and Sheffield engaged in negotiations concerning the structure of the
possible transaction and the price that Level 3 would be prepared to offer,
assuming that the parties could reach a definitive agreement. Software Spectrum
and its representatives provided additional financial analysis to Level 3.
Further negotiations between the parties and their financial advisors resulted
in a proposal from Level 3 of $37 per fully diluted outstanding share of
Software Spectrum's common stock, subject to the resolution of a number of
significant issues including review of Software Spectrum's operations, the
structure of the transaction, obtaining support for the transaction from key
shareholders and the conditions and terms to be included in a definitive merger
agreement. On April 9, 2002, Level 3 and Software Spectrum entered into a
confidentiality and standstill letter agreement whereby Software Spectrum agreed
to provide certain information to Level 3, which Level 3 agreed to hold
confidential. As part of this agreement, and as a condition to Level 3's
willingness to negotiate the terms of a definitive agreement, Software Spectrum
agreed not to solicit other proposals for a period of at least 21 days and Level
3 agreed not to commence a
15
tender offer during the same 21 day period or to take certain other steps to
acquire Software Spectrum for a period of twelve months.
During the ensuing three weeks, Software Spectrum and Level 3 and their
respective outside legal advisors negotiated the terms of the merger agreement
and Level 3 conducted its due diligence review of Software Spectrum's business
and operations. As part of that process, the parties also negotiated the terms
of the voting agreement with PCM and Ms. Odom.
Ms. Odom provided periodic updates concerning the progress of negotiations
to our outside board members during this time. On April 11, 2002, at a regularly
scheduled meeting of our Board of Directors, our Board of Directors was briefed
on developments relating to the negotiations that had taken place through that
date. In addition, at this meeting, representatives of Sheffield discussed its
preliminary financial analysis of the proposed transaction. Software Spectrum
retained SunTrust Robinson Humphrey on April 15, 2002, to provide the Board of
Directors with an opinion as to the fairness of any transaction from a financial
point of view. SunTrust Robinson Humphrey had provided investment banking
services to Software Spectrum in 2000 and early 2001, and was familiar with
Software Spectrum's business.
On April 18, 2002, Ms. Odom met with James Crowe, Level 3's Chief Executive
Officer, and other executives of Level 3 to discuss the proposed transaction and
the potential benefits of a combination of Software Spectrum with Corporate
Software. On that date, Ms. Odom also met with Mr. Diamond to discuss
organizational issues and potential benefits of the proposed transaction.
On April 30, 2002, our Board of Directors met to discuss the proposed
merger and to evaluate the terms of the proposed transaction. At that meeting,
SunTrust Robinson Humphrey reviewed in detail its evaluation of the proposed
merger from a financial point of view. In addition, Software Spectrum's outside
legal advisor discussed the Board's fiduciary duties, reviewed the terms of the
proposed merger agreement, and described the matters remaining to be negotiated.
The Board authorized our management to seek to resolve the remaining open issues
relating to the merger agreement. Following additional discussion, the meeting
was adjourned with another meeting scheduled for the afternoon of May 1, 2002.
During the evening of April 30, 2002 and continuing on May 1, 2002, the
parties and their respective outside legal advisors discussed and resolved the
remaining open issues relating to the merger agreement. Later on May 1, 2002,
our Board of Directors met to determine whether to approve the acquisition of
Software Spectrum by Level 3. At that meeting our outside legal advisor
described the matters that had been resolved since the Board's April 30 meeting.
SunTrust Robinson Humphrey delivered its oral and written opinion that the
transaction was fair to the shareholders of Software Spectrum from a financial
point of view. Following that presentation, our Board of Directors unanimously
adopted and approved the merger and the definitive merger agreement on behalf of
Software Spectrum. The definitive merger agreement and voting agreement were
signed and delivered during the evening of May 1, 2002. Level 3 and Software
Spectrum publicly announced the signing of the definitive agreement on the
morning of May 2, 2002.
PURPOSES OF THE MERGER; CERTAIN EFFECTS OF THE MERGER
The principal purpose of the merger is to enable Level 3 to acquire all of
the equity interest in Software Spectrum and afford our public shareholders the
opportunity to receive a cash price for their shares that represents a
significant premium over the market price for our shares prevailing before the
public announcement of the merger. The acquisition of the equity interest in
Software Spectrum by Level 3 will be accomplished by a merger of Eldorado
Acquisition with and into Software Spectrum, with Software Spectrum as the
surviving corporation. In the merger, each of the shares of Software Spectrum
common stock held by our shareholders (other than shares held by Software
Spectrum and its subsidiaries, Level 3 and its subsidiaries and other than
shares held by shareholders who perfect dissenters' rights of appraisal under
Texas law) will be converted into the right to receive $37 per share in cash.
The merger will terminate all equity interests in Software Spectrum held by
our shareholders and Level 3 will be the sole beneficiary of any earnings and
growth of Software Spectrum following the
16
merger. Upon completion of the merger, our common stock will be delisted from
the Nasdaq National Market and will no longer be publicly traded.
Following the closing of the merger, Software Spectrum will integrate its
operations with Corporate Software, a reseller of software to businesses similar
to the business of Software Spectrum that was acquired by Level 3 earlier this
year.
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
At a special Board meeting on May 1, 2002, the Software Spectrum Board of
Directors determined that the merger is advisable, fair to, and in the best
interests of, Software Spectrum and its shareholders, and unanimously approved
the merger agreement and the merger. The Software Spectrum Board of Directors
unanimously recommends that holders of Software Spectrum common stock vote FOR
the approval of the merger agreement and the merger.
In reaching its decision to approve the merger agreement and the merger and
to recommend that holders of Software Spectrum common stock vote to approve the
merger agreement and the merger, the Software Spectrum Board of Directors
considered a number of factors, including the following:
- the business, competitive position, strategy and prospects of Software
Spectrum (as well as the risks involved in achieving these prospects),
the nature of the software and related services industry in which
Software Spectrum competes, and current industry, economic and market
conditions;
- the amount of consideration to be received by holders of Software
Spectrum common stock in the merger;
- the current and historical market prices of Software Spectrum common
stock, including the fact that the $37 per share merger consideration
represents: (i) a 122% premium over the closing price of Software
Spectrum common stock on the last trading day prior to the public
announcement of the merger, (ii) a 110%, 109%, 110%, 170% and 109%
premium, respectively, over the average closing prices of Software
Spectrum's common stock for the 30, 60, and 90 day and one and three year
periods prior to the public announcement of the merger, and (iii) a 9%
and a 510% premium, respectively, over the highest and the lowest closing
prices of Software Spectrum's common stock, as reported on the Nasdaq
consolidated reporting system since Software Spectrum's initial public
offering on July 11, 1991;
- the terms of the merger agreement, including:
- the absence of financing condition; and
- Software Spectrum's ability, should it receive a superior
acquisition proposal, to furnish information to and conduct
negotiations with a third party and enter into an agreement relating
to a superior proposal, as more fully described under "The Merger
Agreement -- No Solicitation," "-- Termination" and " -- Termination
Fee";
- the financial presentation by SunTrust Robinson Humphrey, including the
opinion of SunTrust Robinson Humphrey that, as of May 1, 2002, and based
on and subject to the matters set forth in that opinion, the $37 per
share in cash to be received by holders of Software Spectrum common stock
under the merger agreement was fair from a financial point of view to
such holders. See "The Merger -- Opinion of Financial Advisor"; and
- the potential shareholder value that might result from remaining
independent or pursuing other strategic alternatives, as well as the
risks and uncertainties associated with those alternatives.
The Software Spectrum Board of Directors also considered possible negative
factors in its deliberations concerning the merger. In particular, our Board of
Directors considered the following:
- Software Spectrum will no longer exist as an independent company and its
shareholders will forego any increased value that might result from
Software Spectrum's growth; and
17
- under the terms of the merger agreement, Software Spectrum cannot solicit
other acquisition proposals and must pay to Level 3 a termination fee if
the merger agreement is terminated under certain circumstances, which
might potentially discourage other parties from proposing an alternative
transaction that might be more advantageous to shareholders of Software
Spectrum.
Our Board of Directors also considered in its deliberations concerning the
merger the interests of directors and executive officers of Software Spectrum in
the merger described under "The Merger -- Interests of Certain Persons in the
Merger", the effects of the merger on Software Spectrum's employees and other
constituencies and the terms of the merger agreement relating to these matters.
The foregoing discussion addresses the material information and factors
considered by the Software Spectrum's Board of Directors in its consideration of
the merger. After considering these factors, Software Spectrum's Board of
Directors concluded that the positive factors described above substantially
outweighed the negative factors described above. In view of the variety of
factors and the amount of information considered, our Board of Directors did not
assign relative weights to the specific factors and analyses considered in
reaching its determination. The determination to approve the merger agreement
and the merger was made after consideration of all of the factors and analyses
as a whole. In addition, individual members of our Board of Directors may have
given different weights to different factors.
OPINION OF FINANCIAL ADVISOR
General
Pursuant to an engagement letter dated April 15, 2002, SunTrust Capital
Markets, Inc., through its SunTrust Robinson Humphrey division was retained by
Software Spectrum to render an opinion with respect to the fairness, from a
financial point of view, to Software Spectrum common shareholders (other than
Level 3 or any "affiliate" as defined in Rule 405 promulgated under the
Securities Act), on the merger consideration to be received in the proposed
transaction. At a meeting of the Board of Directors of Software Spectrum on
April 30, 2002, SunTrust Robinson Humphrey reviewed its financial analysis. On
May 1, 2002, SunTrust Robinson Humphrey delivered its oral and written opinion
that, as of the date of such opinion and based upon and subject to various
considerations therein, the merger consideration to be offered in the proposed
transaction is fair to the common shareholders of Software Spectrum from a
financial point of view.
THE FULL TEXT OF THE OPINION OF SUNTRUST ROBINSON HUMPHREY WHICH SETS FORTH
THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW
UNDERTAKEN, IS ATTACHED TO THIS PROXY STATEMENT AS APPENDIX B AND IS
INCORPORATED HEREIN BY THIS REFERENCE. THE SUMMARY OF THE SUNTRUST ROBINSON
HUMPHREY OPINION SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF THE SUNTRUST ROBINSON HUMPHREY OPINION. SOFTWARE SPECTRUM
SHAREHOLDERS ARE URGED TO READ THE OPINION IN ITS ENTIRETY.
THE OPINION OF SUNTRUST ROBINSON HUMPHREY IS DIRECTED TO THE SOFTWARE
SPECTRUM BOARD OF DIRECTORS AND RELATES ONLY TO THE FAIRNESS OF THE MERGER
CONSIDERATION TO BE OFFERED IN THE PROPOSED TRANSACTION FROM A FINANCIAL POINT
OF VIEW, DOES NOT ADDRESS ANY OTHER ASPECT OF THE PROPOSED TRANSACTION AND DOES
NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER AS TO HOW SUCH SHAREHOLDER
SHOULD VOTE WITH RESPECT TO MATTERS RELATING TO THE MERGER. THE CONSIDERATION TO
BE RECEIVED BY SOFTWARE SPECTRUM SHAREHOLDERS IN THE MERGER WAS DETERMINED ON
THE BASIS OF NEGOTIATIONS BETWEEN SOFTWARE SPECTRUM AND LEVEL 3 AND WAS APPROVED
BY THE SOFTWARE SPECTRUM BOARD OF DIRECTORS.
Material and Information Considered with Respect to the Proposed Transaction
In arriving at its opinion, SunTrust Robinson Humphrey, among other things,
reviewed and analyzed:
- a draft of the merger agreement dated April 30, 2002 and a draft of the
voting agreement dated April 30, 2002;
18
- publicly available information concerning Software Spectrum which
SunTrust Robinson Humphrey believed to be relevant to its analysis;
- financial and operating information with respect to the business,
operations and prospects of Software Spectrum furnished to SunTrust
Robinson Humphrey by Software Spectrum;
- the trading history of the common stock of Software Spectrum from July
12, 1991 to the present and a comparison of that trading history with
those of other companies which SunTrust Robinson Humphrey deemed
relevant;
- a comparison of the historical financial results and present financial
condition of Software Spectrum with those of certain publicly traded
reference companies which it deemed relevant;
- a comparison of the financial terms of the proposed transaction with the
publicly available financial terms of certain other recent reference
transactions which SunTrust Robinson Humphrey deemed relevant;
- certain historical data relating to percentage premiums paid in
acquisitions of publicly traded companies from January 1, 2001 to the
present;
- certain financial analyses with respect to Software Spectrum's projected
future operating performance; and
- certain other financial statistics as well as certain other analyses and
investigations as SunTrust Robinson Humphrey deemed appropriate.
In addition, SunTrust Robinson Humphrey held discussions with the
management of Software Spectrum concerning its business, operations, assets,
present condition and future prospects and undertook such other studies,
analyses and investigations as SunTrust Robinson Humphrey deemed appropriate.
In rendering its opinion, SunTrust Robinson Humphrey has assumed and relied
upon, without independent verification, the accuracy and completeness of the
financial and other information discussed with or reviewed by SunTrust Robinson
Humphrey in arriving at its opinion. With respect to the financial forecasts of
Software Spectrum provided to or discussed with SunTrust Robinson Humphrey, it
was assumed, at the direction of the management of Software Spectrum, and
without independent verification or investigation, that such forecasts have been
reasonably prepared on a basis reflecting the best currently available
information, estimates and judgments of the management of Software Spectrum as
to the future financial performance of Software Spectrum.
The SunTrust Robinson Humphrey opinion is necessarily based upon market,
economic and other conditions as they existed and could be evaluated on, and on
the information made available to SunTrust Robinson Humphrey, as of the date of
its opinion. The financial markets in general and the markets for the common
stock of Software Spectrum, in particular, are subject to volatility, and
SunTrust Robinson Humphrey's opinion did not purport to address potential
developments in the financial markets or the market for the common stock of
Software Spectrum after the date of their opinion. SunTrust Robinson Humphrey
assumed that the merger would be consummated on the terms described in the
merger agreement.
In preparing its opinion, SunTrust Robinson Humphrey performed a variety of
financial and comparative analyses, including those described below. The summary
of such analyses does not purport to be a complete description of the analyses
underlying SunTrust Robinson Humphrey's opinion. The preparation of a fairness
opinion is a complex analytic process involving various determinations as to the
most appropriate and relevant methods of financial analysis and the application
of those methods to the particular circumstances and, therefore, is not readily
susceptible to summary description. Accordingly, SunTrust Robinson Humphrey
believes that its analyses must be considered as an integrated whole and that
selecting portions of its analyses and factors, without considering all analyses
and factors, could create a misleading or incomplete view of the processes
underlying such analyses and opinion. In its analyses, SunTrust Robinson
Humphrey made numerous assumptions with respect to Software Spectrum and
19
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Software
Spectrum. The estimates contained in such analyses and the valuation ranges
resulting from any particular analysis are not necessarily indicative of actual
values or predictive of future results or values, which may be significantly
more or less favorable than those suggested by such analyses. In addition,
analyses relating to the value of businesses or securities do not purport to be
appraisals or to reflect the prices at which businesses or securities actually
may be sold. Accordingly, such analyses and estimates are inherently subject to
substantial uncertainty. SunTrust Robinson Humphrey's opinion and analyses were
only one of several factors considered by the board of directors of Software
Spectrum in its evaluation of the proposed transaction and should not be viewed
as determinative of the views of Software Spectrum's Board of Directors or
management with respect to the consideration to be received by Software Spectrum
shareholders in the proposed transaction. The following is a summary of the
material financial and comparative analyses performed by SunTrust Robinson
Humphrey in arriving at the SunTrust Robinson Humphrey opinion.
Analysis of Software Spectrum
Historical Stock Price Analysis
SunTrust Robinson Humphrey analyzed the prices at which the shares traded
since July 12, 1991, the date of Software Spectrum's initial public offering.
The high closing price for Software Spectrum's common stock since Software
Spectrum's IPO was $34.00 on March 13, 2000 and the low closing price was $6.06
on December 29, 2000. In addition, SunTrust Robinson Humphrey observed the
average closing price for the common stock over the past 12 and 36-month periods
prior to the date of its opinion to be $13.70 and $13.88, respectively. The
average closing price for the periods ending 5, 30, 60 and 90 days prior to the
date of the opinion were $16.93, $17.64, $17.66 and $17.57, respectively.
Market Analysis of Public Reference Companies
SunTrust Robinson Humphrey reviewed and compared selected publicly
available financial data, market information and trading multiples for Software
Spectrum with other selected publicly-traded companies in the technology
reseller and distribution and teleservices industries which SunTrust Robinson
Humphrey deemed comparable to Software Spectrum. SunTrust Robinson Humphrey also
performed a sum-of-the-parts analysis based on Software Spectrum's product sales
and contact services business lines. In addition, SunTrust Robinson Humphrey
analyzed the public reference companies whose gross profit margins were 10.3% or
less and the public reference companies whose enterprise value was $500 million
or less. These groups of 27 publicly-traded companies were divided into
Technology Resellers and Distributors and Teleservice Companies and included:
<Table>
Technology Resellers and Distributors
- Arrow Electronics, Inc. - IKON Office Solutions, Inc.
- Avnet, Inc. - Ingram Micro, Inc.
- Bell Microproducts, Inc. - Insight Enterprises, Inc.
- Brightpoint, Inc. - PC Connection, Inc.
- CDW Computer Centers, Inc. - Pioneer-Standard Electronices, Inc.
- CompuCom Systems, Inc. - Pomeroy Computer Resources, Inc.
- Daisytek International Corporation - Tech Data Corporation
- Danka Business Systems, PLC - United Stationers, Inc.
- Global Imaging Systems, Inc.
Teleservices Companies
- APAC Customer Services, Inc. - StarTek, Inc.
- ICT Group, Inc. - Sykes Enterprises, Inc.
- Innotrac, Inc. - Teletech Holdings, Inc.
- RMH Teleservices, Inc. - West Corporation
- SITEL Corporation - Zomax, Inc.
</Table>
20
For the publicly traded reference companies, SunTrust Robinson Humphrey
compared, among other things, enterprise value (defined as market capitalization
plus debt less cash and cash equivalents) as a multiple of latest twelve months
revenues, latest twelve months gross profit, latest twelve months EBITDA
(earnings before interest, taxes, depreciation and amortization), latest twelve
months EBIT (earnings before interest and taxes) and equity value as a multiple
of latest twelve months net income, estimated calendar 2002 net income,
estimated calendar 2003 net income and latest twelve months book value. All
multiples were based on closing stock prices as of April 29, 2002. Revenues,
gross profit, EBITDA and EBIT, net income and book value results for the
reference companies were based on historical financial information available in
public filings of the reference companies. Earnings per share estimates were
based on First Call consensus estimates as of April 29, 2002. First Call is an
information provider that publishes a compilation of estimates of projected
financial performance for public companies produced by equity research analysts
at leading investment banking firms. To accurately reflect values for
statistical purposes, SunTrust Robinson Humphrey excluded certain outlying
values that differed from the relative groupings of the other values. SunTrust
Robinson Humphrey believes that these outlying values for certain companies
reflect market aberrations that can skew mean values. Weighted average value
references refer to equal weighting on the Technology Resellers and Distributors
with gross margins of 10.3% or less and all Technology Resellers and
Distributors with enterprise values of $500 million or less of 20% for each of
latest twelve months EBITDA, latest twelve months EBIT, latest twelve months net
income, estimated calendar 2002 net income and estimated calendar 2003 net
income. The following tables set forth the mean, median, high and low multiples
indicated by this analysis for the public reference companies as of April 29,
2002 for the Technology Resellers and Distributors, Teleservices Companies,
Technology Resellers and Distributors with gross margins of 10.3% or less and
Technology Resellers and Distributors with enterprise values of $500 million or
less:
Technology Resellers and Distributors:
<Table>
<Caption>
MEAN MEDIAN HIGH LOW
----- ------ ----- -----
Enterprise Value to:
Latest twelve months revenues............... 0.28x 0.29x 0.54x 0.02x
Latest twelve months gross profit........... 2.26 2.62 3.61 0.15
Latest twelve months EBITDA................. 9.0 9.2 14.7 1.0
Latest twelve months EBIT................... 9.9 9.8 17.8 0.0
Price to:
Latest twelve months net income............. 13.5x 14.8x 27.9x 0.0x
Calendar 2002 estimated net income.......... 19.6 15.5 37.2 8.2
Calendar 2003 estimated net income.......... 14.2 14.9 23.0 2.5
Book value.................................. 1.6 1.4 3.3 0.3
</Table>
Based upon the multiples derived from the Technology Resellers and
Distributors analysis and Software Spectrum's historical and projected results,
adjusted to eliminate the impact of non-recurring charges, SunTrust Robinson
Humphrey calculated an average range of implied equity values for Software
Spectrum between $7.49 and $95.10 per share and an average range of implied
equity values between $7.03 and $79.76 per share, excluding the enterprise value
to latest twelve months revenues multiple. The mean implied equity value per
share excluding the enterprise value to latest twelve months revenues multiple
was $43.40.
21
Teleservices Companies:
<Table>
<Caption>
MEAN MEDIAN HIGH LOW
----- ------ ----- -----
Enterprise Value to:
Latest twelve months revenues............... 0.73x 0.66x 1.18x 0.39x
Latest twelve months gross profit........... 2.47 2.60 4.34 0.95
Latest twelve months EBITDA................. 6.9 6.7 11.6 0.0
Latest twelve months EBIT................... 12.1 14.3 17.2 0.0
Price to:
Latest twelve months net income............. 30.8x 33.9x 44.9x 13.6x
Calendar 2002 estimated net income.......... 22.1 21.1 31.3 15.5
Calendar 2003 estimated net income.......... 16.6 17.8 20.4 11.8
Book value.................................. 2.6 2.7 4.6 1.0
</Table>
Based upon the multiples derived from the sum-of-the-parts analysis that
included Software Spectrum's product sales and contact services business lines
and Software Spectrum's historical and projected results, adjusted to eliminate
the impact of non-recurring charges, SunTrust Robinson Humphrey calculated an
average range of implied equity values for Software Spectrum between $9.91 and
$124.38 per share and an average range of implied equity values between $7.75
and $95.08 per share excluding the enterprise value to latest twelve months
revenues multiple. The mean implied equity value per share excluding the
enterprise value to latest twelve months revenues multiple was $51.42.
Technology Resellers and Distributors with gross margins of 10.3% or less:
<Table>
<Caption>
MEAN MEDIAN HIGH LOW
----- ------ ----- -----
Enterprise Value to:
Latest twelve months revenues............... 0.17x 0.17x 0.28x 0.08x
Latest twelve months gross profit........... 2.31 2.67 3.16 1.01
Latest twelve months EBITDA................. 8.2 9.2 10.6 3.7
Latest twelve months EBIT................... 10.4 11.7 17.8 0.0
Price to:
Latest twelve months net income............. 8.7x 7.4x 19.8x 0.0x
Calendar 2002 estimated net income.......... 22.1 17.3 37.2 8.2
Calendar 2003 estimated net income.......... 13.1 14.9 20.7 2.5
Book value.................................. 1.3 1.4 2.0 0.3
</Table>
Based upon the multiples derived from the public reference Technology
Resellers and Distributors with gross margins of 10.3% or less and Software
Spectrum's historical and projected results, adjusted to eliminate the impact of
non-recurring charges, SunTrust Robinson Humphrey calculated an average range of
implied equity values for Software Spectrum between $15.32 and $71.49 per share
and an average range of implied equity values between $13.10 and $66.70 per
share excluding the enterprise value to latest twelve months revenues multiple.
The mean implied equity value per share excluding the enterprise value to latest
twelve months revenues multiple was $39.90.
In addition, SunTrust Robinson Humphrey analyzed the implied equity values
solely based on the mean multiples derived from the public reference Technology
Resellers and Distributors with gross margins of 10.3% or less and Software
Spectrum's historical and projected results, adjusted to eliminate the impact of
non-recurring charges. The calculated range of implied equity values for
Software Spectrum as performed by SunTrust Robinson Humphrey was between $21.26
and $70.15 per share with a weighted average value of $41.61 per share.
22
Technology Resellers and Distributors with Enterprise Values of $500 million or
less:
<Table>
<Caption>
MEAN MEDIAN HIGH LOW
----- ------ ----- -----
Enterprise Value to:
Latest twelve months revenues............... 0.18x 0.21x 0.31x 0.02x
Latest twelve months gross profit........... 1.83 2.07 3.01 0.15
Latest twelve months EBITDA................. 7.1 5.8 14.7 1.0
Latest twelve months EBIT................... 6.6 8.1 12.9 0.0
Price to:
Latest twelve months net income............. 10.7x 11.2x 27.7x 0.0x
Calendar 2002 estimated net income.......... 19.3 13.3 34.3 8.2
Calendar 2003 estimated net income.......... 11.9 13.8 16.6 2.5
Book value.................................. 1.1 1.3 1.6 0.3
</Table>
Based upon the multiples derived from the public reference Technology
Resellers and Distributors with enterprise values of $500 million or less,
Software Spectrum's historical and projected results, adjusted to eliminate the
impact of non-recurring charges, SunTrust Robinson Humphrey calculated an
average range of implied equity values for Software Spectrum between $7.49 and
$72.84 per share and an average range of implied equity values between $7.03 and
$66.34 per share excluding the enterprise value to latest twelve months revenues
multiple. The mean implied equity value per share excluding the enterprise value
to latest twelve months revenues multiple was $36.69.
In addition, SunTrust Robinson Humphrey analyzed the implied equity values
solely based on the mean multiples derived from the public reference Technology
Resellers and Distributors with an enterprise value of $500 million or less and
Software Spectrum's adjusted historical and projected results, adjusted to
eliminate the impact of non-recurring charges. The calculated range of implied
equity values for Software Spectrum as performed by SunTrust Robinson Humphrey
was between $21.20 and $70.86 per share with a weighted average value of $36.28
per share.
SunTrust Robinson Humphrey noted that none of the companies used in the
analysis of comparable public companies was identical to Software Spectrum and
that, accordingly, the analysis of comparable public companies necessarily
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the companies reviewed and other
factors that would affect the market values of comparable companies.
Analysis of Reference Merger and Acquisition Transactions
SunTrust Robinson Humphrey reviewed and analyzed the consideration paid in
29 selected completed and pending merger and acquisition transactions in the
technology reseller and distributor industry since January 1, 1998. The
transactions reviewed were:
<Table>
<Caption>
DATE
ANNOUNCED TARGET NAME ACQUIROR NAME
--------- ----------- -------------
04/25/02 Comark Inc. Insight Enterprises Inc.
02/25/02 CorpSoft Inc. (Corporate Software) Level 3 Communications Inc.
09/03/01 Action PLC Insight Enterprises Inc.
08/21/01 Lynx Group PLC (Cisco Distribution Business) Ingram Micro Inc.
12/19/00 VerticalNet Inc. (NECX Inc.) Converge Inc.
11/29/00 Lanier Worldwide Inc. Ricoh Co Ltd
09/18/00 Merisel Inc. (Merisel Open Computing Alliance Inc.) Arrow Electronics Inc.
08/07/00 E.ON AG (EBV Group) Avnet Inc.
08/07/00 E.ON AG (Wyle Components/Wyle Systems) Arrow Electronics
</Table>
23
<Table>
<Caption>
DATE
ANNOUNCED TARGET NAME ACQUIROR NAME
--------- ----------- -------------
07/18/00 InterX PLC (Ideal Hardware PLC) Bell Microproducts Inc.
05/09/00 Interface Electronics Corp. Jaco Electronics Inc.
04/13/00 Jakob Hatteland Electronic AS Arrow Electronics Inc.
03/27/00 Ultracom Communications Holdings Ltd. Terayon Communications Systems Inc.
03/02/00 Savoir Technology Group Inv. Avnet Inc.
07/13/99 Corporate Express Inc. Buhrmann NV
06/28/99 Marshall Industries (Avnet Inc.) Avnet Inc.
05/11/99 Entex Info-Tech Avquisition CompuCom Systems Inc. (Safeguard)
03/22/99 Lewan & Associates Inc. Global Imaging Systems Inc.
11/19/98 Capitol Office Products Inc. Global Imaging Systems Inc.
10/31/98 Dataworks Corp. Platinum Software Corp.
10/01/98 Bell Inds-Electn Distn Group Arrow Electronics Inc.
10/01/98 Richey Electronics Inc. (Arrow) Arrow Electronics Inc.
09/16/98 Carr Business Systems Inc. Global Imaging Systems Inc.
04/10/98 Dataflex Corp. CompuCom Systems Inc. (Safeguard)
03/19/98 Computer Integration Corp. CompuCom Systems Inc. (Safeguard)
03/17/98 Scientific and Business Minicomputers, Inc. Gates-Arrow Distributing Inc.
03/05/98 Intelligent Electronics Inc. Xerox Corp.
02/10/98 Abitibi-Consolidated-Azerty, AP United Stationers Supply
02/06/98 Apollo Presentation Products Acco World (Fortune Brands Inc)
</Table>
For the selected transactions, SunTrust Robinson Humphrey compared, among
other things, enterprise value as a multiple of latest twelve months revenues,
latest twelve months EBITDA, and latest twelve months EBIT and equity value as a
multiple of latest twelve months net income and book value. Revenues, EBITDA,
EBIT, net income and book values were based on historical financial information
available in public filings of the target companies involved in the selected
transactions. To accurately reflect average values for statistical purposes,
SunTrust Robinson Humphrey excluded certain outlying values that differed from
the relative groupings of the other values. SunTrust Robinson Humphrey believes
that these outlying values for certain companies reflect market aberrations that
can skew mean values. For this discussion regarding Analysis of Reference Merger
and Acquisition Transactions, weighted average value refers to a weighting of
33.3% each for the latest twelve months EBITDA, latest twelve months EBIT and
latest twelve months net income implied values. The following table sets forth
the mean, median, high and low multiples indicated by the selected mergers and
acquisitions:
<Table>
<Caption>
MEAN MEDIAN HIGH LOW
----- ------ ------ -----
Enterprise Value to:
Latest twelve months revenues............................. 0.32x 0.37x 0.92x 0.05x
Latest twelve months EBITDA............................... 5.6 5.9 11.0 0.0
Latest twelve months EBIT................................. 7.3 7.0 15.2 0.0
Equity Value to:
Latest twelve months net income........................... 7.9x 6.5x 24.2x 0.0x
Book value................................................ 1.6 1.3 4.5 0.0
</Table>
Based upon the multiples derived from this analysis and Software Spectrum's
historical and projected results, adjusted to eliminate the impact of
non-recurring charges, SunTrust Robinson Humphrey calculated an average range of
implied equity values for Software Spectrum between $5.26 and $125.99 per share
based on adjusted results and between $1.53 and $71.80 per share excluding the
enterprise value to latest twelve month revenues multiple. The mean implied
equity value per share excluding the enterprise value to latest twelve months
revenues multiple was $36.67.
24
In addition, SunTrust Robinson Humphrey analyzed the implied equity values
solely based on the mean multiples derived from selected completed and pending
merger and acquisition transactions involving companies in the technology
reseller and distributor industry since January 1, 1998 and Software Spectrum's
historical and projected results, adjusted to eliminate the impact of
non-recurring charges. The calculated range of implied equity values for
Software Spectrum as performed by SunTrust Robinson Humphrey was between $19.43
and $121.25 per share with a weighted average value of $31.07 per share.
SunTrust Robinson Humphrey also reviewed and analyzed the consideration
paid in 24 selected completed and pending merger and acquisition transactions in
the technology reseller and distributor industry with an enterprise value of
$500 million or less since January 1, 1998. The transactions reviewed were:
<Table>
<Caption>
DATE
ANNOUNCED TARGET NAME ACQUIROR NAME
--------- ----------- -------------
04/25/02 Comark Inc. Insight Enterprises Inc.
02/25/02 CorpSoft Inc. (Corporate Software) Level 3 Communications Inc.
09/03/01 Action PLC Insight Enterprises Inc.
08/21/01 Lynx Group PLC (Cisco Distribution Business) Ingram Micro Inc.
12/19/00 VerticalNet Inc. (NECX Inc.) Converge Inc.
09/18/00 Merisel Inc. (Merisel Open Computing Alliance Inc.) Arrow Electronics Inc.
07/18/00 InterX PLC (Ideal Hardware PLC) Bell Microproducts Inc.
05/09/00 Interface Electronics Corp. Jaco Electronics Inc.
04/13/00 Jakob Hatteland Electronic AS Arrow Electronics Inc.
03/27/00 Ultracom Communications Holdings Ltd. Terayon Communications Systems Inc.
03/02/00 Savoir Technology Group Inv. Avnet Inc.
05/11/99 Entex Info-Tech Avquisition CompuCom Systems Inc. (Safeguard)
03/22/99 Lewan & Associates Inc. Global Imaging Systems Inc.
11/19/98 Capitol Office Products Inc. Global Imaging Systems Inc.
10/31/98 Dataworks Corp. Platinum Software Corp.
10/01/98 Bell Inds-Electn Distn Group Arrow Electronics Inc.
10/01/98 Richey Electronics Inc. (Arrow) Arrow Electronics Inc.
09/16/98 Carr Business Systems Inc. Global Imaging Systems Inc.
04/10/98 Dataflex Corp. CompuCom Systems Inc. (Safeguard)
03/19/98 Computer Integration Corp. CompuCom Systems Inc. (Safeguard)
03/17/98 Scientific and Business Minicomputers, Inc. Gates-Arrow Distributing Inc.
03/05/98 Intelligent Electronics Inc. Xerox Corp.
02/10/98 Abitibi-Consolidated-Azerty, AP United Stationers Supply
02/06/98 Apollo Presentation Products Acco World (Fortune Brands Inc)
</Table>
The following table sets forth the mean, median, high and low multiples
indicated by the selected completed and pending merger and acquisition
transactions in the technology reseller and distributor industry with an
enterprise value of $500 million or less since January 1, 1998:
<Table>
<Caption>
MEAN MEDIAN HIGH LOW
----- ------ ------ -----
Enterprise Value to:
Latest twelve months revenues............................. 0.30x 0.26x 0.92x 0.05x
Latest twelve months EBITDA............................... 5.1 5.5 11.0 0.0
Latest twelve months EBIT................................. 6.2 7.0 13.8 0.0
</Table>
25
<Table>
<Caption>
MEAN MEDIAN HIGH LOW
----- ------ ------ -----
Equity Value to:
Latest twelve months net income........................... 7.5x 6.0x 24.2x 0.0x
Book value................................................ 1.6 1.0 4.5 0.0
</Table>
Based upon the multiples derived from this analysis and Software Spectrum's
historical and projected results, adjusted to eliminate the impact of
non-recurring charges, SunTrust Robinson Humphrey calculated an average range of
implied equity values for Software Spectrum between $5.26 and $124.81 per share
and between $1.53 and $70.33 per share excluding the enterprise value to latest
twelve months revenues multiple. The mean implied equity value per share
excluding the enterprise value to latest twelve months revenues multiple was
$35.93.
In addition, SunTrust Robinson Humphrey analyzed the implied equity values
solely based on the mean multiples derived from selected completed and pending
merger and acquisition transactions involving companies in the technology
reseller and distributor industry with an enterprise value of $500 million or
less since January 1, 1998 and Software Spectrum's historical and projected
results, adjusted to eliminate the impact of non-recurring charges. The
calculated range of implied equity values for Software Spectrum as performed by
SunTrust Robinson Humphrey was between $18.39 and $113.83 per share with a
weighted average value of $27.93 per share.
SunTrust Robinson Humphrey also reviewed and analyzed the consideration
paid in 14 selected completed and pending merger and acquisition transactions in
the technology reseller and distributor industry since January 1, 2000. The
transactions reviewed were:
<Table>
<Caption>
DATE
ANNOUNCED TARGET NAME ACQUIROR NAME
--------- ----------- -------------
04/25/02 Comark Inc. Insight Enterprises Inc.
02/25/02 CorpSoft Inc. (Corporate Software) Level 3 Communications Inc.
09/03/01 Action PLC Insight Enterprises Inc.
08/21/01 Lynx Group PLC (Cisco Distribution Business) Ingram Micro Inc.
12/19/00 VerticalNet Inc. (NECX Inc.) Converge Inc.
11/29/00 Lanier Worldwide Inc. Ricoh Co Ltd
09/18/00 Merisel Inc. (Merisel Open Computing Alliance Inc.) Arrow Electronics Inc.
08/07/00 E.ON AG (EBV Group) Avnet Inc.
08/07/00 E.ON AG (Wyle Components/Wyle Systems) Arrow Electronics
07/18/00 InterX PLC (Ideal Hardware PLC) Bell Microproducts Inc.
05/09/00 Interface Electronics Corp. Jaco Electronics Inc.
04/13/00 Jakob Hatteland Electronic AS Arrow Electronics Inc.
03/27/00 Ultracom Communications Holdings Ltd. Terayon Communications Systems Inc.
03/02/00 Savoir Technology Group Inv. Avnet Inc.
</Table>
The following table sets forth the mean, median, high and low multiples
indicated by the selected completed and pending merger and acquisition
transactions in the technology reseller and distributor industry since January
1, 2000:
<Table>
<Caption>
MEAN MEDIAN HIGH LOW
----- ------ ------ -----
Enterprise Value to:
Latest twelve months revenues...................... 0.25x 0.17x 0.52x 0.05x
Latest twelve months EBITDA........................ 2.7 2.4 6.7 0.0
Latest twelve months EBIT.......................... 3.4 2.2 10.3 0.0
Equity Value to:
Latest twelve months net income.................... 6.8x 5.2x 16.3x 0.0x
Book value......................................... 0.9 0.7 2.2 0.0
</Table>
26
Based upon the multiples derived from this analysis and Software Spectrum's
historical and projected results, adjusted to eliminate the impact of
non-recurring charges, SunTrust Robinson Humphrey calculated an average range of
implied equity values for Software Spectrum between $5.26 and $73.92 per share
and between $1.53 and $43.70 per share excluding the enterprise value to latest
twelve months revenues multiple. The mean implied equity value per share
excluding the enterprise value to latest twelve months revenues multiple was
$22.62.
In addition, SunTrust Robinson Humphrey analyzed the implied equity values
solely based on the mean multiples derived from selected completed and pending
merger and acquisition transactions in the technology reseller and distributor
industry since January 1, 2000 and Software Spectrum's historical and projected
results, adjusted to eliminate the impact of non-recurring charges. The
calculated range of implied equity values for Software Spectrum as performed by
SunTrust Robinson Humphrey was between $16.75 and $94.19 per share with a
weighted average value of $18.28 per share.
Analysis of Premiums Paid
SunTrust Robinson Humphrey analyzed the transaction premiums paid in closed
mergers of publicly traded companies with transaction values between $50 million
and $150 million, effected since January 1, 2001 based on the target company's
stock price one day, five days and 30 days prior to public announcement of the
transaction. To accurately reflect average values for statistical purposes,
SunTrust Robinson Humphrey excluded certain outlying values that differed from
the relative groupings of the other values. SunTrust Robinson Humphrey believes
that these outlying values for certain companies reflect market aberrations that
can skew mean values. This analysis indicated the following premiums paid in the
selected transactions:
<Table>
<Caption>
PURCHASE PRICE PREMIUM
PRIOR TO ANNOUNCEMENT
-------------------------
1 DAY 5 DAYS 30 DAYS
------ ------ -------
Mean....................................................... 37.2% 42.5% 61.8%
Median..................................................... 31.6 33.1 53.3
High....................................................... 167.9 233.3 368.8
Low........................................................ (66.3) (64.9) (63.3)
</Table>
--------------------
Source: Mergerstat as of April 28, 2002.
SunTrust Robinson Humphrey calculated mean implied equity per share values
for Software Spectrum of $22.91, $24.51 and $28.46 per share based upon the one
day, five day and 30 day premiums, respectively.
SunTrust Robinson Humphrey calculated median implied equity per share
values for Software Spectrum of $21.97, $22.89 and $26.97 per share based upon
one day, five day and 30 day premiums, respectively.
In addition, SunTrust Robinson Humphrey analyzed the transaction premiums
paid in closed cash mergers of publicly traded companies with transaction values
between $50 million and $150 million, effected since January 1, 2001 based on
the target company's stock price one day, one week and four weeks prior to
public announcement of the transaction. To accurately reflect average values for
statistical purposes, SunTrust Robinson Humphrey excluded certain outlying
values that differed from the relative groupings of the other values. SunTrust
Robinson Humphrey believes that these outlying values for certain
27
companies reflect market aberrations that can skew mean values. This analysis
indicated the following premiums paid in the selected transactions:
<Table>
<Caption>
PURCHASE PRICE PREMIUM
PRIOR TO ANNOUNCEMENT
-------------------------
1 DAY 5 DAYS 30 DAYS
------ ------ -------
Mean....................................................... 37.2% 44.5% 68.1%
Median..................................................... 31.3 33.5 59.4
High....................................................... 167.9 233.3 368.8
Low........................................................ (51.5) (53.5) (51.4)
</Table>
--------------------
Source: Mergerstat as of April 28, 2002.
SunTrust Robinson Humphrey calculated mean implied equity per share values
for Software Spectrum of $22.92, $24.85 and $29.57 per share based upon one day,
five day and 30 day premiums, respectively.
SunTrust Robinson Humphrey calculated median implied equity per share
values for Software Spectrum of $21.92, $22.96 and $28.04 per share based upon
one day, five day and 30 day premiums, respectively.
Discounted Cash Flow Analysis
SunTrust Robinson Humphrey performed a discounted cash flow analysis of
Software Spectrum based upon projected results provided by Software Spectrum
management for fiscal 2003 through fiscal 2007 to estimate the net present
equity value per share of Software Spectrum. SunTrust Robinson Humphrey
calculated a range of net present equity values for Software Spectrum based on
its projected free cash flow (earnings before interest and after taxes plus
depreciation and amortization expense minus capital expenditures and changes in
working capital) for the fiscal years ending April 30, 2003 through April 30,
2007, inclusive, using discount rates ranging from 12.0% to 20.0% and terminal
value multiples of fiscal year 2007 EBITDA ranging from 3.5x to 7.5x and
terminal value multiples of fiscal year 2007 EBIT ranging from 5.5x to 9.5x.
SunTrust Robinson Humphrey observed that the valuation based on the EBITDA
terminal valuation methodology produced a range of values from $26.68 to $57.70
per share. SunTrust Robinson Humphrey also observed that the valuation based on
the EBIT terminal valuation methodology produced a range of values from $28.31
to $53.32 per share.
In addition, SunTrust Robinson Humphrey calculated Software Spectrum's
terminal value in the year 2007 based on terminal growth rates ranging from 2.0%
to 4.0%. SunTrust Robinson Humphrey observed that the implied valuation based on
this methodology produced a range of values from $21.75 to $44.21.
In order to analyze the sensitivity of this discounted cash flow analysis
to gross margin growth rates ranging from 0.0% to 10.0% and terminal value
multiples of fiscal 2007 EBITDA terminal ranging from 3.0x to 8.0x, SunTrust
Robinson Humphrey calculated the range of implied equity values assuming a
discount rate of 16%. SunTrust Robinson Humphrey observed that the valuation
based on the parameters set forth in this sensitivity analysis produced a range
of implied equity values from $23.89 to $49.97 per share.
Other Factors and Comparative Analyses
In rendering its opinion, SunTrust Robinson Humphrey considered certain
other factors and conducted certain other comparative analyses, including, among
other things, a review of (i) the historical and projected financial results of
Software Spectrum and (ii) the history of trading prices and volume of shares of
Software Spectrum and the relationship of movements of such common stock and
movements of the common stock of various other technology resellers and
distribution companies.
28
Information Regarding Software Spectrum's Financial Advisor
The Software Spectrum Board of Directors selected SunTrust Robinson
Humphrey to render a fairness opinion because SunTrust Robinson Humphrey is a
nationally recognized investment banking firm with substantial experience in
transactions similar to the merger and because it is familiar with Software
Spectrum, its business and its industry. SunTrust Robinson Humphrey has from
time to time rendered, and may in the future render, investment banking,
financial advisory and other services to Software Spectrum for which it has
received, or will receive, customary compensation. SunTrust Robinson Humphrey is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, leveraged buyouts, negotiated
underwritings, secondary distributions of listed and unlisted securities and
private placements.
Pursuant to a letter agreement dated April 15, 2002 Software Spectrum has
agreed to pay SunTrust Robinson Humphrey a fee equal to $300,000 which was
payable upon delivery of the fairness opinion. The fees paid or payable to
SunTrust Robinson Humphrey are not contingent upon the contents of the opinion
delivered. In addition, Software Spectrum has agreed to reimburse SunTrust
Robinson Humphrey for its reasonable out-of-pocket expenses, subject to certain
limitations, and to indemnify SunTrust Robinson Humphrey and certain related
persons against certain liabilities arising out of or in conjunction with its
rendering of services under its engagement, including certain liabilities under
the federal securities laws. In the ordinary course of its business, SunTrust
Robinson Humphrey may actively trade in the securities of Software Spectrum for
its own account and the accounts of its customers and, accordingly, may at any
time hold a long or short position in such securities.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Management Continuity Agreements
Software Spectrum has previously entered into a management continuity
agreement with each of the following executive officers: Judy C. Odom, Carrie C.
Adams, James W. Brown, Lorraine Castorina, Keith R. Coogan, Robert D. Graham,
Gary Hanson, Roger J. King, Robert B. Mercer, Toni Portmann, Lisa M. Stewart and
Melissa Womack. These agreements were entered into in order to encourage the
executive's full attention and dedication to our business, particularly in the
event of any pending or threatened change of control, and to provide the
executive with compensation and benefits following a change of control which
ensure that the executive's expectations will be satisfied and which are
competitive with those of other corporations.
The agreements are originally for a two-year term. However, on the first
anniversary (and each anniversary thereafter), they automatically extend for an
additional year unless we give the executive at least 60-days' advance notice
that the agreement will not be extended for an additional year. As of the date
of this proxy statement no agreement has been terminated and we do not
anticipate that any such agreements will be terminated prior to the consummation
of the merger. Level 3 has agreed in the merger agreement to honor all existing
management continuity agreements.
The agreements generally become operative only if and when a change of
control occurs. Approval of the merger will constitute a change of control under
the agreements. As more fully described below, the agreements impose various
requirements regarding the level of compensation and benefits to be provided to
the executives after a change of control, provide for special payments to be
made if an executive remains employed with us for at least one year after a
change of control, and provide special severance payments if an executive's
employment is terminated under certain circumstances following a change of
control.
Pursuant to the agreements, subject to earlier termination as described
below, each executive agrees to remain employed with us, and we agree to
continue to employ the executive, for a two-year period beginning upon a change
of control. The powers and duties of the executive during such period must be at
least commensurate in all material respects with the most significant powers and
duties of the executive
29
during the 90-day period preceding the change of control. During the two-year
period, we agree to provide the executive with:
- an annual base salary at least equal to twelve times the highest monthly
compensation (including quarterly and other periodic bonuses, other than
annual bonuses, based on performance at 100% of plan) payable to the
executive for the 12-month period preceding the month of the change of
control;
- for each of the two fiscal years ending during the two-year period, an
annual bonus at least equal to the greater of (i) the average bonus for
each of the three fiscal years immediately preceding the fiscal year in
which the change of control occurs, or (ii) the bonus payable for the
most recent fiscal year based on performance at 100% of plan; and
- all incentive, retirement, savings and welfare benefits provided to other
peer executives (but in no event less favorable in the aggregate than the
most favorable of these benefits provided during the 90-day period
preceding the change of control).
If an executive remains employed by us or our affiliated companies for at
least one year after a change of control, we will pay the executive a special
bonus in cash equal to the sum of the executive's annual salary and bonus. This
payment will be made without regard to any severance payments that might later
become payable in accordance with the foregoing.
An executive's employment will terminate automatically upon the executive's
death. We may terminate the executive's employment at any time with or without
cause or upon 30 days' notice if the executive becomes disabled. Cause for this
purpose means either (i) conviction of the executive for a felony involving
moral turpitude or (ii) a willful and material breach of the executive's
obligations that is committed in bad faith or without reasonable belief that it
is in our best interests and that is not remedied within a reasonable time after
notice from us.
An executive may terminate his or her employment at any time for good
reason or alternatively for any reason during the 60-day period beginning four
months after the change of control. Good reason for this purpose means the
assignment to the executive of any duties or positions inconsistent with those
contemplated under the agreement or a material diminution in the executive's
powers and duties, any failure by us to pay or provide the compensation and
benefits promised under the agreement, our requiring the executive to be based
at a location different from that at which the executive was based immediately
before the change of control (unless the new location is our headquarters and is
less than 35 miles from the old location), any purported termination of the
executive's employment by us that is not in accordance with the requirements of
the agreement, or any failure to require a successor to us to assume the
agreement.
If the executive's employment is terminated during the two-year period
beginning on the change of control, severance benefits will be paid to the
executive as follows:
- No severance is payable if the executive is terminated by us for cause or
if the executive terminates his or her employment other than for good
reason and other than during the special 60-day window period beginning
four months after a change of control.
- If we terminate the executive's employment other than for cause or
disability (and other than for termination due to death), or if the
executive terminates his or her employment for good reason or during the
60-day window period beginning four months after a change of control for
any reason, the executive will be entitled to receive (i) a pro-rated
annual bonus, (ii) a cash payment equal to 1 1/2 times the sum of his or
her annual salary and bonus, and (iii) continued welfare benefits for the
remainder of the two-year period.
- If the executive's employment is terminated by reason of death or
disability, the executive will be entitled to receive the greater of (i)
1 1/2 times the sum of his or her annual salary and bonus or (ii) any
death benefits (or disability benefits, as the case may be) then provided
by us.
30
If an executive receives payments, whether or not under a management
continuity agreement, that would subject him or her to any federal "golden
parachute" excise taxes, we agree to make additional payments to the executive
such that the executive will be made whole on an after-tax basis. Finally, we
also agree to reimburse an executive for any legal expenses incurred in
litigating his or her rights under the agreement, regardless of whether the
litigation ultimately proves successful.
Financial Advisor
Software Spectrum has also engaged the services of Sheffield Merchant
Banking Group, to act as a financial advisor and to render aid and assistance in
negotiating the merger agreement and the merger. Sheffield Merchant Banking
Group is a business group of CRT Capital Group, LLC. Mr. Lee, a member of our
Board of Directors, is a Managing Member of and an owner of an equity interest
in CRT, the parent company of Sheffield. Under the terms of the Software
Spectrum's agreement with Sheffield, Sheffield will be entitled to a transaction
fee equal to $1,250,000 plus reimbursement for expenses upon consummation of the
merger. Prior to joining CRT and forming Sheffield Merchant Banking Group, Mr.
Lee was a Managing Director in the Mergers, Acquisitions & Restructuring
Department of Morgan Stanley Dean Witter. In 1996, Mr. Lee advised Software
Spectrum in its acquisition of the Corporate, Government and Education division
of Egghead, Inc.
Indemnification and Insurance
The merger agreement includes indemnification provisions whereby Software
Spectrum as the surviving corporation is required to indemnify current and
former directors and officers of Software Spectrum to the fullest extent
permitted for any liability arising from actions or omissions prior to the
merger. For a period of six years, the surviving corporation's by-laws and
articles of incorporation may not be amended in any manner that would adversely
affect the indemnification rights contained in those documents of directors and
officers of Software Spectrum at the time of the consummation of the merger. In
addition, for three years after the effective time, the surviving corporation is
required to maintain directors' and officers' liability insurance not materially
less favorable than the terms of our current policy, subject to certain
conditions. See "The Merger Agreement -- Indemnification and Insurance."
Post-Closing Officers
Following the consummation of the merger, Software Spectrum will integrate
its operations with Corporate Software, a reseller of software to businesses
similar to the business of Software Spectrum that was acquired by Level 3
earlier this year. We anticipate that Ms. Odom, the current Chairman and Chief
Executive Officer of Software Spectrum, will serve as Chief Executive Officer
and Keith Coogan will serve as President and Chief Operating Officer of the
integrated company. We also anticipate that many of our executive officers will
continue to serve in a capacity similar to their current capacity within the
integrated company.
Voting Agreement
Ms. Odom has entered into a voting agreement in connection with the
execution and delivery of the merger agreement. The voting agreement is attached
as Exhibit A to the merger agreement which is contained in Appendix A to this
proxy statement. Pursuant to the voting agreement, Ms. Odom has agreed to vote
all of her shares of common stock to approve the merger agreement and the merger
and not to sell any of her shares, other than in the merger. The voting
agreement relates to the 166,114 shares of Software Spectrum common stock owned
by Ms. Odom and 796,542 shares of Software Spectrum common stock over which PCM
has dispositive and voting power, subject to the right of PCM's clients to
revoke such power, which together represent approximately 30% of the outstanding
shares of Software Spectrum common stock. Level 3 required that Ms. Odom and PCM
enter into the voting agreement as a condition of signing the merger agreement.
No consideration was paid to either Ms. Odom or PCM for their execution of the
voting agreement, aside from the consideration to be paid to all Software
Spectrum shareholders upon consummation of the merger.
31
Stock Options
Under the merger agreement, each outstanding stock option, whether or not
then vested or exercisable, will be cancelled in exchange for the right to
receive, for each share subject to an option, an amount in cash equal to the
excess of $37 over the exercise price of the option net of applicable
withholding taxes, and payable as soon as practicable after the effective time.
As of the record date for the special meeting, Judy C. Odom, Chairman of
the Board and Chief Executive Officer; Keith R. Coogan, President, Chief
Operating Officer and a Director; Roger J. King, Executive Vice President and
President of Product Services; Robert D. Graham, Vice President Strategic
Relationships, General Counsel and Secretary; James W. Brown, Vice President and
Chief Financial Officer, held a combination of vested and unvested options to
acquire 115,000, 95,000, 75,000, 37,500, and 32,000 shares of Software Spectrum
common stock, respectively, with a weighted average exercise price of $14.42,
$14.93, $15.02, $16.18, and $15.25, respectively. All officers as a group held a
combination of vested and unvested options to acquire 477,000 shares of Software
Spectrum common stock, with a weighted average exercise price of $14.81. Brian
N. Dickie, a Director, Robert P. Lee, a Director, and Frank Tindle, a Director,
held a combination of vested and unvested options to acquire 7,000, 3,000, and
11,000 shares of Software Spectrum common stock, respectively, with a weighted
average exercise price of $11.83, $11.75, and $13.34 respectively.
MERGER FINANCING; SOURCE OF FUNDS
Level 3 has informed us that the aggregate merger consideration to be paid
to our shareholders and holders of options to purchase shares of Software
Spectrum common stock will be financed through cash on hand. The merger is not
conditioned upon obtaining financing from any outside sources.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain U.S. federal income tax consequences
of the merger to shareholders. This discussion is based on provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), applicable Treasury
regulations promulgated under the Code, Internal Revenue Service ("IRS") rulings
and judicial interpretations thereof all in effect as of the date of this proxy
statement, and all of which are subject to change after such date, possibly with
retroactive effect. There can be no assurance that future legislative, judicial
or administrative action will not affect the accuracy of the statements or
conclusions in this proxy statement.
This summary does not address all the U.S. federal income tax
considerations that may be relevant to shares received pursuant to the exercise
of employee stock options or otherwise as compensation or with respect to
shareholders who are subject to special tax treatment under the Code, including
without limitation persons who are non-U.S. persons, insurance companies,
dealers or brokers in securities or currencies, tax-exempt organizations, life
insurance companies, regulated investment companies and financial institutions
and may not apply to shareholders in light of individual circumstances, such as
holding shares as a hedge or as part of a hedge, straddle, conversion, synthetic
security integrated investment or other risk-reduction transaction or who are
subject to alternative minimum tax. It also does not address the tax
consequences of the merger under foreign, state or local tax laws. Accordingly,
shareholders are urged to consult with their tax advisor with respect to the
particular U.S. federal, state, local or foreign income tax or other tax
consequences of the merger to them.
The exchange of Software Spectrum shares for cash in the merger will be a
taxable transaction for U.S. federal income tax purposes, and accordingly a
shareholder will recognize gain or loss equal to the difference between the cash
received and such shareholder's adjusted tax basis in the Software Spectrum
shares exchanged therefor. In general, a shareholder must calculate gain or loss
separately for each block of Software Spectrum shares that is exchanged in the
merger. Provided a shareholder holds his or her Software Spectrum shares as a
capital asset, this gain or loss will be capital gain or loss, which will be
long-term capital gain or loss if the shareholder has held his or her Software
Spectrum shares for more than one year at the time of the merger. A
non-corporate shareholder is subject to a maximum U.S.
32
federal income tax rate of 20% on any net long-term capital gains. In addition,
there are limits on the deductibility of capital losses.
Unless a shareholder complies with certain reporting or certification
procedures or is an "exempt recipient" (in general, corporations and certain
other entities) under applicable provisions of the Code and Treasury
regulations, such shareholder may be subject to a withholding tax of 30% with
respect to any cash payments received pursuant to the merger. Backup withholding
is not an additional tax. Any amount withheld under these rules will be credited
against a shareholder's U.S. federal income tax liability provided such
shareholder furnishes the required information to the IRS. If a shareholder does
not comply with the backup withholding rules, such holder may be subject to
penalties imposed by the IRS.
THE PRECEDING SUMMARY IS GENERAL IN NATURE AND DOES NOT CONSIDER ANY
PARTICULAR SHAREHOLDER'S INDIVIDUAL FACTS AND CIRCUMSTANCES. THE TAX
CONSEQUENCES OF THE MERGER TO ANY PARTICULAR SHAREHOLDER WILL DEPEND ON HIS OR
HER INDIVIDUAL FACTS AND CIRCUMSTANCES. SHAREHOLDERS ARE STRONGLY URGED TO
CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX CONSEQUENCES TO THEM OF THE MERGER.
ACCOUNTING TREATMENT
The merger will be accounted for by Level 3 using the purchase method of
accounting. Under this method of accounting, the purchase price will be
allocated to the fair value of the net assets acquired. The excess purchase
price over the fair value of the assets acquired will be allocated to goodwill.
APPRAISAL RIGHTS OF SHAREHOLDERS
Any of our shareholders of record may exercise dissenters' rights in
connection with the merger by properly complying with the requirements of
Articles 5.11, 5.12, and 5.13 of the TBCA. The required procedure set forth in
Articles 5.11, 5.12, and 5.13 of the TBCA must be followed exactly or you may
lose your right to dissent from the merger. The information that follows is a
general summary of dissenters' rights and, as a summary, is qualified by and not
a substitute for the provisions of Articles 5.11, 5.12, and 5.13 of the TBCA. A
copy of Articles 5.11, 5.12, and 5.13 of the TBCA are attached as Appendix C to
this proxy statement. We encourage you to read these provisions carefully.
Each holder of shares of Software Spectrum common stock that were
outstanding as of the record date who follows the procedures set forth in
Articles 5.11, 5.12, and 5.13 of the TBCA will be entitled to demand the
purchase of such holder's shares of Software Spectrum common stock for a
purchase price equal to the fair value of such holder's shares. Under Texas law,
fair value of shares for purposes of the exercise of dissenters' rights is
defined as the value of the shares as of the day immediately preceding the day
the vote is taken authorizing the merger, excluding any increase or decrease in
the value of the shares in anticipation of the proposed merger. Such fair value
is determined by appraisers appointed by the court, who are directed to make
such determination "upon such investigation as to them may seem proper."
In order to be entitled to exercise your dissenters' rights, you must file
a written objection to the merger with us prior to the special meeting. The
written objection must state:
- that you will exercise your right to dissent if the merger becomes
effective; and
- your address where notice of the effectiveness of the merger should be
delivered or mailed.
You should send this written objection to us at 2140 Merritt Drive,
Garland, Texas 75041, Attention: Robert D. Graham, Corporate Secretary. Neither
a proxy nor a vote against the merger are sufficient to constitute a written
objection as required under the TBCA. Failure to vote against the merger will
not affect your appraisal rights, but you may not vote in favor of the merger
and later seek dissenters' rights.
If the merger is approved by our shareholders and subsequently becomes
effective, within ten days of the effectiveness of the merger, we must deliver
or mail notice of the effectiveness of the merger to each dissenting shareholder
that did not vote in favor of the merger. Any dissenting shareholder that did
not vote in favor of the merger may then make a written demand on us for the
payment of the fair value of the shareholder's shares within ten days of the
delivery or mailing of the notice by us. Such demand must
33
state the number of shares of common stock owned by the dissenting shareholder
and the dissenting shareholder's estimate of the fair value of his or her common
stock as of the day immediately prior to the meeting date, excluding any
increase or decrease in value of the shares in anticipation of the proposed
merger. Any shareholder that fails to make such a demand within the 10-day
period will lose the right to dissent and will be bound by the terms of the
merger. In order to preserve dissenters' rights, within 20 days of making a
demand for payment, a dissenting shareholder holding certificated shares must
also submit such share certificates to us for the appropriate notation of the
demand. At our option, we may terminate the dissenting shareholder's rights
under Article 5.12 of the TBCA for each holder of certificated shares who fails
to submit the share certificates within the 20-day period unless a court of
competent jurisdiction directs otherwise, upon a showing to the court by the
shareholder that there is good and sufficient cause.
Within 20 days of receipt of a proper demand for payment by a dissenting
shareholder, we must deliver or mail to the dissenting shareholder written
notice that either:
- accepts the amount the dissenting shareholder claimed and agrees to pay
the amount of the shareholder's demand within 90 days after the
effectiveness of the merger and, in the case of shares represented by
certificates, upon receipt of the dissenting shareholder's duly endorsed
share certificates; or
- contains our estimate of the fair value of the dissenting shareholder's
common stock and offers to pay the amount of our estimate within 90 days
after the effectiveness of the merger so long as the dissenting
shareholder gives us notice within 60 days after the date of our notice
that he or she agrees to accept our estimate and, in the case of shares
represented by certificates, surrenders to us duly endorsed stock
certificates.
If we and the dissenting shareholder agree upon the value of the dissenting
shareholder's shares within 60 days after the effectiveness of the merger, we
will pay the amount of the agreed value to the dissenting shareholder within 90
days of the effectiveness of the merger and, in the case of shares represented
by certificates, upon receipt of the dissenting shareholder's duly endorsed
share certificates. Upon payment of the agreed value, the dissenting shareholder
will no longer have any interest in those shares.
If we and the dissenting shareholder do not agree upon the value of the
dissenting shareholder's shares within 60 days after the effectiveness of the
merger, then either the dissenting shareholder or we may, within 60 days after
the expiration of such 60-day period, file a petition in a court of competent
jurisdiction in Dallas County, Texas, seeking a determination of the fair value
of the dissenting shareholder's common stock. We will file with the court a list
of all shareholders who have demanded payment for their shares with whom an
agreement as to value has not been reached within ten days following receipt of
such a petition filed by a dissenting shareholder or upon the filing of such a
petition by us. The clerk of the court will give notice of the hearing of any
such petition to us and to all of the dissenting shareholders on the list
provided by us. We and all dissenting shareholders notified in this manner will
be bound by the final judgment of the court as to the value of the shares.
In considering such a petition, the court will determine which of the
dissenting shareholders have complied with the provisions of the TBCA and are
entitled to the payment of the fair value of their shares and will appoint one
or more qualified appraisers to determine the fair value of the shares. The
appraisers will also allow us and the dissenting shareholders to submit to them
evidence as to the fair value of the shares.
Upon receipt of the appraisers' report, the court will determine the fair
value of the shares of the dissenting shareholders and will direct the payment
by us to the dissenting shareholders of the amount of the fair value of their
respective shares, with interest from the date 91 days after the effectiveness
of the merger to the date of the judgment. The judgment shall be paid
immediately to holders of uncertificated shares and shall be payable to holders
of shares represented by certificates only upon receipt of the dissenting
shareholder's duly endorsed share certificates. Upon payment of the judgment,
the dissenting shareholders will no longer have any interest in the shares.
34
Any dissenting shareholder may withdraw his or her demand at any time
before receiving payment for the shares or before a petition has been filed
seeking determination of the fair value of the shares. No dissenting shareholder
may withdraw his or her demand after payment has been made or, unless we consent
to the withdrawal, where a petition has been filed.
Any dissenting shareholder that has properly demanded payment for his or
her shares of common stock will not have any rights as a shareholder, except the
right to receive payment for the shares and the right to claim that the
transactions contemplated by the merger agreement, including the merger, were
fraudulent.
If you are considering dissenting from the merger, you are urged to consult
your own legal counsel.
VOTING AGREEMENT
As an inducement and a condition to entering into the merger agreement,
Level 3 and Eldorado Acquisition have required that Ms. Odom and PCM enter into
a voting agreement. The following is a summary of the material terms of the
voting agreement. The summary is qualified in its entirety by reference to the
voting agreement, a copy of which is attached as Exhibit A to the merger
agreement which is contained in Appendix A to this proxy statement and is
incorporated herein by reference.
As of the record date for the special meeting, Ms. Odom was the beneficial
owner of 166,114 shares of Software Spectrum common stock and PCM had
dispositive and voting power over 796,542 shares of Software Spectrum common
stock, subject to the right of PCM's clients to revoke such power, which
together constituted approximately 30% of the outstanding shares of common stock
of Software Spectrum. Under the voting agreement, Ms. Odom and PCM have agreed:
- to vote FOR the adoption of the merger agreement, the merger and any
matter necessary for consummation of the transactions contemplated by the
merger agreement; and
- to vote against:
- any takeover proposal;
- any proposal for action or agreement that would result in a breach
of a covenant, representation or warranty or any other obligation
under the merger agreement or which is reasonably likely to result
in any conditions to Level 3's or Eldorado Acquisition's obligations
under the merger agreement not being fulfilled;
- any change in the directors or present capitalization, and any
material change in the corporate structure or business of Software
Spectrum;
- any amendment to Software Spectrum's by-laws or articles of
incorporation; and
- any other action reasonably expected to impede the transactions
contemplated by the merger agreement.
In the voting agreement, Ms. Odom and PCM agreed to revoke all prior
proxies or powers of attorney with respect to their shares of Software Spectrum
common stock and to appoint Level 3 and Eldorado Acquisition as their proxy to
vote such shares as their proxy with respect to the matters set forth in the
voting agreement. The proxy granted to Level 3 and Eldorado Acquisition is
irrevocable throughout the term of the merger agreement, except that PCM may
revoke such proxy to the extent that one or more of the ultimate beneficial
owners of PCM's shares of Software Spectrum common stock revokes PCM's
authority.
Ms. Odom and PCM also agreed to not solicit a takeover proposal,
participate in discussions for a takeover proposal or enter into any agreement
with respect to a takeover proposal with any third party as well as to inform
Level 3 regarding any takeover proposal by a third party. The voting agreement,
however, specifies that Ms. Odom is not limited in taking any actions in her
capacity as a Director of Software Spectrum.
35
THE MERGER AGREEMENT
The following is a summary of the material terms of the merger agreement.
The summary is qualified in its entirety by reference to the merger agreement, a
copy of which is attached as Appendix A to this proxy statement and is
incorporated herein by reference. We encourage you to read the merger agreement
because it, and not this summary, is the legal document that governs the merger.
STRUCTURE AND EFFECTIVE TIME
The merger agreement provides for the merger of Eldorado Acquisition with
and into Software Spectrum upon the terms and subject to the conditions of the
merger agreement. Software Spectrum will survive the merger and continue to
exist after the merger as an indirect wholly owned subsidiary of Level 3.
Shares of Software Spectrum common stock representing approximately 30% of
the voting power of Software Spectrum have been committed to vote in favor of
adopting the merger agreement and the merger. See "The Merger -- Voting
Agreement."
Immediately prior to consummation of the merger, Level 3 will provide us
with the necessary funds and we will repay all of our indebtedness for borrowed
money and terminate our obligations under contracts involving such indebtedness.
In addition, we will transfer all of our foreign subsidiaries into a newly
formed wholly owned subsidiary, and sell such subsidiary to Eldorado
Acquisition. This series of events is referred to as the "initial transactions."
The closing of the merger will occur no later than the second business day
after the satisfaction or waiver of all of the conditions in the merger
agreement. The parties will file a certificate of merger with the Delaware
Secretary of State and deliver articles of merger to the Texas Secretary of
State on the closing date. The merger will become effective at the time the
certificate of merger is filed with the Delaware Secretary of State and a
certificate of merger is issued by the Texas Secretary of State. We refer to
such time as the "effective time."
We cannot assure you when, or if, all the conditions for the completion of
the merger will be satisfied or waived. See "The Merger Agreement -- Conditions
to the Merger." We intend to complete the merger as promptly as practicable
subject to receipt of Software Spectrum shareholder approval and all requisite
regulatory approvals.
MERGER CONSIDERATION
The merger agreement provides that each share of Software Spectrum common
stock outstanding immediately prior to the effective time of the merger will be
cancelled and converted into the right to receive $37 per share in cash, without
interest, from Eldorado Acquisition. We refer to this amount as the "per share
amount."
Each holder of a certificate representing shares of Software Spectrum
common stock will have no further rights with respect to such shares, other than
the right to receive the per share amount applicable to those shares.
Shares of Software Spectrum common stock that are outstanding immediately
prior to the merger and held by any dissenting shareholder who properly perfects
his or her appraisal rights will not be converted into the right to receive $37
in cash, but rather the dissenting shareholder will be entitled to payment of
the fair value of his or her dissenting shares in accordance with and subject to
the TBCA.
PAYMENT PROCEDURES
At the effective time, Eldorado Acquisition will select a bank or trust
company with capital exceeding $500 million to act as a paying agent. The paying
agent will make payment of the per share amount in exchange for certificates
representing the outstanding shares of Software Spectrum common stock. Level 3
will provide or cause Eldorado Acquisition to provide sufficient cash to the
paying agent on or prior to the
36
effective time in order to permit the payment of the per share amount. As soon
as practicable after the effective time, the paying agent will send to our
shareholders a letter of transmittal and instructions explaining how to send
their stock certificates to the paying agent. The paying agent will pay the
appropriate per share amount (without interest), minus any backup withholding
taxes required by law, to our shareholders promptly following the paying agent's
receipt and processing of Software Spectrum stock certificates and properly
completed transmittal documents.
Please do not send your stock certificate at this time.
TREATMENT OF SOFTWARE SPECTRUM STOCK OPTIONS
At the effective time all outstanding options to purchase shares of
Software Spectrum common stock (whether vested or unvested) will be cancelled in
exchange for the right to receive, for each share subject to an option, an
amount in cash equal to the excess of $37 over the per share exercise price of
the option, net of applicable withholding taxes and payable as soon as
practicable after the effective time. No consideration will be payable to the
holders of any stock option which has an exercise price that exceeds the per
share amount.
CHARTER AND BY-LAWS
The merger agreement provides that the articles of incorporation of
Software Spectrum immediately prior to the effective time of the merger will be
the articles of incorporation of the surviving corporation after the merger and
that the by-laws of Eldorado Acquisition immediately prior to the effective time
of the merger will be the by-laws of the surviving corporation after the merger,
in each case until amended as provided by law and such articles of incorporation
and by-laws.
DIRECTORS AND OFFICERS
The merger agreement provides that the directors of Eldorado Acquisition
immediately prior to the effective time of the merger will be the directors of
the surviving corporation after the merger and that the officers of Software
Spectrum immediately prior to the effective time of the merger will be the
officers of the surviving corporation after the merger, in each case until their
respective successors are duly elected and qualified.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains representations and warranties by us that
cover, among other things, our organization, business, lack of conflicts,
financial statements, undisclosed liabilities, reports to the Securities and
Exchange Commission, capital structure, absence of certain changes, properties,
compliance with legal requirements, affiliate agreements, material contracts,
intellectual property, employee benefits, labor relations, litigation,
environmental matters, tax matters, and customers and suppliers. The merger
agreement also contains representations and warranties by Level 3, which relate
principally to its ability to effectuate the merger. None of the representations
and warranties will survive beyond the effective time.
COVENANTS; CONDUCT OF THE BUSINESS OF SOFTWARE SPECTRUM PRIOR TO THE MERGER
The merger agreement includes various affirmative and negative covenants
with respect to our operations during the period from the date of the merger
agreement to the earlier of consummation of the merger and termination of the
merger agreement. During this time period we must conduct our business in the
ordinary course and must obtain the prior written consent of Level 3 to, among
other things, change our charter documents, make capital expenditures beyond a
threshold level, change accounting practices or tax elections, incur certain
liabilities, liens or indebtedness, acquire or dispose of assets beyond a
certain amount and provide certain employee benefits.
37
NO SOLICITATION
Software Spectrum and its subsidiaries, officers, directors, employees and
other representatives are not permitted to solicit, initiate or encourage, or
engage in any discussions or provide any information in connection with takeover
proposals. A "takeover proposal" is any inquiry, proposal or offer from a third
party relating to an "alternative transaction" which is defined to include: (i)
a merger; (ii) a sale of more than 10% of the consolidated assets of Software
Spectrum and its subsidiaries; (iii) the issuance, sale or disposition of
securities representing more than 10% of our voting power; or (iv) a transaction
in which a person acquires beneficial ownership of 15% or more of our
outstanding common stock.
If a third party makes an unsolicited superior proposal, we may participate
in negotiations with such third party and may also furnish information (after
executing a confidentiality agreement similar to our confidentiality agreement
with Level 3) to such third party, if our Board of Directors determines in good
faith after consultation with outside legal counsel, that it is necessary to do
so in order to comply with our Board of Directors' fiduciary duties under
applicable law. In addition, we must promptly notify Level 3 of such inquiry and
the material terms of any proposal.
A "superior proposal" is a bona fide written offer by a third party for all
outstanding shares of our common stock in which each shareholder has the right
to receive a per share consideration exceeding $37 payable in cash or marketable
securities, which our Board of Directors determines in good faith is more
favorable to our shareholders than the merger from a financial point of view and
is reasonably likely to be completed.
If our Board of Directors intends to approve or recommend a superior
proposal or enter into an agreement regarding a superior proposal, before doing
so it must notify Level 3 and negotiate in good faith with Level 3 for a period
of five business days to try to reach agreement on revising terms of the merger.
After the five business days, if Level 3 and Software Spectrum cannot agree on
adjustments to the merger agreement which would permit us to consummate the
merger and the related transactions, then we can enter into an agreement for the
superior proposal subject to us placing in escrow $6 million (the amount of the
termination fee and the expense reimbursement). At any time after we have
entered into an agreement for the superior proposal, Level 3 may elect to
terminate the merger agreement and obtain a termination fee of $5 million (the
"termination fee") plus an expense reimbursement of up to $1 million (the
"expense reimbursement"), from the escrow account. If Level 3 chooses not to
terminate the merger agreement, then we would continue to be obligated to submit
the Level 3 merger proposal to a shareholder vote.
EMPLOYEE BENEFITS
Level 3 has agreed to honor all management continuity agreements between us
and our executives in effect immediately prior to the closing date. Level 3 has
also agreed that, for a period of three months following the closing date, it
will provide severance benefits to terminated Software Spectrum employees on a
basis no less favorable than those in existence prior to the merger.
Until December 31, 2002, Software Spectrum employees (other than hourly
employees) will be provided with benefits not less favorable taken as a whole
than those applicable to Level 3's employees engaged in the telecommunications
business. Software Spectrum employees will also receive full credit for all
service with us or our subsidiaries under any employee benefit plan in which
such employee participates after the closing date.
Subject to consummation of the merger, we will terminate our long-term
incentive program effective April 30, 2002, and make payments for the award
cycle ending April 30, 2003, on a pro-rated basis as soon as practicable
following the merger.
INDEMNIFICATION AND INSURANCE
The merger agreement includes indemnification provisions whereby Software
Spectrum as the surviving corporation is required to indemnify current and
former directors and officers of Software
38
Spectrum to the fullest extent permitted under our current articles of
incorporation and by-laws or any indemnification agreement, against all losses,
claims, liabilities, costs or expenses arising out of acts or omissions
occurring prior to the consummation of the merger.
For a period of six years, the surviving corporation's by-laws and articles
of incorporation may not be amended in any manner that would adversely affect
the indemnification rights contained therein of directors and officers of
Software Spectrum at the time of the consummation of the merger. In addition,
for three years after the effective time, the surviving corporation is required
to maintain directors' and officers' liability insurance with coverage up to $15
million and other terms that are not materially less favorable than the terms of
our current policy; provided, that the surviving corporation is not required to
spend more than 200% of our current annual premium.
SOFTWARE SPECTRUM'S BOARD RECOMMENDATION; SHAREHOLDER'S MEETING
The merger agreement provides that our Board will recommend that our
shareholders vote in favor of the approval and adoption of the merger agreement
and the merger. However, our Board may withdraw or modify its recommendation if
our Board determines in good faith, after consultation with outside legal
counsel, that it is necessary to do so in order to comply with its fiduciary
obligations. Notwithstanding any such withdrawal or modification, we are
required to submit the merger agreement to a shareholder vote unless the merger
agreement is terminated in accordance with its terms.
If the Board withdraws or adversely modifies its recommendation, and Level
3 then terminates the merger agreement, Level 3 would then be entitled to the
expense reimbursement and half of the termination fee, with the other half of
the termination fee to be paid to Level 3 if we enter into an agreement for an
alternative transaction within nine months following such termination. See "The
Merger Agreement -- Termination" and " -- Termination Fee."
The merger agreement requires us to take steps necessary to call, give
notice of, convene and hold a special meeting of our shareholders for the
purpose of securing our shareholders' approval of the merger agreement and the
merger.
CONDITIONS TO THE MERGER
Each party's obligation to consummate the merger is conditioned upon the
satisfaction of the following conditions:
- all waiting periods under U.S. or applicable foreign antitrust laws have
expired or been terminated;
- there is no injunction or other governmental order restraining or
prohibiting the merger; and
- the merger has been approved by holders of at least two-thirds of our
outstanding common stock.
On May 15, 2002, Software Spectrum and Level 3 were notified that they had
received early termination of the Hart-Scott-Rodino waiting period.
Level 3 and Eldorado Acquisition's obligation to consummate the merger is
also conditioned upon the satisfaction of the following conditions:
- our representations and warranties are true and correct in all material
respects on and as of the closing date;
- we have complied with our material obligations under the merger
agreement;
- there is no injunction or other governmental order restraining or
prohibiting the merger or imposing material limitations on Level 3's
acquisition, ownership or operation of Software Spectrum;
- there is no action commenced under any applicable law, including
antitrust laws, which would reasonably be expected to restrain or
prohibit the merger or imposing material limitations on Level 3's
acquisition, ownership or operation of Software Spectrum;
39
- there is no declaration of a banking moratorium in the U.S. or limitation
by any U.S. governmental authority on the extension of credit generally
by banks; and
- the consummation of initial transactions described in Section 7.6 of the
Merger Agreement (other than delivery of the funds to us by Level 3
required to complete the initial transactions).
TERMINATION
The merger agreement may be terminated as follows:
- by mutual written consent of Level 3 and Software Spectrum;
- by Level 3 or Software Spectrum if there is a final and non-appealable
injunction or other order permanently enjoining the transaction;
- by Level 3 or Software Spectrum if our shareholders fail to approve the
merger upon the taking of a vote at a duly held meeting of our
shareholders;
- by Level 3 or Software Spectrum if the merger is not consummated on or
before September 3, 2002 (provided that the terminating party is not in
material breach of the merger agreement), as such date may be extended if
we enter into an agreement regarding a superior proposal;
- by Level 3 if:
- any person commences a tender or exchange offer to purchase shares
of Software Spectrum, such that such person would control 33% or
more of the then outstanding common stock, and our Board of
Directors fails to recommend against acceptance of such offer within
ten business days; or
- (A) Software Spectrum enters into an agreement for an alternative
transaction or (B) our Board of Directors (x) recommends an
alternative transaction or (y) withdraws or adversely modifies its
recommendation of the merger;
- by Level 3 if Software Spectrum is in breach of its representations and
warranties in any material respect or fails to comply with the no
solicitation of alternative transactions covenant (in which case Software
Spectrum has limited cure rights) or fails to perform any other material
obligation, which breach is not cured by the earlier of the day prior to
the shareholders' meeting, and five business days following written
notice to us of such breach; or
- by Software Spectrum if Level 3 is in breach of its representations and
warranties in any material respect or fails to perform any material
obligation, which breach would have a material adverse effect on the
ability of Level 3 or Eldorado Acquisition to consummate the merger and
the related transactions and which breach is not cured within five
business days following written notice to Level 3 of such breach.
TERMINATION FEE
Aside from the fees discussed below, whether or not the merger is
consummated, expenses incurred in connection with the merger agreement and the
merger will be paid by the party incurring those expenses, except that Level 3
and Software Spectrum shall each pay one-half of the filing fees under the
Hart-Scott-Rodino Act.
Software Spectrum has the following termination fee obligations in the
event of the termination of the merger agreement.
- The "termination fee" is $5 million. The "expense reimbursement" is Level
3's reasonable documented out-of-pocket expenses in connection with the
merger and related transactions capped at $1 million.
40
- If Level 3 terminates the merger agreement because Software Spectrum has
entered into an agreement for an alternative transaction or our Board of
Directors has recommended an alternative transaction, or if either party
terminates at a time when Level 3 has that termination right, Software
Spectrum shall, within two business days, pay to Level 3 the termination
fee and the expense reimbursement.
- Within two business days of the occurrence of any of the following
events, Software Spectrum must pay to Level 3 one half of the termination
fee and all of the expense reimbursement. Additionally, if within nine
months following the occurrence of any of the events described below,
Software Spectrum enters into a definitive agreement providing for or
consummates an alternative transaction involving more than 33% of our
consolidated assets, voting power or outstanding common stock, then upon
the closing of such transaction, Software Spectrum must pay to Level 3
the other half of the termination fee.
- Level 3 terminates the merger agreement because any person has
commenced a tender or exchange offer to purchase shares representing
more than 33% of the outstanding shares of Software Spectrum, and
our Board of Directors fails to recommend against acceptance of such
offer within ten business days.
- Level 3 terminates the merger agreement because our Board of
Directors has withdrawn or adversely modified its recommendation of
the merger.
- Level 3 terminates the merger agreement because Software Spectrum is
in material breach of the merger agreement.
- Software Spectrum terminates the merger agreement for any reason
(other than because Level 3 is in material breach of the merger
agreement) at a time when Level 3 could have terminated the merger
agreement because Software Spectrum is in material breach of the
merger agreement.
- After the date of the merger agreement, there is a publicly
disclosed takeover proposal involving more than 10% of our
consolidated assets, voting power or outstanding common stock, and
thereafter Level 3 or Software Spectrum terminates the merger
agreement because our shareholders fail to approve the merger upon
the taking of a vote at a duly held meeting of our shareholders or
because the merger is not consummated by September 3, 2002.
THE RIGHTS AGREEMENT
On December 13, 1996, we entered into a rights agreement, as amended by the
letter agreement, dated June 7, 1997, with Mellon Investor Services, L.L.C.,
formerly ChaseMellon Shareholder Services, L.L.C. (as successor to KeyCorp
Shareholder Services, Inc.). Our Board of Directors adopted the rights agreement
and issued the rights to protect our shareholders from coercive or otherwise
unfair takeover tactics. In general, the rights plan works by imposing a
significant penalty upon any person or group that acquires 20% or more of the
outstanding Software Spectrum common stock without approval of our Board of
Directors.
As required in the merger agreement, we have amended our rights agreement
to ensure that the rights will not become exercisable as a result of the merger
or the related transactions, and will expire when the merger occurs without the
payment of any consideration. Additionally, our Board of Directors has taken all
action necessary to render the provisions of the TBCA that restrict business
combinations with interested shareholders, and any other applicable state
antitakeover laws, inapplicable to the merger, to the extent permitted by law.
41
CERTAIN FINANCIAL PROJECTIONS
Software Spectrum does not as a matter of course make public any
projections as to future performance or earnings, and the projections set forth
below are included in this proxy statement only because this information was
provided to Level 3. The projections were not prepared in connection with the
merger or with a view to public disclosure or compliance with the published
guidelines of the Securities and Exchange Commission or the guidelines
established by the American Institute of Certified Public Accountants regarding
projections or forecasts. The projections do not purport to present operations
in accordance with generally accepted accounting principles, and Software
Spectrum's independent auditors have not examined or compiled the projections
and accordingly assume no responsibility for them. Software Spectrum has advised
Eldorado Acquisition and Level 3 that its internal financial forecast (upon
which the projections provided to Eldorado Acquisition and Level 3 were based in
part) are, in general, prepared solely for internal use and capital budgeting
and other management decisions and are subjective in many respects and thus
susceptible to interpretations and periodic revision based on actual experience
and business developments. The projections also reflect numerous assumptions
made by our management, with respect to industry performance (including
expectations with respect to the pricing environment in the software reselling
industry), general business, economic, market and financial conditions and other
matters, all of which are difficult to predict, many of which are beyond
Software Spectrum's control. Accordingly, there can be no assurance that the
assumptions made in preparing the projections will prove accurate. It is
expected that there will be differences between actual and projected results,
and actual results may be materially greater or less than those contained in the
projections. The projections do not consider the effect of any future
combination of Software Spectrum's business with the business conducted by
Corporate Software following the merger. The inclusion of the projections herein
should not be regarded as an indication that any of Eldorado Acquisition, Level
3 or Software Spectrum or their respective affiliates or representatives
considered or consider the projections to be a reliable prediction of future
events, and the projections should not be relied upon as such. See "Cautionary
Statement Regarding Forward-Looking Statements."
For fiscal year 2002, the projections anticipate revenue of $1,285,616,000,
operating expenses of $1,273,358,000, operating profit of $12,258,000, income
before taxes of $9,607,000, net income of $9,211,000, and diluted earnings per
share of $2.91. For fiscal year 2003, the projections anticipate revenue of
$1,380,747,000, operating expenses of $1,365,091,000, operating profit of
$15,656,000, income before taxes of $15,456,000, net income of $9,428,000, and
diluted earnings per share of $2.92.
None of Eldorado Acquisition, Level 3 or Software Spectrum or any of their
respective affiliates or representatives has made or makes any representation to
any person regarding the ultimate performance of Software Spectrum compared to
the information contained in the projections, and none of them intends to update
or otherwise revise the projections to reflect circumstances existing after the
date when made, reflect the occurrence of future events or for any other reason.
42
REGULATORY APPROVALS
The Hart-Scott-Rodino Act provides that transactions such as the merger may
not be completed until certain information has been submitted to the Federal
Trade Commission and the Antitrust Division of the U.S. Department of Justice
and specified waiting period requirements have been satisfied. Software Spectrum
and Level 3 made the required filings under the Hart-Scott-Rodino Act on May 3,
2002. On May 15, 2002, Software Spectrum and Level 3 were notified that they had
received early termination of the Hart-Scott-Rodino waiting period.
We are also subject to the antitrust laws of several foreign jurisdictions
including, among others, Brazil, Finland, Germany and Sweden. We have filed or
expect to file promptly all relevant foreign anti-trust filings and we expect to
have clearance to proceed with the merger prior to the special meeting (assuming
no additional requests are made by the applicable foreign authorities).
43
PRICE RANGE OF STOCK AND DIVIDENDS
Software Spectrum's common stock is traded on the Nasdaq National Market
under the symbol "SSPE". Software Spectrum's initial public offering took place
in 1991. The table below sets forth by fiscal quarter, since the first quarter
of fiscal 2001, the high and low closing prices of Software Spectrum's common
stock on the Nasdaq National Market, as reported by the Nasdaq consolidated
reporting system. Software Spectrum's fiscal year ends on April 30.
<Table>
<Caption>
High Low
------ ------
Fiscal 2001
First Quarter $18.19 $12.13
Second Quarter 15.50 7.63
Third Quarter 10.75 6.06
Fourth Quarter 12.75 9.50
Fiscal 2002
First Quarter $12.47 $11.00
Second Quarter 11.90 9.15
Third Quarter 18.90 10.10
Fourth Quarter 19.95 15.00
Fiscal 2003
First Quarter (through May 17, 2002) $36.30 $16.65
</Table>
On May 1, 2002, the last full trading day prior to the public announcement
of the merger agreement, the high and low sale prices of Software Spectrum's
common stock as reported on the Nasdaq National Market were $16.65 and $16.05,
respectively. On May 17, 2002, the closing price of Software Spectrum's common
stock as reported on the Nasdaq National Market was $36.30. You are encouraged
to obtain current market quotations for Software Spectrum.
Software Spectrum paid no cash dividends in fiscal 2001, 2002 or to date in
fiscal 2003.
44
STOCK OWNERSHIP OF PRINCIPAL SHAREHOLDERS
In the table below, we show you how much of our common stock was
beneficially owned on May 9, 2002 by each person we know to beneficially own
more than 5% of our common stock.
<Table>
<Caption>
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES BENEFICIALLY OWNED(1) PERCENT OF CLASS
------------------------------------ ---------------------------- ----------------
Judy C. Odom(2)................................ 215,114(5) 6.68%
Private Capital Management, L.P.,.............. 822,189(6) 25.93
Bruce S. Sherman and
Gregg J. Powers(3)
Dimensional Fund Advisors Inc.(4).............. 269,400(7) 8.50
</Table>
- ---------------
(1) Unless otherwise indicated, to our knowledge, the owner of all shares
reflected in the table above owns her or its shares directly and has sole
voting and dispositive power with respect to the shares.
(2) Ms. Odom's address is 2140 Merritt Drive, Garland, Texas 75041.
(3) The address of Private Capital Management, L.P., Mr. Sherman, et al. is 8889
Pelican Bay Blvd., Suite 500, Naples, Florida 34108.
(4) The address of Dimensional Fund Advisors Inc. is 1299 Ocean Avenue, 11th
Floor, Santa Monica, California 90401.
(5) Includes 49,000 shares that are subject to options exercisable within 60
days of May 9, 2002.
(6) Mr. Sherman is Chief Executive Officer of Private Capital Management, and
Mr. Powers is president of Private Capital Management. Messrs. Sherman and
Powers exercise shared dispositive power with such entity, and they both
disclaim beneficial ownership of the shares. PCM has informed us that it has
dispositive power only over 25,647 of such shares, and both voting and
dispositive power over 796,542 of such shares.
(7) This information is based on a Schedule 13G of Dimensional Fund Advisors
Inc., dated February 12, 2002. Dimensional Fund Advisors Inc. is an
investment adviser registered under Section 203 of the Investment Advisers
Act of 1940 and disclaims beneficial ownership of the shares.
45
STOCK OWNERSHIP OF MANAGEMENT
In the table below, we show you how much of our common stock was
beneficially owned on May 9, 2002 by each director and each of the chief
executive officer and the four other most highly paid executive officers of
Software Spectrum, and by all directors and executive officers as a group.
<Table>
<Caption>
NAME OF BENEFICIAL OWNER SHARES BENEFICIALLY OWNED(1) PERCENT OF CLASS
------------------------ ---------------------------- ----------------
Judy C. Odom, Chairman and..................... 215,114(2) 6.68%
Chief Executive Officer
Brian N. Dickie, Director...................... 9,500(3) *
Frank Tindle, Director......................... 13,427(4) *
Robert P. Lee, Director........................ 8,000(5) *
Keith R. Coogan, President,.................... 48,011(6) 1.49
Chief Operating Officer and Director
Roger J. King, Executive Vice.................. 38,419(7) 1.20
President and President of Product Services
Robert D. Graham, Vice President............... 21,160(8) *
Strategic Relationships, General Counsel and
Secretary
James W. Brown, Vice President................. 18,267(9) *
and Chief Financial Officer
All directors and executive officers as a group
(15 persons)................................. 423,982(10) 12.47
</Table>
- ---------------
* Indicates less than one percent.
(1) Unless otherwise indicated, to our knowledge, the owner of all shares
reflected in the table above owns his or her shares directly and has sole
voting and investment power with respect to the shares.
(2) Includes 49,000 shares that are subject to options exercisable within 60
days of May 9, 2002.
(3) Includes 7,000 shares that are subject to options exercisable within 60 days
of May 9, 2002.
(4) These shares are held by FTJT, L.P., of which Mr. Tindle and his spouse are
the sole partners. As such Mr. Tindle has shared investment and voting power
for these shares. Includes 11,000 shares that are subject to options
exercisable within 60 days of May 9, 2002.
(5) Includes 3,000 shares that are subject to options exercisable within 60 days
of May 9, 2002.
(6) Includes 42,000 shares that are subject to options exercisable within 60
days of May 9, 2002.
(7) Includes 33,000 shares that are subject to options exercisable within 60
days of May 9, 2002.
(8) Includes 19,500 shares that are subject to options exercisable within 60
days of May 9, 2002.
(9) Includes 17,000 shares that are subject to options exercisable within 60
days of May 9, 2002.
(10) Includes 229,300 shares that are subject to options exercisable within 60
days of May 9, 2002.
46
FUTURE SHAREHOLDER PROPOSALS
If the merger is consummated, there will be no public shareholders of
Software Spectrum and no public participation in any future meetings of
shareholders of Software Spectrum. However, if the merger is not completed,
Software Spectrum will hold a 2002 annual meeting of shareholders. If such
meeting is held, for a shareholder proposal to be considered for inclusion in
Software Spectrum's proxy statement for the 2002 annual meeting, the proposal
must have been received at Software Spectrum's offices no later than April 18,
2002. SEC Rule 14a-8 contains standards as to what shareholder proposals are to
be included in a proxy statement.
In addition, our by-laws require a shareholder who desires to bring
business before an annual meeting to give our Secretary written notice of that
business not less than sixty nor more than ninety days prior to the anniversary
date of the prior annual meeting. The notice must comply with other requirements
contained in our by-laws.
47
WHERE YOU CAN FIND MORE INFORMATION
Software Spectrum files annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any reports, statements or other information we file at
the Securities and Exchange Commission's Public Reference Room, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Securities and Exchange
Commission's regional offices located at The Woolworth Building, 233 Broadway,
New York, New York 10279. Please call the Securities and Exchange Commission at
1-800-SEC-0330 for further information on the public reference rooms. Our
Securities and Exchange Commission filings are also available to the public from
commercial document retrieval services and at the website maintained by the
Securities and Exchange Commission at http://www.sec.gov. You may inspect
information that Software Spectrum files with the Nasdaq at the offices of the
National Association of Securities Dealers at 1735 K Street, N.W., Washington,
D.C. 20006. The Securities and Exchange Commission allows Software Spectrum to
"incorporate by reference" information into this proxy statement, which means
that we can disclose important information by referring you to another document
filed separately with the Securities and Exchange Commission. The following
documents are incorporated by reference into this proxy statement and are deemed
to be a part of this proxy statement, except for any information superseded by
information contained directly in this proxy statement:
<Table>
SOFTWARE SPECTRUM SEC FILINGS PERIOD OR DATE FILED
Annual Report on Form 10-K Year ended April 30, 2000
Quarterly Reports on Form 10-Q Quarter ended July 31, 2001,
October 31, 2001 and January 31,
2002
Current Report on Form 8-K Filed on May 3, 2002
</Table>
All documents filed by Software Spectrum pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date hereof and prior to the
special meeting shall be deemed to be incorporated by reference into this proxy
statement.
Our shareholders may obtain the above-mentioned documents by requesting
them in writing or by telephone from the appropriate party at the following
addresses:
Software Spectrum, Inc.
2140 Merritt Drive
Garland, Texas 75041
Attention: Investor Relations
Telephone: (972) 840-6600
If you would like to request documents from us, please do so by June 1,
2002 to receive them before the special meeting.
You should rely only on the information contained in this proxy statement
or other documents to which we refer to vote on the merger. We have not
authorized anyone to provide you with information that is different from what is
contained in this proxy statement. This proxy statement is dated May 20, 2002.
You should not assume that the information contained in this proxy statement is
accurate as of any date other than that date, and the mailing of the proxy
statement to shareholders shall not create any implication to the contrary.
Your vote is important. To vote your shares, please complete, date, sign
and return the enclosed proxy card as soon as possible in the enclosed
postage-prepaid envelope. Please call our information agent, D.F. King & Co.,
Inc., toll free at (800) 628-8510, or our investor relations department at (972)
840-6600; if you have any questions about this proxy statement or the merger or
need assistance with the voting procedures.
48
APPENDIX A
------------------------------------------------------------------------
AGREEMENT AND PLAN
OF MERGER
DATED AS OF
MAY 1, 2002
BY AND AMONG
LEVEL 3 COMMUNICATIONS, INC.,
ELDORADO ACQUISITION THREE, INC.
AND
SOFTWARE SPECTRUM, INC.
------------------------------------------------------------------------
TABLE OF CONTENTS
<Table>
ARTICLE I. THE MERGER............................................................. 1
Section 1.1. The Merger.................................................. 1
Section 1.2. Effective Time of the Merger................................ 1
Section 1.3. Articles of Incorporation................................... 2
Section 1.4. By-Laws..................................................... 2
Section 1.5. Board of Directors; Officers................................ 2
Section 1.6. Effects of Merger........................................... 2
Section 1.7. Closing..................................................... 2
ARTICLE II. CONVERSION OF COMMON STOCK............................................ 2
Section 2.1. Conversion of Common Stock.................................. 2
Section 2.2. Stock Options............................................... 3
Section 2.3. Closing of Company Transfer Books........................... 3
Section 2.4. Exchange of Certificates.................................... 4
Section 2.5. Funding of Paying Agent..................................... 4
Section 2.6. No Further Ownership Rights in Common Stock................. 5
Section 2.7. Dissenting Shareholders..................................... 5
Section 2.8. Assistance in Consummation of the Transactions.............. 5
ARTICLE III. COMPANY ACTION WITH RESPECT TO THE MERGER............................ 6
Section 3.1. Company and Board Approval; Fairness Opinion................ 6
Section 3.2. Proxy Statement............................................. 6
Section 3.3. Meeting of Shareholders of the Company...................... 7
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................... 8
Section 4.1. Organization of the Company................................. 8
Section 4.2. Authority and Binding Effect................................ 8
Section 4.3. No Conflict or Violation; Consents.......................... 9
SEC Filings; Financial Statements; Undisclosed
Section 4.4. Liabilities................................................. 9
Section 4.5. Capital Structure........................................... 10
Section 4.6. Subsidiaries................................................ 10
Section 4.7. Accounts Receivable......................................... 11
Section 4.8. Absence of Certain Changes or Events........................ 11
Section 4.9. Properties.................................................. 11
Section 4.10. Compliance with Legal Requirements.......................... 12
Section 4.11. Affiliate Agreements and Liabilities........................ 13
Section 4.12. Material Contracts.......................................... 13
Section 4.13. Intellectual Property....................................... 14
Section 4.14. Labor Relations............................................. 16
Section 4.15. Employee Benefits........................................... 16
Section 4.16. Litigation.................................................. 17
Section 4.17. Environmental Matters....................................... 17
Section 4.18. Tax Matters................................................. 18
Section 4.19. Brokers..................................................... 19
Section 4.20. Books and Records of the Company............................ 19
Section 4.21. Customers and Suppliers..................................... 19
Section 4.22. Certain Payments............................................ 20
Section 4.23. Proxy Statement............................................. 20
</Table>
<Table>
Section 4.24. State Takeover Statutes Inapplicable........................ 20
Section 4.25. Statements True and Correct................................. 20
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER................. 21
Section 5.1. Organization, Standing and Power............................ 21
Section 5.2. Authority; No Violations; Consents and Approvals............ 21
Section 5.3. Litigation.................................................. 22
Section 5.4. Proxy Statement............................................. 22
Section 5.5. Ownership of Company Shares................................. 22
Section 5.6. No Prior Activities; Assets of Purchaser.................... 22
Section 5.7. Statements True and Correct................................. 22
Section 5.8. Brokers..................................................... 22
Section 5.9. Financing................................................... 22
ARTICLE VI. CONDUCT OF BUSINESS PENDING THE MERGER................................ 22
Section 6.1. Conduct of Business by the Company Pending the Merger....... 22
Section 6.2. No Solicitation............................................. 25
Section 6.3. Rights Agreement............................................ 27
Section 6.4. Access and Information...................................... 27
Section 6.5. Notification of Certain Matters............................. 27
Section 6.6. Employee Stock Purchase Plan................................ 28
ARTICLE VII. ADDITIONAL AGREEMENTS................................................ 28
Section 7.1. Indemnification of Company Officers and Directors........... 28
Section 7.2. HSR Act; Foreign Filings.................................... 29
Section 7.3. Additional Agreements Regarding Consents and Approvals...... 29
Section 7.4. Efforts; Further Assurances................................. 30
Section 7.5. Takeover Statutes........................................... 30
Section 7.6. Initial Transactions........................................ 30
Section 7.7. Employee Matters............................................ 31
ARTICLE VIII. CONDITIONS PRECEDENT................................................ 32
Section 8.1. Conditions to Each Party's Obligation to Effect the
Merger...................................................... 32
Section 8.2. Conditions for the Obligation of Parent and Purchaser....... 33
ARTICLE IX. TERMINATION AND FEES.................................................. 34
Section 9.1. Termination................................................. 34
Section 9.2. Effect of Termination....................................... 35
Section 9.3. Fees and Expenses........................................... 35
ARTICLE X. GENERAL PROVISIONS..................................................... 36
Section 10.1. Non-Survival of Representations, Warranties and
Agreements.................................................. 36
Section 10.2. Amendment................................................... 36
Section 10.3. Notices..................................................... 36
Section 10.4. Specific Performance........................................ 37
Section 10.5. Publicity................................................... 37
Section 10.6. Interpretation.............................................. 37
Section 10.7. Counterparts................................................ 38
Section 10.8. Entire Agreement; No Third Party Beneficiaries.............. 38
Section 10.9. Severability................................................ 38
Section 10.10. Governing Law............................................... 38
Section 10.11. Assignment.................................................. 38
Section 10.12. Descriptive Headings........................................ 38
</Table>
ii
EXHIBITS
A Form of Voting Agreement
B Form of Promissory Note
<Table>
SCHEDULES
Schedule 4.1 Organization of the Company
Schedule 4.3 No Conflict or Violation; Consents
Schedule 4.4 SEC Filings; Financial Statements
Schedule 4.5 Capital Structure
Schedule 4.6 Subsidiaries
Schedule 4.8 Absence of Certain Changes or Events
Schedule 4.9 Properties
Schedule 4.10(a) Violation of Legal Requirements
Schedule 4.10(b) Necessary Permits
Schedule 4.11 Affiliate Agreements and Liabilities
Schedule 4.12 Material Contracts
Schedule 4.13 Intellectual Property
Schedule 4.14 Labor Relations
Schedule 4.15 Employee Benefit Plans
Schedule 4.16 Litigation
Schedule 4.17 Compliance with Environmental Laws
Schedule 4.18 Tax Matters
Schedule 4.19 Brokers
Schedule 4.21 Suppliers
Schedule 6.1 Conduct of Business by Company Pending the Merger
Schedule 7.6 Foreign Subsidiaries
</Table>
iii
<Table>
<Caption>
DEFINED TERM LOCATION
- ------------ --------
Accounts Receivable......................................... sec.4.7
Adverse Recommendation...................................... sec.9.1
Affiliate................................................... sec.3.1
Agreement................................................... Preamble
Alternative Transaction..................................... sec.6.2
Articles of Incorporation................................... sec.1.3
Balance Sheet............................................... sec.4.7
Board of Directors.......................................... Recitals
Business Day................................................ sec.1.7
By-Laws..................................................... sec.4.3
Certificates of Merger...................................... sec.1.2
Closing..................................................... sec.1.7
Closing Date................................................ sec.1.7
Code........................................................ sec.4.18
Commission.................................................. sec.3.2
Common Stock................................................ Recitals
Company..................................................... Preamble
Company Representatives..................................... sec.6.2
Competing Agreement......................................... sec.6.2
Confidentiality Agreement................................... sec.6.2
Contract.................................................... sec.4.12
D&O Insurance............................................... sec.7.1
DGCL........................................................ Recitals
Dissenting Shares........................................... sec.2.7
Effective Time.............................................. sec.1.2
Employees................................................... sec.4.14
Employee Stock Purchase Plan................................ sec.6.6
Environmental Laws.......................................... sec.4.17
ERISA....................................................... sec.4.15
ERISA Affiliate............................................. sec.4.15
Escrow Procedures........................................... sec.6.2
Exchange Act................................................ sec.2.2
Expense Reimbursement....................................... sec.9.3
Foreign Plans............................................... sec.4.15
Foreign Subsidiary Sale..................................... sec.7.6
Foreign Subsidiary Stock.................................... sec.7.6
Former Employees............................................ sec.4.15
GAAP........................................................ sec.4.4
Governmental Agency......................................... sec.4.25
Hazardous Materials......................................... sec.4.17
HSR Act..................................................... sec.5.2
Indebtedness................................................ sec.4.12
Indemnified Parties......................................... sec.7.1
Initial Transaction Time.................................... sec.7.6
</Table>
iv
<Table>
<Caption>
DEFINED TERM LOCATION
- ------------ --------
Initial Transactions........................................ sec.7.6
Intellectual Property....................................... sec.4.13
Knowledge................................................... sec.10.6
Leases...................................................... sec.4.9
Legal Requirement........................................... sec.2.6
Liability................................................... sec.4.4
Lien........................................................ sec.4.9
LTIP........................................................ sec.7.7
Major Supplier.............................................. sec.4.21
Material Contracts.......................................... sec.4.12
Merger...................................................... Recitals
New LLC..................................................... sec.7.6
New LLC Purchase Price...................................... sec.7.6
Option Plans................................................ sec.2.2
Options..................................................... sec.2.2
Order....................................................... sec.2.6
Parent...................................................... Preamble
Paying Agent................................................ sec.2.4
Per Share Amount............................................ sec.2.1
Permit...................................................... sec.4.3
Permitted Lien.............................................. sec.4.9
Person...................................................... sec.2.4
Plan........................................................ sec.4.15
Prohibited Effect........................................... sec.4.1
Prohibited Result........................................... sec.8.2
Proxy Statement............................................. sec.3.2
Purchaser................................................... Preamble
Release..................................................... sec.4.17
Rights...................................................... sec.3.1
Rights Agreement............................................ sec.3.1
Salaried Employee........................................... sec.6.1
SEC Reports................................................. sec.4.4
Securities Act.............................................. sec.2.1
Shareholders................................................ Recitals
Special Meeting............................................. sec.3.3
Subsequent Transactions..................................... sec.4.2
Subsidiary.................................................. sec.2.1
Superfund................................................... sec.4.17
Superior Proposal........................................... sec.6.2
Surviving Corporation....................................... sec.1.1
Takeover Proposal........................................... sec.6.2
Tax......................................................... sec.4.18
Tax Return.................................................. sec.4.18
Taxes....................................................... sec.4.18
</Table>
v
<Table>
<Caption>
DEFINED TERM LOCATION
- ------------ --------
Taxing Authority............................................ sec.4.18
TBCA........................................................ Recitals
Telecom Employees........................................... sec.7.7
Termination Fee............................................. sec.9.3
Third Party................................................. sec.6.2
Trade Secrets............................................... sec.4.13
Transaction Documents....................................... sec.4.2
Transactions................................................ sec.4.2
Vendor Excluded Indebtedness................................ sec.7.6
Voting Agreement............................................ Recitals
</Table>
vi
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of May 1,
2002, by and among Level 3 Communications, Inc., a Delaware corporation
("Parent"), Eldorado Acquisition Three, Inc., a Delaware corporation and an
indirect wholly owned subsidiary of Parent ("Purchaser"), and Software Spectrum,
Inc., a Texas corporation (the "Company"):
W I T N E S S E T H:
WHEREAS, the board of directors of the Company (the "Board of Directors")
has determined that it is in the best interests of the Company and the holders
(the "Shareholders") of the shares of common stock, $0.01 par value, of the
Company (the "Common Stock") for Purchaser to merge with and into the Company
(the "Merger") in accordance with the General Corporation Law of the State of
Delaware ("DGCL") and the Texas Business Corporation Act ("TBCA") upon the terms
and subject to the conditions set forth herein;
WHEREAS, the board of directors of each of Parent and Purchaser has
determined that the Merger is in the best interests of Parent and Purchaser, and
the Merger has been approved by the sole stockholder of Purchaser;
WHEREAS, immediately prior to the consummation of the Merger, the parties
desire to effect the Initial Transactions (as defined in Section 7.6);
WHEREAS, concurrently with the execution and delivery of this Agreement, as
a condition and inducement to Parent's and Purchaser's willingness to enter into
this Agreement, certain Shareholders have entered into Voting Agreements, dated
as of the date of this Agreement, in the form attached hereto as Exhibit A (the
"Voting Agreement") pursuant to which each such Shareholder has, among other
things, agreed to grant to Parent a proxy with respect to the voting of such
shares, in each case upon the terms and subject to the conditions set forth in
the Voting Agreement; and
WHEREAS, the Board of Directors has approved this Agreement and the Voting
Agreement and has determined that the consideration to be paid for each share of
Common Stock (excluding the Dissenting Shares (as defined in Section 2.7)) upon
consummation of the Merger is fair to the holders of such shares and has
resolved to recommend that the holders of Common Stock approve this Agreement
and the transactions contemplated hereby.
NOW, THEREFORE, in consideration of the foregoing premises, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
ARTICLE I.
THE MERGER
SECTION 1.1. THE MERGER. Upon the terms and subject to the conditions
hereof, and in accordance with the DGCL and the TBCA, at the Effective Time,
Purchaser shall be merged into the Company and the separate existence of
Purchaser shall thereupon cease, and the Company shall be the surviving
corporation in the Merger (the "Surviving Corporation") and an indirect
wholly-owned subsidiary of Parent, and shall continue its corporate existence
under the laws of the State of Texas.
SECTION 1.2. EFFECTIVE TIME OF THE MERGER. On the Closing Date, the
Company and Purchaser shall file a certificate of merger with the Secretary of
State of the State of Delaware and deliver articles of merger to the Secretary
of State of the State of Texas in accordance with the DGCL and TBCA and make all
other filings or recordings required by applicable law in connection with the
Merger. The Merger shall become effective at the date and time (the "Effective
Time") when a properly executed certificate of merger is filed with the
Secretary of State of the State of Delaware and a certificate of merger is
issued to
the Surviving Corporation by the Secretary of State of the State of Texas or at
such later time as is specified in the respective certificates of merger. The
certificates and articles of merger filed with the Secretary of States of the
States of Delaware and Texas are referred to throughout the remainder of this
Agreement as the "Certificates of Merger."
SECTION 1.3. ARTICLES OF INCORPORATION. At the Effective Time the Second
Restated Articles of Incorporation ("Articles of Incorporation") of the Company,
as in effect immediately before the Effective Time, shall be the Articles of
Incorporation of the Surviving Corporation upon and after the Effective Time
until thereafter amended as provided by law and such Articles of Incorporation.
SECTION 1.4. BY-LAWS. The By-laws of Purchaser as in effect immediately
before the Effective Time shall be the By-laws of the Surviving Corporation
until thereafter amended as provided by law, the Articles of Incorporation of
the Surviving Corporation and such By-laws.
SECTION 1.5. BOARD OF DIRECTORS; OFFICERS. The directors of Purchaser
immediately prior to the Effective Time shall be the directors of the Surviving
Corporation and the officers of the Company immediately prior to the Effective
Time shall be the officers of the Surviving Corporation, in each case until
their respective successors are duly elected and qualified.
SECTION 1.6. EFFECTS OF MERGER. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of DGCL and TBCA.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the property, rights, privileges, powers and franchises of
the Company and Purchaser shall vest in the Surviving Corporation, and all
debts, liabilities and duties of the Company and Purchaser shall become the
debts, liabilities and duties of the Surviving Corporation.
SECTION 1.7. CLOSING. The closing of the transactions contemplated hereby
(the "Closing") shall take place at the offices of Willkie Farr & Gallagher, 787
Seventh Avenue, New York, NY 10019 no later than 10:00 a.m. on the second
business day (as such term is defined in Rule 14d-1 under the Exchange Act (a
"Business Day")) after the conditions set forth in Article VIII have been
satisfied (or, to the extent permitted by law, waived by the parties entitled to
the benefits thereof), or at such other place, time and date as shall be agreed
between Parent and the Company (the "Closing Date").
ARTICLE II.
CONVERSION OF COMMON STOCK
SECTION 2.1. CONVERSION OF COMMON STOCK. At the Effective Time, by virtue
of the Merger and without any action on the part of any Shareholder:
(a) All shares of Common Stock issued and outstanding immediately
prior to the Effective Time which are held by the Company or any Subsidiary
of the Company, and any shares of Common Stock issued and outstanding
immediately prior to the Effective Time owned by Parent, Purchaser or any
other Subsidiary of Parent, shall be cancelled and extinguished and no
payment or other consideration shall be made with respect thereto. As used
in this Agreement, "Subsidiary" means any "subsidiary" as defined in Rule
405 promulgated under the Securities Act of 1933, as amended (the
"Securities Act").
(b) Each remaining share of Common Stock issued and outstanding
immediately prior to the Effective Time (other than Dissenting Shares)
shall automatically be cancelled and extinguished and be converted into and
become solely a right to receive $37.00 per share (the "Per Share Amount")
in cash payable to the holder thereof, without interest, upon surrender of
the certificate representing such share. From and after the Effective Time,
each holder of a certificate or certificates representing any such shares
of Common Stock shall cease to have any rights with respect thereto, except
the right to receive the Per Share Amount, without interest, upon the
surrender of such certificate in accordance with Section 2.4 hereof.
A-2
(c) Each share of capital stock of Purchaser issued and outstanding
immediately prior to the Effective Time shall be converted and exchanged
into one validly issued, fully paid and nonassessable share of common stock
of the Surviving Corporation.
SECTION 2.2. STOCK OPTIONS
(a) Prior to the consummation of the Merger, the Company shall take
all actions necessary, and obtain any required consents, to provide that,
(i) effective as of the Effective Time each then outstanding option to
purchase Common Stock granted under any of the Company's stock option plans
referred to in Section 4.5 (collectively, the "Option Plans"), and (ii) any
and all other outstanding options, stock warrants and rights to acquire
Common Stock, whether or not granted pursuant to such Option Plans, whether
or not then exercisable or vested (the "Options") shall be cancelled by
virtue of the Merger, shall cease to exist and shall be of no further force
or effect; provided, however, that each holder of an Option, whether vested
or unvested, shall be entitled to receive, for each share of Common Stock
issuable on exercise of such Option, an amount in cash equal to the excess
of (x) the Per Share Amount over (y) the per share exercise price of the
Option as in effect immediately prior to the Effective Time. Such amount
shall be subject to reduction by any applicable tax withholding. The
Company and Parent agree that such amounts are the sole payments that will
be made with respect to or in relation to the Options. No consideration
shall be payable with respect to any Option which has an exercise price
that exceeds the Per Share Amount.
(b) The consideration due under this Section 2.2 shall be payable as
soon as practicable after the Effective Time without interest after (x)
verification by the Paying Agent of the ownership and terms of the
particular Option by reference to the Company's records, and (y) delivery
in the manner provided in Section 2.4 of a written instrument duly executed
by the owner of the applicable Option, in a form provided by the Paying
Agent and setting forth (i) the aggregate number of Options owned by that
person and their respective issue dates and exercise prices, (ii) a
representation by the person that he or she is the owner of all Options
described pursuant to clause (x), that none of those Options has expired or
ceased to be exercisable prior to the Effective Time, and (iii) a consent
to the treatment of such Options pursuant to this Section 2.2 in full
satisfaction of all rights relating to such Options.
(c) Except as provided herein or as otherwise agreed to by the
parties, the Company shall cause the Option Plans to terminate effective
not later than the Effective Time, and the provisions in any other plan,
program or arrangement, providing for the issuance or grant by the Company
or any of its Subsidiaries of any interest in respect of the capital stock
of the Company or any of its Subsidiaries shall be terminated effective not
later than the Effective Time.
(d) The Company represents and warrants that all of the Option Plans
provide that the Company can take the actions described in this Section 2.2
without obtaining the consent of any holders of Options.
(e) The Company shall take any reasonable action required to cause the
disposition of the Options in accordance with this Section 2.2 to be exempt
from the provisions of 16(b) of the Securities Exchange Act of 1934, as
amended, including the rules and regulations promulgated thereunder (the
"Exchange Act").
(f) Pursuant to the terms of the Company's Non-Employee Directors'
Retainer Stock Plan, all share equivalents credited to participant deferral
accounts shall be cancelled in exchange for an amount in cash equal to the
Per Share Amount multiplied by the equivalents so cancelled. The Company
shall pay such amount as soon as practicable after the Effective Time.
SECTION 2.3. CLOSING OF COMPANY TRANSFER BOOKS. At the Effective Time, the
stock transfer books of the Company shall be closed with respect to Common Stock
issued and outstanding immediately prior to the Effective Time and no further
transfer of such Common Stock shall thereafter be made on such stock transfer
books. If, after the Effective Time, valid certificates previously representing
such Common
A-3
Stock are presented to the Surviving Corporation or the Paying Agent, they shall
be exchanged as provided in Section 2.4.
SECTION 2.4. EXCHANGE OF CERTIFICATES. Prior to the Effective Time,
Purchaser shall designate a bank or trust company with capital exceeding $500
million to act as agent (the "Paying Agent") for the Shareholders to receive the
funds necessary to effect the exchange for cash of certificates which,
immediately prior to the Effective Time, represented Common Stock entitled to
payment pursuant to Section 2.1(b). As soon as practicable after the Effective
Time, the Paying Agent shall mail a transmittal form to each holder of record of
certificates theretofore representing such Common Stock advising such holder of
the procedure for surrendering to the Paying Agent such certificates. If a check
or wire transfer for the Per Share Amount is to be issued in the name of any
individual, partnership, corporation, trust, association, limited liability
company, Governmental Agency or any other entity (each, a "Person") other than
the Person in whose name the certificates for Common Stock surrendered for
exchange are registered on the books of the Company, it shall be a condition of
the exchange that the Person requesting such exchange shall pay to the Paying
Agent all transfer or other taxes, if any, required by reason of the issuance of
such check or wire transfer in the name of a Person other than the registered
owner of the certificates surrendered, or shall establish to the satisfaction of
the Paying Agent that such taxes have been paid or are not applicable. Upon the
surrender and exchange of a certificate theretofore representing Common Stock,
the holder shall be paid by check or wire transfer, without interest thereon,
the Per Share Amount to which such holder is entitled hereunder, less only such
amount, if any, required to be withheld under applicable backup withholding
federal income tax regulations, and such certificate shall forthwith be
cancelled. Until so surrendered and exchanged, each such certificate shall
represent solely the right to receive the Per Share Amount into which the Common
Stock it theretofore represented shall have been converted pursuant to Section
2.1, without interest, and the Surviving Corporation shall not be required to
pay the holder thereof the Per Share Amount to which such holder otherwise would
be entitled. If any certificates representing any Common Stock shall not have
been surrendered prior to five years after the Effective Time (or immediately
prior to such earlier date on which any payment in respect thereof would
otherwise escheat to or become the property of any Governmental Agency), the
payment in respect of such certificates shall, to the extent permitted by
applicable law, become the property of the Surviving Corporation, free and clear
of all claims or interest of any Person previously entitled thereto.
Notwithstanding the foregoing, neither the Paying Agent nor any party hereto
shall be liable to a holder of certificates theretofore representing Common
Stock for any amount paid to a public official pursuant to any applicable
abandoned property, escheat or similar laws. In the event that any holder is
unable to deliver the certificate which formerly represented such holder's
Common Stock, then Parent or Purchaser, in the absence of actual notice that any
Common Stock represented by any such certificate has been acquired by a bona
fide purchaser, shall deliver to such holder the Per Share Amount to which
Shareholder is entitled in accordance with the provisions of this Agreement upon
the presentation of the following: (i) an affidavit or other evidence that the
certificate has been lost, wrongfully taken or destroyed; (ii) evidence that
such Person is the beneficial owner of the certificate claimed by such Person to
be lost, wrongfully taken or destroyed and that such Person is the person who
would be entitled to present such certificate for exchange pursuant to this
Agreement and (iii) reasonable indemnity against the claims of any third party
claiming to be the beneficial owner of such lost, wrongfully taken or destroyed
certificate.
SECTION 2.5. FUNDING OF PAYING AGENT.
(a) Parent shall provide or cause to be provided to Purchaser, and
Purchaser shall transmit by wire transfer, or other acceptable means to the
Paying Agent, at or prior to the Effective Time funds required for the
exchange of all Common Stock and cancellation of all Options in accordance
with this Agreement. The Paying Agent shall agree to hold such funds in
trust and deliver such funds (in the form of checks of the Paying Agent or
wire transfers) in accordance with this Section 2.5 and Sections 2.2 and
2.4. Any portion of such funds which has not been paid to holders of the
Common Stock or Options pursuant to Section 2.2 or 2.4 within six months
after the Effective Time shall promptly be paid to the party which provided
such funds, and thereafter holders of certificates
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representing the right to receive the cash into which Common Stock or
Options formerly represented by such certificates shall have been converted
pursuant to Section 2.1(b) or 2.2 who have not theretofore complied with
Section 2.2 or 2.4 shall look solely to the Surviving Corporation for
payment of the amount of cash to which they are entitled pursuant to this
Agreement.
(b) The Paying Agent shall invest the funds, as directed by Purchaser,
prior to the Effective Time, and as directed by the Surviving Corporation,
on or after the Effective Time, in (i) direct obligations of the United
States of America, (ii) obligations for which the full faith and credit of
the United States of America is pledged to provide for the payment of
principal and interest, (iii) commercial paper rated the highest quality by
either Moody's Investors Services, Inc. or Standard & Poor's Corporation or
(iv) certificates of deposit, bank repurchase agreements or bankers'
acceptances of commercial banks with capital exceeding $500 million. Any
net earnings with respect to the funds shall be the property of and paid
over to the Surviving Corporation as and when requested by the Surviving
Corporation; provided, however, that any such investment or any such
payment of earnings may not delay the receipt by holders of certificates of
any Per Share Amount.
SECTION 2.6. NO FURTHER OWNERSHIP RIGHTS IN COMMON STOCK. From and after
the Effective Time, the Shareholders shall cease to have any rights with respect
to the Common Stock except as otherwise provided in this Agreement or by any
federal, state, local, municipal, foreign, international, multinational, or
other Order, constitution, law, rule, ordinance, permit, principle of common
law, regulation, statute, or treaty (each, a "Legal Requirement"). All cash paid
upon the surrender of certificates in accordance with the terms hereof shall be
deemed to have been issued in full satisfaction of all rights pertaining to
Common Stock. For purposes of this Agreement, the term "Order"means any award,
decision, injunction, judgment, order, ruling, subpoena, or verdict entered,
issued, made, or rendered by any Governmental Agency.
SECTION 2.7. DISSENTING SHAREHOLDERS. Notwithstanding anything in this
Agreement to the contrary, shares of Common Stock that are issued and
outstanding immediately prior to the Effective Time and that are held by
Shareholders who (i) have not voted such shares in favor of the Merger, (ii)
have otherwise complied with the relevant provisions of Section 5.13 of the TBCA
and (iii) as of the Effective Time, shall not have effectively withdrawn or lost
such right to relief as a dissenting Shareholder ("Dissenting Shares") shall not
be converted into a right to receive the Per Share Amount described in Section
2.1(b). The holders thereof shall be entitled only to such rights as are granted
by Section 5.13 of the TBCA. Each holder of Dissenting Shares who becomes
entitled to payment for such Dissenting Shares pursuant to Section 5.13 of the
TBCA shall receive payment therefor from the Surviving Corporation in accordance
with the TBCA; provided, however, that if any such holder of Dissenting Shares
(i) shall have failed to establish his entitlement to relief as a dissenting
Shareholder as provided in Section 5.13 of the TBCA, (ii) shall have withdrawn
his demand for relief as a dissenting Shareholder with respect to such
Dissenting Shares or lost his right to relief as a dissenting Shareholder and
payment for his Dissenting Shares under Section 5.13 of the TBCA or (iii) shall
have failed to file a complaint with the appropriate court seeking relief as to
determination of the value of all Dissenting Shares within the time provided in
Section 5.13 of the TBCA, such holder shall forfeit the right to relief as a
dissenting Shareholder with respect to such Dissenting Shares and each such
Dissenting Share shall be converted into the right to receive the Per Share
Amount from the Surviving Corporation as provided in Section 2.4. The Company
shall give Parent prompt notice of any demands received by the Company prior to
the Effective Time, any attempted withdrawals of such demands and any other
instruments served pursuant to the TBCA and received by the Company relating to
Shareholders' rights of appraisal, and Parent shall have the right to direct all
negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of Parent, make any payment with
respect to, or settle or offer to settle, any such demands.
SECTION 2.8. ASSISTANCE IN CONSUMMATION OF THE TRANSACTIONS. Each of
Parent, Purchaser and the Company shall provide all reasonable assistance to,
and shall cooperate with, each other to bring about the consummation of the
Merger and the other Transactions as soon as possible in accordance with the
terms
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and conditions of this Agreement. Parent shall cause Purchaser to perform all of
its obligations in connection with this Agreement required to be performed by it
on or prior to the Effective Time.
ARTICLE III.
COMPANY ACTION WITH RESPECT TO THE MERGER
SECTION 3.1. COMPANY AND BOARD APPROVAL; FAIRNESS OPINION.
(a) The Company hereby approves of and consents to the Merger and
represents and warrants that the Board of Directors, at a meeting duly
called and held on May 1, 2002, at which all the Directors were present
duly and unanimously: (i) approved and adopted this Agreement and the
Transactions, including the Merger, (ii) resolved to recommend that the
Shareholders approve this Agreement and the Transactions, including the
Merger, provided that such recommendation may be withdrawn, modified or
amended to the extent that the Board of Directors determines in good faith
following consultation with outside legal counsel that failure to take such
action would constitute a breach of the Board of Directors' fiduciary
obligations under applicable law, (iii) determined that this Agreement and
the transactions contemplated hereby, including the Merger, are fair to and
in the best interests of the Shareholders, (iv) took all action necessary
to render Section 13.03 of the TBCA and the Rights inapplicable to the
Merger, the Voting Agreement, this Agreement, and any of the Transactions
and Subsequent Transactions, (v) elected, to the extent permitted by law,
not to be subject to any "moratorium," "control share acquisition,"
"business combination," "fair price" or other form of corporate
anti-takeover laws and regulations of any jurisdiction that may purport to
be applicable to this Agreement, and (vi) approved the execution, delivery
and performance of this Agreement, such approval constituting approval of
the foregoing for purposes of Section 5.03 of the TBCA.
(b) The Company further represents and warrants that SunTrust Robinson
Humphrey, as financial advisor to the Board of Directors has delivered to
the Board of Directors a written opinion, dated as of the date of this
Agreement (or an oral opinion which will be promptly confirmed in writing),
to the effect that the Per Share Amount to be received by Shareholders
(other than Parent or any "affiliate" as defined in Rule 405 promulgated
under the Securities Act ("Affiliate")) pursuant to the Merger is fair to
such holders from a financial point of view. The Company hereby represents
and warrants that it has been authorized by its financial advisor to permit
the inclusion in its entirety of the fairness opinion (and, subject to
prior review and consent by the financial advisor, references thereto) in
the Proxy Statement. The Company has been advised by each of its directors
who owns shares of Common Stock that such person intends to vote all shares
of Common Stock owned by such person in favor of the Merger.
(c) The Company has irrevocably taken all necessary action, including,
without limitation, amending the Rights Agreement, dated as of December 13,
1996, as amended, between the Company and Mellon Investor Services, LLC, as
rights agent (the "Rights Agreement"), with respect to all of the
outstanding rights issued pursuant to the Rights Agreement (the "Rights")
to ensure that (i) Parent and Purchaser, or either of them, are not deemed
to be an Acquiring Person (as defined in the Rights Agreement) and (ii) the
Rights will not become exercisable, in any such case, by reason of the
execution and delivery of the Voting Agreement, this Agreement or the
consummation of the Merger and the Subsequent Transactions. The Rights
Agreement, as so amended, has not been further amended or modified. Copies
of all such amendments to the Rights Agreement have been previously
provided or made available to Purchaser.
SECTION 3.2. PROXY STATEMENT.
(a) As promptly as practicable following the date of this Agreement,
the Company shall prepare a preliminary proxy statement (the "Proxy
Statement") relating to the Special Meeting and a form of proxy for use at
the Special Meeting relating to the vote of the Shareholders with respect
to the Merger. Parent shall be afforded a reasonable opportunity to comment
on the Proxy Statement. The
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Proxy Statement shall comply in all material respects with the provisions
of the Exchange Act, and shall be in form and substance reasonably
satisfactory to Parent.
(b) The Company shall cause the preliminary Proxy Statement to be
filed with the Securities and Exchange Commission (the "Commission") at the
earliest practicable date after the date of this Agreement, and in any
event not more than 14 days after the date hereof.
(c) The Company shall promptly notify Parent of the receipt of any
comments of the Commission with respect to the preliminary Proxy Statement
and of any requests by the Commission for any amendment or supplement
thereto or for additional information and shall provide to Parent promptly
copies of all correspondence between the Company or any representative of
the Company and the Commission. As promptly as practicable after comments
are received from the Commission with respect to the preliminary Proxy
Statement, the Company shall use its commercially reasonable efforts to
respond to the comments of the Commission and, to the extent comments of
the Commission relate to Parent or Purchaser, Parent and Purchaser shall
use their commercially reasonable efforts to respond to the comments of the
Commission. The Company shall give Parent and its counsel the reasonable
opportunity to review all amendments and supplements to the Proxy Statement
and all responses to requests for additional information and replies to
comments of the Commission prior to their being filed with or sent to the
Commission, and Parent and Purchaser shall provide the Company with such
information about them as may be required to be included in the Proxy
Statement or as may be reasonably required to respond to any comment of the
Commission.
(d) After all the comments received from the Commission have been
cleared by the Commission staff and all information required to be
contained in the Proxy Statement has been included therein by the Company,
the Company shall file with the Commission the definitive Proxy Statement
and the Company shall use its commercially reasonable efforts to have the
Proxy Statement cleared by the Commission as soon thereafter as
practicable. The definitive Proxy Statement shall contain the fairness
opinion of the financial advisor for the Company pursuant to Section
3.1(b). The Company shall cause the Proxy Statement to be mailed to record
holders of the Common Stock as promptly as practicable after clearance by
the Commission.
(e) The Proxy Statement shall contain the determination and
recommendation of the Board of Directors referred to in and subject to
Section 3.1; provided, however, that any withdrawal or change in its
recommendation must be made in compliance with Section 6.2(c), if
applicable, and subject to the requirement that the Board of Directors
submit this Agreement and the Transactions, including the Merger, to a
shareholder vote in accordance with Section 3.3(c).
(f) The Company shall prepare and revise the Proxy Statement so that,
at the date mailed to the Shareholders, at the time of the Special Meeting,
and at the Closing Date the Proxy Statement shall (x) not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order that the statements
made therein, in light of the circumstances under which they are made, not
misleading (except that the Company shall not be responsible under this
paragraph with respect to statements made therein based on information
supplied by Parent or Purchaser expressly for inclusion in the Proxy
Statement), and (y) comply in all material respects with the provisions of
the Exchange Act and the rules and regulations thereunder.
SECTION 3.3. MEETING OF SHAREHOLDERS OF THE COMPANY.
(a) The Company shall promptly take all action necessary in accordance
with the TBCA and its Articles of Incorporation and By-Laws to duly call,
give notice of, convene and hold a special meeting of its shareholders for
the purpose of considering and taking action upon the approval of the
Merger and the authorization and adoption of this Agreement (the "Special
Meeting") as promptly as practicable following the date hereof, and in no
event more than 21 Business Days following the clearance of the Proxy
Statement by the Commission.
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(b) The vote required for approval of the Merger will be two-thirds or
more of the outstanding Common Stock. Subject to the right of the Board of
Directors to withdraw, modify or amend its recommendation of the Merger in
accordance with Section 3.1(a), the Company shall use its reasonable best
efforts to solicit from Shareholders proxies in favor of the Merger and
shall take all other action necessary or, in the reasonable opinion of
Purchaser, advisable to secure any vote of Shareholders required by the
TBCA and the Articles of Incorporation to effect the Merger.
(c) The Company shall call and hold the Special Meeting whether or not
the Board of Directors at any time subsequent to the date hereof determines
that this Agreement or the Transactions, including the Merger, is no longer
advisable, recommends the rejection thereof by the Shareholders, or
otherwise makes an Adverse Recommendation.
(d) At the Special Meeting, Parent and Purchaser shall vote or cause
to be voted all of the Common Stock then owned or as to which they have
voting control by Parent, Purchaser or their Subsidiaries in favor of
adoption of this Agreement and the Company shall vote or cause to be voted
all shares of Common Stock with respect to which proxies in the form
distributed by the Company have been given, and not voted against the
adoption of this Agreement, in favor of adoption of this Agreement.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Purchaser as of the date
of this Agreement as follows:
SECTION 4.1. ORGANIZATION OF THE COMPANY.
(a) Each of the Company and its Subsidiaries is a corporation duly
organized, validly existing, and except as set forth on Schedule 4.1 in
good standing under the laws of the jurisdiction of its organization. Each
of the Company and its Subsidiaries is duly qualified to do business and is
in good standing in the states in which the ownership of its properties or
the conduct of its business requires such qualification, except where the
failure to so qualify, individually or in the aggregate, would not
reasonably be expected to have a Prohibited Effect.
(b) For the purposes of this Agreement, a "Prohibited Effect" means:
(i) a material adverse change in or effect with respect to the business,
revenues, results of operations, properties, or financial condition of the
Company and its Subsidiaries, taken as a whole, other than any change or
effect resulting from or attributable to (A) the announcement or pendency
of this Agreement or the Transactions, (B) any decrease in the market price
of the Common Stock (but not any change or effect underlying such decrease
to the extent that it would otherwise constitute a Prohibited Effect), (C)
changes, effects, conditions, events or circumstances that generally affect
the industries in which the Company or its Subsidiaries operate (including
legal and regulatory changes), or (D) general economic conditions or
changes, effects, conditions or circumstances affecting the securities
markets generally, including any change in general economic conditions due
to any act or war, terrorism, or threat of war or terrorism; or (ii) notice
from a Major Supplier after the date of this Agreement that it intends to
materially alter its relationship with the Company or any of its
Subsidiaries in a manner that would be materially adverse to the Company's
business taken as a whole other than any such notice arising directly from
a request to amend or delete provisions of Contracts designated as Vendor
Excluded Indebtedness pursuant to Section 7.6.
SECTION 4.2. AUTHORITY AND BINDING EFFECT.
(a) The Company has the requisite corporate power to execute and
deliver this Agreement and all other agreements and documents contemplated
hereby or executed in connection herewith to which it is a party (the
"Transaction Documents") and subject, with respect to the consummation of
the Merger, to the approval of Shareholders holding at least two-thirds of
the outstanding Common
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Stock, to consummate the Initial Transactions, the Merger and the other
transactions contemplated hereby and thereby (collectively, the
"Transactions"), and to consummate the subsequent merger of Parent's wholly
owned subsidiary engaged in the same line of business with and into the
Surviving Corporation (the "Subsequent Transactions").
(b) The execution and delivery of the Transaction Documents by the
Company and the consummation by the Company of the Transactions have been
duly and validly authorized by the Board of Directors, and no other
corporate proceedings on the part of the Company are necessary to authorize
Transaction Documents or to consummate the Transactions (other than with
respect to the consummation of the Merger, the adoption of this Agreement
by Shareholders holding at least two-thirds of the outstanding Common
Stock).
(c) This Agreement has been, and each other Transaction Document at
the time of its execution will have been, duly and validly executed and
delivered by the Company, and (assuming this Agreement and such Transaction
Documents each constitute a valid and binding obligation of Parent and
Purchaser) this Agreement constitutes, and each such other Transaction
Document at the time of execution will constitute, the valid and binding
obligations of the Company, enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting the rights of creditors and to general principles of equity.
SECTION 4.3. NO CONFLICT OR VIOLATION; CONSENTS. Except as set forth on
Schedule 4.3, neither the execution and delivery of the Transaction Documents
nor the consummation or performance of the Transactions will, directly or
indirectly (with or without notice or lapse of time):
(a) contravene, conflict with, or result in a violation of (i) any
provision of the Articles of Incorporation or the Second Amended and
Restated By-Laws (the "By-Laws") of the Company or the equivalent
organizational documents of any of its Subsidiaries, or (ii) any resolution
adopted by the Board of Directors or the Shareholders;
(b) contravene, or conflict with, or result in a violation of any
material Legal Requirement to which the Company or any of the assets owned
or used by the Company, may be subject;
(c) contravene, or conflict with, or result in a violation of any of
the terms or requirements of, or give any Governmental Agency the right to
revoke, withdraw, suspend, cancel, terminate, or materially modify any
permit, approval, consent, authorization, license, variance, or permission
required by a Governmental Agency under any Legal Requirement (each, a
"Permit") that is material and is held by the Company or any of its
Subsidiaries;
(d) contravene, conflict with, or result in a violation or breach of
any provision of, or give any Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of,
or to cancel, terminate, or modify, or to receive any additional
consideration under any Material Contract or material Permit;
(e) result in the imposition or creation of any material Lien upon or
with respect to any of the material assets owned or used by the Company; or
(f) require any material consent, approval, or authorization of, or
material registration or filing with, any Governmental Agency or any other
Person.
SECTION 4.4. SEC FILINGS; FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES.
(a) The Company has filed all forms, reports and documents (including
all exhibits thereto) required to be filed with the Commission since April
30, 1999, and has heretofore made available to Parent, in the form filed
with the Commission, its (i) Annual Report on Form 10-K for the fiscal year
ended April 30, 2001, (ii) Quarterly Reports on Form 10-Q for the fiscal
quarters ended July 31, 2001, October 31, 2001 and January 31, 2002, (iii)
all proxy statements relating to the Company's meetings of Shareholders
(whether annual or special) held since April 30, 1999 and (iv) all other
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reports or registration statements filed by the Company with the Commission
since April 30, 1999 (collectively, the "SEC Reports"). Except as set forth
in Schedule 4.4, the SEC Reports (i) at the time filed complied as to form
in all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and (ii) did not at the time they were
filed contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading. None of the Subsidiaries of the Company is
required to file any statements or reports with the Commission pursuant to
Sections 13(a) or 15(d) of the Exchange Act.
(b) The consolidated financial statements contained in the SEC Reports
were prepared in accordance with generally accepted accounting principles
applied on a consistent basis ("GAAP") throughout the periods involved
(except as may be indicated in the notes thereto) and fairly presented the
consolidated financial position of the Company and its Subsidiaries as at
the respective dates thereof and the consolidated results of operations and
cash flows of the Company and its Subsidiaries for the periods indicated,
except that the unaudited interim financial statements were or are subject
to normal and recurring year-end adjustments (which in the aggregate are
not material in amount).
(c) Except as (i) set forth on Schedule 4.4, (ii) incurred in the
ordinary course of business consistent with past practice since April 30,
2001, (iii) set forth in the financial statements or notes thereto or in
the Management's Discussion and Analysis of Financial Condition and Results
of Operations, in each case, included in the SEC Reports filed after April
30, 2001 and prior to the date of this Agreement, (iv) relating to
performance obligations under Contracts in accordance with the terms and
conditions thereof which are not required by GAAP to be reflected on a
consolidated balance sheet of the Company and its Subsidiaries, or (v)
liabilities or obligations contained in this Agreement, the Company and its
Subsidiaries have no material liabilities or obligations (whether asserted
or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated and whether due or to become
due) (each, a "Liability") of any nature (whether accrued, absolute,
contingent or otherwise).
SECTION 4.5. CAPITAL STRUCTURE. The authorized capital stock of the
Company consists of 20,000,000 shares of Common Stock and 1,000,000 shares of
Series A Junior Participating Preferred Stock, par value $.01 per share. As of
the date of this Agreement: (a) no shares of Series A Junior Participating
Preferred Stock are issued and outstanding; (b) 3,170,912 shares of Common Stock
are issued and outstanding; and (c) 691,240 shares of Common Stock are reserved
for issuance pursuant to outstanding Options. Schedule 4.5 sets forth a list of
all Option Plans, together with all Options outstanding as of the date of this
Agreement and the number of shares of Common Stock issuable upon exercise of
such Options, and the exercise price thereof. Each outstanding share of capital
stock of the Company is duly authorized and validly issued, fully paid and
nonassessable and free of any preemptive rights and was not issued in violation
of any preemptive rights or federal or state securities laws. Except for the
Options and the periodic options granted prior to the date of this Agreement
under the Employee Stock Purchase Plan, there are no, and at Closing there will
be no, outstanding subscriptions, options, warrants, puts, calls, agreements,
understandings, claims or other commitments or rights of any type granted or
issued by the Company relating to the issuance, sale or transfer by the Company
of any securities of the Company, nor will there be outstanding any voting
securities of the Company or any securities of the Company which are convertible
into or exchangeable for any shares of capital stock of the Company, and the
Company will have no obligation of any kind to issue any additional capital
stock or voting securities.
SECTION 4.6. SUBSIDIARIES.
(a) Except as set forth on Schedule 4.6, the Company does not own any
stock of, or any equity participation in, any Person (other than those held
by Plans, or acquired in connection with the settlement of outstanding
accounts receivable subsequent to the date of this Agreement).
(b) Schedule 4.6 sets forth a correct and complete list of all
Subsidiaries of the Company. The Company has made available to Parent and
Purchaser, true and correct copies of the certificates of incorporation and
by-laws or similar organizational documents of each Subsidiary as amended
to date.
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(c) All of the outstanding shares of capital stock of each Subsidiary
of the Company are duly authorized, validly issued, fully paid, and
non-assessable, and except as set forth on Schedule 4.6 are owned by the
Company or a Subsidiary of the Company as set forth on Schedule 4.6, free
and clear of any Lien.
(d) Except as set forth on Schedule 4.6, operations of the Company and
its Subsidiaries conducted outside of the United States are conducted by
the Subsidiaries listed on Schedule 4.6.
(e) There are no outstanding or authorized options, warrants, calls,
subscriptions, rights, commitments or any other agreements of any character
(i) evidencing the right to purchase or subscribe for any shares of capital
stock of a Subsidiary of the Company and set forth on Schedule 4.6 or (ii)
obligating any Subsidiary of the Company to issue any additional shares of
its capital stock.
SECTION 4.7. ACCOUNTS RECEIVABLE. The accounts receivable of the Company
and its Subsidiaries reflected on the consolidated balance sheet of the Company
dated as of January 31, 2002 which is included in the SEC Reports filed prior to
the date of this Agreement ("Balance Sheet") or on the accounting records of the
Company as of the Closing Date (collectively, the "Accounts Receivable")
represent or will represent valid obligations arising from sales actually made
or services actually performed in the ordinary course of business. The Account
Receivable reserves are adequate and calculated in accordance with GAAP.
SECTION 4.8. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as expressly
permitted by this Agreement or as set forth in Schedule 4.8 hereto, (i) since
April 30, 2001, the Company and its Subsidiaries have conducted their business
only in the ordinary course consistent with past practice, (ii) since April 30,
2001, there have not occurred any events or changes or developments having, or
which would reasonably be expected to have, individually or in the aggregate, a
Prohibited Effect, and (iii) since January 31, 2002, neither the Company nor any
of its Subsidiaries has taken, or committed to take any action which would have
been prohibited under Section 6.1 if such section applied to the period since
January 31, 2002.
SECTION 4.9. PROPERTIES.
(a) Neither the Company nor any of its Subsidiaries own any real
property.
(b) Except as would not, individually or in the aggregate, reasonably
be expected to have a Prohibited Effect, each of the Company and its
Subsidiaries has good and marketable title to all the properties and assets
owned by the Company or any of its Subsidiaries or, in the case of property
held under Lease or other Contract, each of the Company and its
Subsidiaries have a valid and subsisting leasehold interest in or a legal,
valid and enforceable right to use, free and clear of all Liens except
Permitted Liens.
(c) All material leases, subleases, licenses and other occupancy
agreements together with any amendments thereto, any option agreements and
any subordination, nondisturbance and attornment agreements (the "Leases"),
with respect to all real property leased or subleased by the Company or any
of its Subsidiaries are in full force and effect. Neither the Company or
any of its Subsidiaries nor, to the Company's Knowledge, any other party
thereto is in default under any of the Leases (and no event has occurred
which, with due notice or lapse of time or both, would constitute such a
default), except for such defaults which, individually or in the aggregate,
would not reasonably be expected to have a Prohibited Effect. The Company
has made available to Parent true correct and complete copies of each Lease
required to be listed on Schedule 4.12.
(d) The assets of the Company and its Subsidiaries in the aggregate
are adequate to conduct the operations of the Company and its Subsidiaries
in substantially the manner currently conducted.
(e) The tangible personal property of the Company and its Subsidiaries
is in good condition and repair (ordinary wear and tear excepted) and is
adequate for the uses to which it is being put and for the conduct of the
business of the Company and its Subsidiaries as currently conducted.
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(f) For purposes of this Agreement, the term "Lien" means any charge,
claim, community property interest, condition, equitable interest, lien,
option, pledge, security interest, right of first refusal, or restriction
of any kind, including any restriction on use, voting, transfer, receipt of
income, or exercise of any other attribute of ownership. In addition, the
term "Permitted Liens" means, with respect to any asset, (i) covenants,
conditions, restrictions, encroachments, encumbrances, easements, rights of
way, licenses, grants, building or use restrictions, exceptions,
reservations, limitations or other imperfections of title (other than a
Lien securing any Indebtedness) with respect to such asset which,
individually or in the aggregate, does not materially detract from the
value of, or materially interfere with the present occupancy or use of,
such asset and the continuation of the present occupancy or use of such
asset; (ii) the matters set forth on Schedule 4.9; (iii) unfiled
mechanic's, materialmen's and similar liens with respect to amounts not yet
due and payable or which are being contested in good faith through
appropriate proceedings; (iv) liens for Taxes not yet delinquent or which
are being contested in good faith through appropriate proceedings and, for
those existing on the date of the Balance Sheet, for which adequate
reserves in accordance with GAAP are reflected on the Balance Sheet, or
arose subsequent to the date of the date of the Balance Sheet in the
ordinary course of business; and (v) liens securing rental payments under
operating leases and capital lease arrangements, which capital lease
arrangements if existing on the date of the Balance Sheet were reflected on
the Balance Sheet, or arose subsequent to the date of the Balance Sheet in
the ordinary course of business.
SECTION 4.10. COMPLIANCE WITH LEGAL REQUIREMENTS.
(a) Except as set forth on Schedule 4.10(a), the Company and its
Subsidiaries have complied in all material respects with all material Legal
Requirements, and, to the Company's Knowledge, no event has occurred which
with or without notice could reasonably be expected to constitute a
material violation of any material Legal Requirements. Since April 30,
2001, except as set forth on Schedule 4.10(a), neither the Company nor any
of its Subsidiaries has received any notice or other communication (whether
oral or written) from any Governmental Agency or any other Person regarding
(i) any actual, alleged, possible, or potential violation of, or failure to
comply with, any material Legal Requirement, or (ii) any actual, alleged,
possible, or potential obligation on the part of the Company to undertake,
or to bear all or any portion of the cost of, any material remedial action
of any nature, nor to the Company's Knowledge is there any basis for any
such notice or other communication.
(b) All material Permits, except as noted on Schedule 4.10(b), are in
full force and effect and no proceeding is pending or, to the Company's
Knowledge, threatened, to revoke or materially limit any such Permit, nor
is there a basis for any such revocation. Except as set forth on Schedule
4.10(b):
(i) the Company and its Subsidiaries are, and at all times since
April 30, 2001 have been, in material compliance with all of the terms
and requirements of each material Permit;
(ii) since April 30, 2001, neither Company nor any of its
Subsidiaries has received any notice or other communication (whether
oral or written) from any Governmental Agency or any other Person
regarding (A) any actual, alleged, possible, or potential violation of
or failure to comply with any material term or requirement of any
material Permit, or (B) any actual, proposed, possible, or potential
revocation, withdrawal, suspension, cancellation, termination of, or
material modification to any such material Permit, nor is there any
basis for such notice or other communication; and
(iii) all applications required to have been filed for the renewal
of the material Permits have been duly filed on a timely basis with the
appropriate Governmental Agencies, and all other filings required to
have been made with respect to such Permits have been duly made on a
timely basis with the appropriate Governmental Agencies.
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SECTION 4.11. AFFILIATE AGREEMENTS AND LIABILITIES. Except as set forth on
Schedule 4.11 or those solely among the Company and its wholly owned
Subsidiaries:
(a) there are no written or oral Contracts between the Company and any
Affiliate of the Company including, without limitation, any such Contracts
relating to the provision of any services by the Company to any such
Affiliate, or by any such Affiliate to the Company; and
(b) (i) since the date of the Balance Sheet, there have been and (ii)
from the date of this Agreement to the Closing Date there will be no
material transactions, agreements or arrangements made upon or containing
terms and provisions less favorable to the Company than could have been
obtained on an arm's length basis from a Third Party between the Company
and (x) any Affiliate of the Company, (y) any director or officer of the
Company or of any Affiliate of the Company or (z) any member of the
immediate family of any individual described in clause (x) or (y) of this
sentence.
SECTION 4.12. MATERIAL CONTRACTS.
(a) The Company has made available to Parent true, correct and
complete copies of all of, the following written Contracts (and all
amendments thereto) (or a summary of the material terms of any oral
Contracts) to which the Company or any of its Subsidiaries is a party or by
which any of their properties or assets are bound as of the date of this
Agreement:
(i) mortgage, indenture, note, letter of credit, reimbursement or
installment obligation, or other instrument for or relating to
Indebtedness in excess of $250,000;
(ii) (x) guaranty of any obligation in excess of $250,000 for
borrowings or performance, or (y) guaranty or warranty of products or
services, excluding endorsements or guaranties of instruments made in
the ordinary course of business, including in connection with the
deposit of items for collection, and statutory warranties;
(iii) Contract for the sale or lease of any of its assets in excess
of $250,000 other than in the ordinary course of business;
(iv) Contract for the purchase of any real estate, machinery,
equipment, or other capital assets in excess of $250,000;
(v) Contract for the future purchase of materials, supplies,
services, merchandise, or equipment parts in excess of $250,000;
(vi) Contract pursuant to which it is or may be obligated to make
payments, contingent or otherwise, on account of or arising out of prior
acquisitions or sales of businesses, assets, or stock of other
companies;
(vii) distribution, dealership, representative, broker, sales
agency, advertising or consulting Contract pursuant to which in excess
of $5,000,000 in annual gross revenues are recognized by the Company, in
the case of any such Contract with a Person primarily engaged in the
software publishing, distribution or resale business, and $250,000, in
the case of any other such Contract; excepting in each case any such
Contract that is terminable at will, or by giving notice of 30 days or
less, without Liability;
(viii) Lease for the use of real or personal property with rent in
excess of $250,000 per year;
(ix) Contract imposing non-competition or exclusive dealing
obligations on it;
(x) Contract in excess of $250,000 providing for payments to or by
any Person based on sales, purchases, or profits, other than direct
payments for goods;
(xi) Contract for the employment of any Shareholder, director,
officer, consultant or key employee not terminable without penalty or
Liability arising from such termination or any severance or
change-in-control contract or arrangement;
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(xii) Contract relating to cleanup, abatement or other actions in
connection with environmental liabilities; or
(xiii) Contract which (A) involves future payment by or to the
Company or the applicable Subsidiary in excess of $250,000 or (B) is
otherwise material to the extent relating to the conduct of the business
of the Company and its Subsidiaries ((i) through (xiii) collectively,
the "Material Contracts").
(b) Schedule 4.12 sets forth a list of all (i) Material Contracts,
excluding customer contracts entered into in the ordinary course of
business and (ii) all Contracts described in Section 4.12(a)(i) relating to
Indebtedness for borrowed money regardless of whether the amount thereof is
in excess of or less than $250,000. Each Material Contract is valid,
binding and enforceable against the Company or the applicable Subsidiary,
and to the Company's Knowledge the other parties thereto in accordance with
its terms (subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting the rights of creditors and to general principles
of equity), and is in full force and effect. The Company or the applicable
Subsidiary has performed all material obligations required to be performed
by it to date under each of the Material Contracts. Except as set forth in
Schedule 4.12, neither the Company nor any of its Subsidiaries nor, to the
Company's Knowledge, any other party thereto is in material breach of or
default under any Material Contract (and no event has occurred which, with
due notice or lapse of time or both, would constitute such a lapse or
default).
(c) For the purposes of this Agreement, the term "Contract" means,
collectively, all contracts, agreements, commitments, instruments and
guaranties to which the Company or any Subsidiary is a party. For the
purposes of this Agreement, the term "Indebtedness" means (without
duplication), with respect to any Person, whether recourse is to all or a
portion of the assets of such Person, (i) the principal of and premium, if
any, in respect of any indebtedness of such Person for money borrowed, (ii)
the principal, premium, if any, and interest of such Person with respect to
obligations evidenced by bonds, debentures, notes or, except for accrued
liabilities arising in the ordinary course of business, other similar
instruments, including obligations incurred in connection with the
acquisition of property, assets or businesses (other than trade payables
which are not overdue or in default), (iii) all obligations of such Person
in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto) but only to the extent of
drawings thereunder, (iv) every obligation of such Person issued or assumed
as the deferred purchase price of property or services (excluding trade
accounts payable or accrued liabilities arising in the ordinary course of
business which are not overdue or in default), (v) every capital lease
obligation (determined in accordance with GAAP) of such Person, (vi) all
Indebtedness of other Persons secured by a Lien on any asset of such
Person, whether or not such Indebtedness is assumed by such Person;
provided, however, that the amount of such Indebtedness shall be the lesser
of (A) the fair market value of such asset at such date of determination
and (B) the amount of such Indebtedness of such other Persons, (vii) every
obligation to pay rent or other payment amounts of such Person with respect
to any sale-leaseback transaction to which such Person is a party, payable
through the stated maturity of such sale-leaseback transaction, (viii)
factoring arrangements of such Person, whether or not such arrangements
appear on the balance sheet of such Person; and (ix) every obligation of
the type referred to in clauses (i) through (viii) of another Person the
payment of which, in any case, such Person has guaranteed or is responsible
or liable, directly or indirectly, as obligor, guarantor or otherwise.
SECTION 4.13. INTELLECTUAL PROPERTY.
(a) Except as would not reasonably be expected to have, individually
or in the aggregate, a Prohibited Effect, the Company and its Subsidiaries
own all right, title and interest in and to, or possess adequate licenses
or other valid rights to use (in each case, free and clear of any Liens),
all Intellectual Property used or held for use in connection with the
business of the Company and its Subsidiaries as currently conducted or as
contemplated to be conducted.
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(b) Except as would not reasonably be expected to have, individually
or in the aggregate, a Prohibited Effect, the use of any Intellectual
Property by the Company or its Subsidiaries does not infringe or otherwise
violate the rights of any Person and is in accordance with any applicable
license pursuant to which the Company or any of its Subsidiaries acquired
the right to use any Intellectual Property.
(c) Except as would not reasonably be expected to have, individually
or in the aggregate, a Prohibited Effect, no Person or Intellectual
Property of any Person is challenging, infringing or otherwise violating
any right of the Company or any of its Subsidiaries with respect to any
Intellectual Property owned by and/or licensed to the Company or any of its
Subsidiaries.
(d) Neither the Company nor any of its Subsidiaries has received any
written notice or, to the Knowledge of the Company, other notice of any
assertion or claim with respect to any Intellectual Property owned or used
by the Company or any of its Subsidiaries other than as would not
reasonably be expected to have, individually or in the aggregate, a
Prohibited Effect.
(e) No Intellectual Property owned or licensed by the Company or any
of its Subsidiaries is being used by the Company or any of its Subsidiaries
in a manner that would result in the cancellation or unenforceability of
such Intellectual Property, nor is the Company or any of its Subsidiaries
failing to use any Intellectual Property in a manner that would result in
the abandonment of such Intellectual Property, in each case other than as
would not reasonably be expected to have, individually or in the aggregate,
a Prohibited Effect. For purposes of this Agreement, "Intellectual
Property" means (i) all trademarks, trademark rights, trade names, trade
name rights, trade dress and other indications of origin, corporate names,
brand names, logos, certification rights, service marks, applications for
trademarks and for service marks, know-how and other proprietary rights and
information, the goodwill associated with the foregoing and registration in
any jurisdiction of, and applications in any jurisdictions to register, the
foregoing, including any extension, modification or renewal of any such
registration or application; (ii) all inventions, discoveries and ideas
(whether patentable or unpatentable and whether or not reduced to
practice), in any jurisdiction, all improvements thereto, and all patents,
patent rights, applications for patents (including, without limitation,
divisions, continuations, continuations in part and renewal applications),
and any renewals, extensions or reissues thereof, in any jurisdiction;
(iii) trade secrets, customer lists, know-how, including confidential and
other non-public information, and the right in any jurisdiction to limit
the use or disclosure thereof by any Person (collectively "Trade Secrets"),
(iv) writings and other works, whether copyrightable or not, in any
jurisdiction, and all registrations or applications for registration of
copyrights in any jurisdiction, and any renewals or extensions thereof; (v)
all mask works and all applications, registrations and renewals in
connection therewith, in any jurisdiction; (vi) all computer software
(including data and related documentation); (vii) Internet Web sites, Web
pages, domain names and applications and registrations pertaining thereto;
(viii) any similar intellectual property or proprietary rights; and (ix)
all copies and tangible documentation thereof and any claims or causes of
action arising out of or relating to any infringement or misappropriation
of any of the foregoing. Schedule 4.13 contains a list of all of the
Company's patent and patent applications and all trademark, copyright and
domain name applications and registrations, including patent registrations,
and the application number (except with respect to domain names), record
owner and jurisdiction as to each.
(f) Except as would not reasonably be expected to have, individually
or in the aggregate, a Prohibited Effect, the Company and its Subsidiaries
have taken all reasonable precautions to protect the secrecy,
confidentiality, and value of the Trade Secrets.
(g) No Former Employee or Employee, officer or director of the Company
or any of its Subsidiaries holds any right, title or interest, directly or
indirectly, in whole or in part, in or to any material Intellectual
Property.
(h) The Intellectual Property is sufficient, in all material respects
for the Company and its Subsidiaries to carry on their business as
presently conducted.
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SECTION 4.14. LABOR RELATIONS. Except as set forth on Schedule 4.14,
neither the Company nor its Subsidiaries is party to any collective bargaining
agreement covering any individual who performs services as an employee primarily
for the Company or any of its Subsidiaries (including such persons who are on an
approved leave of absence, vacation, short-term disability or otherwise treated
as an active employee of the Company or any of its Subsidiaries, "Employees"),
and there are no controversies or unfair labor practice proceedings pending or,
to the Company's Knowledge, threatened between the Company or any of its
Subsidiaries and any of their current or former Employees or any labor or other
collective bargaining unit representing any current or former Employee of the
Company or any of its Subsidiaries that would reasonably be expected to result
in a labor strike, dispute, slow-down or work stoppage or otherwise have a
Prohibited Effect. To the Company's Knowledge, except as set forth on Schedule
4.14, no organizational effort is presently being made or to the Company's
Knowledge, threatened by or on behalf of any labor union.
SECTION 4.15. EMPLOYEE BENEFITS.
(a) Schedule 4.15 lists all employee benefit plans as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") and all other employee benefit practices or arrangements,
including, without limitation, any such practices or arrangements providing
severance pay, sick leave, vacation pay, salary continuation for
disability, retirement benefits, deferred compensation, bonus pay,
incentive pay, stock options or other stock-based compensation,
hospitalization insurance, medical insurance, life insurance, scholarships
or tuition reimbursements, maintained by the Company or any of its
Subsidiaries or to which the Company or any of its Subsidiaries is
obligated to contribute for Employees or individuals other than Employees
who at any time prior to the date of this Agreement performed services as
an Employee primarily for the Company ("Former Employees"). Each of the
employee benefit plans, practices and arrangements set forth on Schedule
4.15 (with the exception of Foreign Plans, as defined in subsection (j)
below) shall hereafter be referred to as a "Plan" (or "Plans" as the
context may require).
(b) Copies of the following documents, with respect to each of the
Plans, as applicable, have been made available to Parent by the Company:
(i) all plan and related trust documents, and amendments thereto; (ii) the
most recent IRS Form 5500; (iii) the most recent IRS determination letter;
(iv) summary plan descriptions; and (v) the most recent actuarial report.
(c) Neither the Company nor any trade or business (whether or not
incorporated) which has been under common control or treated as a single
employer with the Company under Section 414(b), (c) or (m) of the Code (an
"ERISA Affiliate") has incurred, or is reasonably likely to incur, any
Liability under Title IV of ERISA or Section 412 of the Code and none of
the Plans is a Multiemployer Plan, as defined in Section 3(37) of ERISA.
Neither the Company nor any ERISA Affiliate has incurred any Liability
resulting from a complete or partial withdrawal from any Multiemployer
Plan, and none of them has incurred, or is reasonably likely to incur, any
Liability due to the termination or reorganization of a Multiemployer Plan
which has not been satisfied in full, and to the Company's Knowledge, no
event has occurred that would subject the Company or any ERISA Affiliate to
any such liability.
(d) Each Plan has been administered in material compliance with its
terms, and other Legal Requirements including, without limitation, the
provisions of ERISA and the Code, and there are no material pending or, to
Company's Knowledge, threatened claims by, on behalf of or involving any
plan administrator or any plan trustee (other than routine claims for
benefits).
(e) Neither the Company nor any ERISA Affiliate has incurred any
liability for any tax or penalty imposed by Section 4975 of the Code or
Section 502(i) of ERISA with respect to any Plan that has not been
satisfied in full.
(f) Each Plan which is intended to qualify under Section 401(a) of the
Code has received an IRS determination letter concluding that such Plan so
qualifies in form, and to the Company's Knowledge, no event has occurred
and no condition exists that could cause such letter to be revoked.
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(g) Except as set forth on Schedule 4.15 or as may be required under
Section 4980B of the Code, or Section 601 of ERISA, neither the Company nor
any of its Subsidiaries has any Liability for post-retirement medical or
life insurance benefits or coverage for any Employee or Former Employee or
any dependent of any such Employee or Former Employee.
(h) Except as provided in Section 2.2 of this Agreement or as set
forth on Schedule 4.15, the consummation of the Transactions will not
result in any increase in the amount of compensation or benefits or
accelerate the vesting or timing of payment of any compensation or benefits
payable by the Company to or in respect of any Employee or Former Employee
or the beneficiary or dependent of any such Employee or Former Employee
under any Plan or Contract.
(i) Except as set forth on Schedule 4.15, no amount payable by the
Company or any of its Subsidiaries to any Employee or Former Employee will
fail to be deductible for Federal income tax purposes by reason of Section
162(m) or 280G of the Code.
(j) All employee benefits practices or arrangements which are
maintained by the Company or any of its Subsidiaries for the benefit of
their non-United States Employees or United States Employees located in a
foreign jurisdiction (collectively, the "Foreign Plans") have been
maintained in all material respects in accordance with the applicable laws
of such foreign jurisdiction, and all Foreign Plans required to be
registered with any Governmental Agency have been registered and have been
maintained in good standing with such Governmental Agency.
SECTION 4.16. LITIGATION. Except as set forth on Schedule 4.16 there are
no claims, actions, suits, proceedings, labor disputes or investigations pending
or, to the Company's Knowledge threatened, before any Governmental Agency
against the Company or any of its Subsidiaries that (i) challenges the validity
of this Agreement or any action taken or to be taken by the Company or any of
its Subsidiaries pursuant to this Agreement or in connection with the
Transactions, or (ii) individually or in the aggregate, are or would be expected
to be material. There is no material Order or material judgment outstanding
against the Company or any of its Subsidiaries.
SECTION 4.17. ENVIRONMENTAL MATTERS.
(a) For purposes of this Agreement, the term "Environmental Laws"
shall mean all Legal Requirements with respect to the protection of the
public health, safety or the environment, including, without limitation,
with respect to any Hazardous Materials, drinking water, groundwater,
wetlands, landfills, open dumps, storage tanks, solid waste, or waste
water, water, soil, air, pollution, the protection, preservation or
restoration of natural resources, plant and animal life or human health or
the environment, or waste management, regulation or control, including
without limitation the following Legal Requirements:
(i) The Resource Conservation and Recovery Act, 42 U.S.C. sec. 6901
(ii) The Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 26 U.S.C. sec. 4611; 42 U.S.C. sec. 9601
("Superfund").
(iii) The Superfund Amendments and Reauthorization Act of 1986.
(iv) The Clean Air Act, 42 U.S.C. sec. 7401.
(v) The Clean Water Act, 33 U.S.C. sec. 1251.
(vi) The Safe Drinking Water Act, 42 U.S.C. sec. 300f.
(vii) The Toxic Substances Control Act, 15 U.S.C. sec. 2601.
(viii) The Hazardous Materials Transportation Act, 49 U.S.C. sec.
1801 et seq.
(ix) Applicable state mining laws.
(b) Except as set forth on Schedule 4.17:
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(i) Except for matters which, individually or in the aggregate,
would not reasonably be expected to have a Prohibited Effect, the
Company and its Subsidiaries are and since April 30, 2001 have been, in
compliance with all Environmental Laws;
(ii) Except for matters which, individually or in the aggregate,
would not reasonably be expected to have a Prohibited Effect, the
Company and its Subsidiaries have no Liability under any Environmental
Law; and
(iii) no written notice, notification, demand, request for
information, Governmental Agency inquiry, demand letter, notice of
violation or alleged violation of, non-compliance or alleged non-
compliance with or any Liability under, any Environmental Law by or
relating to operations or properties of the Company or any of its
Subsidiaries has been received by or threatened in writing against the
Company or any of its Subsidiaries which has not been resolved or which
is or would be reasonably likely to be material to the Company and its
Subsidiaries, taken a whole.
(c) For purposes of this Agreement, the following terms shall have the
meanings specified below:
(i) "Hazardous Materials" means each and every element, compound,
chemical mixture, pollutant, contaminant, material, waste or other
substance which is defined, designated, regulated, determined,
classified or identified as hazardous, radioactive, harmful or toxic
under any Environmental Law, or the Release of which is prohibited or
regulated under any Environmental Law, or which to the Knowledge of the
Company could reasonably be expected to cause, whether now or with the
passage of time, damage to Persons, property, flora, fauna or the
environment. Without limiting the generality of the foregoing, the term
shall include any "toxic substance," "hazardous substance," "hazardous
waste," or "hazardous material" as defined in any Environmental Law, and
any explosive or radioactive material, asbestos, asbestos-containing
material, waste water, sludge, untreated dye, other effluent, coal ash,
polychlorinated biphenyls, special waste, petroleum or any derivative or
byproduct thereof, and toxic waste.
(ii) "Release" means any spilling, leaking, pumping, releasing,
depositing, pouring, emitting, emptying, migrating, discharging,
injecting, storing, escaping, leaching, dumping, burying, abandoning,
disposing or moving into the environment.
SECTION 4.18. TAX MATTERS.
(a) Except as set forth in Schedule 4.18, (i) the Company and its
Subsidiaries have timely filed with the appropriate Taxing Authority all
material Tax Returns required to be filed by or with respect to the
Company, its Subsidiaries or their operations or assets, and such Tax
Returns are true, correct and complete in all material respects; (ii) all
material Taxes due with respect to taxable years for which the Company's
and its Subsidiaries' Tax Returns were filed, all material Taxes required
to be paid on an estimated or installment basis, and all material Taxes
required to be withheld with respect to the Company or any of its
Subsidiaries or their Employees, operations or assets have been timely paid
or, if applicable, withheld and paid to the appropriate Taxing Authority in
the manner provided by Legal Requirements; (iii) the reserve for Taxes set
forth on the balance sheet of the Company as of January 31, 2002 is
adequate for the payment of all material Taxes through the date thereof and
no material Taxes have been incurred after January 31, 2002 which were not
incurred in the ordinary course of business; (iv) there are no Liens (other
than Permitted Liens) for Taxes upon the assets of the Company or any of
its Subsidiaries; (v) no federal, state, local or foreign audits,
administrative proceedings or court proceedings are pending with regard to
any material Taxes or material Tax Returns of the Company or any of its
Subsidiaries and there are no outstanding deficiencies or assessments
asserted or proposed, and any such proceedings, deficiencies or assessments
shown in Schedule 4.18 are being contested in good faith through
appropriate proceedings diligently conducted and the Company has made or
will make available to Purchaser copies of all revenue agent reports (or
similar reports) and related schedules relating to pending income tax
audits of the Company or any of its Subsidiaries; (vi) there are no
outstanding agreements, consents or waivers extending the
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statutory periods of limitation applicable to the assessment of any
material Taxes or deficiencies against the Company or any of its
Subsidiaries, or with respect to their operations or assets; (vii) the
federal income Tax Returns of the Company and its Subsidiaries have been
examined by the Internal Revenue Service (or the applicable statutes of
limitation for the assessment of federal income Taxes for such periods have
expired) for all periods through and including April 30, 1999; (viii) the
Company and its Subsidiaries will not be required to include any material
item of income in, or exclude any material item of deduction from, taxable
income for any taxable period (or portion thereof) ending after the Closing
Date as a result of any (x) change in method of accounting for a taxable
period ending on or prior to the Closing Date, or (y) "closing agreement,"
as described in Section 7121 of the Code (or any corresponding provision of
state, local or foreign income Tax law), entered into on or prior to the
Closing Date, or (z) any ruling received from the Internal Revenue Service;
(ix) neither the Company or any of its Subsidiaries has filed a consent to
the application of Section 341(f) of the Code; and (x) the Company is not
and has not been a United States real property holding company (as defined
in Section 897(c)(2) of the Code) during the applicable period specified in
Section 897(c)(1)(A)(ii) of the Code.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Taxes" means all federal, state, local and foreign taxes,
including, without limitation, income, gross income, gross receipts,
unincorporated business, production, excise, employment, sales, use,
transfer, ad valorem, profits, license, capital stock, franchise,
severance, stamp, withholding, social security, employment, unemployment,
disability, worker's compensation, payroll, utility, windfall profit,
custom duties, personal property, real property, registration, alternative
or add-on minimum, estimated and other taxes, governmental fees or like
charges of any kind whatsoever, including any interest, penalties or
additions thereto, imposed by any Governmental Agency ("Taxing Authority")
whether disputed or not; and "Tax" shall mean any one of them.
(d) "Tax Return" means any report, return, information return, filing,
claim for refund or other information, including any schedules, exhibits or
attachments thereto, and any amendments to any of the foregoing required to
be filed or maintained in connection with the calculation, determination,
assessment or collection of any Taxes (including estimated Taxes).
SECTION 4.19. BROKERS. Except for the financial advisory fees set forth on
Schedule 4.19, neither the Company nor any of its Subsidiaries nor any of their
respective officers or directors on behalf of the Company or any such Subsidiary
has employed any financial advisor, broker or finder or incurred any liability
for any financial advisory fee, broker's fees, commissions or finder's fees in
connection with any of the Transactions.
SECTION 4.20. BOOKS AND RECORDS OF THE COMPANY. The books of account,
minute books, stock record books, and other records of the Company and each of
its Subsidiaries, all of which have been made available to Parent, are complete
and correct in all material respects, accurately reflect in all material
respects the transactions to which the Company or such Subsidiary is a party or
by which its properties are bound in accordance with GAAP and have been
maintained in all material respects in accordance with sound business practices
(and, with respect to the books and records of the Company, the requirements of
Section 13(b)(2) of the Exchange Act), including the maintenance of an adequate
system of internal controls. The minute books of the Company and each of its
Subsidiaries contain accurate and materially complete records of meetings held
of, and corporate action taken by, their respective shareholders, boards of
directors, and committees of such boards of directors.
SECTION 4.21. CUSTOMERS AND SUPPLIERS. For the twelve calendar months
ended March 31, 2002, there were no customers of the Company or any of its
Subsidiaries whose purchases from the Company and its Subsidiaries together
constituted greater than 5% of the Company's consolidated revenue (or in the
case of customers with respect to which the Company receives a commission from
the publisher, greater than 5% of the Company's consolidated gross profit for
such twelve-month period). Schedule 4.21 lists each of the Company's vendors,
suppliers and publishers, the sale of whose product constituted greater than 7%
of the Company's consolidated revenue for the twelve calendar months ended March
31, 2002 (or
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in the case of customers with respect to which the Company receives a commission
from the publisher, the consolidated gross profit for such twelve month period)
(each a "Major Supplier") and the amount of consolidated revenue (or
consolidated gross profit, as applicable) attributable to each Major Supplier
during such twelve-month period. As of the date of this Agreement, neither the
Company nor any of its Subsidiaries is engaged in any material dispute with any
Major Supplier or since January 31, 2002, has received notice from a Major
Supplier that it intends to materially alter its relationship with the Company
or any of its Subsidiaries in a manner that would be materially adverse to the
Company and its Subsidiaries taken as a whole.
SECTION 4.22. CERTAIN PAYMENTS. Since April 30, 2001, neither the Company
nor any of its Subsidiaries nor any of their respective directors, officers or,
to the Company's Knowledge, agents, Employees, Former Employees or, any other
Person associated with or acting for or on behalf of the Company or any such
Subsidiary, has directly or indirectly (a) made any contribution, gift, bribe,
rebate, payoff, influence payment, kickback, or other payment to any Person,
private or public, regardless of form, whether in money, property, or services
(i) to obtain favorable treatment in securing business, (ii) to pay for
favorable treatment for business secured, (iii) to obtain special concessions or
for special concessions already obtained, for or in respect of the Company or
any of its Subsidiaries, or (iv) in violation of any Legal Requirement, provided
that the foregoing clauses (a)(i), (ii) and (iii) shall not be deemed to include
any ordinary course activities customarily engaged in by sales personnel in the
applicable jurisdictions in which the Company or the applicable Subsidiary
operates that comply with all applicable Legal Requirements, or (b) established
or maintained any fund or asset that has not been recorded in the books and
records of the Company.
SECTION 4.23. PROXY STATEMENT. The Proxy Statement to be sent to the
Shareholders in connection with the Special Meeting, and any other schedule or
document required to be filed by the Company in connection with the Merger, will
comply as to form in all material respects with the applicable requirements of
the Exchange Act and the rules and regulations thereunder, except that no
representation or warranty is being made by the Company with respect to
statements made therein based on information supplied by Parent or Purchaser
specifically for inclusion therein. The Proxy Statement will not, at the time
the Proxy Statement (or any amendment or supplement thereto) is filed with the
Commission or first sent to Shareholders, at the time of the Special Meeting or
at the Effective Time, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading. Notwithstanding the foregoing, the Company does not
make any representation or warranty with respect to any information that has
been supplied by Parent, Purchaser or their accountants, counsel or other
authorized representatives specifically for use in any of the foregoing
documents.
SECTION 4.24. STATE TAKEOVER STATUTES INAPPLICABLE. The Board of Directors
has approved the transactions to be effected in accordance with this Agreement
pursuant to Article 13.03A(1) of the TBCA, and determined that such approval
satisfies the requirements of Article 13.03A(1) of the TBCA and, as a result,
renders the other provisions of Article 13.03 of the TBCA inapplicable to the
Transactions and to the Subsequent Transactions.
SECTION 4.25. STATEMENTS TRUE AND CORRECT. None of the information
supplied or to be supplied by the Company or any of its Subsidiaries to any
Governmental Agency in connection with the transactions contemplated hereby
will, at the respective time such documents are supplied, be false or misleading
with respect to any material fact, or omit to state any material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, or omit to state any material fact necessary to
correct any statement in any earlier communication to any Governmental Agency.
For purposes of this Agreement, "Governmental Agency" means (a) any
international, foreign, federal, state, county, local or municipal government or
administrative agency or political subdivision thereof, (b) any governmental
agency, authority, board, bureau, commission, department or instrumentality, (c)
any court or administrative tribunal, (d) any non-governmental agency, tribunal
or entity that is vested by a governmental agency with applicable jurisdiction,
or (e) any arbitration tribunal or other non-governmental authority with
applicable jurisdiction.
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ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Parent and Purchaser, jointly and severally, represent and warrant to the
Company as of the date of this Agreement as follows:
SECTION 5.1. ORGANIZATION, STANDING AND POWER. Each of Parent and
Purchaser is a corporation duly organized, validly existing and in good standing
under the laws of its respective jurisdiction of incorporation, has all
requisite power and authority to own, lease and operate its properties and to
carry on its business as now being conducted, and is duly qualified to do
business as a foreign corporation and in good standing to conduct business in
each jurisdiction in which the business it is conducting, or the operation,
ownership or leasing of its properties, makes such qualification necessary,
other than in such jurisdictions where the failure so to qualify would not
reasonably be expected to have a material adverse effect on Parent and its
subsidiaries taken as a whole.
SECTION 5.2. AUTHORITY; NO VIOLATIONS; CONSENTS AND APPROVALS.
(a) Each of Parent and Purchaser has the requisite corporate power and
authority to execute and deliver the Transaction Documents and consummate
the Transactions.
(b) The execution and delivery of the Transaction Documents by each of
Parent and Purchaser and the consummation by the each of Parent and
Purchaser of the Transactions have been duly and validly authorized by
their respective board of directors, and by the sole stockholder of
Purchaser, and no other corporate proceedings on the part of each of Parent
and Purchaser are necessary to authorize the Transaction Documents or to
consummate the Transactions.
(c) This Agreement has been, and any other Transaction Document at the
time of its execution will have been, duly and validly executed and
delivered by each of Parent and Purchaser, and (assuming this Agreement and
such Transaction Documents each constitute a valid and binding obligation
of the Company) this Agreement constitutes, and each such other Transaction
Document at the time of execution will constitute, the valid and binding
obligations of each of Parent and Purchaser, enforceable in accordance with
their respective terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting the rights of creditors and to
general principles of equity.
(d) The execution and delivery of the Transaction Documents and the
consummation of the Transactions by each of Parent and Purchaser will not
(i) violate, conflict with or result in any breach of any provision of the
Certificate or Certificates of Incorporation or Bylaws of Parent or
Purchaser, (ii) conflict with or result in a violation or breach of, or
constitute a default (with or without due notice or lapse of time or both)
under the terms, conditions or provisions of any note, bond, mortgage,
indenture or deed of trust, or any license, lease or agreement to which
Parent or Purchaser is a party or to which any of their assets is subject,
or (iii) violate any Order or Legal Requirements applicable to Parent or
Purchaser, except with respect to clauses (ii) or (iii) such defaults and
violations which, individually or in the aggregate, would not reasonably be
expected to have a material adverse effect on the ability of Parent or
Purchaser to consummate the Transactions.
(e) No consent, approval, order or authorization of, or registration,
declaration or filing with, notice to, or permit from any Governmental
Agency, is required by or with respect to Parent, or Purchaser in
connection with the execution and delivery of this Agreement by each of
Parent and Purchaser or the consummation by each of Parent or Purchaser of
any of the Transactions, except for: (A) filings under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act") and any filings required to be made with any foreign antitrust
authorities; (B) the filing of the Certificates of Merger with the
Secretary of State of the States of Delaware and Texas; (C) such filings
and approvals as may be required by any applicable federal or state
securities laws; and (D) such other consents, approvals, orders,
authorizations, registrations, declarations, filings,
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notices or permits the failure of which to be obtained or made would not
reasonably be expected to have a material adverse effect on the ability of
Parent and Purchaser to consummate the Transactions.
SECTION 5.3. LITIGATION. There are no actions, causes of action, claims,
suits, proceedings or Orders pending or, to the Knowledge of Parent, threatened
against Parent at law, in equity, in admiralty or otherwise, or before or by any
Governmental Agency, which (i) seeks to restrain or enjoin the consummation of
the Transactions or (ii) would reasonably be expected to have a material adverse
effect on Parent and its Subsidiaries, taken as a whole, or the ability of
Parent or Purchaser to consummate the Transactions.
SECTION 5.4. PROXY STATEMENT. None of the information supplied by Parent,
Purchaser or any Affiliate of Parent or Purchaser specifically for inclusion in
the Proxy Statement, or in any amendments thereof or supplements thereto, will,
on the date the Proxy Statement is first mailed to Shareholders, at the time of
the Special Meeting or at the Effective Time, contain any statement which, at
such time and in light of the circumstances under which it will be made, will be
false or misleading with respect to any material fact, or will omit to state any
material fact necessary in order to make the statements therein not false or
misleading or necessary to correct any statement in any earlier communication
with respect to the solicitation of proxies for the Special Meeting which has
become false or misleading.
SECTION 5.5. OWNERSHIP OF COMPANY SHARES. To the Knowledge of Parent, none
of Parent, Purchaser or any of their respective controlled Affiliates
beneficially owns more than 100 shares of Common Stock in the aggregate.
SECTION 5.6. NO PRIOR ACTIVITIES; ASSETS OF PURCHASER. Purchaser was
formed solely for the purpose of the Merger and engaging in the other
Transactions. As of the date of this Agreement and the Effective Time, except
for (A) obligations or liabilities incurred in connection with its incorporation
or organization, (B) the Transactions and activities, agreements or arrangements
in connection with the Transactions, and (C) activities, agreements,
arrangements, obligations and liabilities in connection with Purchaser being a
guarantor under Parent's senior credit facility, Purchaser has not and will not
have (i) incurred, directly or indirectly through any of its Subsidiaries or
Affiliates, any material obligations or liabilities, (ii) engaged in any
business or activities of any type or kind whatsoever or (iii) entered into any
material agreements or arrangements with any Person.
SECTION 5.7. STATEMENTS TRUE AND CORRECT. None of the information
(including this Agreement) supplied or to be supplied by Parent or Purchaser to
any Governmental Agency connection with the Transactions will, at the respective
time such documents are supplied, be false or misleading with respect to any
material fact, or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or omit to state any material fact necessary to correct any
statement in any earlier communication to any Governmental Agency.
SECTION 5.8. BROKERS. Neither Parent nor Purchaser nor any of their
respective officers or directors on behalf of Parent or Purchaser has employed
any financial advisor, broker or finder in a manner that would result in any
liability of the Company for any broker's fees, commissions or finder's fees in
connection with any of the Transactions or that would result in any reduction of
the consideration payable to the Shareholders.
SECTION 5.9. FINANCING. Parent has or has available to it and, subject to
the terms and conditions herein, will make available to Purchaser, all funds
necessary to consummate all of the Transactions and pay the related fees and
expenses of Parent and Purchaser.
ARTICLE VI.
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.1. CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. Except
as set forth in Schedule 6.1 or as provided for in this Agreement, during the
period from the date of this Agreement to
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the earliest to occur of the date of termination of this Agreement, or the
Effective Time, unless Parent shall otherwise agree in writing:
(a) the Company shall, and shall cause each of its Subsidiaries to,
conduct its business in all material respects in the ordinary and usual
course in substantially the same manner as previously conducted and in
compliance with all applicable Legal Requirements and, to the extent
consistent therewith, shall use its reasonable best efforts to preserve its
business organization intact in all material respects, to keep available
generally the services of its present officers and employees and to
maintain in all material respects its existing relations with customers,
suppliers, creditors and business partners and other Persons having
business dealings with it;
(b) the Company shall not, directly or indirectly, amend or propose to
amend its or any of its Subsidiaries' certificate of incorporation or
bylaws or similar organizational documents;
(c) the Company shall not, and it shall not permit its Subsidiaries
to: (i) (A) declare, set aside or pay any dividend or other distribution
payable in cash, stock or property with respect to the Company's capital
stock or that of its Subsidiaries, other than dividends and distributions
by a direct or indirect wholly owned Subsidiary to its parent, or (B)
redeem, purchase or otherwise acquire directly or indirectly any of the
Company's capital stock (or options, warrants, calls, commitments or rights
of any kind to acquire any shares of capital stock) or that of its
Subsidiaries; (ii) issue, sell, pledge, dispose of or encumber any
additional shares of, or securities convertible into or exchangeable for,
or options, warrants, calls, commitments or rights of any kind to acquire,
any shares of capital stock of any class of the Company or its
Subsidiaries, other than Common Stock issued upon the exercise of Options
listed on Schedule 4.5; (iii) split, combine or reclassify the outstanding
capital stock of the Company or of its Subsidiaries; (iv) make any loan or
advance to, or payment (including with respect to outstanding Indebtedness)
for the benefit of, any direct or indirect beneficial owner of any Common
Stock or Options, other than payment of salary and benefits to Employees,
in the ordinary course of business, consistent with past practice, and
advances permitted under Section 6.1(e)), or (v) enter into or effect any
transaction with any Affiliate of or advisor to the Company in which the
cash value (measured on a transaction by transaction basis) of the goods or
services received by the Company or such Subsidiary is less than the
greater of (x) the amount which the Company or the applicable Subsidiary
would have had to pay in a comparable transaction with a Third Party
entered into on an arm's-length basis, or (y) the cash value of the goods
and services paid by the Company or such Subsidiary in such transaction.
(d) the Company shall not, and it shall not permit its Subsidiaries
to, acquire or agree to acquire, or dispose of or agree to dispose of, any
material assets, either by purchase, merger, consolidation, sale of shares
in any of its Subsidiaries or otherwise, except for (v) the acquisition of
furniture, equipment and other property in the ordinary course of business
in an aggregate amount not to exceed $500,000, (w) purchases of software
for resale in the ordinary course of business, consistent with past
practice, (x) purchases and sales of inventory in the ordinary course of
business, consistent with past practice, (y) sales of obsolete equipment in
the ordinary course of business, in an aggregate amount not to exceed
$50,000, and (z) sales of excess equipment in an amount in any single
transaction or series of related transactions, not to exceed $100,000;
(e) neither the Company nor its Subsidiaries shall: (i) grant any
bonuses or special compensation or any increase in the compensation payable
or to become payable by the Company or any of its Subsidiaries to any of
its officers, directors or key employees, except (x) in the case of key
employees who are not officers or directors, increases in the ordinary
course of business, or (y) pursuant to contracts or plans in effect as of
the date of this Agreement; or (ii) make or agree to make any accrual or
arrangement for or payment of bonuses or special compensation of any kind
to any Employee whose compensation is determined other than by multiplying
the number of hours worked by an hourly rate (a "Salaried Employee"), or
general increase in the salary or bonus payable or to become payable by the
Company or any of its Subsidiaries to any Employee other than Salaried
Employees (other than increases granted to individual employees for merit,
length of service, change
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in position or responsibility or other reasons applicable to specific
Employees and not generally to a class or group thereof); or (iii) (A)
adopt any new, (B) except as may be required by applicable Legal
Requirements or the terms of any Plan, grant any award under, or (C) except
as required by applicable Legal Requirements or the terms of any Plan as in
effect on the date of this Agreement, amend or otherwise increase, or
accelerate the payment or vesting of the amounts payable or to become
payable under, any existing Plan; or (iv) enter into or modify or amend any
employment or severance agreement with or, except as required by applicable
Legal Requirements or the terms of any Plan as in effect on the date of
this Agreement and listed on Schedule 6.1, grant any severance or
termination rights to any officer, director or employee of the Company or
any of its Subsidiaries; or (v) enter into any collective bargaining
agreement, or (vi) except as may be required by applicable Legal
Requirements or the terms of any Plan as in effect on the date of this
Agreement, make any loan to, any director, executive officer or employee of
the Company other than advances permitted under Section 6.1(g)(D)(2);
(f) neither the Company nor any of its Subsidiaries shall modify,
amend or terminate in any material respect, any Material Contract or waive,
release or assign any material rights or claims thereunder, except for
modifications, amendments, terminations, waivers, releases or assignments
that do not materially increase the financial commitment of or burden on
the Company or any of its Subsidiaries under such Material Contract or the
duration of the obligations of the Company or any of its Subsidiaries
thereunder;
(g) neither the Company nor any of its Subsidiaries shall: (A) incur,
become subject to or assume or agree to incur, become subject to or assume
any material Liability (other than as expressly permitted by Section
6.1(f)) or Indebtedness other than Indebtedness with respect to working
capital in amounts consistent with past practice; (B) materially modify any
Indebtedness or other material Liability (other than as expressly permitted
by Section 6.1(f)); (C) assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other Person (other than a Subsidiary of the Company),
other than immaterial amounts in the ordinary course of business, and other
than the endorsement of negotiable instruments for collection in the
ordinary course of business; or (D) make any loans, advances or capital
contributions to, or investments in, any other Person (other than to (1)
wholly owned Subsidiaries of the Company or (2) customary advances to
Employees in accordance with past practice and in an individual amount not
in excess of $2,500 for any individual or $25,000 in the aggregate);
(h) neither the Company nor any of its Subsidiaries shall change any
of the accounting methods, practices or policies used by it, unless
required by generally accepted accounting principles or rules and
regulations of the Commission;
(i) the Company and its Subsidiaries shall not make or agree to make
any single capital expenditure in excess of $150,000 or capital
expenditures in excess of $500,000 in the aggregate;
(j) the Company shall not, and it shall not permit its Subsidiaries
to, make or change any material election related to Taxes (unless required
by law) or settle or compromise any material Liability related to Taxes;
(k) the Company shall not, and it shall not permit its Subsidiaries
to, (i) waive the benefits of, or agree to modify in any material manner,
any confidentiality, standstill or similar agreement to which the Company
or any of its Subsidiaries is a party, or (ii) pay, discharge or satisfy
any proceeding, other than a payment, discharge or satisfaction (A)
involving payments by the Company or its Subsidiaries of less than
$100,000, or (B) for which liabilities are reflected on or are reserved
against in the Balance Sheet, but not to exceed the reserve therefor, in
each case in complete satisfaction, and with a complete release, of such
matter with respect to all parties to such matter, of actions, suits,
proceedings or claims;
(l) the Company shall not, and it shall not permit its Subsidiaries
to, make any payments or incur any Liability or obligation for the purpose
of obtaining any consent from any third party to the
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Transactions, other than (i) filing fees paid to Governmental Agencies in
connection with the Transactions and (ii) payments not in excess of $10,000
in the aggregate;
(m) the Company shall keep in full force and effect insurance
comparable in amount and scope to coverage maintained by it (or on behalf
of it) on the date of this Agreement;
(n) the Company shall not incur, and shall not permit any of its
Subsidiaries to incur any Lien on any of their assets other than Permitted
Liens;
(o) the Company shall not take any action that would reasonably be
expected to cause any of the representations and warranties made by the
Company in this Agreement not to remain materially true and materially
correct; and
(p) neither the Company nor any of its Subsidiaries shall enter into
an agreement, contract, commitment or arrangement to do any of the
foregoing, or to authorize, recommend, propose or announce an intention to
do any of the foregoing.
SECTION 6.2. NO SOLICITATION.
(a) The Company shall, and shall cause its Subsidiaries, officers,
directors, employees, counsel, investment bankers, financial advisers,
accountants, other representatives and agents (collectively, the "Company
Representatives") to immediately as of the date of this Agreement cease any
discussions or negotiations with any Persons that may be ongoing with
respect to a Takeover Proposal. The Company shall not, and shall not
authorize or permit any Company Representative to, (i) solicit, initiate or
encourage, directly or indirectly (including by way of furnishing
information), or take any other action to facilitate, any inquiries or the
making of any proposal which constitutes, or may reasonably be expected to
lead to, any Takeover Proposal; (ii) participate in any discussions or
negotiations regarding any Takeover Proposal; or (iii) enter into any
agreement with respect to any Takeover Proposal; provided, however, that,
if at any time prior to the Effective Time, the Board of Directors
determines in good faith, after consultation with its outside legal
counsel, that it is necessary to do so in order to comply with its
fiduciary duties under applicable Legal Requirements, the Company may, in
response to an unsolicited bona fide Superior Proposal, and subject to
compliance with Section 6.2(b), (x) furnish information concerning its
business, properties or assets to any Person pursuant to a confidentiality
agreement with terms and conditions similar to the Confidentiality
Agreement, dated April 9, 2002 (the "Confidentiality Agreement") between
the Company and Parent (provided that such confidentiality agreement may
not include any provision granting any such Person an exclusive right to
negotiate with the Company) and (y) participate in negotiations regarding
such Superior Proposal. Without limiting the foregoing, it is understood
that any violation of the restrictions set forth in the preceding sentence
by any Company Representative shall be deemed to be a breach of this
Section 6.2(a) by the Company. The Company shall not release any Third
Party from, or waive any provision of, any such confidentiality agreement
or any other similar confidentiality or standstill agreement to which the
Company is a party. "Third Party" means any Person or group other than
Parent, Purchaser or any Affiliate thereof.
(b) In addition to the obligations of the Company set forth in
paragraph (a) of this Section 6.2, the Company shall promptly advise Parent
orally and in writing of any request for information, proposal, discussion,
negotiation or inquiry received after the date of this Agreement in
connection with any Takeover Proposal and the Company will promptly (but in
any event within one Business Day) communicate to Parent the material terms
and conditions of any such proposal, discussion, negotiation or inquiry
which it may receive (and will promptly provide to Parent copies of any
written materials received by the Company in connection with such proposal,
discussion, negotiation or inquiry) and the identity of the Person making
such proposal or inquiry or engaging in such discussions or negotiation.
The Company will promptly provide to Parent any non-public information
concerning the Company or any of its Subsidiaries provided to any other
Person which was not previously provided to Parent. The Company will keep
Parent informed of the status and material details (including amendments or
proposed amendments) of any such Takeover Proposal.
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(c) If the Board of Directors or any committee thereof intends: (i) to
approve or recommend, or propose to approve or recommend, any Superior
Proposal; or (ii) to cause the Company to enter into any agreement with
respect to any Superior Proposal (other than any confidentiality agreement
as contemplated by Section 6.2(a)), (a "Competing Agreement"), then at
least five Business Days prior to taking such action: (A) the Company shall
provide Parent with written notice advising Parent that the Board of
Directors has received a Superior Proposal that it intends to accept,
specifying the material terms and conditions of such Superior Proposal and
identifying the Person or Persons making such Superior Proposal, and (B)
the Company shall, and shall cause its financial and legal advisors to,
negotiate in good faith with Parent to make such adjustments in the terms
and conditions of this Agreement as would enable the Company to proceed
with the Transactions on such adjusted terms. If following the completion
of such five Business Day period the Company and Parent have been unable to
agree upon such adjustment in the terms and conditions of this Agreement as
would enable the Company to proceed with the Transactions, then, after
compliance with the Escrow Procedures, the Board of Directors or any
committee thereof may: (i) approve or recommend, or propose to approve or
recommend, such Superior Proposal; or (ii) cause the Company to enter into
a Competing Agreement with respect to such Superior Proposal. So long as
any Competing Agreement expressly provides that the existence of this
Agreement, the performance by the Company of its obligations hereunder and
the consummation of the Transactions shall not constitute a breach or
default under the Competing Agreement, then the existence of the Competing
Agreement and the performance by the Company of its obligations thereunder
relating to the Superior Proposal, the consummation of the Superior
Proposal and the amendment of the Rights Plan in connection with the
Competing Agreement shall not be deemed to be a breach or default under
this Agreement. Subject to compliance with the Escrow Procedures, if
required by the second preceding sentence, nothing contained in this
Section 6.2 shall prohibit the Company or the Board of Directors from
taking and disclosing to the Shareholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act.
(d) "Takeover Proposal" means any inquiry, proposal or offer from any
Third Party, whether in writing or otherwise, relating to any "Alternative
Transaction", which is defined as any one of the following transactions
with or by a Third Party: (A) merger, consolidation or similar transaction
involving the Company, (B) sale, lease or other disposition directly or
indirectly by merger, consolidation, tender offer, share exchange or
otherwise of assets of the Company or its Subsidiaries representing 10% or
more of the consolidated assets of the Company and its Subsidiaries, (C)
issue, sale, or other disposition of (including by way of merger,
consolidation, tender offer, share exchange or any similar transaction)
securities (or options, rights or warrants to purchase, or securities
convertible into, such securities) representing 10% or more of the voting
power of the Company or (D) 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 Common Stock, in each case for avoidance of
doubt, other than the transactions with Parent contemplated by this
Agreement, and except for any Person that beneficially owns more than 15%
of the outstanding Common Stock as of the date of this Agreement, unless
such Person's beneficial ownership increases by more than 1% of the
outstanding Common Stock; provided that the term "Alternative Transaction"
shall not include sales of products and services in the ordinary course of
business, and following termination of this Agreement, shall not include
any acquisition of securities by an underwriter or broker-dealer in
connection with a bona fide public offering of such securities.
(e) "Superior Proposal" means any bona fide written offer for an
Alternative Transaction (i) by a Third Party that the Board of Directors
determines in its good faith judgment has the good faith intent to proceed
with negotiations, (ii) for all outstanding shares of Common Stock, (iii)
that would provide the Shareholders the right to receive a higher per share
consideration than the Per Share Amount, payable in cash or marketable
securities, (iv) on terms which the Board of Directors determines in its
good faith judgment (after consultation with a financial advisor of
nationally
A-26
recognized reputation) are more favorable to the Shareholders than the
Merger from a financial point of view and (v) that the Board of Directors
determines in good faith judgment is reasonably capable of being completed,
taking into account all financial, regulatory, legal and other aspects of
such proposal.
(f) "Escrow Procedures" means that the Company shall have performed
the following:
(i) the Company shall have entered into an escrow agreement, in
form and substance reasonably satisfactory to Parent, with an escrow
agent reasonably satisfactory to Parent, providing for among other
things: (A) the deposit into the escrow account by the Company of $6
million, (B) the release of such escrowed funds to Parent, to the extent
Parent is entitled thereto pursuant to Section 9.3, upon notice from
Parent to the escrow agent that Parent has terminated this Agreement
pursuant to Section 9.1(e)(ii)(A) or (B)(x), and (C) the release of such
funds to the Company (or its designee) or Parent to the extent Parent is
entitled thereto pursuant to Section 9.3, upon evidence reasonably
satisfactory to the escrow agent of the termination of this Agreement
pursuant to any other provision of this Agreement.
(ii) the Company shall have deposited $6 million with the escrow
agent.
SECTION 6.3. RIGHTS AGREEMENT. Except for the amendments contemplated by
Section 3.1(c) hereof or amendments approved in writing by Parent or Purchaser,
the Company shall not, from and after the date of this Agreement, amend the
Rights Agreement in any manner. In addition the Company covenants and agrees
that it shall not redeem the Rights unless such redemption is consented to in
writing by Parent prior to such redemption or unless it is ordered to do so by a
court of competent jurisdiction.
SECTION 6.4. ACCESS AND INFORMATION. From the date of this Agreement to
the Effective Time, the Company and its Subsidiaries shall (a) afford to Parent
and Purchaser and their accountants, counsel and other representatives
reasonable access at all reasonable times (and at such other times as the
parties may mutually agree) and upon reasonable notice to all of their
properties, books, contracts, commitments, records and personnel, and (b) during
such period, furnish promptly to Parent and Purchaser (i) a copy of each report,
schedule and other document filed or received by it or any of its Subsidiaries
pursuant to the requirements of federal or state securities laws, and (ii) all
other information concerning its business, properties and personnel as Parent
may reasonably request. Nothing in this Section 6.4 shall require the Company to
provide access to or disclose information where such access or disclosure would
conflict with applicable laws or result in the loss of any attorney-client
privilege; provided that, with respect to any such information subject to
attorney-client privilege, the Company shall use all reasonable efforts to
disclose or provide access to such information or to substantively equivalent or
similar information in a manner that will not result in the loss of such
privilege. Parent shall hold, and shall cause its employees and agents to hold,
in confidence all such information in accordance with the terms of the
Confidentiality Agreement.
SECTION 6.5. NOTIFICATION OF CERTAIN MATTERS.
(a) The Company shall give prompt notice to Parent of (i) the
occurrence, or non-occurrence of any event whose occurrence, or
non-occurrence would be likely to cause either (A) any representation or
warranty of the Company contained in this Agreement to be materially untrue
or inaccurate at any time from the date of this Agreement to the Effective
Time or (B) any condition set forth in Article VIII to be unsatisfied in
any material respect at any time from the date of this Agreement to the
Closing Date and (ii) any failure of the Company, or any of its officers,
directors, employees or agents, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section
6.5(a) shall not limit or otherwise affect the remedies available hereunder
to Parent.
(b) Parent shall give prompt notice to the Company of (i) the
occurrence, or non-occurrence of any event whose occurrence, or
non-occurrence would be likely to cause any representation or warranty of
Parent and Purchaser contained in this Agreement to be materially untrue or
inaccurate at any time from the date of this Agreement to the Effective
Time or (ii) any action, proceeding, injunction or other order, decree,
judgment or ruling by a court of competent jurisdiction or by a
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governmental, regulatory or administrative agency or commission of
competent jurisdiction applicable to Purchaser, but not to the Company, in
connection with the Merger and the Transactions and (iii) any failure of
Parent or Purchaser, or any of their respective officers, directors,
employees or agents, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided,
however, that the delivery of any notice pursuant to this Section
6.5(b)shall not limit or otherwise affect the remedies available hereunder
to the Company.
SECTION 6.6. EMPLOYEE STOCK PURCHASE PLAN. From and after the date of this
Agreement, no further purchases of Common Stock shall occur under the Company's
Second Amended and Restated Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan") nor shall any issuances of rights to purchase shares of Common
Stock be granted thereunder, except for purchases made with payroll deductions
taken prior to the date of this Agreement.
ARTICLE VII.
ADDITIONAL AGREEMENTS
SECTION 7.1. INDEMNIFICATION OF COMPANY OFFICERS AND DIRECTORS.
(a) The Company shall, to the fullest extent permitted under
applicable law and regardless of whether the Merger is consummated,
indemnify, defend and hold harmless, and after the Effective Time, the
Surviving Corporation shall, to the fullest extent permitted under
applicable law, indemnify, defend and hold harmless, the present and former
officers and directors of the Company or any of its Subsidiaries
(collectively, the "Indemnified Parties"), from and against, and pay or
reimburse the Indemnified Parties for, all losses, obligations, expenses,
claims (and involving claims by or in the right of the Company), damages or
liabilities resulting from third-party claims and including interest,
penalties, out-of-pocket expenses and attorneys' fees incurred in the
investigation or defense of any of the same or in asserting any of their
rights hereunder resulting from or arising out of actions or omissions of
such Indemnified Parties as officers or directors of the Company or any of
its Subsidiaries occurring on or prior to the Effective Time (including,
without limitation, the Transactions) to the fullest extent permitted or
required under (i)(A) the Articles of Incorporation or By-Laws of the
Company in effect on the date of this Agreement, including, without
limitation, provisions relating to advances of expenses incurred in the
defense of any action or suit, or (B) any indemnification agreement between
the Indemnified Party and the Company in effect immediately prior to the
date of this Agreement; and (ii) advance to any Indemnified Parties
expenses incurred in defending any action or suit with respect to such
matters, in each case to the extent such Indemnified Parties are entitled
to indemnification or advancement of expenses under the Company's Articles
of Incorporation and By-Laws in effect on the date of this Agreement and
subject to the terms of such Articles of Incorporation and By-Laws.
(b) Any Indemnified Party wishing to claim indemnification under
Section 7.1(a) shall provide notice to the Surviving Corporation promptly
after such Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and the Indemnified Party shall permit the
Surviving Corporation (at its expense) to assume the defense of any claim
or any litigation resulting therefrom; provided, however, that (i) counsel
for the Surviving Corporation who shall conduct the defense of such claim
or litigation shall be reasonably satisfactory to the Indemnified Party and
the Indemnified Party may participate in such defense at such Indemnified
Party's expense, and (ii) the omission by any Indemnified Party to give
notice as provided herein shall not relieve the Surviving Corporation of
its indemnification obligation under this Agreement, except to the extent
that such omission results in a failure of actual notice to the Surviving
Corporation, and the Surviving Corporation is actually prejudiced as a
result of such failure to give notice. In the event that the Surviving
Corporation does not accept the defense of any matter as above provided,
the Indemnified Parties may retain counsel satisfactory to them, and the
Surviving Corporation shall pay all reasonable fees and expenses of one
such counsel for all the Indemnified Parties promptly as statements
therefor are received; provided, however, that the Surviving Corporation
shall not be liable for any settlement effected without its
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prior written consent (which consent shall not be unreasonably withheld);
provided, further, however, that the Surviving Corporation shall not be
responsible for the fees and expenses of more than one counsel for all of
the Indemnified Parties unless there is, under applicable standards of
professional conduct, a conflict between the positions of any two or more
Indemnified Parties, in which case each Indemnified Party with respect to
whom such a conflict exists (or group of such Indemnified Parties who among
them have no such conflict) may retain one separate law firm in each
applicable jurisdiction and the Surviving Corporation shall be responsible
for the fees and expenses of each such counsel. In any event, the Surviving
Corporation and the Indemnified Parties shall cooperate in the defense of
any action or claim. The Surviving Corporation shall not, in the defense of
any such claim or litigation, except with the consent of the Indemnified
Party, consent to entry of any judgment or enter into any settlement that
provides for injunctive or other nonmonetary relief affecting the
Indemnified Party or that does not include as an unconditional term thereof
the giving by the claimant or plaintiff to such Indemnified Party of a
release from all liability with respect to such claim or litigation.
(c) The articles of incorporation and by-laws of the Surviving
Corporation shall contain the provisions with respect to indemnification
set forth in the Company's Articles of Incorporation and By-Laws, which
provisions shall not be amended, modified or otherwise repealed for a
period of six years from the Effective Time in any manner that would
adversely affect the rights thereunder as of the Effective Time of
individuals who at the Effective Time were directors or officers of the
Company, unless such modification is required after the Effective Time by
law and then only to the minimum extent required by such law.
(d) This Section 7.1 is intended for the benefit of, and to grant
third party rights to, persons entitled to indemnification under this
Section 7.1 whether or not parties to this Agreement, and each of such
persons shall be entitled to enforce the covenants contained in this
Section 7.1.
(e) The Surviving Corporation shall honor and fulfill in all respects
the obligations of the Company pursuant to indemnification agreements and
employment agreements with the Company's directors and officers existing at
or immediately prior to the Effective Time.
(f) In addition, Parent will provide, or cause the Surviving
Corporation to provide, for a period of not less than three years after the
Effective Time, the Company's current directors and officers (as defined to
mean those person insured under such policy) with an insurance and
indemnification policy that provides coverage for events occurring at or
prior to the Effective Time (the "D&O Insurance") in an aggregate amount of
at least $15,000,000, and that is in the aggregate not materially less
favorable than the existing policy or, if substantially equivalent
insurance coverage is unavailable, the best available coverage; provided,
however, that Parent and the Surviving Corporation shall not be required to
pay an annual premium for the D&O Insurance in excess of 200% of the annual
premium currently paid by the Company for such insurance, but in such case
shall purchase as much of such coverage as possible for such amount.
SECTION 7.2. HSR ACT; FOREIGN FILINGS. The Company and Parent shall use
their best efforts to file as soon as practicable notifications under the HSR
Act and under any applicable foreign antitrust laws in connection with the
Merger and the transactions contemplated thereby, and to respond as promptly as
practicable to any inquiries received from the Federal Trade Commission and the
Antitrust Division of the Department of Justice or any applicable foreign
governmental antitrust authority for additional information or documentation and
to respond as promptly as practicable to all inquiries and requests received
from any State Attorney General or other Governmental Agency in connection with
antitrust matters.
SECTION 7.3. ADDITIONAL AGREEMENTS REGARDING CONSENTS AND APPROVALS.
(a) Subject to the terms and conditions herein provided, each of the
parties hereto agrees to use all reasonable best efforts to take, or cause
to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable Legal Requirements to
consummate and make effective the transactions contemplated by this
Agreement, including using all reasonable best efforts
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to obtain all necessary waivers, consents and approvals, to effect all
necessary registrations and filings (including, but not limited to, filings
under the HSR Act and with all applicable Governmental Agencies, including
foreign antitrust authorities) and to lift any injunction or other legal
bar to the Merger (and, in such case, to proceed with the Merger as
expeditiously as possible) subject to the appropriate vote of the
Shareholders. Notwithstanding the foregoing, (i) without Parent's prior
written consent, the Company shall not obtain any consent that will affect
Parent or the Company or any of their respective Subsidiaries to the
economic detriment of any of them in any material way (other than payments
permitted pursuant to Section 6.1(l)), including any material modification
of any Material Contract or material Permit and (ii) neither Parent nor
Purchaser shall be obligated to dispose of or forfeit material incidents of
control of all or any material portion of the business or assets of the
Company or any of its Subsidiaries, or to divest, hold separate, or place
in trust all or any portion of its assets or businesses or those of any of
its Subsidiaries or those of the Company or any of its Subsidiaries, or to
incur a Prohibited Result. Each party shall promptly inform the other party
of any communication with, and any proposed understanding, undertaking, or
agreement with, any Governmental Agency regarding any such filings or any
such transaction. Neither party shall participate in any meeting with any
Governmental Agency in respect of any such filings, investigation, or other
inquiry without giving the other party notice of the meeting and, to the
extent permitted by such Governmental Agency, the opportunity to attend and
participate.
(b) Parent and the Company shall cooperate in the preparation,
execution and filing of all returns, applications or other documents
regarding any real property transfer, stamp, recording, documentary or
other Taxes and any other fees and similar Taxes which become payable in
connection with the Merger.
SECTION 7.4. EFFORTS; FURTHER ASSURANCES.
(a) Parent and Purchaser on the one hand, and the Company, on the
other (i) shall not take any action that would reasonably be expected to
cause any of their respective representations and warranties in this
Agreement not to remain materially true and materially correct and (ii)
shall use their respective reasonable best efforts to cause each of their
respective representations and warranties in this Agreement to be
materially true and materially correct as of the Closing Date.
(b) In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, the
proper officers and/or directors of Parent and the Surviving Corporation
shall take all such necessary action.
SECTION 7.5. TAKEOVER STATUTES. If any "moratorium," "control share
acquisition," "business combination," or "fair price" statute or other form of
anti-takeover statute or regulation shall become applicable to the transactions
contemplated hereby, each party hereto and the members of the Board of Directors
shall, to the extent consistent with applicable Legal Requirements, grant such
approvals and take such actions as are reasonably necessary so that the
transactions contemplated hereby and thereby may be consummated as promptly as
practicable on the terms contemplated hereby and thereby and otherwise act to
minimize the effects of such statute or regulations on the transactions
contemplated hereby.
SECTION 7.6. INITIAL TRANSACTIONS.
(a) Upon the request of Parent, the Company shall furnish to Parent
its reasonable, good faith estimate of the amount that the Company will be
required to pay pursuant to Section 7.6(b)(i) and (ii) and of cash on hand
of the Company and its Subsidiaries on the Closing Date.
(b) At such time as all of the conditions set forth in Article
VIII,other than Section 8.2(f), shall have been satisfied or irrevocably
waived by Parent (the "Initial Transaction Time"), the Company shall:
(i) repay all Indebtedness for borrowed money of the Company and
its Subsidiaries (other than Vendor Excluded Indebtedness), including
such Indebtedness under Contracts set forth on Schedule 4.12, and
terminate all of its obligations under the Contracts governing such
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Indebtedness which if not terminated would cause a default under
Parent's senior credit facility upon the occurrence of the Effective
Time;
(ii) cash collateralize all outstanding letters of credit on terms
and conditions reasonably satisfactory to Parent;
(iii) contribute to a newly formed entity, formed in a non-U.S.
jurisdiction reasonably acceptable to Parent, which has timely elected
to be treated as a disregarded entity in accordance with United States
Treasury Regulation Section 301.7701-3 for United States federal income
tax purposes and that is wholly owned by the Company ("New LLC") all of
the outstanding capital stock of each of the Company's Subsidiaries
listed in Schedule 7.6(b)(iii)(the "Foreign Subsidiary Stock"), such
that immediately following such contribution all of the Company's
Subsidiaries that are organized in a jurisdiction outside of the United
States shall be wholly owned, directly or indirectly, by New LLC.
(iv) sell to Purchaser all of the membership interests in New LLC
for their book value (the "New LLC Purchase Price"), subject to the
requirement that the Surviving Corporation purchase all of the Foreign
Subsidiary Stock from New LLC immediately following the Effective Time
for a purchase price equal to the New LLC Purchase Price, plus interest
thereon from and after the Foreign Subsidiary Sale at the rate of eight
percent (8%) per annum. The Company shall deliver to Purchaser such
documents as Purchaser shall reasonably request relating to the
contribution of the Subsidiaries referenced in clause (iii) of this
paragraph (b), and such instruments of transfer of all of the membership
interests in New LLC as Purchaser shall reasonably request.
(c) Prior to the Initial Transaction Time, Parent may designate one or
more Contracts related to Indebtedness for borrowed money extended by
publishers who supply the Company as "Vendor Excluded Indebtedness." The
Company shall use its reasonable best efforts to have the Vendor Excluded
Indebtedness amended to delete any provisions contained therein that would,
if not so amended or deleted, cause a default under Parent's senior credit
facility upon the occurrence of the Effective Time. Parent shall cooperate
with the Company in seeking such amendments or deletions. If,
notwithstanding the Company's reasonable best efforts, the provisions are
not so amended or deleted as of the Initial Transaction Time, such
Contracts shall no longer be deemed to be Vendor Excluded Indebtedness, and
shall be repaid as provided in Section 7.6(b)(i).
(d) At the Initial Transaction Time, Parent shall extend a loan to the
Company in an amount equal to (i) the amount necessary to make the payments
required by Section 7.6(b)(i) and (ii), plus (ii) $10 million, minus (iii)
the Company's estimate of the cash on hand at the Closing Date provided
pursuant to paragraph (a) above. In exchange therefor, the Company shall
execute and deliver to Parent a promissory note in the form of Exhibit B
hereto.
(e) The transactions described in Section 7.6(b)(iii) and (iv) are
referred to collectively herein as the "Foreign Subsidiary Sale." To the
extent requested by Parent, the parties to this Agreement shall either (i)
abandon and not undertake the Foreign Subsidiary Sale, or (ii) restructure
the Foreign Subsidiary Sale in a manner not materially adverse to the
Shareholders and which will not reduce the Per Share Amount or delay the
consummation of the Merger.
(f) The transactions described in this Section 7.6 are referred to
collectively herein as the "Initial Transactions".
SECTION 7.7. EMPLOYEE MATTERS.
(a) Any Employee whose employment is terminated by the Company or any
of its Subsidiaries without cause during the period beginning on the
Closing Date and ending three months thereafter, shall be entitled to
severance benefits on a basis no less favorable than those described on
Schedule 6.1(e); and shall be entitled to participate on a fair and
equitable basis in the job opportunity and employment placement programs
offered by Parent or any of its Subsidiaries (including the Surviving
Corporation, as applicable) for which they are eligible.
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(b) For a period beginning on the Closing Date through December 31,
2002, Parent shall cause each Salaried Employee whose employment is not
terminated in accordance with subsection (a) above, to be provided with
benefits no less favorable, taken as a whole, than those provided from time
to time to employees of Parent's Subsidiaries engaged in the
telecommunications business ("Telecom Employees"), provided that any
employee benefit plan may be amended prior to December 31, 2002, in
accordance with its terms in such a way that does not cause the benefits
extended to the Employees to be less favorable, taken as a whole, than
those provided to Telecom Employees. With respect to any Foreign Plans, the
principles set forth above shall apply to the extent the application of
such principles does not violate applicable Legal Requirements. This
paragraph (b) shall not apply with respect to Employees who are paid by the
hour.
(c) Parent shall cause each Employee to be given full credit for all
service with the Company and its Subsidiaries before the Closing Date for
all purposes under any employee benefit plan, practice or arrangement in
which the Employee participates on or after the Closing Date (except to the
extent necessary to avoid the duplication of benefits or for the purpose of
benefit accrual under any defined benefit pension plan).
(d) For purposes of determining the terms and conditions of an
Employee's participation on and after the Closing Date in any employee
benefit plan, practice or arrangement that is an employee welfare benefit
plan, Parent shall, and shall cause its Subsidiaries to, (i) waive all
limitations as to pre-existing condition exclusions and waiting periods
with respect to the Employee or his or her dependents under such plans,
other than to the extent limitations or waiting periods that are already in
effect with respect to the Employee or his or her dependents have not been
satisfied as of the Closing Date, and (ii) provide each Employee with full
credit for any copayments and deductibles paid in any plan year under a
predecessor plan in satisfying any deductible or out-of-pocket requirements
under any successor plan (on a pro-rata basis in the event of a difference
in plan years).
(e) The Company shall take all actions necessary to terminate its
long-term incentive program (the "LTIP") effective as of April 30, 2002,
subject to the consummation of the Merger, provided that the Company will
be permitted to make payments for the award cycle ending April 30, 2003, on
a pro-rated basis equal to amounts previously accrued for performance
achieved under the LTIP through April 30, 2002, and the Company may pay
such awards as soon as practicable after April 30, 2002.
(f) All management continuity agreements between the Company and
Employees in effect immediately before the Closing Date set forth on
Schedule 4.15, shall be honored after the Closing Date, in accordance with
their terms, until such time as amended or terminated, in accordance with
their terms.
(g) Nothing contained in this Section 7.7 shall be deemed to create
any legally enforceable rights in favor of any Person not a party to this
Agreement.
ARTICLE VIII.
CONDITIONS PRECEDENT
SECTION 8.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) The waiting period under the HSR Act and under any applicable
foreign antitrust law shall have expired or been terminated with respect to
the Transactions.
(b) No preliminary or permanent injunction or other Order by, or Legal
Requirement of, any federal or state court in the United States which
prevents the consummation of the Merger shall have been issued and remain
in effect (each party agreeing to use its reasonable best efforts to have
any such injunction lifted).
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(c) The Merger shall have been approved and adopted by the affirmative
vote of Shareholders owning at least two-thirds of the outstanding Common
Stock.
SECTION 8.2. CONDITIONS FOR THE OBLIGATION OF PARENT AND PURCHASER. The
obligations of Parent and Purchaser to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the following additional
conditions:
(a) The representations and warranties of the Company contained in the
Agreement which are qualified as to Prohibited Effect are true and correct,
and the other representations and warranties of the Company contained in
the Agreement are true and correct in all material respects, in either
case, on and as of the Closing Date, with the same force and effect as if
made on and as of the Closing Date. Parent and Purchaser shall have
received a certificate of the President or Chief Executive Officer or a
Vice President of the Company to the foregoing effects.
(b) The Company shall have performed all material obligations and
complied with all material agreements and material covenants to be
performed or complied with by it under the Agreement (without giving effect
to any materiality qualification or standard contained in any such
agreements or covenants). Parent and Purchaser shall have received a
certificate of the President or Chief Executive Officer or a Vice President
of the Company to the foregoing effects.
(c) There shall not be in effect an Order or Legal Requirement by a
Governmental Agency nor shall a Legal Requirement have been promulgated or
enacted by a Governmental Agency which in any such case (i) restrains or
prohibits the consummation of the Merger, (ii) either (x) prohibits or
materially restricts the ownership or operation by Parent (or any of its
Affiliates or Subsidiaries) of any portion of its or the Company's (or any
of their respective Subsidiaries) business or assets which is material to
the business of the Company and its Subsidiaries taken as a whole (and
which injunction, order, decree, judgment or ruling in the case of Parent
was entered or granted in connection with this Agreement or the
Transactions), or (y) compels Parent (or any of its Affiliates or
Subsidiaries) to dispose of or hold separate any portion of its business
that is in the same line of business as the Company or the Company's (or
any of its Subsidiaries) business or assets which is material to such line
of business of Parent or to the business of the Company and its
Subsidiaries taken as a whole, or (iii) imposes any material limitations on
the ability of Parent or any of its affiliates or Subsidiaries effectively
to control in any material respect the business and operations of the
Company and its Subsidiaries (each of clauses (i) through (iii) being
referred to as a "Prohibited Result").
(d) No action or a proceeding shall have been commenced under federal
or state antitrust laws or any other applicable Legal Requirement before
any Governmental Agency which would reasonably be expected to result in a
Prohibited Result.
(e) There shall not have occurred (i) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States (whether or not mandatory), or (ii) any limitation (whether or not
mandatory) by any United States governmental authority on the extension of
credit generally by banks or other financial institutions.
(f) The Initial Transactions shall have been consummated in accordance
with Section 7.6 other than those set forth in Section 7.6(d)which shall
not be a condition.
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ARTICLE IX.
TERMINATION AND FEES
SECTION 9.1. TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval by the
Shareholders of the Company:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company if any Governmental Agency shall
have issued an Order or taken any other action (which Order or other action
each party hereto shall use its reasonable best efforts to have vacated or
reversed), in each case permanently restraining, enjoining or otherwise
prohibiting the Transactions, and such Order or other action shall have
become final and non-appealable.
(c) by either Parent or the Company if the Shareholders fail to
approve the Merger upon the taking of a vote at a duly held meeting of the
Shareholders or any adjournment thereof.
(d) after September 3, 2002, by either Parent or the Company if the
Merger shall not have been consummated by such date for any reason;
provided that in such case the terminating party is not in material breach
of its representations, warranties, covenants or agreements under this
Agreement; and provided further, if the Company enters into a Competing
Agreement, such date shall be extended (but not shortened) to the earlier
of (x) one (or if the requisite Shareholder vote in favor of the Merger is
obtained at the Special Meeting, five) Business Day following the Special
Meeting, or (y) unless the requisite Shareholder vote in favor of the
Merger shall have been obtained, the termination of the Competing
Agreement.
(e) by Parent, if any of the following shall have occurred:
(i) any Person (other than Parent or any Subsidiary of Parent)
shall have commenced (as such term is defined in Rule 14d-2 under the
Exchange Act), a tender offer or exchange offer to purchase any Common
Stock or securities convertible into such shares such that, upon
consummation of such offer, such person would own or control
thirty-three percent (33%) or more of the then outstanding Common Stock,
and the Board of Directors within ten Business Days after such tender or
exchange offer shall have been so commenced, fails to recommend against
acceptance of such tender or exchange offer by its Shareholders; or
(ii) (A) the Company shall have entered into an agreement with
respect to an Alternative Transaction (other than a confidentiality
agreement permitted by Section 6.2), or (B) the Board of Directors shall
have (x) authorized, recommended or publicly announced an intention to
authorize or recommend an Alternative Transaction, including pursuant to
the last sentence of Section 6.2(c), or (y) withdrawn or modified in a
manner adverse to Parent the recommendation of the Board of Directors
that the Shareholders approve this Agreement and the Merger (an "Adverse
Recommendation"), it being understood and agreed that any communication
by the Company or the Board of Directors to the Shareholders that the
Board of Directors had determined not to withdraw or modify such
recommendation, in whole or in part, because such action would or might
give rise to a right on the part of Parent to terminate this Agreement
and/or obligate the Company to pay the Termination Fee and/or the
Expense Reimbursement shall nevertheless be deemed to be an Adverse
Recommendation.
(f) by Parent if: (i) any of the representations and warranties of the
Company contained in this Agreement which are qualified as to Prohibited
Effect shall not be true and correct, (ii) any of the other representations
and warranties of the Company contained in this Agreement shall not be true
and correct in all material respects, (iii) the Company shall have failed
to comply with the provisions of Section 6.2 hereof, or (iv) the Company
shall have failed to perform any material obligation or to comply with any
material agreement or material covenant to be performed or complied with by
it under this Agreement (without giving effect to any materiality
qualification or standard contained in any such agreements or covenants),
subject to (A) in the case of clauses (i), (ii)or (iv) which
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breach is not cured by the earlier of (x) the day prior to the Special
Meeting, and (y) five (5) Business Days following written notice to the
Company and (B) in the case of clause (iii), only with respect to breaches
arising from isolated, discrete actions taken by non-executive employees of
the Company or its Subsidiaries without the actual Knowledge of the Company
which breach is not cured within one (1) Business Day following the Company
obtaining actual Knowledge of such breach; or
(g) by the Company if (i) any of the representations and warranties of
Parent or Purchaser contained in this Agreement which are qualified as to
material adverse effect shall not be true and correct, (ii) any of the
other representations and warranties of Parent or Purchaser contained in
this Agreement shall not be true and correct in all material respects, or
(iii) Parent or Purchaser shall have failed to perform any material
obligation or to comply with any material agreement or material covenant to
be performed or complied with by it under this Agreement (without giving
effect to any materiality qualification or standard contained in any such
agreements or covenants), and in any case which breach is not cured
following written notice to Parent by the earlier of (x) the day prior to
the Special Meeting, and (y) within five (5) Business Days following
written notice to Parent, except for such breaches which, individually or
in the aggregate, would not reasonably be expected to have a material
adverse effect on the ability of Parent and Purchaser to consummate the
Transactions.
SECTION 9.2. EFFECT OF TERMINATION. In the event of termination of this
Agreement by either Parent or the Company, as provided in Section 9.1, this
Agreement shall forthwith become void and of no further force and effect;
provided, however, that (a) each of the parties shall be entitled to pursue,
exercise and enforce any and all remedies, rights, powers and privileges
available to it at law or in equity for any breach of any covenant, agreement or
other obligation under this Agreement which occurred prior to such termination
(but not for breach of any representation or warranty), provided that if the
Company pays to Parent the Termination Fee and Expense Reimbursement pursuant to
Section 9.3(c)(ii)(A)(y) or 9.3(c)(ii)(B), including any subsequent payment due
pursuant to Section 9.3(d), such amounts shall be deemed satisfaction in full
for any and all damages incurred by Parent or Purchaser in connection with any
breaches of the Company giving rise to such termination, and (b) Sections 9.2,
9.3, 10.3, 10.4, 10.6, 10.8, 10.10 and 10.12 shall survive the termination.
SECTION 9.3. FEES AND EXPENSES.
(a) Except as provided in paragraphs (b), (c) and (d) below, whether
or not the Merger is consummated, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated by this
Agreement shall be paid by the party incurring such expenses (including
broker's or finders fees and the expenses of its representatives).
Notwithstanding the preceding sentence, Parent shall pay one-half and the
Company shall pay one-half of the HSR Act filing fee.
(b) If any of the conditions set forth in paragraphs (c) or (d) below
are satisfied, then the Company shall, subject to and in accordance with
such paragraphs (c) and (d), pay to Parent, by wire transfer of immediate
available funds to an account specified by Parent, (i) an amount equal to
$5,000,000 (the "Termination Fee") plus (ii) all of Parent's reasonable
documented out-of-pocket expenses incurred in connection with the
Transactions and the Transaction Documents, up to a maximum aggregate
amount of $1,000,000 (the "Expense Reimbursement").
(c) The Company shall be obligated to pay the Termination Fee (or the
portion thereof described below) and the Expense Reimbursement as follows:
(i) if Parent terminates this Agreement pursuant to the provisions
of Section 9.1(e)(ii)(A) or (B)(x), or if either party terminates this
Agreement at a time when Parent had the right to terminate pursuant to
Section 9.1(e)(ii)(A) or (B)(x) the Company shall, within 2 (two)
Business Days following such termination, pay the Termination Fee and
the Expense Reimbursement; or
(ii) if (A) Parent has terminated this Agreement pursuant to (x)
any of the other provisions of Section 9.1(e) or (y) Section 9.1(f) or
(B) the Company terminates this
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Agreement other than pursuant to Section 9.1(g) and, at the time of such
termination, Parent had the right to terminate pursuant to Section
9.1(f)(without giving effect to any notice and cure right in favor of
the Company) but not pursuant to Section 9.1(e)(ii)(A) or (B)(x) (which
shall be governed by Section 9.3(c)(i)), the Company shall, within 2
(two) Business Days following such termination, pay (A) one half of the
Termination Fee (i.e., an amount equal to $2,500,000) and (B) the
Expense Reimbursement; or
(iii) if a Takeover Proposal is publicly disclosed after the date
of this Agreement, and thereafter Parent or the Company terminates this
Agreement pursuant to Section 9.1(c) or (d), the Company shall, within 2
(two) Business Days following such termination, pay (A) one half of the
Termination Fee (i.e., an amount equal to $2,500,000) and (B) the
Expense Reimbursement.
(d) In the event of a termination to which clauses (ii) or (iii) of
paragraph (c) above is applicable, and, within nine (9) months following
such termination, the Company enters into a definitive agreement providing
for, or consummates, an Alternative Transaction, the Company shall, upon
consummation of such Alternative Transaction, pay the remaining portion of
the Termination Fee not previously paid pursuant to such clauses (ii) or
(iii), as applicable. For the purpose of this Section 9.3(d), "Alternative
Transaction" shall have the meaning assigned to such term in Section 6.2,
except that references to "10%" or "15%" in such definition shall be deemed
to be references to 33%.
(e) The Company shall be discharged from its obligation to pay the
Termination Fee and Expense Reimbursement to the extent that Parent
actually receives such amounts pursuant to the escrow agreement established
pursuant to the Escrow Procedures.
ARTICLE X.
GENERAL PROVISIONS
SECTION 10.1. NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. All representations and warranties set forth in this Agreement
shall terminate at the Effective Time. All covenants and agreements set forth in
this Agreement shall survive in accordance with their terms.
SECTION 10.2. AMENDMENT. This Agreement may be amended by the parties
hereto, by or pursuant to action taken by their respective boards of directors,
at any time before or after approval hereof by the Shareholders of the Company,
but, after such approval, no amendment shall be made which changes the Per Share
Amount or which in any way materially adversely affects the rights of such
Shareholders or which by applicable law requires the approval of such
Shareholders, without the further approval of such Shareholders. Notwithstanding
any other provision of this Agreement, this Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties hereto.
SECTION 10.3. NOTICES. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given (a) when delivered
personally to the recipient, (b) when sent to the recipient by telecopy (receipt
electronically confirmed by sender's telecopy machine) if during normal business
hours of the recipient, otherwise on the next Business Day, or (c) one Business
Day after the date when sent to the recipient by reputable same or next day
courier service (charges prepaid). Such notices, demands and other
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communications shall be sent to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
If to the Company:
Software Spectrum, Inc.
2140 Merritt Drive
Garland, TX 75041
Attention: Judy C. Odom
Chairman of Board and Chief Executive Officer
Robert D. Graham
Vice President of Strategic Relationships and
General Counsel
Telecopy No.: (972) 864-7889
With a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
1440 New York Avenue, N.W.
Washington, D.C. 20005-2111
Attention: C. Kevin Barnette
Telecopy No.: (202) 393-5760
If to Parent or Purchaser:
Level 3 Communications, Inc.
1025 Eldorado Boulevard
Broomfield, CO 80021
Attention: General Counsel
Telecopy No.: (720) 888-5619
With a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019
Attention: John S. D'Alimonte, Esq.
Telecopy No.: (212) 728-8111
SECTION 10.4. SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction without the necessity of posting a bond,
this being in addition to any other remedy to which they are entitled at law or
in equity.
SECTION 10.5. PUBLICITY. Each party's initial press release with respect
to the execution of this Agreement has been previously approved by the other
parties. Following such initial press releases, so long as this Agreement is in
effect, neither the Company, Parent nor any of their respective Affiliates shall
issue or cause the publication of any press release or other public announcement
with respect to the Merger, this Agreement or the other transactions between the
parties contemplated hereby without the prior consultation of the other parties,
except as may be required by Legal Requirement or by any listing agreement with
a national securities exchange or trading market.
SECTION 10.6. INTERPRETATION. The language used in this Agreement shall be
deemed to be the language chosen by the parties to express their mutual intent,
and no rule of strict construction will be applied against any party. Any
references to any federal, state, local or foreign statute or law shall also
refer to all rules and regulations promulgated thereunder, unless the context
requires otherwise. Unless the
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context otherwise requires: (a) a term has the meaning assigned to it by this
Agreement; (b) including means "including but not limited to"; (c) "or" is
disjunctive but not exclusive; (d) words in the singular include the plural, and
in the plural include the singular; (e) provisions apply to successive events
and transactions; (f) "$" means the currency of the United States of America;
and (g) "Knowledge" of any Person that is an entity means the actual knowledge
of its executive officers after reasonable inquiry of the subordinates for the
relevant matter. When a reference is made in this Agreement to Sections, such
reference shall be to a Section of this Agreement unless otherwise indicated.
SECTION 10.7. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 10.8. ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement and the Confidentiality Agreement (including the documents and the
instruments referred to herein and therein): (a) constitute the entire agreement
and supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof, and (b) other than
the provisions of Section 7.1 hereof, nothing expressed or implied in this
Agreement is intended or will be construed to confer upon or give to any Person
other than the parties hereto any rights or remedies under or by reason of this
Agreement or any Transaction.
SECTION 10.9. SEVERABILITY. In the event that any one or more of the
provisions contained in this Agreement or in any other instrument referred to
herein, shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument. Furthermore, in lieu of any such invalid
or unenforceable term or provision, the parties hereto intend that there shall
be added as a part of this Agreement a provision as similar in terms and intent
to such invalid or unenforceable provision as may be possible and be valid and
enforceable.
SECTION 10.10. GOVERNING LAW. This Agreement and the legal relations
between the parties hereto will be governed by and construed in accordance with
the laws of the State of New York, without giving effect to the choice of law
principles thereof.
SECTION 10.11. ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties, except Purchaser may assign, in its sole
discretion, any or all of its rights, interests and obligations hereunder to any
direct or indirect wholly owned Subsidiary of Parent, but no such assignment
shall relieve Purchaser of any of its obligations under this Agreement. Subject
to the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors and
assigns.
SECTION 10.12. DESCRIPTIVE HEADINGS. The descriptive headings of the
several sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
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IN WITNESS WHEREOF, Parent, Purchaser and the Company have caused this
Agreement to be signed by their respective officers thereunder duly authorized
all as of the date first written above.
LEVEL 3 COMMUNICATIONS, INC.
/s/ JAMES Q. CROWE
--------------------------------------
By: James Q. Crowe
Title: Chief Executive Officer
ELDORADO ACQUISITION THREE, INC.
/s/ THOMAS C. STORTZ
--------------------------------------
By: Thomas C. Stortz
Title: Group Vice President
SOFTWARE SPECTRUM, INC.
/s/ JUDY C. ODOM
--------------------------------------
By: Judy C. Odom
Title: Chief Executive Officer
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EXHIBIT A
VOTING AGREEMENT
VOTING AGREEMENT, dated as of May , 2002 (the "Agreement"), by and among
Level 3 Communications, Inc., a Delaware corporation ("Parent"), Eldorado
Acquisition Three, Inc., a Delaware corporation and an indirect wholly owned
subsidiary of Parent ("Purchaser"), Software Spectrum, Inc., a Texas corporation
(the "Company"), Private Capital Management, L.P., a Delaware limited
partnership ("PCM") and Judy C. Odom, an individual ("JO" and, together with
PCM, the "Shareholders").
W I T N E S S E T H:
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, Parent, Purchaser and the Company are entering into an Agreement and
Plan of Merger, dated as of the date hereof (the "Merger Agreement"), which
provides for, upon the terms and subject to the conditions set forth therein,
the merger of Purchaser with and into the Company (the "Merger");
WHEREAS, as of the date hereof, each Shareholder owns (beneficially and of
record) or has dispositive and voting control with respect to the number of
shares of the Company's common stock, par value $.01 per share (the "Company
Common Stock"), set forth opposite such Shareholder's name on Schedule I hereto
(all such shares so owned or from time to time controlled and which may
hereafter be acquired or from time to time controlled by such Shareholder prior
to the termination of this Agreement, whether upon the exercise of options or by
means of purchase, dividend, distribution or otherwise, being referred to herein
as such Shareholder's "Shares");
WHEREAS, as a condition to their willingness to enter into the Merger
Agreement, Parent and Purchaser have required that the Shareholders enter into
this Agreement; and
WHEREAS, in order to induce Parent and Purchaser to enter into the Merger
Agreement, the Shareholders are willing to enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
ARTICLE I.
TRANSFER AND VOTING OF SHARES; AND
OTHER COVENANTS OF THE SHAREHOLDERS
SECTION 1.1. VOTING OF SHARES. From the date hereof until the occurrence
of a Termination Event (as defined in Section 4.2) (the "Term"), at any meeting
of the shareholders of the Company, however called, and in any action by consent
of the shareholders of the Company, each Shareholder shall vote (or cause to be
voted) its Shares (a) in favor of approval of the Merger and the Merger
Agreement (as amended from time to time), (b) against (i) any Takeover Proposal
(as defined in the Merger Agreement), (ii) any proposal for action or agreement
that would result in a breach of any covenant, representation or warranty or any
other obligation or agreement of the Company under the Merger Agreement or which
is reasonably likely to result in any of the conditions to the Parent's and
Purchaser's obligations under the Merger Agreement not being fulfilled, (iii)
any change in the directors of the Company, (iv) any change in the present
capitalization of the Company, (v) any amendment to the Company's Second
Restated Articles of Incorporation or the Second Amended and Restated By-Laws,
(vi) any other material change in the Company's corporate structure or business,
or (vii) any other action which could reasonably be expected to impede,
interfere with, delay, postpone or materially adversely affect the transactions
contemplated by the Merger Agreement or the likelihood of such transactions
being consummated and (c) in favor of any other matter necessary for
consummation of the transactions
contemplated by the Merger Agreement which is considered at any such meeting of
shareholders or in such consent, and in connection therewith to execute any
documents which are necessary or appropriate in order to effectuate the
foregoing, including the ability of Purchaser or its nominees to vote such
Shares directly.
SECTION 1.2. NO INCONSISTENT ARRANGEMENTS. Except as contemplated by this
Agreement and the Merger Agreement, and, with respect to PCM, except to the
extent PCM's dispositive and voting power over its Shares is revoked after the
date hereof by the ultimate beneficial owner of such Shares, each Shareholder
shall not during the Term (a) transfer (which term shall include, without
limitation, any sale, assignment, gift, pledge, hypothecation or other
disposition), or consent to any transfer of, any or all of such Shareholder's
Shares or any interest therein, or create or permit to exist any Encumbrance (as
defined below) on such Shares, (b) enter into any contract, option or other
agreement or understanding with respect to any transfer of any or all of such
shares or any interest therein, (c) grant any proxy, power-of-attorney or other
authorization in or with respect to such Shares, (d) deposit such Shares into a
voting trust or enter into a voting agreement or arrangement with respect to
such Shares, or (e) take any other action that would in any way restrict, limit
or interfere with the performance of its obligations hereunder or the
transactions contemplated hereby or by the Merger Agreement. Notwithstanding the
foregoing, in the case of an individual Shareholder, such Shareholder may
transfer any or all of its Shares to a charitable trust or foundation; provided,
however, that in any such case, prior to and as a condition to the effectiveness
of such transfer, each Person to which any of such Shares or any interest in any
of such Shares is or may be transferred shall have executed and delivered to
Parent and Purchaser a counterpart to this Agreement pursuant to which such
Person shall be bound by all of the terms and provisions of this Agreement.
SECTION 1.3. PROXY. Each Shareholder hereby revokes any and all prior
proxies or powers of attorney in respect of any of such Shareholder's Shares and
constitutes and appoints Purchaser and Parent, or any nominee of Purchaser and
Parent, with full power of substitution and resubstitution, at any time during
the Term, as its true and lawful attorney and proxy (its "Proxy"), for and in
its name, place and stead, to demand that the Secretary of the Company call a
special meeting of the shareholders of the Company for the purpose of
considering any matter referred to in Section 1.1 and to vote each of such
Shares as its Proxy, as provided in Section 1.1, at every annual, special,
adjourned or postponed meeting of the shareholders of the Company, including the
right to sign its name (as shareholder) to any consent, certificate or other
document relating to the Company that Texas law may permit. Each Shareholder
represents and warrants that (a) it has not granted power of attorney to any
other Person with respect to the Shares and (b) any proxies heretofore given in
respect of the Shares are not irrevocable, and that any such proxies have been
revoked.
THE FOREGOING PROXY AND POWER OF ATTORNEY ARE IRREVOCABLE AND COUPLED WITH
AN INTEREST THROUGHOUT THE TERM, PROVIDED THAT PCM MAY REVOKE SUCH PROXY AND
POWER SOLELY TO THE EXTENT THAT ONE OR MORE ULTIMATE BENEFICIAL HOLDERS OF PCM'S
SHARES REVOKES PCM'S AUTHORITY WITH RESPECT TO SUCH SHARES.
SECTION 1.4. DISCLOSURE. Each Shareholder hereby authorizes Parent,
Purchaser and the Company to publish and disclose in any Form 8-K, Schedule 13D
and the Proxy Statement (including all documents and schedules filed with the
Commission), its identity and ownership of the Company Common Stock and the
nature of its commitments, arrangements and understandings under this Agreement.
Parent and Purchaser shall permit each Shareholder to disclose the terms of this
Agreement in such Shareholder's Schedule 13D with respect to the Shares.
SECTION 1.5. WAIVER OF APPRAISAL RIGHTS. Each Shareholder hereby waives
with respect to its Shares any rights of appraisal or rights to dissent from the
Merger.
SECTION 1.6. SPOUSAL CONSENT. If a Shareholder is or may be subject to the
community property laws of any state or other jurisdiction, such Shareholder
shall use its reasonable best efforts to cause
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his/her spouse to execute an acknowledgment and consent consenting to and
agreeing to the transactions contemplated by this Agreement. Such consent shall
survive until the occurrence of a Termination Event.
SECTION 1.7. STOP TRANSFER. Prior to a Termination Event, each Shareholder
shall not request that the Company register, and the Company shall not register,
the transfer (book-entry or otherwise) of any certificate or uncertificated
interest representing any of such Shareholder's Shares, unless such transfer is
made in compliance with this Agreement.
SECTION 1.8. NO SOLICITATION.
(a) During the Term, each Shareholder shall not, and it shall cause
its subsidiaries, officers, directors, employees, counsel, investment
bankers, financial advisers, accountants, other representatives and agents
(collectively, the "Representatives") not to, (i) solicit, initiate, or
encourage, directly or indirectly (including by way of furnishing
information), or take any other action to facilitate, any inquiries or the
making of any proposal which constitutes, or may reasonably be expected to
lead to, any Takeover Proposal, (ii) participate in any discussions or
negotiations regarding any Takeover Proposal or (iii) enter into any
agreement with respect to any Takeover Proposal. Upon execution of this
Agreement, each Shareholder shall, and it shall cause its Representatives
to, immediately cease any existing activities, discussions or negotiations
with any parties conducted heretofore with respect to any of the foregoing.
(b) Each Shareholder shall promptly advise Parent orally and in
writing of any request for information, proposal, discussion, negotiation
or inquiry received by such Shareholder after the date of this Agreement,
and each Shareholder shall promptly (but in any event within one Business
Day) communicate to Parent the material terms and conditions of any such
proposal, discussion, negotiation or inquiry which it may receive (and will
promptly provide to Parent copies of any written materials received by it
in connection with such proposal, discussion, negotiation or inquiry) and
the identity of the Person making such proposal or inquiry or engaging in
such discussion or negotiation. Notwithstanding any provision of this
Section 1.8 to the contrary, if any Shareholder or any of its
Representatives is a member of the Board of Directors of the Company (the
"Board of Directors"), such member of the Board of Directors may take
actions in such capacity.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Each Shareholder hereby represents and warrants to Parent and Purchaser as
follows:
SECTION 2.1. DUE AUTHORIZATION, ETC. Such Shareholder has all requisite
power and authority to execute, deliver and perform this Agreement, to appoint
Purchaser and Parent as its Proxy and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement,
the appointment of Purchaser and Parent as such Shareholder's Proxy and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary action on the part of such Shareholder. This Agreement has been
duly executed and delivered by or on behalf of such Shareholder and constitutes
a legal, valid and binding obligation of such Shareholder, enforceable against
such Shareholder in accordance with its terms, except as enforcement may be
limited by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or other similar laws of general applicability relating to or
affecting the rights of creditors and to general principles of equity and except
that the availability of equitable remedies, including specific performance, is
subject to the discretion of the court before which any proceeding for such
remedy may be brought. There is no beneficiary or holder of a voting trust
certificate or other interest of any trust of which such Shareholder is trustee
whose consent is required for the execution and delivery of this Agreement or
the consummation by such Shareholder of the transactions contemplated hereby.
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SECTION 2.2. NO CONFLICTS; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by such Shareholder
does not, and the performance of this Agreement by such Shareholder will
not, (i) contravene, conflict with or violate any law applicable to such
Shareholder or by which such Shareholder or any of such Shareholder's
properties is bound or affected or (ii) result in any breach of or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any assets of such Shareholder, including, without
limitation, such Shareholder's Shares, pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise
or other instrument or obligation to which such Shareholder is a party or
by which such Shareholder or any of such Shareholder's assets is bound or
affected, except for any such breaches, defaults or other occurrences that
would not prevent or delay the performance by such Shareholder of such
Shareholder's obligations under this Agreement.
(b) The execution and delivery of this Agreement by such Shareholder
does not, and the performance of this Agreement by such Shareholder will
not, require any consent, approval, authorization or permit of, or filing
with or notification to, any governmental or regulatory authority, domestic
or foreign, except where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would
not prevent or delay the performance by such Shareholder of such
Shareholder's obligations under this Agreement.
SECTION 2.3. TITLE TO SHARES. JO is the sole record and beneficial owner
of her Shares, free and clear of any pledge, lien, security interest, mortgage,
charge, claim, equity, option, proxy, voting restriction, voting trust or
agreement, understanding, arrangement, right of first refusal, limitation on
disposition, adverse claim of ownership or use or encumbrance of any kind
("Encumbrances"), other than restrictions imposed by the securities laws or
pursuant to this Agreement and the Merger Agreement, or has voting and
dispositive control with respect to its Shares. PCM has voting and dispositive
control with respect to its Shares, which control may be revoked at any time by
the ultimate beneficial owner of such Shares.
SECTION 2.4. NO FINDER'S FEES. No broker, investment banker, financial
advisor or other person is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission from the Company, Parent, or any of
their respective Subsidiaries, in connection with the transactions contemplated
hereby based upon arrangements made by or on behalf of such Shareholder. Such
Shareholder, on behalf of itself and its affiliates, hereby acknowledges that it
is not entitled to receive any broker's, finder's, financial advisor's or other
similar fee or commission from the Company, Parent, or any of their respective
Subsidiaries in connection with the transactions contemplated hereby or by the
Merger Agreement.
SECTION 2.5. RELIANCE BY PARENT AND PURCHASER. Shareholder understands and
acknowledges that Parent and Purchaser are entering into the Merger Agreement in
reliance upon Shareholder's execution and delivery of this Agreement.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF
PARENT AND PURCHASER
Parent and Purchaser hereby, jointly and severally, represent and warrant
to the Shareholders as follows:
SECTION 3.1. DUE ORGANIZATION, AUTHORIZATION, ETC. Purchaser and Parent
are duly organized, validly existing and in good standing under the laws of
their jurisdiction of incorporation. Purchaser and Parent have all requisite
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby by
each of Purchaser and Parent have been duly authorized by all necessary
corporate action on the part of Purchaser and Parent, respectively. This
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Agreement has been duly executed and delivered by each of Purchaser and Parent
and constitutes a legal, valid and binding obligation of each of Purchaser and
Parent, enforceable against Purchaser and Parent in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium or other similar laws of general
applicability relating to or affecting the rights of creditors and to general
principles of equity and except that the availability of equitable remedies,
including specific performance, is subject to the discretion of the court before
which any proceeding for such remedy may be brought.
SECTION 3.2. NO CONFLICTS; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by each of Parent and
Purchaser does not, and the performance of this Agreement by Parent and
Purchaser will not, (i) contravene, conflict with or violate any law
applicable to Parent or Purchaser or by which Parent or Purchaser or any of
their respective properties is bound or affected or (ii) result in any
breach of or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, acceleration or cancellation of, or result in the creation of
a lien or encumbrance on any assets of Parent or Purchaser, pursuant to,
any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which Parent or
Purchaser is a party or by which Parent or Purchaser or any of their
respective assets is bound or affected, except for any such breaches,
defaults or other occurrences that would not prevent or delay the
performance by Parent or Purchaser of their respective obligations under
this Agreement.
(b) The execution and delivery of this Agreement by Parent and
Purchaser does not, and the performance of this Agreement by Parent and
Purchaser will not, require any consent, approval, authorization or permit
of, or filing with or notification to, any governmental or regulatory
authority, domestic or foreign, except for those that will be made within
the required time period or where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or
notifications, would not prevent or delay the performance by Parent or
Purchaser of their respective obligations under this Agreement.
ARTICLE IV.
MISCELLANEOUS
SECTION 4.1. DEFINITIONS. Terms used but not otherwise defined in this
Agreement have the meanings ascribed to such terms in the Merger Agreement.
SECTION 4.2. TERMINATION. This Agreement shall terminate and be of no
further force and effect upon the first to occur of (i) the completion of a
valid vote of the Shareholders on the Merger and the Merger Agreement at the
Special Meeting; (ii) the termination of the Merger Agreement by any party
thereto in accordance with its terms; or (iii) the amendment of the Merger
Agreement without the written consent of the Shareholders that (x) provides for
a reduction in the Per Share Amount below $37.00 or (y) changes the form of the
payment of the Per Share Amount to other than cash (each a "Termination Event").
No such termination of this Agreement shall relieve any party hereto from any
liability for any breach of this Agreement prior to termination.
SECTION 4.3. FURTHER ASSURANCE. From time to time, at another party's
request and without consideration, each party hereto shall execute and deliver
such additional documents and take all such further action as may be reasonably
necessary or desirable to consummate and make effective, in the most expeditious
manner practicable, the transaction contemplated by this Agreement.
SECTION 4.4. CERTAIN EVENTS. JO agrees that this Agreement and JO's
obligations hereunder shall attach to her Shares and shall be binding upon any
person or entity to which legal or beneficial ownership of such Shares shall
pass, whether by operation of law or otherwise, including, without limitation,
JO's heirs, guardians, administrators, or successors. Notwithstanding any
transfer of Shares, the transferor shall remain liable for the performance of
all its obligations under this Agreement.
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SECTION 4.5. SPECIFIC PERFORMANCE. Each Shareholder acknowledges that if
such Shareholder fails to perform any of its obligations under this Agreement
immediate and irreparable harm or injury would be caused to Parent and Purchaser
for which money damages would not be an adequate remedy. In such event, each
Shareholder agrees that each of Parent and Purchaser shall have the right, in
addition to any other rights it may have, to specific performance of this
Agreement. Accordingly, if Parent or Purchaser should institute an action or
proceeding seeking specific enforcement of the provisions hereof, each
Shareholder hereby waives the claim or defense that Parent or Purchaser, as the
case may be, has an adequate remedy at law and hereby agrees not to assert in
any such action or proceeding the claim or defense that such a remedy at law
exists. Each Shareholder further agrees to waive any requirements for the
securing or posting of any bond in connection with obtaining any such equitable
relief.
SECTION 4.6. NOTICE. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made (i) as of the date delivered or sent by facsimile if delivered
personally or by facsimile, confirmation received, and (ii) on the third
Business Day after deposit in the U.S. mail, if mailed by registered or
certified mail (postage prepaid, return receipt requested), in each case to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice, except that notices of changes of address
shall be effective upon receipt):
(a) If to Parent or Purchaser:
Level 3 Communications, Inc.
1025 Eldorado Blvd.
Broomfield, CO 80021
Attention: Robert M. Yates
Facsimile: (720) 888-5619
With a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019
Attention: John S. D'Alimonte, Esq.
Facsimile: (212) 728-8111
(b) If to a Shareholder, at the address set forth below such
Shareholder's name on Schedule I hereto.
With a copy to:
Software Spectrum, Inc.
2140 Merritt Drive
Garland, Texas 75041
Attention: Judy C. Odom
Robert D. Graham
Facsimile: (972) 864-7889
and
Skadden, Arps, Slate, Meagher & Flom LLP
1440 New York Avenue, N.W.
Washington, D.C. 20005-2111
Attention: C. Kevin Barnette
Facsimile: (202) 393-5760
SECTION 4.7. EXPENSES. All fees, costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such fees, costs and expenses.
SECTION 4.8. HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
A-A-6
SECTION 4.9. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the maximum extent
possible.
SECTION 4.10. ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This
Agreement constitutes the entire agreement and supersedes any and all other
prior agreements and undertakings, both written and oral, among the parties, or
any of them, with respect to the subject matter hereof, and this Agreement is
not intended to confer upon any other person any rights or remedies hereunder.
SECTION 4.11. ASSIGNMENT. This Agreement shall not be assigned by
operation or law or otherwise, by any of the parties hereto without the prior
written consent of the other parties, except that Parent or Purchaser may assign
all or any of its rights hereunder to any wholly owned Subsidiary of Parent
provided that no such assignment shall relieve such assigning party of its
obligations hereunder. Subject to the preceding sentence, this Agreement shall
be binding upon and inure to the benefit of the parties named herein and their
respective successors and permitted assigns.
SECTION 4.12. GOVERNING LAW. This Agreement and the legal relations
between the parties hereto shall be governed by and construed in accordance with
the laws of the State of New York, without giving effect to the choice of law
principles thereof.
SECTION 4.13. JURISDICTION: SERVICE OF PROCESS. Any action or proceeding
seeking to enforce any provision of, or based on any right arising out of, this
Agreement may only be brought against any of the parties in the courts of the
State of New York located in the City of New York, or if it has subject matter
jurisdiction, the U.S. federal district court for the Southern District of New
York, and each of the parties consents to the jurisdiction of such courts (and
of the appropriate appellate courts) in any such action or proceeding and waives
any objection to venue laid therein. Process in any action or proceeding
referred to in the preceding sentence may be served on any party anywhere in the
world.
SECTION 4.14. AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
SECTION 4.15. WAIVER. Any party hereto may (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties of the other
parties hereto contained herein or in any document delivered pursuant hereto and
(c) waive compliance by the other parties hereto with any of their agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only as against such party and only if
set forth in an instrument in writing signed by such party. The failure of any
party hereto to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of those rights.
SECTION 4.16. EFFECTIVENESS. This Agreement shall become effective only
upon the execution and delivery of the Merger Agreement by the Company, Parent
and Purchaser.
SECTION 4.17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which shall
constitute one and the same agreement.
A-A-7
IN WITNESS WHEREOF, Parent, Purchaser, the Company and the Shareholders
have caused this Agreement to be executed as of the date first written above.
LEVEL 3 COMMUNICATIONS, INC.
By:
___________________________________
Name:
Title:
ELDORADO ACQUISITION THREE, INC.
By:
___________________________________
Name:
Title:
SOFTWARE SPECTRUM, INC.
By:
___________________________________
Name:
Title:
___________________________________
Judy C. Odom
PRIVATE CAPITAL MANAGEMENT, L.P.
By: PCM Holdings, Inc., its general
partner
By:
__________________________________
Name: Gregg J. Powers
Title: President
A-A-8
SCHEDULE I
<Table>
<Caption>
NAME AND ADDRESS NUMBER OF SHARES FOR WHICH SHAREHOLDER
OF SHAREHOLDER HAS DISPOSITIVE AND VOTING CONTROL
- ---------------- --------------------------------------
Judy C. Odom................................ 166,114
2140 Merritt Drive
Garland, Texas 75041
Facsimile: (972) 864-7889
Private Capital Management, L.P............. 796,542
8889 Pelican Bay Blvd., Suite 500
Naples, FL 34108
Attention: Gregg Powers
Lisa Gallagher
Facsimile: (239) 254-2558
(239) 254-2559
</Table>
EXHIBIT B
to Agreement and Plan
of Merger
PROMISSORY NOTE
$_________________
New York, New York __________________ __, 2002
FOR VALUE RECEIVED, the sufficiency of which is hereby acknowledged,
Software Spectrum, Inc., a Texas corporation ("Maker"), hereby unconditionally
promises to pay to Level 3 Communications, Inc., a Delaware corporation, or its
assigns ("Holder"), upon demand by Holder and at such place as may be designated
by Holder, the principal sum of ____________ Dollars ($________), together with
interest thereon at a rate per annum equal to ____________ percent (____%)
(computed on the basis of a 360-day year) from and after __________________ __,
2002. Maker may prepay all or any portion of this Note at any time without
penalty. All payments received from Maker hereunder shall be applied first, to
the payment of any expenses due to Holder pursuant to the terms of this Note,
second, to the payment of interest accrued and unpaid on this Note, and third,
to reduce the principal balance hereunder.
Any payments of expenses, principal or interest shall be made in U.S.
dollars.
Maker agrees to pay to Holder all expenses incurred by Holder, including
reasonable attorneys' fees, in enforcing and collecting this Note.
This Note is binding on Maker and its respective successors and assigns,
and Maker hereby waives presentment, demand, notice and protest and any defense
by reason of an extension of time for payment or other indulgences. Failure of
Holder to assert any right herein shall not be deemed to be a waiver thereof.
This Note is being executed and delivered by Maker in connection with the
transactions described in Section 7.6 of that certain Agreement and Plan of
Merger dated as of May , 2002, by and among Parent, Eldorado Acquisition
Three, Inc., a Delaware corporation, and Maker.
This Note shall be paid without deduction by reason of any set-off, defense
or counterclaim of Maker.
This Note shall be governed by and construed and enforced in accordance
with the laws of the State of New York, without giving effect to principles of
conflicts of law thereof.
SOFTWARE SPECTRUM, INC.
By:
--------------------------------------
Name:
Title:
APPENDIX B
May 1, 2002
Board of Directors
Software Spectrum, Inc.
2140 Merritt Drive
Garland, Texas 75041
Lady and Gentlemen:
We understand that Software Spectrum, Inc. (the "Company") intends to enter
into an Agreement and Plan of Merger dated as of May 1, 2002 (the "Agreement"),
with Level 3 Communications, Inc. ("Parent") and Eldorado Acquisition Three,
Inc., an indirect wholly-owned subsidiary of Parent ("Purchaser"). We understand
that under the Agreement, Parent will acquire the Company through a merger of
Purchaser with and into the Company (the "Proposed Transaction"). Pursuant to
the Agreement, at the effective time of the merger, the Company's issued and
outstanding common shares, other than any shares with respect to which appraisal
rights are properly exercised, will be converted into the right to receive
$37.00 in cash per common share. The terms and conditions of the Proposed
Transaction are set forth in more detail in the Agreement.
We have been requested by the Company to render our opinion to the Board of
Directors of the Company with respect to the fairness, from a financial point of
view, to the Company's common shareholders (other than Parent or any "affiliate"
as defined in Rule 405 promulgated under the Securities Act) of the
consideration to be received in the Proposed Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) a draft of the
Agreement dated April 30, 2002 and a draft of the Voting Agreement dated April
30, 2002 by and among Parent, Purchaser, the Company and certain shareholders of
the Company; (2) publicly available information concerning the Company which we
believe to be relevant to our inquiry; (3) financial and operating information
with respect to the business, operations and prospects of the Company furnished
to us by the Company; (4) a trading history of the Company's common stock from
July 12, 1991 to the present and a comparison of that trading history with those
of other publicly traded companies which we deemed relevant; (5) a comparison of
the historical financial results and present financial condition of the Company
with those of publicly traded companies which we deemed relevant; (6) historical
data relating to percentage premiums paid in acquisitions of publicly traded
companies from January 1, 2001 to the present; and (7) a comparison of the
financial terms of the Proposed Transaction with the publicly available
financial terms of certain other recent transactions which we deemed relevant.
In addition, we have had various discussions with the management of the Company
concerning its business, operations, assets, present condition and future
prospects and undertook such other studies, analyses and investigations as we
deemed appropriate.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the financial and other information discussed with
or reviewed by us in arriving at our opinion. With respect to the financial
forecasts of the Company provided to or discussed with us we have assumed, at
the direction of the management of the Company and without independent
verification or investigation, that such forecasts have been reasonably prepared
on bases reflecting the best currently available information, estimates and
judgments of the management of the Company as to the future financial
performance of the Company. In arriving at our opinion, we have conducted only a
limited inspection of the properties and facilities of the Company and have not
made or obtained any evaluations or appraisals of the assets or liabilities
contingent or otherwise, of the Company. We have also assumed that the Proposed
Transaction will be consummated in accordance with the terms of the Agreement.
We have also assumed that all material governmental, regulatory or other
consents and approvals necessary for the consummation of the Proposed
Transaction will be obtained without any material adverse effect on the Company
or on the
Board of Directors
Software Spectrum, Inc.
May 1, 2002
Page 2
expected benefits of the Proposed Transaction. In addition, you have not
authorized us to solicit, and we have not solicited, any indications of interest
from any third party with respect to the purchase of all or a part of the
Company's business. Our opinion is necessarily based upon market, economic and
other conditions as they exist on, and can be evaluated as of, the date of this
letter. We express no opinion as to the future performance or long-term
viability of the Company.
The Company has agreed to indemnify us for certain liabilities arising out
of the rendering of this opinion. We have also performed various investment
banking services for the Company in the past and have received customary fees
for such services. In the ordinary course of our business, we actively trade in
the equity securities of the Company for our own account and for the accounts of
our customers and, accordingly, may at any time hold a long or short position in
such securities.
Based upon and subject to the forgoing, and such other factors as we deemed
relevant, we are of the opinion as of the date hereof that, from a financial
point of view, the consideration to be received in the Proposed Transaction is
fair to the common shareholders of the Company (other than Parent or any
"affiliate" as defined in Rule 405 promulgated under the Securities Act). This
opinion is being rendered at the behest of the Board of Directors and is for the
benefit of the Board of Directors of the Company in its evaluation of the
Proposed Transaction, and does not constitute a recommendation as to how any
shareholder should act or vote with respect to any matters relating to the
Proposed Transaction.
Very truly yours,
/s/ SUNTRUST ROBINSON HUMPHREY
--------------------------------------
SUNTRUST ROBINSON HUMPHREY,
a Division of
SUNTRUST CAPITAL MARKETS, INC.
B-2
APPENDIX C
ARTICLES 5.11, 5.12 AND 5.13 OF THE
TEXAS BUSINESS CORPORATION ACT
ART. 5.11. RIGHTS OF DISSENTING SHAREHOLDERS IN THE EVENT OF CERTAIN CORPORATE
ACTIONS
A. Any shareholder of a domestic corporation shall have the right to
dissent from any of the following corporate actions:
(1) Any plan of merger to which the corporation is a party if
shareholder approval is required by Article 5.03 or 5.16 of this Act and
the shareholder holds shares of a class or series that was entitled to vote
thereon as a class or otherwise;
(2) Any sale, lease, exchange or other disposition (not including any
pledge, mortgage, deed of trust or trust indenture unless otherwise
provided in the articles of incorporation) of all, or substantially all,
the property and assets, with or without good will, of a corporation if
special authorization of the shareholders is required by this Act and the
shareholders hold shares of a class or series that was entitled to vote
thereon as a class or otherwise;
(3) Any plan of exchange pursuant to Article 5.02 of this Act in which
the shares of the corporation of the class or series held by the
shareholder are to be acquired.
B. Notwithstanding the provisions of Section A of this Article, a
shareholder shall not have the right to dissent from any plan of merger in which
there is a single surviving or new domestic or foreign corporation, or from any
plan of exchange, if:
(1) the shares held by the shareholder are part of a class or series,
shares of which are on the record date fixed to determine the shareholders
entitled to vote on the plan of merger or plan of exchange:
(a) listed on a national securities exchange;
(b) listed on the Nasdaq Stock Market (or successor quotation
system) or designated as a national market security on an interdealer
quotation system by the National Association of Securities Dealers,
Inc., or successor entity; or
(c) held of record by not less than 2,000 holders;
(2) the shareholder is not required by the terms of the plan of merger
or plan of exchange to accept for the shareholder's shares any
consideration that is different than the consideration (other than cash in
lieu of fractional shares that the shareholder would otherwise be entitled
to receive) to be provided to any other holder of shares of the same class
or series of shares held by such shareholder; and
(3) the shareholder is not required by the terms of the plan of merger
or the plan of exchange to accept for the shareholder's shares any
consideration other than:
(a) shares of a domestic or foreign corporation that, immediately
after the effective time of the merger or exchange, will be part of a
class or series, shares of which are:
(i) listed, or authorized for listing upon official notice of
issuance, on a national securities exchange;
(ii) approved for quotation as a national market security on
an interdealer quotation system by the National Association of Securities
Dealers, Inc., or successor entity; or
(iii) held of record by not less than 2,000 holders;
(b) cash in lieu of fractional shares otherwise entitled to be
received; or
(c) any combination of the securities and cash described in
Subdivisions (a) and (b) of this subsection.
ART. 5.12. PROCEDURE FOR DISSENT BY SHAREHOLDERS AS TO SAID CORPORATE ACTIONS
A. Any shareholder of any domestic corporation who has the right to dissent
from any of the corporate actions referred to in Article 5.11 of this Act may
exercise that right to dissent only by complying with the following procedures:
(1)(a) With respect to proposed corporate action that is submitted to
a vote of shareholders at a meeting, the shareholder shall file with the
corporation, prior to the meeting, a written objection to the action,
setting out that the shareholder's right to dissent will be exercised if
the action is effective and giving the shareholder's address, to which
notice thereof shall be delivered or mailed in that event. If the action is
effected and the shareholder shall not have voted in favor of the action,
the corporation, in the case of action other than a merger, or the
surviving or new corporation (foreign or domestic) or other entity that is
liable to discharge the shareholder's right of dissent, in the case of a
merger, shall, within ten (10) days after the action is effected, deliver
or mail to the shareholder written notice that the action has been
effected, and the shareholder may, within ten (10) days from the delivery
or mailing of the notice, make written demand on the existing, surviving,
or new corporation (foreign or domestic) or other entity, as the case may
be, for payment of the fair value of the shareholder's shares. The fair
value of the shares shall be the value thereof as of the day immediately
preceding the meeting, excluding any appreciation or depreciation in
anticipation of the proposed action. The demand shall state the number and
class of the shares owned by the shareholder and the fair value of the
shares as estimated by the shareholder. Any shareholder failing to make
demand within the ten (10) day period shall be bound by the action.
(b) With respect to proposed corporate action that is approved
pursuant to Section A of Article 9.10 of this Act, the corporation, in the
case of action other than a merger, and the surviving or new corporation
(foreign or domestic) or other entity that is liable to discharge the
shareholder's right of dissent, in the case of a merger, shall, within ten
(10) days after the date the action is effected, mail to each shareholder
of record as of the effective date of the action notice of the fact and
date of the action and that the shareholder may exercise the shareholder's
right to dissent from the action. The notice shall be accompanied by a copy
of this Article and any articles or documents filed by the corporation with
the Secretary of State to effect the action. If the shareholder shall not
have consented to the taking of the action, the shareholder may, within
twenty (20) days after the mailing of the notice, make written demand on
the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, for payment of the fair value of the
shareholder's shares. The fair value of the shares shall be the value
thereof as of the date the written consent authorizing the action was
delivered to the corporation pursuant to Section A of Article 9.10 of this
Act, excluding any appreciation or depreciation in anticipation of the
action. The demand shall state the number and class of shares owned by the
dissenting shareholder and the fair value of the shares as estimated by the
shareholder. Any shareholder failing to make demand within the twenty (20)
day period shall be bound by the action.
(2) Within twenty (20) days after receipt by the existing, surviving,
or new corporation (foreign or domestic) or other entity, as the case may
be, of a demand for payment made by a dissenting shareholder in accordance
with Subsection (1) of this Section, the corporation (foreign or domestic)
or other entity shall deliver or mail to the shareholder a written notice
that shall either set out that the corporation (foreign or domestic) or
other entity accepts the amount claimed in the demand and agrees to pay
that amount within ninety (90) days after the date on which the action was
effected, and, in the case of shares represented by certificates, upon the
surrender of the certificates duly endorsed, or shall contain an estimate
by the corporation (foreign or domestic) or other entity of the fair value
of the shares, together with an offer to pay the amount of that estimate
within ninety (90) days after the date on which the action was effected,
upon receipt of notice within sixty
C-2
(60) days after that date from the shareholder that the shareholder agrees
to accept that amount and, in the case of shares represented by
certificates, upon the surrender of the certificates duly endorsed.
(3) If, within sixty (60) days after the date on which the corporate
action was effected, the value of the shares is agreed upon between the
shareholder and the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, payment for the shares shall
be made within ninety (90) days after the date on which the action was
effected and, in the case of shares represented by certificates, upon
surrender of the certificates duly endorsed. Upon payment of the agreed
value, the shareholder shall cease to have any interest in the shares or in
the corporation.
B. If, within the period of sixty (60) days after the date on which the
corporate action was effected, the shareholder and the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be, do
not so agree, then the shareholder or the corporation (foreign or domestic) or
other entity may, within sixty (60) days after the expiration of the sixty (60)
day period, file a petition in any court of competent jurisdiction in the county
in which the principal office of the domestic corporation is located, asking for
a finding and determination of the fair value of the shareholder's shares. Upon
the filing of any such petition by the shareholder, service of a copy thereof
shall be made upon the corporation (foreign or domestic) or other entity, which
shall, within ten (10) days after service, file in the office of the clerk of
the court in which the petition was filed a list containing the names and
addresses of all shareholders of the domestic corporation who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the corporation (foreign or domestic) or other
entity. If the petition shall be filed by the corporation (foreign or domestic)
or other entity, the petition shall be accompanied by such a list. The clerk of
the court shall give notice of the time and place fixed for the hearing of the
petition by registered mail to the corporation (foreign or domestic) or other
entity and to the shareholders named on the list at the addresses therein
stated. The forms of the notices by mail shall be approved by the court. All
shareholders thus notified and the corporation (foreign or domestic) or other
entity shall thereafter be bound by the final judgment of the court.
C. After the hearing of the petition, the court shall determine the
shareholders who have complied with the provisions of this Article and have
become entitled to the valuation of and payment for their shares, and shall
appoint one or more qualified appraisers to determine that value. The appraisers
shall have power to examine any of the books and records of the corporation the
shares of which they are charged with the duty of valuing, and they shall make a
determination of the fair value of the shares upon such investigation as to them
may seem proper. The appraisers shall also afford a reasonable opportunity to
the parties interested to submit to them pertinent evidence as to the value of
the shares. The appraisers shall also have such power and authority as may be
conferred on Masters in Chancery by the Rules of Civil Procedure or by the order
of their appointment.
D. The appraisers shall determine the fair value of the shares of the
shareholders adjudged by the court to be entitled to payment for their shares
and shall file their report of that value in the office of the clerk of the
court. Notice of the filing of the report shall be given by the clerk to the
parties in interest. The report shall be subject to exceptions to be heard
before the court both upon the law and the facts. The court shall by its
judgment determine the fair value of the shares of the shareholders entitled to
payment for their shares and shall direct the payment of that value by the
existing, surviving, or new corporation (foreign or domestic) or other entity,
together with interest thereon, beginning 91 days after the date on which the
applicable corporate action from which the shareholder elected to dissent was
effected to the date of such judgment, to the shareholders entitled to payment.
The judgment shall be payable to the holders of uncertificated shares
immediately but to the holders of shares represented by certificates only upon,
and simultaneously with, the surrender to the existing, surviving, or new
corporation (foreign or domestic) or other entity, as the case may be, of duly
endorsed certificates for those shares. Upon payment of the judgment, the
dissenting shareholders shall cease to have any interest in those shares or in
the corporation. The court shall allow the appraisers a reasonable fee as court
costs, and all court costs shall be allotted between the parties in the manner
that the court determines to be fair and equitable.
C-3
E. Shares acquired by the existing, surviving, or new corporation (foreign
or domestic) or other entity, as the case may be, pursuant to the payment of the
agreed value of the shares or pursuant to payment of the judgment entered for
the value of the shares, as in this Article provided, shall, in the case of a
merger, be treated as provided in the plan of merger and, in all other cases,
may be held and disposed of by the corporation as in the case of other treasury
shares.
F. The provisions of this Article shall not apply to a merger if, on the
date of the filing of the articles of merger, the surviving corporation is the
owner of all the outstanding shares of the other corporations, domestic or
foreign, that are parties to the merger.
G. In the absence of fraud in the transaction, the remedy provided by this
Article to a shareholder objecting to any corporate action referred to in
Article 5.11 of this Act is the exclusive remedy for the recovery of the value
of his shares or money damages to the shareholder with respect to the action. If
the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, complies with the requirements of this Article, any
shareholder who fails to comply with the requirements of this Article shall not
be entitled to bring suit for the recovery of the value of his shares or money
damages to the shareholder with respect to the action.
ART. 5.13. PROVISIONS AFFECTING REMEDIES OF DISSENTING SHAREHOLDERS
A. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act shall not thereafter be entitled to
vote or exercise any other rights of a shareholder except the right to receive
payment for his shares pursuant to the provisions of those articles and the
right to maintain an appropriate action to obtain relief on the ground that the
corporate action would be or was fraudulent, and the respective shares for which
payment has been demanded shall not thereafter be considered outstanding for the
purposes of any subsequent vote of shareholders.
B. Upon receiving a demand for payment from any dissenting shareholder, the
corporation shall make an appropriate notation thereof in its shareholder
records. Within twenty (20) days after demanding payment for his shares in
accordance with either Article 5.12 or 5.16 of this Act, each holder of
certificates representing shares so demanding payment shall submit such
certificates to the corporation for notation thereon that such demand has been
made. The failure of holders of certificated shares to do so shall, at the
option of the corporation, terminate such shareholder's rights under Articles
5.12 and 5.16 of this Act unless a court of competent jurisdiction for good and
sufficient cause shown shall otherwise direct. If uncertificated shares for
which payment has been demanded or shares represented by a certificate on which
notation has been so made shall be transferred, any new certificate issued
therefor shall bear similar notation together with the name of the original
dissenting holder of such shares and a transferee of such shares shall acquire
by such transfer no rights in the corporation other than those which the
original dissenting shareholder had after making demand for payment of the fair
value thereof.
C. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act may withdraw such demand at any
time before payment for his shares or before any petition has been filed
pursuant to Article 5.12 or 5.16 of this Act asking for a finding and
determination of the fair value of such shares, but no such demand may be
withdrawn after such payment has been made or, unless the corporation shall
consent thereto, after any such petition has been filed. If, however, such
demand shall be withdrawn as hereinbefore provided, or if pursuant to Section B
of this Article the corporation shall terminate the shareholder's rights under
Article 5.12 or 5.16 of this Act, as the case may be, or if no petition asking
for a finding and determination of fair value of such shares by a court shall
have been filed within the time provided in Article 5.12 or 5.16 of this Act, as
the case may be, or if after the hearing of a petition filed pursuant to Article
5.12 or 5.16, the court shall determine that such shareholder is not entitled to
the relief provided by those articles, then, in any such case, such shareholder
and all persons claiming under him shall be conclusively presumed to have
approved and ratified the corporate action from which he dissented and shall be
bound thereby, the right of such shareholder to be paid the fair value of his
shares shall cease, and his status as a shareholder shall be restored without
prejudice to any corporate proceedings which may have been taken during the
interim, and such shareholder shall be entitled to receive any dividends or
other distributions made to shareholders in the interim.
C-4
[SPECTRUM LOGO]
SOFTWARE SPECTRUM, INC.
2140 MERRITT DRIVE
GARLAND, TEXAS 75041
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
SOFTWARE SPECTRUM, INC.
SPECIAL MEETING OF SHAREHOLDERS - JUNE 18, 2002
The undersigned hereby appoints Judy C. Odom and Robert D. Graham
and each of them with full power of substitution, attorneys, agents and proxies
of the undersigned to vote as directed below the shares of stock which the
undersigned would be entitled to vote, if personally present, at the special
meeting of shareholders of Software Spectrum, Inc. ("Software Spectrum") to be
held at the offices of Software Spectrum, 2140 Merritt Drive, Garland, Texas,
Tuesday, June 18, 2002 at 10:00 a.m. Central time, and at any adjournment or
adjournments thereof. If more than one of the above persons shall be in person
or by substitution at such special meeting or at any adjournment thereof, either
of said persons so present and voting, either in person or by substitution,
may exercise all of the powers hereby given.
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THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN Please mark
THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED. IF NO your votes as
DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR indicated in [X]
PROPOSAL 1. this example
The Board of Directors recommends a vote FOR proposal 1.
1. To approve the Agreement and Plan of Merger, dated as of May 1, 2002,
by and among Level 3 Communications, Inc., Eldorado Acquisition Three,
Inc., and Software Spectrum, Inc., and to approve the merger of
Eldorado Acquisition with and into Software Spectrum, as described in
the accompanying proxy statement. In the merger each issued and
outstanding share of Software Spectrum's common stock (other than
shares held by Level 3 and its subsidiaries and Software Spectrum and
its subsidiaries and other than shares held by shareholders of Software
Spectrum common stock who perfect dissenters' rights of appraisal under
Texas law) will be converted into the right to receive $37 per share in
cash, without interest.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. In their discretion on such other matters as may properly come before
the special meeting.
Signature(s):
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Date Signed:
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Please sign exactly as your name
appears on this proxy. If your stock
is jointly owned both parties must
sign. Fiduciaries and
representatives should so indicate
when signing, and when more than one
is named, a majority should sign.
PLEASE DATE, SIGN AND RETURN THIS
PROXY PROMPTLY IN THE ENCLOSED
ENVELOPE. NO POSTAGE IS REQUIRED.
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