-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Lsnss5TNag5jev9S9t6nhVAIcCxStr/W6NKlrOO2E2rvM4zohZXN/+kcn5wbAqZK KqClbf6GVRR3qid8TbbATw== /in/edgar/work/20000807/0000912057-00-035027/0000912057-00-035027.txt : 20000921 0000912057-00-035027.hdr.sgml : 20000921 ACCESSION NUMBER: 0000912057-00-035027 CONFORMED SUBMISSION TYPE: SC TO-T PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 20000807 GROUP MEMBERS: PEARSON PLC GROUP MEMBERS: PN ACQUISITION SUBSIDIARY INC SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL COMPUTER SYSTEMS INC CENTRAL INDEX KEY: 0000069999 STANDARD INDUSTRIAL CLASSIFICATION: [7374 ] IRS NUMBER: 410850527 STATE OF INCORPORATION: MN FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: SC TO-T SEC ACT: SEC FILE NUMBER: 005-11863 FILM NUMBER: 687501 BUSINESS ADDRESS: STREET 1: 11000 PRAIRIE LAKES DR CITY: MINNEAPOLIS STATE: MN ZIP: 55344 BUSINESS PHONE: 6128293000 MAIL ADDRESS: STREET 1: P O BOX 9365 CITY: MINNEAPOLIS STATE: MN ZIP: 55440 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: PN ACQUISITION SUBSIDIARY INC CENTRAL INDEX KEY: 0001120466 STANDARD INDUSTRIAL CLASSIFICATION: [ ] STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC TO-T BUSINESS ADDRESS: STREET 1: C/O PARSON EDUCATION STREET 2: 1 LAKE STREET CITY: UPPER SADDLE RIVER STATE: NJ ZIP: 07458 BUSINESS PHONE: 20123267000 MAIL ADDRESS: STREET 1: C/O PARSON EDUCATION STREET 2: 1 LAKE STEET CITY: SADDLE RIVER STATE: NJ ZIP: 07458 SC TO-T 1 scto-t.txt SCHEDULE T/O-T - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------- SCHEDULE TO TENDER OFFER STATEMENT UNDER SECTION 14(D)(1) OR SECTION 13(E)(1) OF THE SECURITIES EXCHANGE ACT OF 1934 -------------------------- NATIONAL COMPUTER SYSTEMS, INC. (Name of subject company (issuer)) PN ACQUISITION SUBSIDIARY INC. PEARSON PLC (Names of filing persons (offerors)) -------------------------- COMMON STOCK, PAR VALUE $0.03 PER SHARE Including the Associated Preferred Stock Purchase Rights (Title of Class of Securities) -------------------------- 635519101 (CUSIP Number of Class of Securities) GARY RINCK, ESQ. PEARSON PLC 3 BURLINGTON GARDENS LONDON W1X 1LE TELEPHONE 44-20-7411-2000 (Name, address and telephone number of person authorized to receive notices and communications on behalf of filing persons) COPIES TO: CHARLES E. ENGROS, ESQ. STEVEN A. NAVARRO, ESQ. MORGAN, LEWIS & BOCKIUS LLP 101 PARK AVENUE NEW YORK, NEW YORK 10178 TELEPHONE: (212) 309-6000 CALCULATION OF FILING FEE
TRANSACTION VALUATION* AMOUNT OF FILING FEE** $2,521,914,426.20 $504,382.89
* For purposes of calculating the filing fee only, this calculation assumes (i) the purchase of 32,770,239 shares of common stock of National Computer Systems, Inc., including the associated preferred stock purchase rights (together, the "Shares") at the tender offer price of $73.00 per Share and (ii) payments to holders of options that are vested and cancelled in an amount per option equal to the difference between (a) $73.00 and (b) the applicable exercise price, based on 2,794,978 outstanding options with an average weighted exercise price of $26.60. ** The amount of the filing fee, calculated in accordance with Rule 0-11 of the Securities Exchange Act of 1934, as amended, equals 1/50 of 1% of the transaction valuation. / / Check the box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number or the form or schedule and the date of its filing. Amount Previously Paid:................. N/A Form or Registration No.:............... N/A Filing Party:........................... N/A Date Filed:............................. N/A
/ / Check the box if the filing relates to preliminary communications made before the commencement of a tender offer. / / Check the appropriate boxes below to designate any transactions to which the statement relates: /X/ third-party tender offer subject to Rule 14d-1. / / issuer tender offer subject to Rule 13e-4. / / going-private transaction subject to Rule 13e-3. / / amendment to Schedule 13d under Rule 13d-2. Check the following box if the filing is a final amendment reporting the results of the tender offer: / / - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This Tender Offer Statement on Schedule TO (this "Schedule TO") relates to the offer by PN Acquisition Subsidiary Inc., a Minnesota corporation (the "Purchaser") and a wholly owned indirect subsidiary of Pearson plc, a public limited company registered in England and Wales ("Parent"), to purchase all the outstanding shares of common stock, par value $0.03 per share (the "Common Stock"), of National Computer Systems, Inc., a Minnesota corporation (the "Company"), including the associated preferred stock purchase rights (the "Rights"), issued pursuant to the Second Amended and Restated Rights Agreement, dated as of December 8, 1998, between National Computer Systems, Inc. and Norwest Bank Minnesota, N.A., as amended (the Common Stock and the Rights together are referred to herein as the "Shares"), at a purchase price of $73.00 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase dated August 7, 2000 (the "Offer to Purchase"), and in the related Letter of Transmittal, copies of which are filed with this Schedule TO as Exhibits (a)(1)(A) and (a)(1)(B), respectively. This Schedule TO is being filed on behalf of the Purchaser and Parent. The information set forth in the Offer to Purchase filed as Exhibit (a)(1)(A) hereto, including the Schedule thereto, is hereby incorporated by reference in answer to items 1 through 11 of this Schedule TO, and is supplemented by the information specifically provided herein. ITEM 3. IDENTITY AND BACKGROUND OF FILING PERSON. (c) (3) and (4) During the last five years, neither the Purchaser nor Parent, nor, to the best knowledge of the Purchaser and Parent, any of the persons listed on Schedule I to the Offer to Purchase (i) has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) was a party to any judicial or administrative proceeding (except for matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of such laws. ITEM 7. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. The underwriting agreement dated July 31, 2000, between Parent, Goldman Sachs International and Cazenove & Co. filed as Exhibit (b)(1) hereto and the Form of Amending Agreement to Underwriting Agreement between Parent, Goldman Sachs International and Cazenove & Co. filed as Exhibit (b)(2) are incorporated herein by reference. ITEM 11. ADDITIONAL INFORMATION. (b) The Letter of Transmittal filed as Exhibit (a)(1)(B) hereto is incorporated herein by reference. ITEM 12. EXHIBITS.
EXHIBIT NUMBER DESCRIPTION - --------------------- ----------- (a)(1)(A) -- Offer to Purchase dated August 7, 2000. (a)(1)(B) -- Letter of Transmittal. (a)(1)(C) -- Notice of Guaranteed Delivery. (a)(1)(D) -- Letter to Brokers, Dealers, Banks, Trust Companies and Other Nominees. (a)(1)(E) -- Letter to Clients for use by Brokers, Dealers, Banks, Trust Companies and Other Nominees. (a)(1)(F) -- Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(1)(G) -- Press Release issued by Parent on July 31, 2000; Press Release issued by the Company on July 31, 2000; and Memorandum from Marjorie Scardino, Chief Executive of Parent, to employees of the Company dated July 31, 2000.
EXHIBIT NUMBER DESCRIPTION - --------------------- ----------- (a)(1)(H) -- Summary Advertisement published August 7, 2000. (b)(1) -- Copy of underwriting agreement dated July 31, 2000, between Parent, Goldman Sachs International and Cazenove & Co. (b)(2) -- Form of Amending Agreement to Underwriting Agreement between Parent, Goldman Sachs International and Cazenove & Co. (d)(1) -- Agreement and Plan of Merger, dated as of July 30, 2000, among Parent, the Purchaser and the Company. (d)(2) -- Amendment No. 1 to Agreement and Plan of Merger, dated as of August 4, 2000, among Parent, the Purchaser and the Company. (d)(3) -- Confidentiality Agreement, dated June 14, 2000, between Pearson Education, Inc. and the Company.
SIGNATURES AFTER DUE INQUIRY AND TO THE BEST OF MY KNOWLEDGE AND BELIEF, I CERTIFY THAT THE INFORMATION SET FORTH IN THIS STATEMENT IS TRUE, COMPLETE AND CORRECT. PN ACQUISITION SUBSIDIARY INC. By: /s/ JOHN MAKINSON ----------------------------------------- Name: John Makinson TITLE: PRESIDENT AND TREASURER PEARSON PLC By: /s/ MARJORIE SCARDINO ----------------------------------------- Name: Marjorie Scardino TITLE: CHIEF EXECUTIVE Dated: August 7, 2000
INDEX TO EXHIBITS
EXHIBIT NUMBER DOCUMENT - --------------------- -------- (a)(1)(A) Offer to Purchase dated August 7, 2000. (a)(1)(B) Letter of Transmittal. (a)(1)(C) Notice of Guaranteed Delivery. (a)(1)(D) Letter to Brokers, Dealers, Banks, Trust Companies and Other Nominees. (a)(1)(E) Letter to Clients for use by Brokers, Dealers, Banks, Trust Companies and Other Nominees. (a)(1)(F) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(1)(G) Press Release issued by Parent on July 31, 2000; Press Release issued by the Company on July 31, 2000; and Memorandum from Marjorie Scardino, Chief Executive of Parent, to employees of the Company dated July 31, 2000. (a)(1)(H) Summary Advertisement published August 7, 2000. (b)(1) Copy of underwriting agreement dated July 31, 2000, between Parent, Goldman Sachs International and Cazenove & Co. (b)(2) Form of Amending Agreement to Underwriting Agreement between Parent, Goldman Sachs International and Cazenove & Co. (d)(1) Agreement and Plan of Merger, dated as of July 30, 2000, among Parent, the Purchaser and the Company. (d)(2) Amendment No. 1 to Agreement and Plan of Merger, dated as of August 4, 2000, among Parent, the Purchaser and the Company. (d)(3) Confidentiality Agreement, dated June 14, 2000, between Pearson Education, Inc. and the Company. (g) Not applicable. (h) Not applicable.
EX-99.A(1)(A) 2 ex-99_a1a.txt EXHIBIT 99(A)(1)(A) OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF NATIONAL COMPUTER SYSTEMS, INC. AT $73.00 NET PER SHARE BY PN ACQUISITION SUBSIDIARY INC., A WHOLLY OWNED INDIRECT SUBSIDIARY OF PEARSON PLC - -------------------------------------------------------------------------------- THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, SEPTEMBER 7, 2000, UNLESS THE OFFER IS EXTENDED. - -------------------------------------------------------------------------------- THE OFFER IS BEING MADE PURSUANT TO THE AGREEMENT AND PLAN OF MERGER, DATED AS OF JULY 30, 2000, AMONG PEARSON PLC ("PARENT"), PN ACQUISITION SUBSIDIARY INC. (THE "PURCHASER") AND NATIONAL COMPUTER SYSTEMS, INC. (THE "COMPANY"), AS AMENDED BY AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER, DATED AS OF AUGUST 4, 2000, AMONG PARENT, THE PURCHASER AND THE COMPANY (AS SO AMENDED, THE "MERGER AGREEMENT"). THE BOARD OF DIRECTORS OF THE COMPANY (AT A MEETING DULY CALLED AND HELD) HAS DETERMINED THAT THE TERMS OF THE MERGER AGREEMENT, THE OFFER AND THE MERGER (EACH AS DEFINED HEREIN) ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND THE SHAREHOLDERS OF THE COMPANY; APPROVED AND ADOPTED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT, INCLUDING THE OFFER AND THE MERGER; AND RESOLVED TO RECOMMEND THAT THE SHAREHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES (AS DEFINED HEREIN) PURSUANT TO THE OFFER. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER THAT NUMBER OF SHARES THAT WOULD REPRESENT AT LEAST A MAJORITY OF ALL OUTSTANDING SHARES ON A FULLY DILUTED BASIS. ------------------------------ IMPORTANT Any shareholder desiring to tender all or any portion of such shareholder's Shares should either (1) complete and sign the Letter of Transmittal (or facsimile thereof) in accordance with the instructions in the Letter of Transmittal, have such shareholder's signature thereon guaranteed if required by Instruction 1 to the Letter of Transmittal, mail or deliver the Letter of Transmittal (or such facsimile) and any other required documents to ChaseMellon Shareholder Services, L.L.C. (the "DEPOSITARY") and deliver the certificates for such Shares to the Depositary along with the Letter of Transmittal (or such facsimile) or, in the case of a book-entry transfer effected pursuant to the procedures described in Section 2, deliver an Agent's Message (as defined herein) and any other required documents to the Depositary and deliver such Shares pursuant to the procedures for book-entry transfer described in Section 2, in each case prior to the expiration of the Offer, or (2) request such shareholder's broker, dealer, bank, trust company or other nominee to effect the transaction for such shareholder. A shareholder having Shares registered in the name of a broker, dealer, bank, trust company or other nominee must contact such broker, dealer, bank, trust company or other nominee if such shareholder desires to tender such Shares. A shareholder who desires to tender Shares and whose certificates for such Shares are not immediately available or who cannot comply in a timely manner with the procedure for book-entry transfer, or who cannot deliver all required documents to the Depositary prior to the expiration of the Offer, may tender such Shares by following the procedures for guaranteed delivery described in Section 2. The Rights (as defined herein) are presently evidenced by certificates for common stock and a tender by shareholders of their Shares will also constitute a tender of the Rights. Questions and requests for assistance may be directed to Georgeson Shareholder Communications Inc. (the "INFORMATION AGENT") or to Goldman, Sachs & Co. at their respective addresses and telephone numbers set forth on the back cover of this Offer to Purchase. Additional copies of this Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery or any other tender materials may be obtained from the Information Agent or from brokers, dealers, banks, trust companies or other nominees. ------------------------------ THE DEALER MANAGER FOR THE OFFER IS: GOLDMAN, SACHS & CO. ------------------------------ August 7, 2000 TABLE OF CONTENTS
PAGE -------- SUMMARY TERM SHEET.......................................... 1 INTRODUCTION................................................ 5 THE TENDER OFFER............................................ 8
1. Terms of the Offer.......................................... 8 2. Procedures for Tendering Shares............................. 10 3. Withdrawal Rights........................................... 13 4. Acceptance for Payment and Payment.......................... 14 5. Certain U.S. Federal Income Tax Consequences................ 15 6. Price Range of the Shares; Dividends on the Shares.......... 16 Effect of the Offer on the Market for the Shares; Nasdaq Listing; Exchange Act Registration; Margin Regulations............... 16 7. 8. Certain Information Concerning the Company.................. 17 9. Certain Information Concerning Parent and the Purchaser..... 19 10. Source and Amount of Funds.................................. 23 Contacts and Transactions with the Company; Background of 11. the Offer................................................... 24 Purpose of the Offer; the Merger Agreement; Plans for the 12. Company..................................................... 25 13. Dividends and Distributions................................. 40 14. Certain Conditions of the Offer............................. 40 15. Certain Legal Matters....................................... 42 16. Fees and Expenses........................................... 45 17. Miscellaneous............................................... 46
SCHEDULE I--Directors and Executive Officers of Parent and the Purchaser............................................. 47
SUMMARY TERM SHEET PN Acquisition Subsidiary Inc. is offering to purchase all of the outstanding common stock of National Computer Systems, Inc. (including the associated preferred stock purchase rights) for $73.00 per share in cash. The following are some of the questions you, as a shareholder of National Computer Systems, Inc., may have and answers to those questions. We urge you to read carefully the remainder of this offer to purchase and the letter of transmittal because the information in this summary is not complete. Additional important information is contained in the remainder of this offer to purchase and the letter of transmittal. WHO IS OFFERING TO BUY MY SHARES? Our name is PN Acquisition Subsidiary Inc. We are a Minnesota corporation formed for the purpose of making a tender offer for all of the common stock of National Computer Systems, Inc. We are a wholly owned indirect subsidiary of Pearson plc, a public limited company registered in England and Wales. See "Introduction" and Section 9--"Certain Information Concerning Parent and the Purchaser"--of this offer to purchase. WHAT SHARES ARE BEING SOUGHT IN THE OFFER? We are seeking to purchase all of the outstanding common stock of National Computer Systems, Inc. (including the associated preferred stock purchase rights). See "Introduction" and Section 1--"Terms of the Offer"--of this offer to purchase. HOW MUCH ARE YOU OFFERING TO PAY, WHAT IS THE FORM OF PAYMENT AND WILL I HAVE TO PAY ANY FEES OR COMMISSIONS? We are offering to pay $73.00 per share (including the associated preferred stock purchase rights), net to you, in cash. If you are the record owner of your shares and you tender your shares to us in the offer, you will not have to pay brokerage fees or similar expenses. If you own your shares through a broker or other nominee, and your broker tenders your shares on your behalf, your broker or nominee may charge you a fee for doing so. You should consult your broker or nominee to determine whether any charges will apply. See "Introduction" and Section 1--"Terms of the Offer"--of this offer to purchase. DO YOU HAVE THE FINANCIAL RESOURCES TO MAKE PAYMENT? The offer is not conditioned upon any financing arrangements. Pearson plc will provide us with sufficient funds to acquire all tendered shares and any shares to be acquired in the merger that is expected to follow the successful completion of the offer. Pearson plc expects to obtain these funds from the proceeds of an offering of its ordinary shares to its existing shareholders. The offering is being substantially underwritten by Goldman Sachs International and Cazenove & Co. You are not being offered to purchase securities in such offering. See Section 10--"Source and Amount of Funds"--of this offer to purchase. IS YOUR FINANCIAL CONDITION RELEVANT TO MY DECISION TO TENDER IN THE OFFER? We do not think our financial condition is relevant to your decision whether to tender shares and accept the offer because: - the offer is being made for all outstanding shares solely for cash, - the offer is not subject to any financing condition, and - if we consummate the offer, we will acquire all remaining shares for the same cash price per share as in the merger. HOW LONG DO I HAVE TO DECIDE WHETHER TO TENDER IN THE OFFER? You will have at least until 12:00 midnight, New York City time, on September 7, 2000, to tender your shares in the offer. Further, if you cannot deliver everything that is required in order to make a valid tender by that time, you may be able to use a guaranteed delivery procedure, which is described later in this offer to purchase. See Section 1---"Terms of the Offer"--and Section 2--"Procedures for Tendering Shares"--of this offer to purchase. CAN THE OFFER BE EXTENDED AND UNDER WHAT CIRCUMSTANCES? Subject to the terms of the merger agreement, we can extend the offer. We have agreed in the merger agreement that: --we may (i) extend the offer for one or more periods of time that we reasonably believe to be necessary to cause the conditions to the offer to be satisfied, if at the scheduled expiration date of the offer any of the conditions to our obligation to accept shares for payment is not satisfied or waived until such time as all conditions are satisfied or waived, (ii) extend the offer for any period required by any rule, regulation, interpretation or position of the Securities and Exchange Commission that is applicable to the offer, (iii) extend the offer for an aggregate period of not more than 17 business days beyond the initial expiration date of the offer to the extent required by Pearson plc to enable it and us to complete the financing of the purchase of the shares tendered pursuant to the offer or (iv) extend the offer for an aggregate period of not more than 10 business days beyond the latest applicable date that would otherwise be permitted under clause (i), (ii) or (iii) of this sentence, if, as of such date, all of the conditions to our obligation to accept the shares for payment are satisfied or waived, but the number of shares validly tendered and not withdrawn pursuant to the offer equals less than 90% of the outstanding shares of National Computer Systems, Inc.; --we shall extend the offer for a period of time which we reasonably believe is necessary to cause the conditions to the offer to be satisfied or waived if (i) all of the conditions to the offer are not satisfied on any scheduled expiration date of the offer and (ii) National Computer Systems, Inc. is in compliance with all of its covenants in the merger agreement; PROVIDED, HOWEVER, that we are not required to extend the offer beyond December 31, 2000; and --we may elect to provide a "subsequent offering period" for the offer. A subsequent offering period, if one is included, will be an additional period of time beginning after we have purchased shares tendered during the offer, during which shareholders may tender, but not withdraw, their shares and receive the offer consideration. We do not currently intend to include a subsequent offering period, although we reserve the right to do so. See Section 1--"Terms of the Offer"--of this offer to purchase. HOW WILL I BE NOTIFIED IF THE OFFER IS EXTENDED? If we extend the offer, we will inform ChaseMellon Shareholder Services, L.L.C., the depositary for the offer, of that fact and will make a public announcement of the extension, no later than 9:00 a.m., New York City time, on the next business day after the day on which the offer was scheduled to expire. See Section 1--"Terms of the Offer"--of this offer to purchase. WHAT ARE THE MOST SIGNIFICANT CONDITIONS TO THE OFFER? There is no financing condition to the offer, however: --we are not obligated to purchase any tendered shares unless the number of shares validly tendered and not withdrawn before the expiration date of the offer represents at least a majority of the shares of National Computer Systems, Inc. outstanding on a fully diluted basis. We have agreed not to waive this minimum tender condition without the consent of National Computer Systems, Inc. 2 --we are not obligated to purchase any tendered shares if: --there is a material adverse change in National Computer Systems, Inc. or its business; or --the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 or under any other applicable material competition, merger, control, antitrust or similar law or regulation have not expired or been terminated. The offer is also subject to a number of other conditions. See Section 14--"Certain Conditions of the Offer"--of this offer to purchase. HOW DO I TENDER MY SHARES? To tender shares, you must deliver the certificates representing your shares, together with a completed letter of transmittal and any other documents required, to ChaseMellon Shareholder Services, L.L.C., the depositary for the offer, no later than the time the tender offer expires. If your shares are held in street name, the shares can be tendered by your nominee through The Depository Trust Company. If you cannot deliver something that is required to be delivered to the depositary by the expiration of the tender offer, you may get a little extra time to do so by having a broker, a bank or other fiduciary that is a member of the Securities Transfer Agents Medallion Program or other eligible institution guarantee that the missing items will be received by the depositary within three National Association of Securities Dealers Automated Quotation System trading days. For the tender to be valid, however, the depositary must receive the missing items within that three trading day period. See Section 2--"Procedures for Tendering Shares"--of this offer to purchase. UNTIL WHAT TIME CAN I WITHDRAW PREVIOUSLY TENDERED SHARES? You can withdraw shares at any time until the offer has expired and, if we have not by October 5, 2000, agreed to accept your shares for payment, you can withdraw them at any time after such time until we accept shares for payment. This right to withdraw will not apply to any subsequent offering period, if one is included. See Section 1--"Terms of the Offer"--and Section 3--"Withdrawal Rights"--of this offer to purchase. HOW DO I WITHDRAW PREVIOUSLY TENDERED SHARES? To withdraw shares, you must deliver a written notice of withdrawal, or a facsimile of one, with the required information to the depositary while you still have the right to withdraw the shares. See Section 1--"Terms of the Offer"--and Section 3--"Withdrawal Rights"--of this offer to purchase. WHAT DOES THE NATIONAL COMPUTER SYSTEMS, INC. BOARD OF DIRECTORS THINK OF THE OFFER? We are making the offer pursuant to a merger agreement, as amended, among us, Pearson plc and National Computer Systems, Inc. The National Computer Systems, Inc. board of directors (at a meeting duly called and held) determined that the merger agreement, the offer and the merger are fair to and in the best interests of National Computer Systems, Inc. and the shareholders of National Computer Systems, Inc. and approved and adopted the merger agreement and the transactions contemplated thereby, including our tender offer and our proposed merger with National Computer Systems, Inc. and resolved to recommend that shareholders accept the offer and tender their shares. A committee of such board, formed in accordance with Section 302A.673 of the Minnesota Business Corporation Act (at a meeting duly called and held) has approved the merger agreement and the transactions contemplated thereby, including our tender offer and our proposed merger with National Computer Systems, Inc. 3 HAVE ANY SHAREHOLDERS AGREED TO TENDER THEIR SHARES? No. The executive officers and directors of National Computer Systems, Inc., who own in the aggregate approximately 3.4% of the outstanding common stock of National Computer Systems, Inc., on a fully diluted basis, have advised National Computer Systems, Inc. that they currently intend to tender all of the shares of common stock of National Computer Systems, Inc. owned by them. WILL THE TENDER OFFER BE FOLLOWED BY A MERGER IF ALL THE SHARES ARE NOT TENDERED IN THE OFFER? If we accept for payment and pay for at least a majority of the outstanding shares on a fully diluted basis of National Computer Systems, Inc., we will be merged with National Computer Systems, Inc. If that merger takes place, Pearson plc will indirectly own all of the shares of National Computer Systems, Inc., and all other shareholders of National Computer Systems, Inc. will receive $73.00 per share in cash (or any higher price per share that is paid in the offer). There are no dissenters' rights available in connection with the offer. However, if the merger takes place, shareholders who have not sold their shares in the offer will have dissenters' rights under Minnesota law. See Section 12--"Purpose of the Offer; the Merger Agreement; Plans for the Company-- Dissenters' Rights"--of this offer to purchase. IF I DECIDE NOT TO TENDER, HOW WILL THE OFFER AFFECT MY SHARES? If the merger takes place, shareholders who do not tender in the offer will receive the same amount of cash per share that they would have received had they tendered their shares in the offer, subject to their right to pursue dissenters' rights under Minnesota law. Therefore, if the merger takes place and you do not perfect your dissenters' rights, the only difference to you between tendering your shares and not tendering your shares is that you will be paid earlier if you tender your shares. However, if the merger does not take place, the number of shareholders and the number of shares of National Computer Systems, Inc. that are still in the hands of the public may be so small that there may no longer be an active public trading market (or, possibly, any public trading market) for the shares. Also, the shares may no longer be eligible to be traded on The National Association of Securities Dealers Automated Quotation System--National Market or any other securities exchange, and National Computer Systems, Inc. may cease making filings with the SEC or otherwise cease being required to comply with the SEC's rules relating to publicly held companies. See Section 7--"Effect of the Offer on the Market for the Shares; Nasdaq Listing; Exchange Act Registration; Margin Regulations"--and Section 12--"Purpose of the Offer; the Merger Agreement; Plans for the Company"--of this offer to purchase. WHAT IS THE MARKET VALUE OF MY SHARES AS OF A RECENT DATE? On July 28, 2000, the last trading day before National Computer Systems, Inc. and Pearson plc announced that they had signed the merger agreement, the last sale price of the shares reported on The National Association of Securities Dealers Automated Quotation System--National Market was $58.13 per share. On August 4, 2000, the last trading day before we commenced our tender offer, the last sale price of the shares was $72.06 per share. We advise you to obtain a recent quotation for shares of National Computer Systems, Inc. in deciding whether to tender your shares. See Section 6--"Price Range of the Shares; Dividends on the Shares"--of this offer to purchase. TO WHOM CAN I TALK IF I HAVE QUESTIONS ABOUT THE TENDER OFFER? You can call Georgeson Shareholder Communications Inc. at (800) 223-2064 (toll free) or Goldman, Sachs & Co. at (800) 323-5678 (toll free). Georgeson Shareholder Communications Inc. is acting as the information agent and Goldman, Sachs & Co. is acting as the dealer manager for our tender offer. See the back cover of this offer to purchase. 4 To the Holders of Common Stock of National Computer Systems, Inc.: INTRODUCTION PN ACQUISITION SUBSIDIARY INC., a Minnesota corporation (the "PURCHASER") and wholly owned indirect subsidiary of PEARSON PLC, a public limited company registered in England and Wales ("PARENT"), hereby offers to purchase all the outstanding shares of common stock, par value $0.03 per share (the "COMMON STOCK"), of NATIONAL COMPUTER SYSTEMS, INC., a Minnesota corporation (the "COMPANY"), including the associated preferred stock purchase rights (the "RIGHTS") issued pursuant to the Second Amended and Restated Rights Agreement, dated as of December 8, 1998, between the Company and Norwest Bank Minnesota, N.A. (as amended, the "RIGHTS AGREEMENT") (the Common Stock and the Rights together are referred to herein as the "SHARES") at a price of $73.00 per Share, net to the seller in cash, without interest thereon (the "OFFER PRICE"), upon the terms and subject to the conditions set forth in this Offer to Purchase and in the related Letter of Transmittal (which, together with any amendments or supplements hereto or thereto, collectively constitute the "OFFER"). Tendering shareholders whose shares are registered in their own names and who tender directly to the Depositary (as defined below) will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, transfer taxes on the purchase of Shares pursuant to the Offer. Shareholders who hold their Shares through banks or brokers should check with such institutions as to whether they charge any service fees. The Purchaser will pay all fees and expenses of Goldman, Sachs & Co., which is acting as Dealer Manager (the "DEALER MANAGER"), ChaseMellon Shareholder Services, L.L.C., which is acting as the Depositary (the "DEPOSITARY"), and Georgeson Shareholder Communications Inc., which is acting as the Information Agent (the "INFORMATION AGENT"), incurred in connection with the Offer. See Section 16. The Offer is being made pursuant to the Agreement and Plan of Merger, dated as of July 30, 2000, among Parent, the Purchaser and the Company, as amended by Amendment No. 1 to Agreement and Plan of Merger, dated as of August 4, 2000, among Parent, the Purchaser and the Company (as so amended, the "MERGER AGREEMENT"), pursuant to which, following the consummation of the Offer and the satisfaction or waiver of certain conditions, the Purchaser will be merged with and into the Company, with the Company surviving the merger as a wholly owned indirect subsidiary of Parent (the "MERGER"). In the Merger each outstanding Share (other than Shares owned by Parent or the Purchaser or by shareholders, if any, who are entitled to and properly exercise dissenters' rights under Minnesota law) will be converted into the right to receive the price per Share paid pursuant to the Offer in cash, without interest thereon. The Merger Agreement is more fully described in Section 12. THE BOARD OF DIRECTORS OF THE COMPANY (THE "COMPANY BOARD") (AT A MEETING DULY CALLED AND HELD) HAS (X) DETERMINED THAT THE MERGER AGREEMENT, THE OFFER AND THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND THE SHAREHOLDERS OF THE COMPANY; (Y) APPROVED AND ADOPTED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT, INCLUDING THE OFFER AND THE MERGER; AND (Z) RESOLVED TO RECOMMEND THAT SHAREHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER AND APPROVE AND ADOPT THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT (THE DETERMINATIONS, APPROVALS AND RECOMMENDATIONS OF THE COMPANY BOARD SET FORTH IN CLAUSES (X), (Y) AND (Z) ABOVE BEING COLLECTIVELY REFERRED TO AS THE "RECOMMENDATION"). ADDITIONALLY, A COMMITTEE OF THE COMPANY BOARD, FORMED PURSUANT TO SECTION 302A.673 OF THE MINNESOTA BUSINESS CORPORATION ACT (THE 5 "COMMITTEE") (AT A MEETING DULY CALLED AND HELD) HAS APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT, INCLUDING THE OFFER AND THE MERGER (THE APPROVAL OF THE COMMITTEE SET FORTH IN THIS SENTENCE IS REFERRED TO AS THE "COMMITTEE APPROVAL"). THE FACTORS CONSIDERED BY THE COMPANY BOARD AND THE COMMITTEE IN ARRIVING AT THEIR DECISION TO APPROVE THE MERGER AGREEMENT, THE OFFER, THE MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT AND TO RECOMMEND THAT SHAREHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER ARE DESCRIBED IN THE COMPANY'S SOLICITATION/RECOMMENDATION STATEMENT ON SCHEDULE 14D-9 (THE "SCHEDULE 14D-9"), WHICH HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") AND IS BEING MAILED TO SHAREHOLDERS OF THE COMPANY CONCURRENTLY HEREWITH. Salomon Smith Barney Inc., the Company's financial advisor, has delivered to the Company Board a written opinion, dated July 30, 2000, to the effect that, as of the date of the opinion and based upon and subject to certain matters stated in such opinion, the $73.00 per Share cash consideration to be received in the Offer and the Merger by the holders of Shares (other than Parent and its affiliates) was fair, from a financial point of view, to such holders. A copy of Salomon Smith Barney's opinion is included as an annex to the Schedule 14D-9. Shareholders are urged to, and should, read the Schedule 14D-9 and such opinion carefully in their entirety. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (A) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE (AS DEFINED IN SECTION 1 HEREOF) THAT NUMBER OF SHARES THAT WOULD REPRESENT AT LEAST A MAJORITY OF THE FULLY DILUTED SHARES (AS DEFINED IN SECTION 14 HEREOF) ON THE DATE OF PURCHASE (THE "MINIMUM TENDER CONDITION"), AND (B) ANY WAITING PERIOD UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED (THE "HSR ACT"), APPLICABLE TO THE PURCHASE OF SHARES PURSUANT TO THE OFFER OR TO THE MERGER AND ANY OTHER WAITING PERIODS UNDER ANY OTHER APPLICABLE MATERIAL COMPETITION, MERGER, CONTROL, ANTITRUST OR SIMILAR LAW OR REGULATION SHALL HAVE BEEN TERMINATED OR SHALL HAVE EXPIRED OR BEEN TERMINATED. Consummation of the Merger is subject to a number of conditions, including the purchase of Shares pursuant to the Offer, and approval by shareholders of the Company, if such approval is required under applicable law. In the event the Purchaser acquires 90% or more of the outstanding Shares pursuant to the Offer or otherwise, the Purchaser will be able to effect the Merger pursuant to the "short-form" merger provisions of the Minnesota Business Corporation Act (the "MBCA"), without any action by any other shareholder of the Company. In such event, the Purchaser intends to effect the Merger without any action by any other shareholder of the Company as promptly as practicable following the purchase of Shares pursuant to the Offer. See Section 12. The Company has informed the Purchaser that, as of July 31, 2000, there were: (a) 32,770,239 Shares issued and outstanding; (b) 2,794,978 Shares reserved for issuance upon the exercise of outstanding options to purchase Shares from the Company; and (c) approximately 35,565,217 Fully Diluted Shares. Based upon the foregoing and assuming that no Shares are otherwise issued after July 31, 2000, the Minimum Tender Condition will be satisfied if at least 17,782,609 Shares are validly tendered and not withdrawn prior to the Expiration Date. The actual number of Shares required to be tendered to satisfy the Minimum Tender Condition will depend upon the actual number of Fully Diluted Shares on the date that the Purchaser accepts Shares for payment pursuant to the Offer. If the Minimum Tender Condition is satisfied, and the Purchaser accepts for payment Shares tendered pursuant to the Offer, the Purchaser will be able to promptly designate a majority of the members of the Company Board and to effect the Merger without the affirmative vote of any other shareholder of the Company. See Section 12. 6 No dissenters' rights are available in connection with the Offer. Shareholders may exercise dissenters' rights under the MBCA in connection with the Merger, however, regardless of whether the Merger is consummated with or without a vote of the shareholders. Certain U.S. federal income tax consequences of the sale of Shares pursuant to the Offer and the conversion of Shares pursuant to the Merger are described in Section 5. THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION AND SHOULD BE READ CAREFULLY AND IN THEIR ENTIRETY BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. 7 THE TENDER OFFER 1. TERMS OF THE OFFER Upon the terms and subject to the conditions of the Offer, the Purchaser will accept for payment and pay for all Shares validly tendered prior to the Expiration Date and not theretofore withdrawn in accordance with Section 3. The term "EXPIRATION DATE" means 12:00 midnight, New York City time, on September 7, 2000, unless and until the Purchaser shall have extended the period of time during which the Offer is open in accordance with the terms of Merger Agreement, in which event the term "EXPIRATION DATE" shall mean the latest time and date on which the Offer, as so extended by the Purchaser, will expire. The Purchaser may, at any time and from time to time, take one or more of the following actions without the consent of the Company: (a) extend the Offer for one or more periods of time that the Purchaser reasonably believes are necessary to cause the conditions to the Offer to be satisfied, if at the Expiration Date any of the conditions to the Purchaser's obligation to accept Shares for payment is not satisfied or waived, until such time as all such conditions are satisfied or waived, (b) extend the Offer for any period required by any rule, regulation, interpretation or position of the Commission or the staff thereof that is applicable to the Offer, (c) extend the Offer for an aggregate period of not more than 17 business days beyond the initial Expiration Date of the Offer to the extent required by Parent to enable Parent and the Purchaser to complete the financing of the purchase of Shares tendered pursuant to the Offer or (d) extend the Offer for an aggregate period of not more than ten business days beyond the latest applicable date that would otherwise be permitted under clause (a), (b) or (c) of this sentence, if, as of such date, all of the conditions to the Purchaser's obligation to accept Shares for payment (including the Minimum Tender Condition) are satisfied or waived but the number of Shares validly tendered and not withdrawn pursuant to the Offer equals less than 90% of the outstanding Shares on a fully diluted basis. If (x) all of the conditions to the Offer are not satisfied on any scheduled Expiration Date of the Offer and (y) the Company is in compliance with all of its covenants in the Merger Agreement then the Purchaser will extend the Offer for one or more periods of time that the Purchaser reasonably believes are necessary to cause the conditions of the Offer to be satisfied, until all such conditions are satisfied or waived; PROVIDED, HOWEVER, that the Purchaser will not be required to extend the Offer pursuant to this sentence beyond December 31, 2000. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE PURCHASE PRICE FOR TENDERED SHARES, REGARDLESS OF ANY EXTENSION OF OR AMENDMENT TO THE OFFER OR ANY DELAY IN PAYING FOR SUCH SHARES. The Purchaser expressly reserves the right (but shall not be obligated), at any time and from time to time, to waive any condition to the Offer or modify the terms of the Offer, by giving oral or written notice of such waiver or modification to the Depositary, in each case in its sole discretion; PROVIDED, HOWEVER, that, without the consent of the Company, the Purchaser shall not (i) reduce the number of Shares subject to the Offer, (ii) reduce the price per Share to be paid pursuant to the Offer or change the form of consideration payable in the Offer, (iii) amend or waive the Minimum Tender Condition or add to the conditions of the Offer, (iv) except as provided above, extend the Offer, or (v) otherwise amend the terms of Offer in any manner adverse to the holders of Shares. If by 12:00 midnight, New York City time, on September 7, 2000 (or any date or time then set as the Expiration Date), any of or all the conditions to the Offer have not been satisfied or waived, the Purchaser, subject to the terms of the Merger Agreement and the applicable rules and regulations of the Commission, reserves the right (but shall not be obligated) (a) to terminate the Offer and not accept for payment or pay for any Shares and return all tendered Shares to tendering shareholders, (b) except as set forth above with respect to the Minimum Tender Condition, to waive all the unsatisfied conditions and accept for payment and pay for all Shares validly tendered prior to the Expiration Date and not theretofore validly withdrawn, (c) as set forth above, to extend the Offer and, subject to the right of shareholders to withdraw 8 Shares until the Expiration Date, retain the Shares that have been tendered during the period or periods for which the Offer is extended or (d) except as set forth above, to amend the Offer. Any extension, waiver, amendment or termination will be followed as promptly as practicable by public announcement thereof. An announcement in the case of an extension will be made no later than 9:00 a.m., Eastern time, on the next business day after the previously scheduled Expiration Date. Without limiting the manner in which the Purchaser may choose to make any public announcement, subject to applicable law (including Rules 14d-4(d) and 14d-6(c) under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), which require that material changes be promptly disseminated to holders of Shares), the Purchaser will have no obligation to publish, advertise or otherwise communicate any such public announcement other than by issuing a release to the Dow Jones News Service. As used in this Offer to Purchase, "BUSINESS DAY" has the meaning set forth in Rule 14d-1 under the Exchange Act. If the Purchaser makes a material change in the terms of the Offer or the information concerning the Offer or waives a material condition of the Offer, the Purchaser will disseminate additional tender offer materials and extend the Offer to the extent required by Rules 14d-4(d), 14d-6(c) and 14e-1 under the Exchange Act. The minimum period during which an offer must remain open following material changes in the terms of such offer or information concerning such offer, other than a change in price or a change in the percentage of securities sought, will depend upon the facts and circumstances then existing, including the relative materiality of the changed terms or information. With respect to a change in price or a change in the percentage of securities sought, a minimum period of 10 business days is generally required to allow for adequate dissemination to shareholders. Pursuant to Rule 14d-11 under the Exchange Act, although the Purchaser does not currently intend to do so, the Purchaser may, subject to certain conditions, elect to provide a subsequent offering period of from three business days to 20 business days in length following the expiration of the Offer on the Expiration Date and acceptance of the Shares for payment pursuant to the Offer (a "SUBSEQUENT OFFERING PERIOD"). A Subsequent Offering Period would be an additional period of time, following the expiration of the Offer and the purchase of Shares in the Offer, during which shareholders may tender Shares not tendered in the Offer. A Subsequent Offering Period, if one is included, is not an extension of the Offer, which already will have been completed. During a Subsequent Offering Period, tendering shareholders will not have withdrawal rights and the Purchaser will promptly purchase and pay for any Shares tendered at the same price paid in the Offer. Rule 14d-11 provides that the Purchaser may provide a Subsequent Offering Period so long as, among other things, (i) the initial 23-business day period of the Offer has expired, (ii) the Purchaser offers the same form and amount of consideration for Shares in the Subsequent Offering Period as in the initial Offer, (iii) the Purchaser immediately accepts and promptly pays for all securities tendered during the Offer prior to its expiration, (iv) the Purchaser announces the results of the Offer, including the approximate number and percentage of Shares deposited in the Offer, no later than 9:00 a.m., Eastern time, on the next business day after the Expiration Date and immediately begins the Subsequent Offering Period and (v) the Purchaser immediately accepts and promptly pays for Shares as they are tendered during the Subsequent Offering Period. The Purchaser will be able to include a Subsequent Offering Period, if it satisfies the conditions above, after September 7, 2000. In a public release, the Commission has expressed the view that the inclusion of a Subsequent Offering Period would constitute a material change to the terms of the Offer requiring the Purchaser to disseminate new information to shareholders in a manner reasonably calculated to inform them of such change sufficiently in advance of the Expiration Date (generally five business days). In the event the Purchaser elects to include a Subsequent Offering Period, it will notify shareholders of the Company consistent with the requirements of the Commission. 9 THE PURCHASER DOES NOT CURRENTLY INTEND TO INCLUDE A SUBSEQUENT OFFERING PERIOD IN THE OFFER, ALTHOUGH IT RESERVES THE RIGHT TO DO SO IN ITS SOLE DISCRETION. PURSUANT TO RULE 14D-7 UNDER THE EXCHANGE ACT, NO WITHDRAWAL RIGHTS APPLY TO SHARES TENDERED DURING A SUBSEQUENT OFFERING PERIOD AND NO WITHDRAWAL RIGHTS APPLY DURING THE SUBSEQUENT OFFERING PERIOD WITH RESPECT TO SHARES TENDERED IN THE OFFER AND ACCEPTED FOR PAYMENT. THE SAME CONSIDERATION WILL BE PAID TO SHAREHOLDERS TENDERING SHARES IN THE OFFER OR IN A SUBSEQUENT OFFERING PERIOD, IF ONE IS INCLUDED. The Company has provided the Purchaser with the Company's shareholder lists and security position listings for the purpose of disseminating the Offer to holders of Shares. This Offer to Purchase, the related Letter of Transmittal and other relevant materials will be mailed to record holders of Shares, and will be furnished to brokers, dealers, banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the shareholder lists, or, if applicable, who are listed as participants in a clearing agency's security position listing, for subsequent transmittal to beneficial owners of Shares. 2. PROCEDURES FOR TENDERING SHARES VALID TENDER. For a shareholder validly to tender Shares pursuant to the Offer, (a) the certificates for tendered Shares, together with a Letter of Transmittal (or facsimile thereof), properly completed and duly executed, any required signature guarantees and any other required documents, must, prior to the Expiration Date, be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase; (b) in the case of a transfer effected pursuant to the book-entry transfer procedures described under "Book-Entry Transfer", either a Letter of Transmittal (or facsimile thereof), properly completed and duly executed, and any required signature guarantees, or an Agent's Message (as defined below), and any other required documents, must be received by the Depositary at one of such addresses, such Shares must be delivered pursuant to the book-entry transfer procedures described below and a Book-Entry Confirmation (as defined below) must be received by the Depositary, in each case prior to the Expiration Date; or (c) the tendering shareholder must, prior to the Expiration Date, comply with the guaranteed delivery procedures described below under "Guaranteed Delivery". The valid tender of Shares pursuant to one of the procedures described above will constitute a binding agreement between the tendering shareholder and the Purchaser upon the terms and subject to the conditions of the Offer. THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY (AS DEFINED BELOW), IS AT THE ELECTION AND RISK OF THE TENDERING SHAREHOLDER. SHARES WILL BE DEEMED DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY (INCLUDING, IN THE CASE OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. BOOK-ENTRY TRANSFER. The Depositary will establish an account with respect to the Shares at The Depository Trust Company (the "BOOK-ENTRY TRANSFER FACILITY") for purposes of the Offer within two business days after the date of this Offer to Purchase. Any financial institution that is a participant of the Book-Entry Transfer Facility's system may make book-entry delivery of Shares by causing the Book-Entry Transfer Facility to transfer such Shares into the Depositary's account in accordance with the Book-Entry Transfer Facility's procedures for such transfer. However, although delivery of Shares may be effected through book-entry transfer into the Depositary's account at the Book-Entry Transfer Facility, the Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required 10 signature guarantees, or an Agent's Message, and any other required documents, must be, in any case, received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase prior to the Expiration Date for a valid tender of Shares by book-entry. The confirmation of a book-entry transfer of Shares into the Depositary's account at the Book-Entry Transfer Facility as described above is referred to herein as a "BOOK-ENTRY CONFIRMATION". DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH THE BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. The term "AGENT'S MESSAGE" means a message, transmitted by the Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of a Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has received an express acknowledgment from the participant in the Book-Entry Transfer Facility tendering the Shares that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that the Purchaser may enforce such agreement against the participant. SIGNATURE GUARANTEES. No signature guarantee is required on the Letter of Transmittal if (a) the Letter of Transmittal is signed by the registered holder(s) (which term, for purposes of this Section 2, includes any participant in the Book-Entry Transfer Facility's system whose name appears on a security position listing as the owner of the Shares) of Shares tendered therewith and such registered holder has not completed either the box entitled "Special Delivery Instructions" or the box entitled "Special Payment Instructions" on the Letter of Transmittal or (b) such Shares are tendered for the account of a financial institution (including most commercial banks, savings and loan associations and brokerage houses) that is a participant in the Security Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange Medallion Program (such participant, an "ELIGIBLE INSTITUTION"). In all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. See Instructions 1 and 5 to the Letter of Transmittal. If the certificates for Shares are registered in the name of a person other than the signer of the Letter of Transmittal, or if payment is to be made or certificates for Shares not tendered or not accepted for payment are to be returned to a person other than the registered holder of the certificates surrendered, the tendered certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered holders or owners appear on the certificates, with the signatures on the certificates or stock powers guaranteed as aforesaid. See Instructions 1 and 5 to the Letter of Transmittal. GUARANTEED DELIVERY. If a shareholder desires to tender Shares pursuant to the Offer and such shareholder's certificates for Shares are not immediately available or the book-entry transfer procedures cannot be completed on a timely basis or time will not permit all required documents to reach the Depositary prior to the Expiration Date, such shareholder's tender may be effected if all the following conditions are met: (a) such tender is made by or through an Eligible Institution; (b) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by the Purchaser, is received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase prior to the Expiration Date; and (c) Either (i) the certificates for tendered Shares together with a Letter of Transmittal (or facsimile thereof), properly completed and duly executed, and any required signature guarantees, and any other required documents are received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase within three Trading Days after the date of execution of such Notice of Guaranteed Delivery or (ii) in the case of a book-entry transfer effected pursuant to the book-entry transfer procedures described above under "Book-Entry Transfer", either a Letter of Transmittal (or facsimile thereof), properly completed and duly executed, and any required signature guarantees, or an Agent's Message, and any other required documents, is received by the 11 Depositary at one of such addresses, such Shares are delivered pursuant to the book-entry transfer procedures above and a Book-Entry Confirmation is received by the Depositary, in each case within three Trading Days after the date of execution of such Notice of Guaranteed Delivery. A "TRADING DAY" is any day on which the National Association of Securities Dealers Automated Quotation System ("NASDAQ") is open for business. The Notice of Guaranteed Delivery may be delivered by hand to the Depositary or transmitted by telegram, facsimile transmission or mail to the Depositary and must include a guarantee by an Eligible Institution in the form set forth in such Notice of Guaranteed Delivery. OTHER REQUIREMENTS. Notwithstanding any provision hereof, payment for Shares accepted for payment pursuant to the Offer will in all cases be made only after timely receipt by the Depositary of (a) certificates for (or a timely Book-Entry Confirmation with respect to) such Shares, (b) a Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message in lieu of the Letter of Transmittal) and (c) any other documents required by the Letter of Transmittal. Accordingly, tendering shareholders may be paid at different times depending upon when certificates for Shares or Book-Entry Confirmations with respect to Shares are actually received by the Depositary. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID BY THE PURCHASER ON THE PURCHASE PRICE OF THE SHARES, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT. APPOINTMENT. By executing a Letter of Transmittal (or facsimile thereof), (or, in the case of a book-entry transfer, by delivery of an Agent's Message, in lieu of a Letter of Transmittal), a tendering shareholder will irrevocably appoint designees of the Purchaser as such shareholder's attorneys-in-fact and proxies in the manner set forth in the Letter of Transmittal, each with full power of substitution, to the full extent of such shareholder's rights with respect to the Shares tendered by such shareholder and accepted for payment by the Purchaser and with respect to any and all other Shares or other securities or rights issued or issuable in respect of such Shares on or after August 7, 2000. All such proxies will be considered coupled with an interest in the tendered Shares. Such appointment will be effective when, and only to the extent that, the Purchaser accepts for payment Shares tendered by such shareholder as provided herein. Upon the effectiveness of such appointment, all prior powers of attorney, proxies and consents given by such shareholder with respect to such Shares or other securities or rights will, without further action, be revoked and no subsequent powers of attorney, proxies, consents or revocations may be given (and, if given, will not be effective). The designees of the Purchaser will thereby be empowered to exercise all voting and other rights with respect to such Shares and other securities or rights in respect of any annual, special or adjourned meeting of the Company's shareholders, actions by written consent in lieu of any such meeting or otherwise, as they in their sole discretion deem proper. The Purchaser reserves the right to require that, in order for Shares to be deemed validly tendered, immediately upon the Purchaser's acceptance for payment of such Shares, the Purchaser must be able to exercise full voting, consent and other rights with respect to such Shares and other securities or rights, including voting at any meeting of shareholders. DETERMINATION OF VALIDITY. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of any tender of Shares will be determined by the Purchaser in its sole discretion, which determination will be final and binding. The Purchaser reserves the absolute right to reject any or all tenders determined by it not to be in proper form or the acceptance for payment of or payment for which may, in the opinion of the Purchaser, be unlawful. The Purchaser also reserves the absolute right to waive any defect or irregularity in the tender of any Shares of any particular shareholder whether or not similar defects or irregularities are waived in the case of other shareholders. No tender of Shares will be deemed to have been validly made until all defects or irregularities relating thereto have been cured or waived. None of the Purchaser, Parent, the Company, the Depositary, the Information Agent, the Dealer Manager or any other person will be under any duty to give notification of any defects or irregularities in 12 tenders or incur any liability for failure to give any such notification. The Purchaser's interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and the instructions thereto and any other related documents thereto) will be final and binding. BACKUP WITHHOLDING TAX. In order to avoid U.S. federal backup withholding tax on payments of cash pursuant to the Offer, a shareholder surrendering Shares in the Offer must, unless an exemption applies, provide the Depositary with such shareholder's correct taxpayer identification number ("TIN") on a Substitute Form W-9 and certify under penalties of perjury that such TIN is correct and that such shareholder is not subject to backup withholding tax. If a shareholder does not provide such shareholder's correct TIN or fails to provide the certifications described above, the Internal Revenue Service (the "IRS") may impose a penalty on such shareholder and any payment of cash to such shareholder pursuant to the Offer may be subject to backup withholding tax at a rate of 31%. All shareholders surrendering Shares pursuant to the Offer should complete and sign the main signature form and the Substitute Form W-9 included as part of the Letter of Transmittal to provide the information and certification necessary to avoid backup withholding tax (unless an applicable exemption exists and is proved in a manner satisfactory to the Purchaser and the Depositary). Certain shareholders (including, among others, all corporations and certain foreign individuals and entities) are not subject to backup withholding tax. Noncorporate foreign shareholders should complete and sign the main signature form and a Form W-8, Certificate of Foreign Status, a copy of which may be obtained from the Depositary, in order to avoid backup withholding tax. See Instruction 9 to the Letter of Transmittal. 3. WITHDRAWAL RIGHTS Except as otherwise provided in this Section 3, tenders of Shares are irrevocable. Shares tendered pursuant to the Offer may be withdrawn pursuant to the procedures set forth below at any time prior to the Expiration Date and, unless theretofore accepted for payment and paid for by the Purchaser pursuant to the Offer, may also be withdrawn at any time after October 5, 2000 unless, as described below, such Shares are tendered during any Subsequent Offering Period. For a withdrawal to be effective, a written or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase and must specify the name of the person having tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder of the Shares to be withdrawn, if different from the name of the person who tendered the Shares. If certificates for Shares have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such certificates, the serial numbers shown on such certificates must be submitted to the Depositary and, unless such Shares have been tendered by an Eligible Institution, any and all signatures on the notice of withdrawal must be guaranteed by an Eligible Institution. If Shares have been tendered pursuant to the book-entry transfer procedures described in Section 2, any notice of withdrawal must also specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares and otherwise comply with the Book-Entry Transfer Facility's procedures. Withdrawals of tenders of Shares may not be rescinded, and any Shares properly withdrawn will thereafter be deemed not validly tendered for purposes of the Offer. However, withdrawn Shares may be retendered by again following one of the procedures described in Section 2 at any time prior to the Expiration Date. All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by the Purchaser in its sole discretion, which determination will be final and binding. None of the Purchaser, Parent, the Company, the Depositary, the Information Agent, the Dealer Manager or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. 13 In the event the Purchaser provides a Subsequent Offering Period following the Offer, no withdrawal rights will apply to Shares tendered during such Subsequent Offering Period or to Shares tendered in the Offer and accepted for payment. 4. ACCEPTANCE FOR PAYMENT AND PAYMENT Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), the Purchaser will accept for payment and will pay for all Shares validly tendered prior to the Expiration Date and not properly withdrawn in accordance with Section 3 promptly after the Expiration Date. The Purchaser, subject to the Merger Agreement, expressly reserves the right, in its sole discretion, to delay acceptance for payment of or payment for Shares in order to comply in whole or in part with any applicable law, including, without limitation, the HSR Act, and any other applicable material competition, merger, control, antitrust or similar law or regulation. Any such delays will be effected in compliance with Rule 14e-1(c) under the Exchange Act (relating to a bidder's obligation to pay for or return tendered securities promptly after the termination or withdrawal of such bidder's offer). In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (a) the certificates for such Shares, together with a Letter of Transmittal (or facsimile thereof), properly completed and duly executed, and any required signature guarantees or (b) in the case of a transfer effected pursuant to the book-entry transfer procedures described in Section 2, a Book-Entry Confirmation and either a Letter of Transmittal (or facsimile thereof), properly completed and duly executed, and any required signature guarantees, or an Agent's Message, and any other required documents. Accordingly, tendering shareholders may be paid at different times depending upon when certificates for Shares or Book-Entry Confirmations with respect to Shares are actually received by the Depositary. The per Share consideration paid to any shareholder pursuant to the Offer will be the highest per Share consideration paid to any other shareholder pursuant to the Offer. For purposes of the Offer, the Purchaser will be deemed to have accepted for payment, and thereby purchased, Shares validly tendered to the Purchaser and not properly withdrawn as, if and when the Purchaser gives oral or written notice to the Depositary of the Purchaser's acceptance for payment of such Shares. Upon the terms and subject to the conditions of the Offer, payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as an agent for tendering shareholders for the purpose of receiving payment from the Purchaser and transmitting payment to tendering shareholders whose Shares have been accepted for payment. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE PURCHASE PRICE FOR TENDERED SHARES, REGARDLESS OF ANY EXTENSION OF OR AMENDMENT TO THE OFFER OR ANY DELAY IN PAYING FOR SUCH SHARES. If the Purchaser is delayed in its acceptance for payment of or payment for Shares or is unable to accept for payment or pay for Shares pursuant to the Offer for any reason, then, without prejudice to the Purchaser's rights under the Offer (but subject to compliance with Rule 14e-1(c) under the Exchange Act (relating to a bidder's obligation to pay for or return tendered securities promptly after the termination or withdrawal of such bidder's offer) and the terms of the Merger Agreement (requiring that the Purchaser pay for Shares accepted for payment as soon as practicable after the Expiration Date)), the Depositary may, nevertheless, on behalf of the Purchaser, retain tendered Shares, and such Shares may not be withdrawn except to the extent tendering shareholders are entitled to do so as described in Section 3. If any tendered Shares are not accepted for payment pursuant to the terms and conditions of the Offer for any reason, the certificates for such Shares will be returned (and, if certificates are submitted for more Shares than are tendered, new certificates for the Shares not tendered will be sent) in each case without expense to the tendering shareholder (or, in the case of Shares delivered by book-entry transfer 14 of such Shares into the Depositary's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures described in Section 2, such Shares will be credited to an account maintained at the Book-Entry Transfer Facility), as promptly as practicable after the expiration or termination of the Offer. The Purchaser reserves the right to transfer or assign, in whole or from time to time in part, to Parent, or to one or more direct or indirect wholly owned subsidiaries of Parent, the right to purchase Shares tendered pursuant to the Offer, but any such transfer or assignment will not relieve the Purchaser of its obligations under the Offer and will in no way prejudice the rights of tendering shareholders to receive payment for Shares validly tendered and accepted for payment pursuant to the Offer. 5. CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES The receipt of cash pursuant to the Offer or the Merger will be a taxable transaction for U.S. federal income tax purposes under the Internal Revenue Code of 1986, as amended (the "CODE"), and may also be a taxable transaction under applicable state, local or foreign income or other tax laws. Generally, for U.S. federal income tax purposes, a tendering shareholder will recognize gain or loss equal to the difference between the amount of cash received by the shareholder as consideration for the Shares tendered by the shareholder and purchased pursuant to the Offer or converted into cash in the Merger, as the case may be, and the adjusted tax basis of such Shares. Gain or loss will be calculated separately for each block of Shares that have the same holding period and adjusted tax basis. If tendered Shares are held by a tendering shareholder as capital assets, gain or loss recognized by such shareholder will be capital gain or loss, which will be long-term capital gain or loss if such shareholder's holding period for the Shares exceeds one year. A shareholder (other than certain exempt shareholders including, among others, all corporations and certain foreign individuals) that tenders Shares may be subject to 31% backup withholding tax unless the shareholder provides its TIN and certifies that such number is correct (or properly certifies that it is awaiting a TIN) and certifies as to no loss of exemption from backup withholding tax and otherwise complies with the applicable requirements of the backup withholding tax rules. A shareholder that does not furnish a required TIN or that does not otherwise establish a basis for an exemption from backup withholding tax may be subject to a penalty imposed by the IRS. See "Backup Withholding Tax" under Section 2. Each shareholder should complete and sign the Substitute Form W-9 included as part of the Letter of Transmittal so as to provide the information and certification necessary to avoid backup withholding tax. If backup withholding tax applies to a shareholder, the Depositary is required to withhold 31% from payments to such shareholder. Backup withholding tax is not an additional tax. Rather, the amount of the backup withholding tax can be credited against the U.S. federal income tax liability of the person subject to the backup withholding tax, provided that the required information is given to the IRS. If backup withholding tax results in an overpayment of tax, a refund can be obtained by the shareholder by filing a U.S. federal income tax return. The foregoing discussion may not be applicable with respect to Shares received pursuant to the exercise of employee stock options or otherwise as compensation or with respect to holders of Shares who are subject to special tax treatment under the Code--such as non-U.S. persons, insurance companies, tax-exempt organizations, partnerships, dealers or traders in securities and financial institutions--and may not apply to a holder of Shares in light of individual circumstances, such as holding Shares as a hedge or as part of a hedging, straddle, conversion or other risk-reduction transaction. SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO THEM (INCLUDING THE APPLICATION AND EFFECT OF ANY STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX LAWS) OF THE OFFER AND THE MERGER. 15 6. PRICE RANGE OF THE SHARES; DIVIDENDS ON THE SHARES The Shares have traded through the Nasdaq National Market under the symbol "NLCS" at all times since June 3, 1971. The following table sets forth, for each of the periods indicated, the high and low sales prices per Share as reported on the Nasdaq National Market based on published financial sources and the amount of cash dividends paid per Share.
COMMON STOCK ------------------------------- CASH HIGH LOW DIVIDENDS -------- -------- --------- Fiscal Year Ended January 31, 1999: Third Quarter............................................. $31.38 $20.50 $0.05 Fourth Quarter............................................ $38.25 $28.13 $0.05 Fiscal Year Ended January 29, 2000: First Quarter............................................. $39.13 $23.00 $0.05 Second Quarter............................................ $35.88 $27.13 $0.05 Third Quarter............................................. $40.38 $31.63 $0.05 Fourth Quarter............................................ $41.75 $32.50 $0.05 Fiscal Year Ending January 29, 2001 First Quarter............................................. $55.13 $32.88 $0.05 Second Quarter............................................ $71.94 $37.94 $0.05 Third Quarter (through August 4, 2000).................... $72.25 $71.69 N/A
On July 28, 2000, the last full trading day before the public announcement of the execution of the Merger Agreement, the last reported sales price of the Shares on the Nasdaq National Market was $58.13 per Share. On August 4, 2000, the last full trading day before commencement of the Offer, the last reported sales price of the Shares on the Nasdaq National Market was $72.06 per Share. SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES. 7. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; NASDAQ LISTING; EXCHANGE ACT REGISTRATION; MARGIN REGULATIONS MARKET FOR THE SHARES. The purchase of Shares pursuant to the Offer will reduce the number of holders of Shares and the number of Shares that might otherwise trade publicly and could adversely affect the liquidity and market value of the remaining Shares held by the public. NASDAQ NATIONAL MARKET LISTING. Depending upon the number of Shares purchased pursuant to the Offer, the Shares may no longer meet the requirements for continued inclusion on the Nasdaq National Market, which requires that an issuer either (i) have at least 750,000 publicly held shares held by at least 400 round-lot shareholders, with a market value of at least $5,000,000, net tangible assets (total assets (excluding goodwill) less total liabilities) of at least $4,000,000 and have a minimum bid price of $1 or (ii) have at least 1,100,000 publicly held shares, held by at least 400 round-lot shareholders, with a market value of at least $15,000,000, have a minimum bid price of $5 and have either (A) a market capitalization of at least $50,000,000 or (B) total assets and revenues each of at least $50,000,000. If the Nasdaq National Market and the NASDAQ Smallcap Market were to cease to publish quotations for the Shares, it is possible that the Shares would continue to trade in the over-the-counter market and that price or other quotations would be reported by other sources. The extent of the public market for such Shares and the availability of such quotations would depend, however, upon such factors as the number of shareholders and/or the aggregate market value of such securities remaining at such time, the interest in maintaining a market in the Shares on the part of securities firms, the possible termination of registration under the Exchange Act as described below, and other factors. The Purchaser cannot predict whether the reduction in the number of Shares that might otherwise trade publicly would have an 16 adverse or beneficial effect on the market price for, or marketability of, the Shares or whether it would cause future market prices to be greater or lesser than the price per Share to be paid in the Offer. In the Merger Agreement, the Company has represented that, as of July 21, 2000, 32,757,155 Shares were issued and outstanding. EXCHANGE ACT REGISTRATION. The Shares are currently registered under the Exchange Act. Such registration may be terminated upon application by the Company to the Commission if the Shares are neither listed on a national securities exchange nor held by 300 or more holders of record. Termination of registration of the Shares under the Exchange Act would reduce the information required to be furnished by the Company to its shareholders and to the Commission and would make certain provisions of the Exchange Act no longer applicable to the Company, such as the short-swing profit-recovery provisions of Section 16(b) of the Exchange Act and the requirement of furnishing a proxy statement pursuant to Section 14(a) or 14(c) of the Exchange Act in connection with shareholders' meetings and the related requirement of furnishing an annual report to shareholders. Furthermore, the ability of "affiliates" of the Company and persons holding "restricted securities" of the Company to dispose of such securities pursuant to Rule 144 or 144A promulgated under the Securities Act of 1933, as amended (the "SECURITIES ACT"), may be impaired or eliminated. The Purchaser intends to seek to cause the Company to apply for termination of registration of the Shares under the Exchange Act as soon after the completion of the Offer as the requirements for such termination are met. MARGIN REGULATIONS. The Shares are currently "margin securities" under the regulations of the Board of Governors of the Federal Reserve System (the "FEDERAL RESERVE BOARD"), which has the effect, among other things, of allowing brokers to extend credit on the collateral of the Shares. Depending upon factors similar to those described above regarding listing and market quotations, it is possible that, following the Offer, the Shares would no longer constitute "margin securities" for the purposes of the margin regulations of the Federal Reserve Board and therefore could no longer be used as collateral for loans made by brokers. 8. CERTAIN INFORMATION CONCERNING THE COMPANY The Company is a Minnesota corporation with its principal offices at 11000 Prairie Lakes Drive, Eden Prairie, Minnesota 55344, telephone number (952) 829-3000. According to the Company's Annual Report for the fiscal year ended January 29, 2000, the Company is a global information services company, which provides services, software, systems and internet-based technologies for the collection, management and interpretation of data. Set forth below is certain selected financial data with respect to the Company and its subsidiaries excerpted from the data contained in the Company's Annual Report on Form 10-K for the fiscal year ended January 29, 2000 and its Quarterly Report on Form 10-Q for the fiscal quarter ended April 29, 2000. More comprehensive financial data is included in such reports and other documents filed by the Company with the Commission, and the following summary is qualified in its entirety by reference to such reports, other documents and all the financial data (including any related notes) contained therein. Such reports and other documents should be available for inspection and copies thereof should be obtainable in the manner set forth below under "Available Information." 17 NATIONAL COMPUTER SYSTEMS, INC. SELECTED CONSOLIDATED FINANCIAL DATA
FISCAL QUARTER ENDED YEAR ENDED --------------------- --------------------------------------- MAY 1, APRIL 29, JANUARY 31, JANUARY 31, JANUARY 29, 1999 2000 1998 1999 2000 --------- --------- ----------- ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) INCOME STATEMENT DATA: Revenues.......................... $125,817 $174,365 $406,015 $505,372 $629,545 Income From Operations............ $ 11,631 $ 14,986 $ 43,044 $ 55,271 $ 69,588 Income Before Income Taxes........ $ 11,103 $ 14,469 $ 41,975 $ 54,111 $ 68,430 Net Income........................ $ 6,653 $ 8,769 $ 25,175 $ 32,511 $ 42,930 Basic Earnings Per Share.......... $ 0.21 $ 0.27 $ 0.83 $ 1.05 $ 1.35 Diluted Earnings Per Share........ $ 0.20 $ 0.26 $ 0.80 $ 1.00 $ 1.30 BALANCE SHEET DATA: Total Assets...................... $464,690 $362,471 $449,880 Long-Term Debt-less Current Maturities...................... $ 516 $ 516 $ 5,597 Stockholder Equity................ $293,683 $226,866 $276,388
CERTAIN COMPANY PROJECTIONS. During the course of discussions between representatives of Parent and the Company, the Company provided Parent or its representatives with certain non-public business and financial information about the Company. This information included the following projections of revenue and operating income for the Company for the fiscal years 2000 through 2003:
2000 2001 2002 2003 -------- -------- -------- -------- (IN MILLIONS) Revenue................................................ $752.0 $855.0 $1,000.0 $1,200.0 Operating Income....................................... $ 84.3 $102.5 $ 122.3 $ 145.0
The Company has advised the Purchaser and Parent that it does not as a matter of course make public any projections as to future performance or earnings, and the projections set forth above are included in this Offer to Purchase only because this information was provided to Parent. The projections were not prepared with a view to public disclosure or compliance with the published guidelines of the 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 the Company's independent auditors have not examined or compiled the projections and accordingly assume no responsibility for them. The Company has advised Parent and the Purchaser that its internal financial forecasts (upon which the projections provided to Parent and the Purchaser 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 management of the Company, with respect to industry performance (including general business, economic, market and financial conditions and other matters), all of which are difficult to predict, many of which are beyond the Company's control, and none of which were subject to approval by Parent or the Purchaser. 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 inclusion of the projections herein should not be regarded as an indication that any of Parent, the Purchaser, the Company 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. None of Parent, the Purchaser, 18 the Company or any of their respective affiliates or representatives has made or makes any representation to any person regarding the ultimate performance of the Company 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 or to reflect the occurrence of future events even in the event that any or all of the assumptions underlying the projections are shown to be in error. AVAILABLE INFORMATION. The Company is subject to the informational requirements of the Exchange Act and, in accordance therewith, is required to file reports and other information with the Commission relating to its business, financial condition and other matters. Certain information as of particular dates concerning the Company's directors and officers, their remuneration, stock options and other matters, the principal holders of the Company's securities and any material interest of such persons in transactions with the Company is required to be disclosed in the Company's proxy statements distributed to the Company's shareholders and filed with the Commission. Such reports, proxy statements and other information should be available for inspection at the public reference facilities of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the Commission located at Seven World Trade Center, 13th Floor, New York, NY 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661. Copies of such information should be obtainable, by mail, upon payment of the Commission's customary charges, by writing to the Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission also maintains a Web site on the Internet at http://www.sec.gov/ that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. Such information should also be available for inspection at the offices of the National Association of Securities Dealers, Reports Section, 1735 K Street, Washington, D.C. 20006. Except as otherwise stated in this Offer to Purchase, the information concerning the Company contained herein has been taken from or based upon publicly available documents on file with the Commission and other publicly available information. Although Parent and the Purchaser do not have any knowledge that any such information is untrue, neither Parent nor the Purchaser takes any responsibility for the accuracy or completeness of such information or for any failure by the Company to disclose events that may have occurred and may affect the significance or accuracy of any such information. 9. CERTAIN INFORMATION CONCERNING PARENT AND THE PURCHASER The Purchaser, a Minnesota corporation that is a wholly owned indirect subsidiary of Parent, was organized to acquire the Company and has not conducted any unrelated activities since its organization. The principal executive office of the Purchaser is located c/o Pearson Education, Inc. at One Lake Street, Upper Saddle River, New Jersey 07458, telephone number (201) 236-7000. Parent is a public limited company registered in England and Wales. The principal executive office of Parent is located at 3 Burlington Gardens, London W1X 1LE, telephone number 44-20-7411-2000. Parent is a global media company with its principal operations in the education, business information, consumer publishing and television markets. Shares of Parent are listed on the London Stock Exchange. The name, citizenship, business address, present principal occupation or employment and five-year employment history of each of the directors and executive officers of Parent and the Purchaser are set forth in Schedule I hereto. Except as described in this Offer to Purchase, neither Parent nor the Purchaser, or, to the best knowledge of Parent and the Purchaser, any of the persons listed in Schedule I or any associate or majority-owned subsidiary of Parent or the Purchaser, or any of the persons so listed, beneficially owns any equity security of the Company, and neither of Parent nor the Purchaser or, to the best knowledge of Parent and the Purchaser, any of the other persons referred to above has effected any transaction in any equity security of the Company during the past 60 days. 19 Except as described in this Offer to Purchase or the Schedule TO (as defined below), (a) there have not been any contacts, transactions or negotiations between Parent, the Purchaser, any of their respective subsidiaries or, to the best knowledge of Parent and the Purchaser, any of the persons listed in Schedule I, on the one hand, and the Company or any of its directors, officers or affiliates, on the other hand, that are required to be disclosed pursuant to the rules and regulations of the Commission and (b) none of Parent, or the Purchaser or, to the best knowledge of Parent and the Purchaser, any of the persons listed in Schedule I has any contract, arrangement, understanding or relationship with any person with respect to any securities of the Company. Because the only consideration in the Offer and Merger is cash and the Offer covers all outstanding Shares, and in view of the absence of a financing condition and in view of the financial capacity of Parent and its affiliates, Parent and the Purchaser believe the financial condition of Parent and its affiliates is not material to a decision by a holder of Shares whether to sell, tender or hold Shares pursuant to the Offer. Notwithstanding the foregoing, however, set forth in the table below is certain selected consolidated financial data with respect to Parent for each of the years in the three-year period ended December 31, 1999. The selected consolidated profit and loss account data for the years ended December 31, 1999, 1998 and 1997, and the selected consolidated balance sheet data as at December 31, 1999, 1998 and 1997, have been derived from Parent's audited consolidated financial statements for such years and as of such dates. The selected consolidated profit and loss account data for the six-month periods ending June 30, 2000 and 1999 and the selected consolidated balance sheet data as of June 30, 2000 and 1999, have been derived from Parent's unaudited consolidated financial statements for such periods and as of such dates. These unaudited financial statements have been prepared on the same basis as Parent's audited financial statements and, in the opinion of Parent's management, include all material adjustments, consisting only of normal recurring adjustments, necessary to present the financial position and results of operations for the periods and dates presented. Interim results are not necessarily indicative of the results that may be expected for any other interim period or for the full year. Parent's consolidated financial statements have been prepared in accordance with UK GAAP, which differs from US GAAP in significant respects. The information provided below is not necessarily indicative of the results that may be expected from future operations. For convenience, we have translated the June 30, 2000 and December 31, 1999 amounts into US dollars at the rate of L1.00=$1.51, the noon buying rate in The City of New York on June 30, 2000.
JUNE 30 DECEMBER 31 ------------------------------ ----------------------------------------- 2000 2000 1999 1999 1999 1998 1997 -------- -------- -------- -------- -------- -------- -------- $M LM LM $M LM LM LM UK GAAP INFORMATION: CONSOLIDATED PROFIT AND LOSS ACCOUNT DATA Total sales.................................. 2,333 1,545 1,306 5,031 3,332 2,395 2,293 Total sales from continuing operations....... 2,333 1,545 1,306 5,031 3,332 2,251 2,011 Operating profit from continuing operations(1).............................. (29) (19) 25 408 270 187 252 Total operating profit....................... (17) (11) 46 480 318 250 328 Profit after taxation........................ 137 91 (38) 453 300 441 40 Operating profit before internet enterprises, goodwill amortization and other items(2)... 236 156 133 888 588 389 328 Earnings per equity share(3)................. 21.4c 14.2p (6.6)p 72.8c 48.2p 74.1p 6.6p Adjusted earnings per equity share after internet enterprises(4).................... (0.9) (0.6) 6.3 73.2 48.5 42.0 34.9 Adjusted earnings per equity share before internet enterprises(5).................... 15.1 10.0 7.1 80.5 53.3 42.0 34.9 Diluted earnings per equity share(6)......... 20.8 13.8 (6.5) 71.7 47.5 73.3 6.4
20
JUNE 30 DECEMBER 31 ------------------------------ ----------------------------------------- 2000 2000 1999 1999 1999 1998 1997 -------- -------- -------- -------- -------- -------- -------- $M LM LM $M LM LM LM CONSOLIDATED BALANCE SHEET DATA Total assets (Fixed Assets plus Current Assets).................................... 9,817 6,501 5,447 8,079 5,350 5,317 2,253 Net assets................................... 2,935 1,944 1,107 2,004 1,327 1,084 156 Long-term obligations(7)..................... 3,059 2,026 2,312 3,452 2,286 2,562 609 Capital Stock................................ 236 156 153 231 153 152 144 Number of equity shares outstanding.......... 625 625 611 613 613 610 577
DECEMBER 31 ------------------------------ 1999 1999 1998 -------- -------- -------- $M LM LM US GAAP INFORMATION: Profit for the financial year............................... 299 198 444 Profit from continuing operations for the financial year.... 254 168 122 Basic earnings per equity share............................. 48.9c 32.4p 75.3p Diluted earnings per equity share........................... 48.5 32.1 74.6 Basic earnings from continuing operations per equity share..................................................... 41.5 27.5 20.7 Diluted earnings from continuing operations per equity share..................................................... 41.1 27.2 20.5 Shareholders' funds......................................... 3,949 2,615 2,468
- ------------------------ (1) Continuing operations represent those operations carried on by Parent as at June 30, 2000. Operating profit from continuing operations consists of operating profit-Group, plus the Group's share of operating profit from continuing operations for Group associates. (2) Other items include a Year 2000 compliance costs of L5 million in 1999 and L7 million in 1998, integration costs in connection with Parent's 1998 acquisition of Simon & Schuster's educational, business & professional and reference publishing business of L95 million in 1999 and L120 million in 1998 and integration costs in connection with Parent's 2000 acquisition of Dorling Kindersley of L3 million in 2000. (3) Earnings per equity share is based on profit for the financial period and the weighted average number of ordinary shares in issue during the period. (4) Adjusted earnings per equity share is based on adjusted earnings for the financial period and the weighted average number of ordinary shares in issue during the period. Adjusted earnings excludes profits or losses on the sale of fixed assets and investments, businesses and associates, Year 2000 compliance costs and integration costs in respect of the Simon & Schuster acquisition and the Dorling Kindersley acquisition and, following the prospective implementation of FRS10 "Goodwill and Intangible Assets" in 1998, goodwill amortization. (5) Due to expenditure of L84 million in 2000 and L39 million in 1999 on new internet enterprises, a second adjusted earnings per equity share in accordance with UK GAAP is presented in which the results of these internet enterprises are also excluded from earnings. (6) Diluted earnings per equity share is based on diluted earnings for the financial period and the diluted weighted average number of ordinary shares in issue during the period. Diluted earnings comprise earnings adjusted for the tax benefit on the conversion of share options by employees and the weighted average number of ordinary shares adjusted for the dilutive effect of share options. (7) Long-term obligations are comprised of medium and long-term borrowings plus amounts falling due after more than one year related to obligations under finance leases. - ------------------------ The following summarizes the principal differences between UK GAAP and US GAAP in respect of Parent's financial statements. 21 Prior to January 1, 1998, under UK GAAP, goodwill was written off to the profit and loss reserve in the year of acquisition. Under US GAAP, as well as UK GAAP from January 1, 1998, goodwill is recognized as an asset, and amortization expense is recorded over useful lives ranging between 5 and 20 years. Intangible assets under UK GAAP are recognized only when they may be disposed of without also disposing of the business to which they relate, and for that reason it is rare that intangible assets are separately identified and recorded apart from goodwill. Under US GAAP, there is no similar requirement with respect to intangible assets, and they should be recognized separately from goodwill when they are separately identifiable and measurable. Under US GAAP, intangible assets such as publishing rights, television production and distribution rights, non-compete agreements, software, databases and advertising relationships have been recognized and are being amortized over a range of useful lives between two and 16 years. The difference in goodwill and intangible assets also creates a difference in the gain or loss recognized on the disposal of a business due to amortization expense taken with respect to the goodwill and intangible assets, as UK GAAP requires that goodwill be removed from the profit and loss reserve upon disposal and factored into the gain or loss on disposal calculation. Under UK GAAP, the liability method is used in recording deferred taxation, and consideration is given to whether or not the liability will be realized within the foreseeable future. This can result in the full potential liability not being recognized. Deferred tax assets are rarely recognized under UK GAAP. Under US GAAP, the full provision method is used, meaning that all deferred tax assets and liabilities are recorded. An assessment is then made with respect to whether the deferred tax assets are realizable, and a determination is made as to whether a valuation allowance is necessary with respect to the deferred tax assets. The principal differences Parent recognize relate to deferred tax assets in the United States. Acquisition adjustments have arisen with respect to the Pearson Education, Inc. acquisition of Simon & Schuster's educational, business and professional and reference publishing business during 1998. Under US GAAP, the criteria necessary for recognizing some restructuring costs in acquisition accounting for the Simon & Schuster acquisition have been met, and a provision for these costs has been included in the purchase price allocation. Under UK GAAP, these types of restructuring costs are recorded as period costs when incurred and may not be included in the allocation of the purchase price. Under UK GAAP, there are no specific criteria which must be fulfilled in order to record derivative contracts such as interest rate swaps, currency swaps and forward currency contracts as a hedging instrument. Accordingly, based upon Parent's intention and stated policy with respect to entering into derivative transactions, they have been recorded as hedging instruments for UK GAAP. This means that unrealized gains and losses on these instruments are typically deferred and recognized when realized. Under US GAAP, Parent's derivative contracts do not meet the prescriptive criteria for hedge accounting, and are recorded at market value at each period end, with changes in their fair value being recorded currently in the profit and loss account. Under UK GAAP, the cost of providing pension benefits is expensed over the average expected useful service lives of eligible employees, using long-term actuarial assumptions. Under US GAAP, the annual pension costs comprise the estimated cost of benefits accruing in the period, and actuarial assumptions are adjusted annually to reflect current market and economic conditions. Additionally, under US GAAP, part of the surplus, which is the excess of plan assets over plan liabilities, is recognized on the balance sheet. The remainder of the unrecognized surplus is spread over the employees' remaining service lifetimes. Under UK GAAP, no compensation costs associated with non-qualified stock option plans are recognized if the value of the option at the date of grant is equal to or greater than the market value on that date. Under US GAAP, Parent has adopted the fair value method of accounting for options. Compensation expense is determined based upon the fair value at the grant date, and has been estimated using the Black Scholes model. Compensation cost is recognized over the service life of the awards, which is 22 normally equal to the vesting period. Compensation expense is also recognized under US GAAP with respect to UK qualified non-compensatory plans, such as the Save as You Earn option plan and the Worldwide Save for Shares plan, as these plans offer employees a discount of greater than 15% from market value. 10. SOURCE AND AMOUNT OF FUNDS The Offer is not conditioned on any financing arrangements. The total amount of funds required by the Purchaser to purchase all outstanding Shares pursuant to the Offer and to pay fees and expenses related to the Offer and the Merger is estimated to be approximately $2.5 billion. The Purchaser plans to obtain all funds needed for the Offer and the Merger through capital contributions, loans and/or other financial arrangements that will be made available by Parent, either directly or through one or more wholly owned subsidiaries of Parent, to the Purchaser. Parent plans to make these contributions, loans and/or other financial arrangements available using funds it will receive pursuant to the issuance (the "RIGHTS ISSUE") of up to 170,528,278 new ordinary shares of Parent ("NEW SHARES"). Pursuant to the Rights Issue, each holder of ordinary shares of Parent (other than certain shareholders residing outside the United Kingdom) (each, a "QUALIFYING SHAREHOLDER") will be offered the right to subscribe for three New Shares at a price of L10 per New Share (the "ISSUE PRICE") for every eleven ordinary shares held by such Qualifying Shareholder as of the close of business on July 28, 2000. The Rights Issue, if fully subscribed, will result in aggregate proceeds to Parent of approximately L1.7 billion (or $2.55 billion, calculated at the noon buying rate in The City of New York on August 4, 2000 exchange rate of 1.5022 dollars for each pound). The Issue Price represents a discount of approximately 50% to the closing middle market price of L20.10 per ordinary share on July 28, 2000. Pursuant to the terms of an underwriting agreement dated July 31, 2000 (as supplemented, the "UNDERWRITING AGREEMENT"), between Parent, Goldman Sachs International and Cazenove & Co., Goldman Sachs International and Cazenove & Co. (the "UNDERWRITERS") have severally agreed, subject to certain conditions (i) to procure, as agents of Parent, subscribers for any New Shares not taken up by Qualifying Shareholders and (ii) to underwrite up to 150,000,000 New Shares of the Rights Issue to ensure that funds are available at completion of the Offer and the Merger. In the event the full amount of the Rights Issue is not taken up or subscribed, Parent will satisfy the remaining consideration for the Offer and the Merger through the standby underwriting of New Shares and Parent's existing bank facilities. The Rights Issue is conditional on Admission becoming effective by 8:30 a.m. (London time) on the London Stock Exchange dealing day after the Rights Issue prospectus is posted to Parent's shareholders. It is expected that the prospectus will be posted on or about August 9, 2000. "ADMISSION" means (i) the admission of the New Shares to the official list (the "OFFICIAL LIST") of the Financial Services Authority in its capacity as competent authority under the Financial Services Act of 1986 (the "UK LISTING AUTHORITY") becoming effective and (ii) the admission of the New Shares to trading having been granted by the London Stock Exchange. Application has been made to the UK Listing Authority for the New Shares to be admitted to the Official List and to the London Stock Exchange for the New Shares to be admitted to trading on the London Stock Exchange. It is expected that admission of the New Shares to the Official List and to trading on the London Stock Exchange will become effective and that dealings on the London Stock Exchange in New Shares, nil paid, will commence on August 10, 2000. The Rights Issue is not conditional upon either the acquisition of the Company or the Underwriting Agreement becoming unconditional. The Offer does not constitute an offer to sell, nor a solicitation to sell, nor a solicitation of an offer to purchase, any New Shares, any rights to subscribe for Parent's ordinary shares or any other securities of Parent. 23 The foregoing description is qualified in its entirety by reference to the Underwriting Agreement, a copy of which is filed as Exhibit (b)(1) and (b)(2) to the Schedule TO. The Underwriting Agreement should be read in its entirety for a more complete description of the matters summarized above. 11. CONTACTS AND TRANSACTIONS WITH THE COMPANY; BACKGROUND OF THE OFFER On May 4, 2000, Peter Jovanovich, Chairman and Chief Executive Officer of Pearson Education, Inc., a wholly owned indirect subsidiary of Parent, met with Russell A. Gullotti, Chairman of the Company Board, President and Chief Executive Officer of the Company at the Company's offices in Eden Prairie, Minnesota to discuss a full range of possible strategic alliances between Pearson Education, Inc. and the Company including a possible business combination. On May 23, 2000, the Company and Pearson Education, Inc. entered into a confidentiality agreement. On May 26, 2000, Mr. Jovanovich and other representatives of Pearson Education, Inc. met with Mr. Gullotti and other representatives of the Company at the Company's offices in Eden Prairie, Minnesota to further discuss strategic alliances between the two companies, including the possibility of Pearson Education, Inc. and the Company jointly selling assessment and curriculum solutions to school districts. From May 27, 2000 to June 14, 2000, Mr. Jovanovich and Mr. Gullotti had various telephone conferences regarding possible alliances between the Company and Pearson Education, Inc. On June 14, 2000, Pearson Education, Inc. and the Company executed a second confidentiality agreement (the "CONFIDENTIALITY AGREEMENT"). On June 15, 2000, representatives of Pearson Education, Inc. and the Company met in the Company's offices in Mesa, Arizona to discuss again possible strategic alliances between the Company and Pearson Education, Inc. On June 19, 2000, Mr. Gullotti and Jeffrey W. Taylor, the Vice President and Chief Financial Officer of the Company met with Mr. Jovanovich, John Makinson, the Finance Director of Parent, and Douglas Kubach, the Chief Technology Officer of Pearson Education, Inc. in Bloomington, Minnesota. At the meeting, the parties discussed the Company's business operations. The parties also explored strategic alternatives involving the companies, including a possible merger of the Company and Pearson Education, Inc. From July 7, 2000 through July 11, 2000, Marjorie Scardino, the Chief Executive of Parent, and Mr. Gullotti had various telephone conferences discussing a possible business combination between the Company and Parent and the preliminary terms of such a transaction. From July 12, 2000 through July 17, 2000, Ms. Scardino and Mr. Gullotti continued to have telephone discussions regarding a possible business combination and the terms thereof. On July 14, 2000, Ms. Scardino and Mr. Gullotti reached a preliminary understanding on a possible purchase price of $73.00 per Share and certain other material terms of the transaction, and on July 15, 2000, they met in Bluffton, South Carolina to discuss these matters further. From July 17, 2000 through July 21, 2000, Ms. Scardino, Mr. Makinson, Mr. Jovanovich, David Bell (one of Parent's directors) and other representatives of Parent and their advisors met with members of the Company's management, including various business unit heads of the Company and representatives of the Company's financial advisor, in Minneapolis, Minnesota and engaged in various telephone conversations to review the Company's business plans and its business and operations and to discuss outstanding issues in the transaction (including employee and severance issues). Also during this period, and continuing through July 30, 2000, Parent and its advisors conducted legal, business and financial due diligence with respect to the Company. 24 On July 17, 2000, Parent's legal advisors provided a draft of an acquisition agreement. Between July 17, 2000 and July 21, 2000, Parent's and the Company's respective legal advisors began negotiating the proposed draft acquisition agreement. On July 20, 2000, Parent and the Company executed an exclusivity agreement pursuant to which, subject to certain exceptions, the Company agreed to refrain from negotiating a business combination with any party other than Parent until August 2, 2000. Parent, the Company, and their respective advisors continued negotiation of the acquisition agreement between July 22, 2000 and July 30, 2000. On July 27, 2000, Parent's Board of Directors approved the Offer, the Merger, the Merger Agreement and the other transactions contemplated thereby, subject to the satisfactory finalization of the Merger Agreement. On July 28, 2000, the Company Board approved the Offer, the Merger, the Merger Agreement and the other transactions contemplated thereby, subject to finalization of the Merger Agreement. On July 30, 2000, Parent, the Purchaser and the Company executed the Merger Agreement. On July 31, 2000, each of Parent and the Company issued a press release in the United States announcing the execution of the Merger Agreement. On August 4, 2000, Parent, the Purchaser and the Company executed Amendment No. 1 to the Merger Agreement. On August 7, 2000, in accordance with the Merger Agreement, the Purchaser commenced the Offer. During the Offer, Parent and the Purchaser intend to have ongoing contacts with the Company and its directors, officers and shareholders. 12. PURPOSE OF THE OFFER; THE MERGER AGREEMENT; PLANS FOR THE COMPANY PURPOSE The purpose of the Offer is to enable Parent to acquire control of the Company and to acquire all of the outstanding Shares. The Offer, as the first step in the acquisition of the Company, is intended to facilitate the acquisition of all the outstanding Shares. The purpose of the Merger is to acquire all of the outstanding Shares not tendered and purchased pursuant to the Offer or otherwise. THE MERGER AGREEMENT The Merger Agreement provides that, following the satisfaction or waiver of the conditions described below under "Conditions to the Merger", the Purchaser will be merged with and into the Company, with the Company being the surviving corporation, and each issued Share (other than Shares owned by Parent, the Purchaser or the Company or a subsidiary of Parent or the Purchaser or by shareholders, if any, who are entitled to and who properly exercise dissenters' rights under Minnesota law) will be converted into the right to receive the price per Share paid pursuant to the Offer in cash, without interest thereon. COMPANY ACTION. The Merger Agreement states that the Company Board (at a meeting duly called and held) (i) determined that the Merger Agreement, the Offer and the Merger are fair to and in the best interests of the Company and the shareholders of the Company, (ii) approved and adopted the Merger Agreement and the transactions contemplated thereby, including the Offer and the Merger, and (iii) resolved to recommend that the shareholders of the Company accept the Offer and tender their Shares pursuant to the Offer. Additionally, the Committee (at a meeting duly called and held) approved the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Offer and the Merger. 25 VOTE REQUIRED TO APPROVE MERGER. The MBCA requires, among other things, that the adoption of any plan of merger or consolidation of the Company must be approved and found advisable by the Company Board and, if the "short-form" merger procedure described below is not available, approved by the holders of a majority of the Company's outstanding voting securities. The Company Board and the Committee have approved the Offer, the Merger and the Merger Agreement; consequently, the only additional action of the Company that may be necessary to effect the Merger is approval of the Merger Agreement by the Company's shareholders if such "short-form" merger procedure is not available. If required by the MBCA, the Company will call and hold a meeting of its shareholders promptly following the consummation of the Offer for the purposes of voting upon the approval of the Merger Agreement. At any such meeting all Shares then owned by Parent or the Purchaser will be voted in favor of the approval of the Merger. If the Purchaser acquires--through the Offer, the Merger Agreement or otherwise--voting power with respect to at least a majority of the outstanding Shares (which would be the case if the Minimum Tender Condition were satisfied and the Purchaser were to accept for payment Shares tendered pursuant to the Offer), it would have sufficient voting power to effect the Merger without the affirmative vote of any other shareholder of the Company. The MBCA also provides that, if a parent company owns at least 90% of the outstanding shares of each class of stock of a subsidiary, the parent company may effect a "short form" merger with that subsidiary without a shareholder vote. In order to consummate the Merger pursuant to these provisions of the MBCA, the Purchaser would have to own at least 90% of the outstanding Shares. Accordingly, if, as a result of the Offer or otherwise, the Purchaser acquires or controls the voting power of at least 90% of the outstanding Shares, the Purchaser intends to effect the Merger without a vote of the shareholders of the Company. CONDITIONS TO THE MERGER. The Merger Agreement provides that the respective obligations of each party to effect the Merger are subject to the satisfaction or waiver of certain conditions, including the following: (a) Shareholder Approval (as defined below under "Termination of the Merger Agreement"), if required by applicable law, shall have been obtained; (b) any requisite waiting period (and any extension thereof) applicable to the Merger under the HSR Act and any other applicable foreign antitrust and competition laws shall have been terminated or shall have expired and any necessary consents or approvals with respect to such transactions under any applicable foreign antitrust and competition laws shall have been obtained; (c) no temporary restraining order, preliminary or permanent injunction or other order or decree issued by any court of competent jurisdiction or other legal restraint or prohibition (collectively, "LEGAL RESTRAINTS") that has the effect of preventing the consummation of the Merger shall be in effect; and (d) the Purchaser shall have previously accepted for payment and paid for the Shares pursuant to the Offer. TERMINATION OF THE MERGER AGREEMENT. The Merger Agreement may be terminated at any time prior to the effective time of the Merger (the "EFFECTIVE TIME"), whether before or after the Shareholder Approval: (a) by mutual written consent of Parent and the Company; (b) by either Parent or the Company: (i) if the Purchaser shall not have accepted for payment any Shares pursuant to the Offer prior to December 31, 2000; PROVIDED that this right to terminate the Merger Agreement is not available to any party whose breach of the Merger Agreement has been a principal reason the Offer has not been consummated by such date; (ii) if any domestic or foreign government or any court, administrative agency or commission or other governmental or regulatory authority or agency (a "GOVERNMENTAL ENTITY") shall have issued an order, injunction or other decree or ruling or taken any other action (a "RESTRAINT") permanently enjoining, restraining or otherwise prohibiting the acceptance for 26 payment of, or payment for the Shares pursuant to the Offer or the Merger and such order, injunction, decree or ruling or other action shall have become final and nonappealable; (c) by Parent, if the Company Board shall have failed to confirm the Recommendation to the shareholders of the Company that they accept the Offer and give Shareholder Approval within four business days after a written request by Parent that it do so if such request is made following the making of a Takeover Proposal (as defined below under "Takeover Proposals"). "SHAREHOLDER APPROVAL" means approval of the Merger by an affirmative vote of the holders of a majority of the outstanding Shares; (d) by Parent (i) if the Company shall have breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in the Merger Agreement, which breach, individually or in the aggregate with other breaches, would give rise to the failure of a condition set forth in paragraph (d) or (e) of Section 14 hereof, and has not been or is incapable of being cured by the Company within 20 business days after its receipt of written notice thereof from Parent, or (ii) if any suit, action or proceeding described in paragraph (a) of Section 14 hereof shall have prevailed and become final and nonappealable; (e) by the Company, if any of Parent or the Purchaser shall have breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in the Merger Agreement, except for such failures to be true and correct that, individually or in the aggregate, would not reasonably be expected to have a material adverse effect on Parent's or the Purchaser's ability to consummate the transactions contemplated by the Merger Agreement, which breach or failure to perform has not been or is incapable of being cured by Parent within 20 business days after its receipt of written notice thereof from the Company; (f) by the Company in the circumstances described below under "Takeover Proposals" in which such termination is permitted, subject to compliance by the Company with the notice provisions described below and the termination fee provisions described below; or (g) by Parent, if there is a material breach of the obligations described below under "Takeover Proposals" or (i) if the Company Board (A) withdraws or modifies in any manner materially adverse to Parent or the Purchaser the Recommendation, (B) accepts, approves or recommends any Takeover Proposal or (C) resolves or publicly discloses any intention to do any of the foregoing or (ii) if the Committee (A) withdraws or modifies in any manner adverse to Parent or the Purchaser the Committee Approval, (B) approves a Takeover Proposal or (C) resolves or publicly discloses any intention to do any of the foregoing. TAKEOVER PROPOSALS. The Merger Agreement provides that the Company will not, nor will it permit any of its affiliates to, nor will it authorize or permit any affiliate, director, officer or employee of, or any investment banker, financial advisor, attorney, accountant or other advisor or representative of, the Company or any of its affiliates to, directly or indirectly, (i) solicit, seek, initiate or encourage (including by way of furnishing information), or take any other action to facilitate the submission of any inquiries or the making of any proposal or offer that constitutes, or would be reasonably likely to constitute or lead to a Takeover Proposal, (ii) enter into, continue or otherwise participate in any discussions or negotiations (including by way of furnishing information) or otherwise cooperate in any way with, or assist, participate in, facilitate or encourage any effort or attempt by any person to submit or otherwise act in furtherance of, a Takeover Proposal, (iii) agree to, approve or recommend any Takeover Proposal, or (iv) take any other action inconsistent with the obligations and commitments of the Company contained in this provision, PROVIDED that the foregoing shall not prohibit the presentation of a Takeover Proposal to the Company Board which was not obtained or received in violation of Section 4.02 of the Merger Agreement. Notwithstanding the foregoing, in the event the Company Board determines in good faith after consultation with outside counsel that failure to do so would constitute a breach of the Company Board's fiduciary duties to the shareholders of the Company under applicable law, the Company Board may, in 27 response to (A) a Superior Proposal (as defined below) or (B) a bona fide Takeover Proposal that the Company Board determines in good faith is reasonably likely to lead to a Superior Proposal (a "LIKELY SUPERIOR PROPOSAL") at any time prior to the acceptance for payment of Shares pursuant to the Offer (the "SPECIFIED DATE"), that in each case was unsolicited and did not otherwise result from a breach of this provision, and subject to compliance with the notification obligations described below: (x) furnish information with respect to the Company and its subsidiaries to the person making such Superior Proposal or Likely Superior Proposal (and its representatives) pursuant to an appropriate and customary confidentiality and standstill agreement that is no less favorable than the Confidentiality Agreement; and (y) participate in discussions or negotiations with the person making such Superior Proposal or Likely Superior Proposal (and its representatives) regarding such Superior Proposal or Likely Superior Proposal. "SUPERIOR PROPOSAL" means any bona fide written offer made by a third party to consummate a tender offer, exchange offer, merger, consolidation or similar transaction that would result in such third party (or its shareholders) owning, directly or indirectly, more than 50% of the Shares then outstanding (or of the surviving entity in a merger) or all or substantially all of the assets of the Company and its subsidiaries, taken as a whole, and that is otherwise on terms and conditions which the Company Board determines in good faith (after consultation with a financial advisor of nationally recognized reputation) to provide consideration to the holders of Shares with a greater value than the consideration payable in the Merger after taking into account (i) the amount and type of consideration offered, (ii) any changes to the terms of the Merger Agreement proposed in writing by Parent in response to such Superior Proposal or otherwise, (iii) the likelihood of the consummation of such transaction and (iv) the identity of the person making the proposal, PROVIDED, HOWEVER, that no such offer shall constitute a Superior Proposal unless (A) such offer is first received by the Company after the date of the Merger Agreement and (B) such offer is unsolicited and does not otherwise result from a breach of Section 4.02 of the Merger Agreement. "TAKEOVER PROPOSAL" means any inquiry, proposal or offer from any person relating to (i) any direct or indirect purchase, lease, pledge or other acquisition of 10% or more of the assets of the Company and its subsidiaries, taken as a whole, or 10% or more (on either an issued and outstanding or a fully-diluted basis) of any class or series of capital stock of the Company or any subsidiary of the Company, (ii) any tender offer or exchange offer that if consummated would result in any person (or group of related persons) beneficially owning 10% or more (on either an issued and outstanding or a fully-diluted basis) of any class or series of capital stock of the Company or any subsidiary of the Company, or (iii) any merger, consolidation, business combination, recapitalization, liquidation, dissolution or other similar transaction involving the Company or any subsidiary of the Company, in each case, other than the transactions to be effected pursuant to the Merger Agreement. The Merger Agreement further provides that, except as described below, neither the Company Board nor any committee thereof (including the Committee) shall (i) withdraw (or modify in a manner adverse to Parent or the Purchaser) or propose to withdraw (or modify in a manner adverse to Parent or the Purchaser) the Recommendation and the Committee Approval, (ii) adopt, approve or recommend, or propose to adopt, approve or recommend, any Takeover Proposal, (iii) cause or permit the Company to enter into any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement or other similar contract (other than a confidentiality agreement as required by Section 4.02(a) of the Merger Agreement) (each, an "ACQUISITION AGREEMENT") constituting or related to, or which is intended to or is reasonably likely to lead to, any Takeover Proposal, or (iv) agree or resolve to take any of the actions contemplated by clause (i), (ii) or (iii) of this sentence PROVIDED, HOWEVER, that the Company Board or any committee thereof may take any of such actions if (and only if) each of the following conditions has been satisfied: (w) the Company Board or such committee thereof determines in good faith, after consultation with outside counsel, that failure to do so would constitute a breach of its fiduciary duties to the shareholders of the Company under applicable law; (x) no breach of 28 any of the Company's obligations under this provision or its obligations described in the immediately following paragraph shall have occurred; (y) the Company shall have given Parent three business days' prior written notice of its intention to take such action and if such action is being taken in connection with a Superior Proposal or a Takeover Proposal which may lead to a Superior Proposal, Parent shall not have proposed changes to the terms of the Merger Agreement which would have the effect of causing the Takeover Proposal in question no longer to constitute a Superior Proposal or otherwise cause the condition set forth in clause (w) above no longer to be satisfied; and (z) the Company shall have terminated the Merger Agreement and prior to such termination, the Company has paid the Termination Fee (as defined below under "Fees and Expenses; Termination Fee") to Parent. In addition to the obligations of the Company described in the preceding three paragraphs, the Merger Agreement provides that the Company will promptly (and in any event within 24 hours or, in the case of any action described in clause (x) or (y) of the fourth preceding paragraph not less than 48 hours prior to taking any such action) (i) advise Parent orally and in writing of any request for information that the Company reasonably believes could lead to or contemplates a Takeover Proposal or of any Takeover Proposal or of any inquiry the Company reasonably believes could lead to any Takeover Proposal, the terms and conditions of any such request, Takeover Proposal or inquiry (including any subsequent amendment or other modification to such terms and conditions) and the identity of the person making any such request, Takeover Proposal or inquiry and (ii) keep Parent informed in all material respects of the status and details (including amendments or proposed amendments) of any such request, Takeover Proposal or inquiry and of any discussions or negotiations with respect thereto. The Merger Agreement provides that the provisions described above will not prohibit the Company from taking and disclosing to its shareholders a position contemplated by Rule 14d-9 or Rule 14e-2(a) promulgated under the Exchange Act or making any disclosure to the Company's shareholders if, in the good faith judgment of the Company Board, after consultation with outside counsel, failure so to disclose would be inconsistent with applicable law; PROVIDED, HOWEVER, in no event shall the Company Board or any committee thereof withdraw or modify, or propose to withdraw or modify, its position with respect to the Merger Agreement, the Offer or the Merger (unless it is permitted to do so as described above) or adopt, approve or recommend, or propose to adopt, approve or recommend, any Takeover Proposal. FEES AND EXPENSES; TERMINATION FEE. The Merger Agreement provides that except as set forth below, all fees and expenses incurred in connection with the Merger Agreement, the Offer, the Merger and the other transactions contemplated by the Merger Agreement shall be paid by the party incurring such fees or expenses, whether or not the Merger is consummated. In the event that (i) (A) a Takeover Proposal shall have been made (whether to the Company, any subsidiary of the Company, or the shareholders of the Company or otherwise) or become publicly known or any person shall have publicly proposed or publicly announced an intention (whether or not conditional and whether or not withdrawn) to make a Takeover Proposal, (B) thereafter the Merger Agreement is terminated by either Parent or the Company as described above in paragraph (b)(i) under "Termination of the Merger Agreement" and (C) within 12 months after such termination, the Company or any of its subsidiaries enters into any Acquisition Agreement with respect to, or otherwise consummates the transaction contemplated by, any Takeover Proposal; or (ii) the Merger Agreement is terminated by Parent as described above in paragraph (c), (d)(i) or (g) under "Termination of the Merger Agreement" or by the Company as described in paragraph (f) under "Termination of the Merger Agreement"; then, in each case, the Company shall pay Parent a fee equal to $98,000,000 (the "TERMINATION FEE") by wire transfer of same day funds, to an account designated by Parent. In the event that such payment is being made as a result of any event referred to in subsection (i)(C) or subsection (ii)(B) above, such payment shall be made not later than the date of such event and in the event that such payment is being made as a result of any event referred to in subsection (ii) above, such payment shall be made not later than the date of such termination (and in the case of a termination by the Company as 29 a condition to such termination); PROVIDED, HOWEVER, that for purposes of subsection (i) of this paragraph, the references to "10%" in the definition of "Takeover Proposal" shall in each case be deemed to be references to "50%". The parties have agreed that if the Company fails promptly to pay any amount due as described in this paragraph and, in order to obtain such payment, Parent commences a suit that results in a judgment against the Company for such amount, the Company shall pay to Parent interest on such amount at the prime rate of Citibank, N.A. in effect on the date such payment was required to be made. CONDUCT OF BUSINESS. The Merger Agreement provides that during the period from the date of the Merger Agreement to the Effective Time, except (i) as consented to in writing by Parent, (ii) as specifically contemplated by the Merger Agreement or (iii) as disclosed on Section 4.01(a) of the Company's disclosure schedule to the Merger Agreement, the Company shall, and shall cause its subsidiaries to, carry on their respective businesses in the ordinary course consistent with past practice and use their commercially reasonable efforts to comply with all applicable laws, rules and regulations and, to the extent consistent therewith, use their commercially reasonable efforts to preserve their assets and technology and preserve their relationships with customers, suppliers, licensors, licensees, distributors and others having business dealings with them in all material respects. Without limiting the generality of the foregoing, but subject to clauses (i), (ii) and (iii) above, the Company shall not, and shall not permit any of its subsidiaries to: (i) (w) declare, set aside or pay any dividends on, or make any other distributions (whether in cash, stock or property) in respect of, any of its capital stock except for cash dividends payable to the Company or a subsidiary of the Company by a subsidiary of the Company, (x) purchase, redeem or otherwise acquire any shares of capital stock or any other securities of the Company or its subsidiaries (except in connection with and consistent with the terms of the Stock Plans (as defined in the Merger Agreement) or the Benefit Plans (as defined in the Merger Agreement), as in effect on the date of the Merger Agreement) or any options, warrants, calls or rights to acquire any such shares or other securities, (y) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or any of its other securities or (z) liquidate, merge or consolidate with any other person; (ii) issue, deliver, sell, pledge, dispose of, grant, encumber, or otherwise transfer or authorize the issuance, delivery, sale, pledge, disposition, grant or encumbrance of any shares of the Company's or any of its subsidiaries' capital stock, any other equity or voting interests or any securities convertible into, or exchangeable for, or any options, warrants, calls or rights to acquire, any such shares, voting securities or convertible securities or any stock appreciation rights or other rights (other than the issuance of Shares upon the exercise of Stock Options (as defined in the Merger Agreement) and other rights and agreements set forth in Section 3.01(c) of the Company's disclosure schedule to the Merger Agreement that were in existence on the date of the Merger Agreement); (iii) amend or propose to amend its or any of its subsidiaries' articles of incorporation or by-laws (or similar organizational documents); (iv) directly or indirectly acquire or agree to acquire (A) by merging or consolidating with, or by purchasing all or a substantial portion of the assets of, or in any other manner, any assets or stock constituting a business or any corporation, partnership, joint venture or association or other entity or division thereof, or any direct or indirect interest in any of the foregoing, or (B) any assets other than purchases of assets (including, subject to clause (vii) below, capital assets) in the ordinary course of business consistent with past practice; (v) directly or indirectly sell, lease, license, sell and lease back, mortgage or otherwise encumber or subject to any lien or otherwise dispose of any of its properties or assets or any interest 30 therein, except (i) sales of assets or any interest therein in the ordinary course of business consistent with past practice, (ii) pledges or encumbrances pursuant to existing borrowing arrangements, or (iii) any such transaction not otherwise permitted with an aggregate value not to exceed $5,000,000; (vi) (x) repurchase, accelerate, prepay or incur any indebtedness or guarantee any indebtedness of another person or issue or sell any debt securities or options, warrants, calls or other rights to acquire any debt securities of the Company or any of its subsidiaries, guarantee any debt securities of another person, enter into any "keep well" or other agreement to maintain any financial statement condition of another person or enter into any arrangement having the economic effect of any of the foregoing (PROVIDED that the Company may incur indebtedness for borrowed money under its existing credit facilities up to an aggregate amount of $30,000,000), (y) make any loans, advances or capital contributions to, or investments in, any other person, other than the Company or any direct or indirect wholly owned subsidiary of the Company, or (z) enter into any hedging agreement or other financial agreement or arrangement designed to protect the Company against fluctuations in interest rates, commodity prices, currency exchange rates or otherwise, except, in the cases of clauses (x), (y) and (z) above, agreements or arrangements entered into in the ordinary course of business consistent with past practice; (vii) incur or commit to incur any capital expenditures in an aggregate amount in excess of $10,000,000; (viii) pay, discharge, settle or satisfy any litigation, claims (including claims of shareholders), liabilities or obligations (whether absolute, accrued, asserted or unasserted, contingent or otherwise) in an aggregate amount exceeding $5,000,000, other than the payment, discharge or satisfaction in the ordinary course of business consistent with past practice or as required by their terms as in effect on the date of the Merger Agreement of claims, liabilities or obligations reflected, reserved against or otherwise disclosed in the most recent audited financial statements (or the notes thereto) of the Company included in documents the Company has filed with the Commission (for amounts not in excess of such reserves or as otherwise disclosed) or incurred since the date of such financial statements in the ordinary course of business consistent with past practice, or waive, release, grant or transfer any right of material value, other than in the ordinary course of business consistent with past practice, or waive any material benefits of, or agree to modify in any material adverse respect, or fail to enforce, or consent to any matter with respect to which its consent is required under, any confidentiality, standstill or similar agreement to which the Company or any of its subsidiaries is a party; (ix) (A) grant to any employee, officer, director, consultant or independent contractor of the Company or any of its subsidiaries any increase in cash compensation or pay any bonus, other than in the ordinary course of business consistent with past practice, (B) grant to any employee, officer, director, consultant or independent contractor of the Company or any of its subsidiaries any increase in severance or termination pay, (C) establish, adopt, enter into or amend in any material respect any collective bargaining agreement or Benefit Plan (as defined in the Merger Agreement), (D) take any action to accelerate any rights or benefits, take any action to fund or in any other way secure the payment of compensation or benefits under any Benefit Plan, or make any material determinations not in the ordinary course of business consistent with past practice, under any collective bargaining agreement or Benefit Plan other than as provided below under "Stock Options", including any payment of cash pursuant thereto or (E) amend or modify or grant any Stock Option, in each case above other than (i) changes that are required by applicable law or (ii) to satisfy obligations existing as of the date of the Merger Agreement; (x) fail to maintain insurance existing at levels substantially comparable to levels as of the date of the Merger Agreement; 31 (xi) transfer or license to any person or entity or otherwise extend, amend or modify any rights to the Intellectual Property (as defined in the Merger Agreement) rights of the Company and its subsidiaries other than in the ordinary course of business consistent with past practice; PROVIDED that in no event shall the Company license on an exclusive basis or sell any Intellectual Property rights of the Company or its subsidiaries; (xii) enter into or amend any agreements pursuant to which any person is granted exclusive marketing, manufacturing or other rights with respect to any material Company product, process or technology, other than in the ordinary course of business consistent with past practice; (xiii) except insofar as may be required by a change in generally accepted accounting principles in the United States or generally accepted accounting principles of the applicable jurisdiction or changes in applicable law, make any changes in accounting methods, principles or practices; (xiv) take any action that could reasonably be expected to result in (A) any representation and warranty of the Company set forth in the Merger Agreement that is qualified as to materiality becoming untrue, (B) any such representation and warranty that is not so qualified becoming untrue in any material respect or (C) any condition to the Offer or the Merger not being satisfied except as provided in Section 4.02(b) of the Merger Agreement; (xv) take any action, other than reasonable and usual actions in the ordinary course of business and consistent with past practice, with respect to accounting policies or procedures; (xvi) amend, modify or consent to the termination of any Material Contract (as defined in the Merger Agreement), or amend, waive, modify or consent to the termination of the Company's or any of its subsidiaries' material rights thereunder; (xvii) commence any material litigation; or (xviii) authorize any of, or commit, resolve or agree to take any of, the foregoing actions. BOARD OF DIRECTORS. The Merger Agreement provides that promptly upon the acceptance for payment of, and payment by the Purchaser for, any Shares pursuant to the Offer, the Purchaser shall, subject to compliance with Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder, be entitled to designate such number of directors on the Company Board as will give the Purchaser representation on the Company Board equal to that number of directors, rounded up to the next whole number, which is the product of (a) the total number of directors on the Company Board (giving effect to the directors elected pursuant to this sentence) multiplied by (b) a fraction, the numerator of which is the number of Shares so accepted for payment and paid for by the Purchaser and the denominator of which is the number of such Shares outstanding, and the Company shall, at such time, cause the Purchaser's designees to be so elected or appointed to the Company Board; PROVIDED, HOWEVER, that during the period commencing with the election or appointment of the Purchaser's designees to the Company Board until the Effective Time, the Company Board shall have at least three directors who are directors on the date of the Merger Agreement and who are not officers of the Company or representatives of any affiliates of the Company (the "INDEPENDENT DIRECTORS"); and PROVIDED FURTHER, HOWEVER, that if during such period the number of Independent Directors shall be reduced below three for any reason whatsoever, the remaining Independent Directors (or Independent Director, if there shall be only one remaining) shall be entitled to designate persons to fill any such vacancies who shall be deemed to be Independent Directors for purposes of the Merger Agreement or, if no Independent Directors then remain, the other directors shall designate three persons to fill such vacancies who are not shareholders, officers or affiliates of the Company, Parent or the Purchaser, and such persons shall be deemed to be Independent Directors for purposes of the Merger Agreement. Subject to applicable law, the Company shall take all action requested by Parent for the purpose of effecting any such election or appointment of the Purchaser's designees. In connection with the foregoing, the Company shall promptly, at the option of the Purchaser, either increase the size of the Company Board or obtain the resignation of such number 32 of its current directors as is necessary to enable the Purchaser's designees to be elected or appointed to the Company Board as provided above. Prior to the Effective Time, the Company shall cause each member of the Company Board, other than the Purchaser's designees, to execute and deliver a letter effectuating his or her resignation as a director of the Company Board effective immediately prior to the Effective Time. STOCK OPTIONS. The Merger Agreement provides that prior to or as soon as practicable following the Effective Time, the Company (acting, where appropriate, through the Company Board or a committee thereof) shall take all action as may be necessary, and shall use commercially reasonable effects to obtain any necessary consents, so that each Stock Option outstanding immediately prior to the Effective Time is fully vested and canceled at the Effective Time in exchange for a right to receive a cash payment from the Company, payable as soon as practicable after such cancellation, equal to the product of (x) the excess, if any, of (A) the consideration payable in the Merger over (B) the exercise price per Share subject to such Stock Option, multiplied by (y) the number of Shares issuable pursuant to the unexercised portion of such Stock Option, less any tax withholding required by applicable law. Notwithstanding the foregoing, at the request of Parent, the Company (acting, where appropriate, through the Company Board or a committee thereof) shall take all action as may be necessary, and shall use commercially reasonable efforts to obtain any necessary consents, so that each Stock Option outstanding immediately prior to the first purchase of Shares pursuant to the Offer is fully vested and canceled at such time in exchange for the right to receive such payment (such vesting and cancellation in exchange for the right to receive such payment is referred to as the "OPTION CASH-OUT"). Parent intends to make such request. In connection with this request, the Company will solicit, during the term of the Offer, consents from all holders of Stock Options to the Option Cash-Out. Holders of Stock Options will be required to agree in writing prior to the expiration of the Offer to the Option Cash-Out for the Option Cash-Out to be effected, with their consent taking effect immediately prior to the first purchase of Shares in the Offer. In addition to a letter from the Company soliciting each holder's agreement to cancel the holder's Stock Options, each holder will be provided with a copy of this Offer to Purchase and the other relevant tender offer materials. Payment of the cash price pursuant to the Option Cash-Out will occur on the same schedule as the payment for tendered Shares in the Offer. Prior to the Effective Time, the Company Board (or, if appropriate, any committee administering the Stock Plans) shall take or cause to be taken such actions as are required (x) to cause the Stock Plans to terminate as of the Effective Time, (y) to cause the provisions in any other Benefit Plan providing for the issuance, transfer or grant of any capital stock of the Company or any interest on or following the Effective Time in respect of any capital stock of the Company to be deleted as of the Effective Time, and (z) modify or cancel any award outstanding thereunder so that no Shares are outstanding or are issuable under such award after the Effective Time. RESTRICTED STOCK. Prior to or as soon as practicable following the date of the Merger Agreement, the Company (acting, where appropriate, through the Company Board or a committee thereof) shall take all action as may be necessary, and shall use commercially reasonable efforts to obtain any necessary consents, so that the consideration payable in the Merger received in respect of each Share subject to restrictions based on satisfaction of performance criteria (the "RESTRICTED STOCK") pursuant to Section 2.01(c) of the Merger Agreement shall be held in custody by the Company and distributed to the holder of such Restricted Stock only upon satisfaction of the performance criteria contained in the Restricted Stock Award Agreement related thereto. EARNOUT SHARES. Prior to or as soon as practicable following the date of the Merger Agreement, the Company shall take any action (including the giving of notice to the Accredited Sellers (as defined in the Merger Agreement)) as is required by the Macro Agreement (as defined in the Merger Agreement) and the Macro Side Letters (as defined in the Merger Agreement), so that, in accordance with the terms of the Macro Agreement and the Macro Side Letters, the right to receive a Share under the Macro 33 Agreement and the Macro Side Letters shall be converted into a right to receive the consideration payable in the Merger, when and if such Shares become issuable to the Accredited Sellers, pursuant to the terms of the Macro Agreement and the Macro Side Letters. PHANTOM STOCK AWARDS. Prior to or as soon as practicable following the date of the Merger Agreement, the Company (acting, where appropriate, through the Company Board or a committee thereof) shall take all action as may be necessary, and shall use commercially reasonable efforts to obtain any necessary consents, so that all phantom stock awards (including, for this purpose, any award payable in cash in an amount based in whole or in part on the value of a Share) outstanding under any Stock Plan are cancelled as of the Effective Time. As soon as practicable after such cancellation, Parent shall cause a payment to be made with respect to each such award granted on March 2, 1998 under the 1997 Long-Term Incentive Plan (as defined in the Merger Agreement) and listed on Section 5.04(d) of the Company's disclosure schedule to the Merger Agreement (by name of holder and number of phantom shares) equal to the product of (i) the number of phantom shares so awarded, and (ii) $38.125, less any tax withholding required by applicable law. No cash payments shall be made directly or indirectly in respect of any award of phantom shares granted on March 2, 1999 or March 7, 2000. Immediately following the Effective Time, Parent shall cause payment to be made of the remaining, unpaid, portion of the award granted on March 3, 1997 under the Long-Term Incentive Plan and which would have been due and payable, absent the Merger Agreement, in 2001. EMPLOYEE STOCK PURCHASE PLAN. Prior to or as soon as practicable following the date of the Merger Agreement and contingent on the closing of the transactions contemplated by the Merger Agreement, the Company (acting, where appropriate, through the Company Board or a committee thereof) shall take all action as may be necessary, and shall use commercially reasonable efforts to obtain any necessary consents, to suspend or to terminate the Company's Employee Stock Purchase Plan (as defined in the Merger Agreement) so that, with regard to employee contributions withheld from pay after the date of the Merger Agreement, no additional Shares may be purchased thereunder if those shares would be subject to direct or indirect purchase under the Merger Agreement. EMPLOYEE STOCK OWNERSHIP PLAN. Prior to the Effective Time and contingent on the closing of the transactions contemplated by the Merger Agreement, the Company (acting, where appropriate, through the Company Board or a committee thereof) shall take all action as may be necessary so that the accounts of all employees under the Company's Employee Stock Ownership Plan (as defined in the Merger Agreement) are fully vested as of the Effective Time. POST-CLOSING EMPLOYEE BENEFITS. The Merger Agreement provides that, following the date of closing of the Merger, and allowing for such period of time thereafter as may be administratively advisable in order to effect the transition from the Benefit Plans, Parent shall provide, or cause to be provided, the employees of the surviving corporation in the Merger and its subsidiaries with employee benefits (other than bonuses and severance benefits to the extent covered below in "Severance" and "Annual Bonus Awards") that are no less favorable in the aggregate than those made available by Parent to its similarly situated employees, PROVIDED that after the date of closing of the Merger, Parent shall retain the right to amend or terminate any of such benefits to the extent permitted by applicable law and consistent with the Merger Agreement. To the extent that service is relevant for eligibility and vesting under any retirement plan or employee benefit plan, program or arrangement established or maintained for the benefit of the employees of the surviving corporation in the Merger and its subsidiaries, such plan, program or arrangement shall credit such employees for service on or prior to the date of closing of the Merger with the Company or any of its subsidiaries, except where such credit would result in a duplication of benefits or unintended windfall or with respect to any benefit where, as to similarly situated employees of Parent, only future service is taken into account. SEVERANCE. With respect each employee of the Company who is listed in Section 5.07(b)(1) of the Company's disclosure schedule to the Merger Agreement (the "LEVEL 1 EMPLOYEES"), Parent shall cause 34 the Change in Control Agreement or Severance Agreement to which such employee is a party and is in effect at the Effective Date to be honored in accordance with its terms, PROVIDED, HOWEVER, that the reference, if any, to "two times" contained in the definition of "Applicable Incentive Amount" in any Change in Control Agreement shall be disregarded. With respect to each employee of the Company who is listed in Section 5.07(b)(2) of the Company's disclosure schedule to the Merger Agreement (the "LEVEL 2 EMPLOYEES"), Parent shall cause each such employee whose employment is terminated by Parent or its affiliates (or by the employee if (and only if) on account of a reduction in the employee's base pay or annual target bonus percentage under the Company's Management Incentive Plan or a relocation of the employee's primary work site of more than 40 miles) within the one year period following the date of closing of the Merger to receive over a 12 month period such percentage of such employee's annual base pay as is equal to 100% plus such employee's annual target bonus percentage. With respect to each employee of the Company who is not a Level 1 Employee or a Level 2 Employee (the "LEVEL 3 EMPLOYEES"), Parent shall cause each such employee whose employment is terminated by Parent or its affiliates within the one year period following the date of closing of the Merger to receive severance payments equal to those payable pursuant to the Company's Severance Pay Plan as in effect on the date of the Merger Agreement (the "SEVERANCE PLAN") and shall not exercise any retained right to amend or to terminate the Severance Pay Plan and shall not exercise any right to issue a "severance pay award" under the Severance Pay Plan for the purpose of diminishing the entitlement to these payments. For up to 12 months following a termination of employment entitling a Level 2 or Level 3 Employee to severance payments, Parent shall subsidize such employee's COBRA continuation coverage in an amount that allows such employee to continue to participate in the Company's medical program on the same basis as similarly situated active employees. Notwithstanding the foregoing, no Level 2 or Level 3 Employee shall be entitled to severance benefits if (i) such employee's employment is terminated by Parent or its affiliates for any reason set forth in Section 3.3 of the Severance Plan or by reason of death or disability or (ii) such employee fails to execute a release of claims in favor of Parent and its affiliates in a form that is reasonably acceptable to Parent. ANNUAL BONUS AWARDS. Parent shall cause the annual bonus opportunities with respect to the Company's fiscal year ending February 3, 2001 under the Company's Management Incentive Plan and 2000 Long-Term Incentive Program to remain in place, subject to such reasonable adjustments in the performance targets as Parent determines are necessary to reflect consummation of the transactions contemplated by the Merger Agreement. INDEMNIFICATION, EXCULPATION AND INSURANCE. The Merger Agreement provides that all rights to indemnification and exculpation from liabilities for acts or omissions occurring at or prior to the Effective Time existing at the date of the Merger Agreement, in favor of the then current or former directors or officers of the Company and its subsidiaries as provided in their respective articles of incorporation or by-laws (or similar organizational documents) shall be assumed by the surviving corporation in the Merger, without further action, at the Effective Time and shall survive the Merger and shall continue in full force and effect in accordance with their terms. In the event that the surviving corporation in the Merger or any of its successors or assigns (i) consolidates with or merges into any other person and is not the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers or conveys all or substantially all its properties and assets to any person, then, and in each such case, Parent shall cause proper provision to be made so that the successors and assigns of the surviving corporation assume the obligations described in this section "Indemnification, Exculpation and Insurance". In the Merger Agreement, Parent has agreed that for not less than six years after the Effective Time, Parent shall maintain in effect the Company's current directors' and officers' liability insurance covering each person currently covered by the Company's directors' and officers' liability insurance policy for acts or omissions occurring prior to the Effective Time on terms with respect to coverage and amounts that are no less favorable in any material respect to such directors and officers than those of such policy 35 as in effect on the date of the Merger Agreement; PROVIDED, HOWEVER, that (i) Parent may substitute therefor policies of a reputable insurance company the material terms of which, including coverage and amount, are no less favorable in any material respect to such directors and officers than the insurance coverage otherwise required by this provision of the Merger Agreement, and (ii) in no event shall Parent be required to pay aggregate premiums for insurance described in this paragraph in excess of 200% of the amount of the aggregate premiums paid by the Company in respect of such coverage for the calendar year 1999; PROVIDED FURTHER, HOWEVER, that Parent shall nevertheless be obligated to provide such coverage as may be obtained for such 200% amount. The provisions described in this paragraph are intended to be for the benefit of, and will be enforceable by, each indemnified party, his or her heirs and his or her representatives. COMMERCIALLY REASONABLE EFFORTS; NOTIFICATION. The Merger Agreement provides that each of the parties agrees to use all commercially reasonable efforts to take, or cause to be taken, all actions that are necessary, proper or advisable to consummate and make effective the Offer, the Merger and the other transactions contemplated by the Merger Agreement, including using all commercially reasonable efforts to accomplish the following: (i) the taking of all commercially reasonable acts necessary to cause the conditions to the Offer and the Merger to be satisfied, (ii) the obtaining of all necessary actions or nonactions, waivers, consents, approvals, orders and authorizations from Governmental Entities and the making of all necessary registrations, declarations and filings, including the making of all filings under the HSR Act and the relevant foreign antitrust laws as promptly as reasonably practicable, and in any event, within five business days after the date of the Merger Agreement, and (iii) the obtaining of all necessary consents, approvals or waivers from third parties. In connection with and without limiting the foregoing, the Company and the Company Board shall, if any state takeover statute or similar statute or regulation is or becomes applicable to the Merger Agreement, the Offer, the Merger or any of the other transactions contemplated thereby, use its commercially reasonable efforts to ensure that the Offer, the Merger and the other transactions contemplated by the Merger Agreement may be consummated as promptly as practicable on the terms contemplated by the Merger Agreement and otherwise to minimize the effect of such statute or regulation on the Merger Agreement, the Offer, the Merger and the other transactions contemplated thereby. The Company and Parent shall keep the other apprised of the status of matters relating to the completion of the transactions contemplated thereby and work cooperatively in connection with obtaining any such waivers, consents, approvals, orders and authorizations, including, without limitation: (i) promptly notifying the other of, and if in writing, furnishing the other with copies of (or, in the case of material oral communications, advise the other orally of) any communications from or with any Governmental Entity with respect to the Offer, the Merger or any of the other transactions contemplated by the Merger Agreement, (ii) permitting the other party to review and discuss in advance, and considering in good faith the views of one another in connection with, any proposed written (or material proposed oral) communication with any Governmental Entity, (iii) not participating in any meeting with any Governmental Entity unless it consults with the other party in advance and to the extent permitted by such Governmental Entity gives the other party the opportunity to attend and participate there at, (iv) furnishing the other party with copies of all correspondence, filings and communications (and memoranda setting forth the substance thereof) between it and any Governmental Entity with respect to the Merger Agreement, the Offer and the Merger, and (v) furnishing the other party with such necessary information and reasonable assistance as such other party may reasonably request in connection with its preparation of necessary filings or submissions of information to any Governmental Entity. The Company and Parent may, as each deems advisable and necessary, reasonably designate any competitively sensitive material provided to the other under this paragraph as "outside counsel only". Such materials and the information contained therein shall be given only to the outside legal counsel of the recipient and will not be disclosed by such outside counsel to employees, officers, or directors of the recipient unless express permission is obtained in advance from the source of the materials (the Company or Parent, as the case may be) or its legal counsel. The Company shall give prompt notice to Parent, and Parent shall give prompt notice to the Company, of (i) any representation or 36 warranty made by it contained in the Merger Agreement that is qualified as to materiality becoming untrue or inaccurate in any respect or any such representation or warranty that is not so qualified becoming untrue or inaccurate in any material respect, (ii) the failure by it to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it under the Merger Agreement, or (iii) any change or event having, or that is reasonably likely to have, a material adverse effect on the notifying party or on the truth of their respective representations and warranties or the ability of the conditions contained in the Merger Agreement to be satisfied; PROVIDED that no such notification shall affect the representations, warranties, covenants or agreements of the parties or the conditions to the obligations of the parties under the Merger Agreement. REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains various customary representations and warranties, including representations relating to corporate existence and power; capitalization; corporate authorizations; subsidiaries; Commission filings; absence of certain changes; litigation; contracts; compliance with laws; labor matters; environmental matters; employee benefits matters; taxes; intellectual property; real and personal property; state takeover statutes; brokers; the inapplicability of the Rights Agreement to the Offer and the Merger; and the opinion of the Company's financial advisor. Certain representations and warranties in the Merger Agreement made by the Company and Parent are qualified as to "materiality" or "material adverse effect". For purposes of the Merger Agreement and the Offer, the term "MATERIAL ADVERSE EFFECT" means any state of facts, change, development, effect, event, condition or occurrence that is materially adverse to the business, assets, financial condition, results of operations of the Company and its subsidiaries, taken as a whole; PROVIDED, HOWEVER, that none of the following shall be deemed to constitute, and none of the following shall be taken into account in determining whether there has been or will be, a Material Adverse Effect: any state of facts, change, development, effect, event, condition or occurrence (i) to the extent attributable to the announcement of the Offer and the other transactions contemplated pursuant to the Merger Agreement, or (ii) attributable to conditions generally affecting the information services industry, the United States economy as a whole or foreign economies in any locations where the Company or any of its subsidiaries has material operations or sales. PROCEDURE FOR AMENDMENT, EXTENSION OR WAIVER. The Merger Agreement may be amended by the parties at any time, whether before or after the Shareholder Approval; PROVIDED that, after the purchase of Shares pursuant to the Offer, no amendment shall be made which decreases the Offer Price and, after the Shareholder Approval has been obtained, there shall be made no amendment that by law requires further approval by the Company's shareholders or Parent's or the Purchaser's shareholders without the further approval of the Company's shareholders or Parent's or the Purchaser's shareholders. The Merger Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties thereto. Following the election or appointment of the Purchaser's designees to the Company Board as described above and prior to the Effective Time, the affirmative vote of a majority of the Independent Directors then in office shall be required by the Company to (i) amend or terminate the Merger Agreement by the Company, (ii) exercise or waive any of the Company's rights or remedies under the Merger Agreement or (iii) extend the time for performance of Parent's and the Purchaser's respective obligations under the Merger Agreement. At any time prior to the Effective Time, the parties may (a) extend the time for the performance of any of the obligations or other acts of the other parties, (b) waive any inaccuracies in the representations and warranties contained in the Merger Agreement or in any document delivered pursuant thereto or (c) waive compliance with any of the agreements or conditions contained therein; PROVIDED that after the Shareholder Approval has been obtained, there shall be made no waiver that by law requires further approval by the Company's shareholders or Parent's shareholders without the further approval of the Company's shareholders or Parent's or the Purchaser's shareholders. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on 37 behalf of such party. The failure or delay by any party to the Merger Agreement to assert any of its rights under the Merger Agreement or otherwise shall not constitute a waiver of such rights nor shall any single or partial exercise by any party to the Merger Agreement of any of its rights under the Merger Agreement preclude any other or further exercise of such rights or any other rights under the Merger Agreement. The foregoing summary of the Merger Agreement is qualified in its entirety by reference to the Merger Agreement, which is filed as Exhibit (d)(1) and Exhibit (d)(2) to the Schedule TO. The Merger Agreement should be read in its entirety for a more complete description of the matters summarized above. THE CONFIDENTIALITY AGREEMENT Pursuant to a Confidentiality Agreement dated June 14, 2000 between Pearson Education, Inc., a wholly owned indirect subsidiary of Parent, and the Company, Pearson Education, Inc., on behalf of itself and its parent corporations agreed to keep confidential certain information provided by the Company or its representatives. The Confidentiality Agreement also contains customary standstill provisions. PLANS FOR THE COMPANY If a majority of the outstanding Shares are purchased by the Purchaser pursuant to the Offer, Parent may designate its representatives as a majority of the Company Board. Parent's principal reason for acquiring the Company is the strategic fit of the Company's operations with Parent's operations. Parent intends to continue to review the Company and its assets, corporate structure, dividend policy, capitalization, operations, properties, policies, management and personnel and to consider, subject to the terms of the Merger Agreement, what, if any, actions or changes would be desirable in light of the circumstances then existing (including steps to integrate the operations of the Company with those of Parent under the direction of Parent's management as well as the implementation of technical and industrial savings and synergies created by the transaction), and reserves the right to take such actions or effect such changes as it deems desirable. Such changes could include changes in the Company's corporate structure, operational headquarters, capitalization, management or dividend policy. Except as described above or elsewhere in this Offer to Purchase, Parent and the Purchaser have no present plans or proposals that would relate to or result in (i) any extraordinary corporate transaction involving the Company or any of its subsidiaries (such as a merger, reorganization, liquidation, relocation of any operations or sale or other transfer of a material amount of assets), (ii) any sale or transfer of a material amount of assets of the Company or any of its subsidiaries, (iii) any change in the Company Board or management of the Company, (iv) any material change in the Company's capitalization or dividend policy, (v) any other material change in the Company's corporate structure or business, (vi) a class of securities of the Company being delisted from a national securities exchange or ceasing to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association or (vii) a class of equity securities of the Company being eligible for termination of registration pursuant to Section 12(g) of the Exchange Act. Parent is considering a transfer of the shares which it indirectly owns in the Purchaser (which following the Merger will represent shares in the Company) to another subsidiary (direct or indirect) of Parent. DISSENTERS' RIGHTS No rights to seek to obtain the "fair value" of their Shares are available to shareholders of the Company in connection with the Offer. However, if the Merger is consummated, a shareholder of the Company will have certain rights under Sections 302A.471 and 302A.473 of the MBCA to dissent from the Merger and obtain payment in cash for the fair value of that shareholder's Shares. Those rights, if the 38 statutory procedures are complied with, could lead to a judicial determination of the fair value (immediately prior to the effective date of the Merger) required to be paid in cash to dissenting shareholders of the Company for their Shares. Any judicial determination of the fair value of the Shares could be based upon considerations other than or in addition to the consideration payable in the Merger and the market value of the Shares, including asset values and the investment value of the Shares. The value so determined could be more or less than the consideration payable in the Merger. The Merger Agreement provides that, notwithstanding any provision of the Merger Agreement to the contrary, any Shares which are issued and outstanding immediately prior to the Effective Time and which are held by a holder who has not voted such Shares in favor of the Merger and who has properly exercised dissenters' rights with respect to such Shares in accordance with the MBCA (including Sections 302A.471 and 302A.473 thereof) and, as of the Effective Time, has neither effectively withdrawn nor otherwise lost for any reason its right to exercise such dissenters' rights ("DISSENTING SHARES"), will not be converted into or represent a right to receive the consideration payable in the Merger. The holders of Dissenting Shares will be entitled to only such rights as are granted by Section 302A.471 of the MBCA. The Merger Agreement further provides that if any shareholder of the Company who asserts dissenters' rights with respect to its Shares under the MBCA effectively withdraws or otherwise loses for any reason (including failure to perfect) dissenters' rights, then as of the Effective Time or the occurrence of such event, whichever later occurs, such holder's Shares will automatically be cancelled and converted into and represent only the right to receive the consideration payable in the Merger, without interest thereon, upon surrender of the certificate or certificates formerly representing such Dissenting Shares. The Merger Agreement further provides that the Company shall give Parent (x) prompt notice of any written intent to demand payment of the fair value of any Shares, withdrawals of such demands and any other instruments delivered pursuant to the MBCA in respect of Shares or the Merger received by the Company and (y) the opportunity to control and resolve all negotiations and proceedings with respect to dissenters' rights under the MBCA. The Company may not voluntarily make any payment with respect to any exercise of dissenters' rights and may not, except with the prior written consent of Parent, settle or offer to settle any such dissenters' rights. FAILURE TO PRECISELY FOLLOW THE STEPS REQUIRED BY SECTIONS 302A.471 AND 302A.473 OF THE MBCA FOR THE PERFECTION OF DISSENTERS' RIGHTS MAY RESULT IN THE LOSS OF THOSE RIGHTS. THE FOREGOING SUMMARY OF THE RIGHTS OF DISSENTING SHAREHOLDERS UNDER THE MBCA IS NOT A COMPLETE STATEMENT OF THE PROCEDURES TO BE FOLLOWED BY SHAREHOLDERS DESIRING TO EXERCISE ANY DISSENTERS' RIGHTS AVAILABLE UNDER THE MBCA. THE PRESERVATION AND EXERCISE OF DISSENTERS' RIGHTS REQUIRE STRICT ADHERENCE TO THE APPLICABLE PROVISIONS OF THE MBCA. GOING-PRIVATE TRANSACTIONS The Commission has adopted Rule 13e-3 under the Exchange Act, which is applicable to certain "going private" transactions. The Purchaser does not believe that Rule 13e-3 will be applicable to the Merger unless the Merger is consummated more than one year after the termination of the Offer. If applicable, Rule 13e-3 requires, among other things, that certain financial information concerning the fairness of the Merger and the consideration offered to minority shareholders in the Merger be filed with the Commission and disclosed to shareholders prior to the consummation of the Merger. 39 13. DIVIDENDS AND DISTRIBUTIONS As discussed in Section 12, the Merger Agreement provides that from the date of the Merger Agreement to the Effective Time, without the prior approval of Parent, the Company may not declare, set aside or pay any dividends on, or make any other distributions (whether in cash, stock or property) in respect of, any of its capital stock except for cash dividends payable to the Company or a subsidiary of Company by a subsidiary of the Company. 14. CERTAIN CONDITIONS OF THE OFFER The Merger Agreement provides that the Purchaser will not be required to accept for payment or, subject to any applicable rules and regulations of the Commission, including Rule 14e-1(c) under the Exchange Act (relating to the Purchaser's obligation to pay for or return tendered Shares promptly after the termination or withdrawal of the Offer), to pay for any Shares tendered pursuant to the Offer and may postpone the acceptance for payment or payment for any Shares tendered and when permitted by the Merger Agreement, amend or terminate the Offer if (i) there shall not have been validly tendered and not withdrawn prior to the expiration of the Offer that number of Shares which would represent at least a majority of the outstanding Shares (determined on a fully diluted basis for all outstanding stock options, convertible debentures and any other rights to acquire Shares on the date of purchase) (the "FULLY DILUTED SHARES") and (ii) any requisite waiting period under the HSR Act (and any extension thereof) applicable to the purchase of Shares pursuant to the Offer or to the Merger and any other requisite waiting periods under any other applicable material competition, merger, control, antitrust or similar law or regulation shall not have been terminated or shall not have expired. Furthermore, notwithstanding any other term of the Offer or the Merger Agreement, the Purchaser will not be required to accept for payment or, subject to any applicable rules and regulations of the Commission, to pay for any Shares not yet accepted for payment or paid for, and, subject to the Merger Agreement, may terminate or amend the Offer, immediately prior to the applicable Expiration Date, if any of the following conditions exists: (a) there shall be pending or formally threatened in writing any suit, action or proceeding by any Governmental Entity having a reasonable likelihood of success on the merits (i) challenging the acquisition by Parent or the Purchaser of any shares of common stock of the Company, seeking to restrain or prohibit consummation of the Offer or the Merger, or seeking to place limitations on the ownership of Shares (or shares of common stock of the Company following the Merger) by Parent or the Purchaser, (ii) seeking to prohibit or limit the ownership or operation by the Company or Parent and their respective subsidiaries of any material portion of the business or assets of the Company or Parent and their respective subsidiaries taken as a whole, or to compel the Company or Parent and their respective subsidiaries to dispose of or hold separate any material portion of the business or assets of the Company or Parent and their respective subsidiaries taken as a whole, as a result of the Offer, the Merger or any of the other transactions contemplated by the Merger Agreement, (iii) seeking to prohibit Parent or any of its subsidiaries from effectively controlling in any material respect the business or operations of the Company or Parent and subsidiaries taken as a whole, or (iv) which otherwise is reasonably expected to have a Material Adverse Effect; (b) any Legal Restraint that has the effect of preventing the purchase of Shares pursuant to the Offer or the Merger shall be in effect; (c) except as set forth in the Company's disclosure schedule to the Merger Agreement or in the SEC Documents (as defined in the Merger Agreement), since April 29, 2000, there shall have been any state of facts, change, development, effect, event, condition or occurrence that, individually or in the aggregate, constitutes or would reasonably be expected to have, a Material Adverse Effect; (d) as of the date of the consummation of the Offer, the representation and warranty of the Company with respect to its capital structure and outstanding equity interests shall not be true and 40 correct in all material respects, or the other representations and warranties of the Company contained in the Merger Agreement shall not be true and correct (without giving effect to any limitation as to "materiality" or material adverse effect set forth therein), as if such representations and warranties were made on the date thereof, except for such failures to be true and correct that, individually and in the aggregate, would not reasonably be expected to have a Material Adverse Effect; (e) the Company shall have failed to perform in any material respect any material obligation required to be performed by it under the Merger Agreement at or prior to the Specified Date; (f) Parent shall not have obtained all consents, approvals, authorizations, qualifications and orders of all Governmental Entities legally required in connection with the Merger Agreement and the transactions contemplated by the Merger Agreement other than any such consents, approvals, authorizations, qualifications and orders, the failure of which to obtain, individually and in the aggregate, would not reasonably be expected to have a Material Adverse Effect; (g) the Merger Agreement shall have been terminated in accordance with its terms; (h) (i) the Company Board shall have (A) withdrawn or modified or changed, in any manner adverse to Parent or the Purchaser, the Recommendation, (B) accepted, approved or recommended any Takeover Proposal, or (C) resolved or publicly disclosed any intention to do any of the foregoing or (ii) the Committee shall have (A) withdrawn or modified in any manner adverse to Parent or the Purchaser, the Committee Approval, (B) approved a Takeover Proposal or (C) resolved or publicly disclosed any intention to do any of the foregoing; or (i) there shall have occurred (i) any general suspension of trading in or on the Nasdaq National Market or the London Stock Exchange in excess of 24 hours (other than a shortening of trading hours or any coordinated trading halt triggered solely as a result of a specified increase or decrease in a market index or a trading halt resulting from physical damage or interference with such market or exchange not related to market conditions), (ii) a decline of at least 25% in all of the Dow Jones Average of Industrial Stocks, the Standard & Poor's 500 Index and the Financial Times-Stock Exchange All Shares Index measured from the date hereof to the date on which the Offer has expired, (iii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States or the United Kingdom, (iv) the imposition of any limitation (whether or not mandatory) by any government or Governmental Entity, that materially adversely affects the extension of credit by banks or other lending institutions or (v) a commencement of a war or armed hostilities or any other national or international calamity directly or indirectly involving the United States or the United Kingdom; which, in the sole discretion of the Purchaser or Parent in any such case, and regardless of the circumstances giving rise to any such condition (including any action or inaction by Parent or any of its affiliates), makes it inadvisable to proceed with such acceptance for payment or payment. The foregoing conditions are for the sole benefit of the Purchaser and Parent and may be asserted by the Purchaser or Parent regardless of the circumstances giving rise to such condition or may be waived by the Purchaser or Parent in whole or in part at any time and from time to time in their sole discretion. The failure by Parent, the Purchaser or any other affiliate of Parent at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right; the waiver of any such right with respect to particular facts and circumstances shall not be deemed a waiver with respect to any other facts and circumstances and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time. 41 15. CERTAIN LEGAL MATTERS Except as described in this Section 15, based on a review of publicly available filings made by the Company with the Commission and other publicly available information concerning the Company and discussions of representatives of Parent with representatives of the Company, none of Parent, the Purchaser or the Company is aware of any license or regulatory permit that appears to be material to the business of the Company and its subsidiaries, taken as a whole, that might be adversely affected by the Purchaser's acquisition of Shares (and the indirect acquisition of the stock of the Company's subsidiaries) as contemplated herein or of any approval or other action by any Governmental Entity that would be required or desirable for the acquisition or ownership of Shares by the Purchaser as contemplated herein. Should any such approval or other action be required or desirable, Parent and the Purchaser currently contemplate that such approval or other action will be sought, except as described below under "State Takeover Laws". While (except as otherwise expressly described in this Section 15) the Purchaser does not presently intend to delay the acceptance for payment of or payment for Shares tendered pursuant to the Offer pending the outcome of any such matter, there can be no assurance that any such approval or other action, if needed, would be obtained or would be obtained without substantial conditions or that failure to obtain any such approval or other action might not result in consequences adverse to the Company's business or that certain parts of the Company's business might not have to be disposed of if such approvals were not obtained or such other actions were not taken or in order to obtain any such approval or other action. If certain types of adverse action are taken with respect to the matters discussed below, the Purchaser could, subject to the terms and conditions of the Merger Agreement, decline to accept for payment or pay for any Shares tendered. See Section 14 for a description of certain conditions to the Offer. STATE TAKEOVER LAWS. A number of states throughout the United States have enacted takeover statutes that purport, in varying degrees, to be applicable to attempts to acquire securities of corporations that are incorporated or have assets, shareholders, executive offices or places of business in such states. In EDGAR V. MITE CORP., the Supreme Court of the United States held that the Illinois Business Takeover Act, which involved state securities laws that made the takeover of certain corporations more difficult, imposed a substantial burden on interstate commerce and therefore was unconstitutional. In CTS CORP. V. DYNAMICS CORP. OF AMERICA, however, the Supreme Court of the United States held that a state may, as a matter of corporate law and, in particular, those laws concerning corporate governance, constitutionally disqualify a potential acquiror from voting on the affairs of a target corporation without prior approval of the remaining shareholders, provided that such laws were applicable only under certain conditions. Subsequently, a number of U.S. federal courts ruled that various state takeover statutes were unconstitutional insofar as they apply to corporations incorporated outside the state of enactment. In Minnesota, Section 302A.673 of the MBCA limits the ability of a publicly held Minnesota corporation to engage in business combinations with an "interested shareholder" (defined in Section 302A.011 of the MBCA as any beneficial owner, directly or indirectly, of 10% or more of the voting power of the outstanding shares of such corporation entitled to vote) unless, among other things, a committee of that corporation's board comprised of all disinterested directors (defined in Section 302A.673 as a director or person who is neither an officer nor an employee of that corporation or a related organization, nor has been an officer or an employee within five years preceding the formation of the committee) has given its prior approval of either the business combination or the transaction which resulted in the shareholder becoming an "interested shareholder". Section 302A.671 of the MBCA (the "CONTROL SHARE ACT") provides that, unless the acquisition of certain additional percentages of voting control of an issuing public corporation (equal to or in excess of 20%, 33 1/3% or 50%) by an acquiring person is approved by the holders of a majority of the outstanding voting power of all shares entitled to vote (other than shares held by the acquirer and certain other persons), the shares acquired at or above any such new percentage level of voting control will not be 42 entitled to voting rights. In addition, if the statutory requirements are not satisfied, the issuing public corporation may redeem the shares so acquired by the acquirer at their market value. Section 302A.671 does not apply to a cash offer to purchase all shares of voting stock of the issuing public corporation if such offer has been approved by a majority vote of the same committee of the disinterested directors of the issuing public corporation formed in accordance with Section 302A.673 and if, following the completion of the cash offer, the offeror will own over 50% of the voting power of the shares of the corporation. Section 302A.671 does not apply to a control share acquisition of shares of an issuing public corporation whose articles of incorporation or by-laws approved by its shareholders provide that the Control Share Act does not apply to control share acquisitions of its shares. The Company's Articles of Incorporation and By-Laws currently do not exclude the Company from the restrictions imposed by the Control Share Act. Section 302A.675 of the MBCA imposes a fair price requirement limiting a purchaser's ability to acquire shares of a publicly held corporation within two years following the last purchase of shares pursuant to a takeover offer with respect to that class, including new acquisitions made by purchase. This fair price requirement does not apply if the second acquisition is approved by a committee of that corporation's board of directors comprised of the disinterested directors formed in accordance with Section 302A.675 of the MBCA before the purchase of any shares pursuant to the first takeover offer. As described in Section 12 of this Offer to Purchase, the Company Board and the Committee, which was formed in accordance with Section 302A.673 of the MBCA, have approved the Offer and the Merger. The Company has represented in the Merger Agreement that, assuming the accuracy of the representation made by Parent and the Purchaser in the Merger Agreement that neither Parent nor any of its affiliates or associates, individually or in the aggregate, has Beneficial Ownership (as defined in Section 302A.011 of the MBCA) of more than 5% of the outstanding capital stock of the Company, as a result of the approvals by the Company Board and the Committee, the Offer, the Merger, the Merger Agreement and the transactions contemplated by the Merger Agreement will not be impeded by Sections 302A.671, 302A.673 and 302A.675 of the MBCA. The Company further represented in the Merger Agreement that no other "fair price," "merger moratorium," "control share acquisition" or other anti-takeover statute or similar statute or regulation (other than Section 302A.553 of the MBCA and Chapter 80 of the Minnesota Statutes) applies or purports to apply to the Merger Agreement, the Offer or any of the transactions contemplated by the Merger, the Merger Agreement or the Offer. Accordingly, Parent and the Purchaser believe that the foregoing restrictions do not apply to them with respect to such transactions. The Minnesota Takeover Disclosure Law, Minnesota Statutes, Sections 80B.01-80B.13 (the "TAKEOVER STATUTE"), by its terms requires certain disclosures and the filing of certain disclosure material with the Minnesota Commissioner of Commerce (the "MINNESOTA COMMISSIONER") with respect to any offer for a corporation, such as the Company, that has its principal place of business in Minnesota and a certain number of shareholders resident in Minnesota. Parent and the Purchaser will promptly file a registration statement with the Commissioner on August 7, 2000. Parent and the Purchaser will also deliver to all offerees the information contained in such registration statement as required by the Takeover Statute. Although the Minnesota Commissioner does not approve or disapprove the Offer, he does review the disclosure material for the adequacy of such disclosure and is empowered to suspend summarily the Offer in Minnesota within three days of such filing if he determines that the registration statement does not (or the materials provided to beneficial owners of the Shares residing in Minnesota do not) provide full disclosure. If such summary suspension occurs, a hearing must be held (within 10 days of the summary suspension) as to whether to permanently suspend the Offer in Minnesota, subject to corrective disclosure. If the Minnesota Commissioner takes action under the Takeover Statute, then the Purchaser may not be obligated to accept for payment or pay for Shares tendered pursuant to the Offer because such action may have the effect of significantly delaying the Offer. See Section 14 of 43 this Offer to Purchase for certain conditions of the Offer, including conditions with respect to governmental actions. In such event, the Purchaser may, among other things, terminate the Offer or amend the terms and conditions of the Offer. Based on information supplied by the Company and the Company's representations in the Merger Agreement, neither Parent nor the Purchaser believes that any other state takeover statutes or regulations apply to the Offer or the Merger. The Purchaser reserves the right to challenge the applicability or validity of any state law purportedly applicable to the Offer or the Merger and nothing in this Offer to Purchase or any action taken in connection with the Offer or the Merger is intended as a waiver of that right. If it is asserted that any state takeover statute is applicable to the Offer or the Merger and an appropriate court does not determine that it is inapplicable or invalid as applied to the Offer or the Merger, the Purchaser might be required to file certain information with, or to receive approvals from, the relevant state authorities, and the Purchaser might be unable to accept for payment or pay for Shares tendered pursuant to the Offer, or be delayed in consummating the Offer or the Merger. In such case, the Purchaser may not be obligated to accept for payment or pay for any Shares tendered pursuant to the Offer. ANTITRUST UNITED STATES ANTITRUST LAW. Under the provisions of the HSR Act applicable to the Offer, the acquisition of Shares under the Offer may be consummated after the expiration of a 15-calendar day waiting period commenced by the filing by Parent of a Notification and Report Form with respect to the Offer, unless Parent receives a request for additional information or documentary material from the Antitrust Division of the Department of Justice or the Federal Trade Commission (the "FTC") or unless early termination of the waiting period is granted. Parent has filed such Notification Report Form on August 2, 2000. If, within the initial 15-day waiting period, either the Antitrust Division or the FTC requests additional information from Parent concerning the Offer, the waiting period will be extended and would expire at 11:59 p.m., New York City time, on the tenth calendar day after the date of substantial compliance by Parent with such request. Only one extension of the waiting period pursuant to a request for additional information is authorized by the HSR Act. Thereafter, such waiting period may be extended only by court order or with the consent of Parent. In practice, complying with a request for additional information or material can take a significant amount of time. In addition, if the Antitrust Division or the FTC raises substantive issues in connection with a proposed transaction, the parties frequently engage in negotiations with the relevant governmental agency concerning possible means of addressing those issues and may agree to delay consummation of the transaction while such negotiations continue. Expiration or termination of the applicable waiting period under the HSR Act is a condition to the Purchaser's obligation to accept for payment and pay for Shares tendered pursuant to the Offer. The Merger will not require an additional filing under the HSR Act if the Purchaser owns 50% or more of the outstanding Shares at the time of the Merger or if the Merger occurs within one year after the HSR Act waiting period applicable to the Offer expires or is terminated. The Antitrust Division and the FTC frequently scrutinize the legality under the antitrust laws of transactions such as the Purchaser's proposed acquisition of the Company. At any time before or after the Purchaser's acquisition of Shares pursuant to the Offer, the Antitrust Division or the FTC could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the purchase of Shares pursuant to the Offer or the consummation of the Merger or seeking the divestiture of Shares acquired by the Purchaser or the divestiture of substantial assets of the Company or its subsidiaries or Parent or its subsidiaries. Private parties may also bring legal action under the antitrust laws under certain circumstances. There can be no assurance that a challenge to the Offer on antitrust grounds will not be made or, if such a challenge is made, of the result thereof. 44 GERMAN ANTITRUST LAW. Pursuant to the Gesetz gegen Wettbewerbsbeschrankungen (the Act Against Restraints of Competition), Parent and the Company are required to submit a premerger notification to the German Federal Cartel Office (the "FCO"). The initial waiting period applicable to the purchase of Shares pursuant to the Offer is one month unless the FCO extends the waiting period if it determines that additional review is required. If such a determination is made, the waiting period may be extended for a period of up to four months (such period to commence from the day following the filing date of the premerger notification). If the FCO concludes that the acquisition will lead to the creation or strengthening of a market dominating position, the acquisition will be prohibited unless the parties agree to remedy the adverse competitive impact identified by the FCO. The FCO may approve the Purchaser's acquisition of the Shares pursuant to the Offer prior to the expiration of the initial one-month waiting period. There can be no assurance, however, that the initial one-month waiting period will be terminated early. Shares will not be accepted for payment or paid for pursuant to the Offer until the conditions to the Offer, including the expiration of this waiting period, are satisfied or waived by the Purchaser by the Expiration Date. OTHER FOREIGN LAWS. The Company and Parent and certain of their respective subsidiaries conduct business in several foreign countries where regulatory filings or approvals may be required or desirable in connection with the consummation of the Offer. Certain of such filings or approvals, if required or desirable, may not be made or obtained prior to the expiration of the Offer. Parent, the Purchaser and the Company are analyzing the applicability of any such laws and currently intend to take such action as may be required or desirable. If any foreign Governmental Entity takes any action prior to the completion of the Offer that might have certain adverse effects, the Purchaser will not be obligated to accept for payment or pay for any Shares tendered. See Section 14. 16. FEES AND EXPENSES Goldman, Sachs & Co. is acting as Dealer Manager for the Offer and is providing certain financial advisory services to Parent and the Purchaser in connection with the Offer, for which services Goldman, Sachs & Co. will receive customary compensation. Parent also has agreed to reimburse Goldman, Sachs & Co. for reasonable out-of-pocket expenses, including fees and expenses of its legal counsel, and to indemnify Goldman, Sachs & Co. and certain related parties against certain liabilities, including liabilities under the federal securities laws, arising out of its engagement. In the ordinary course of business, Goldman, Sachs & Co. and its affiliates may actively trade or hold the securities of Parent and the Company for their own account and for the accounts of customers and, accordingly, may at any time hold a long or short position in such securities. Parent and the Purchaser have retained Georgeson Shareholder Communications Inc. to act as the Information Agent and ChaseMellon Shareholder Services, L.L.C. to serve as the Depositary in connection with the Offer. The Information Agent and the Depositary each will receive reasonable and customary compensation for their services, be reimbursed for certain reasonable out-of-pocket expenses and be indemnified against certain liabilities and expenses in connection therewith, including certain liabilities and expenses under the U.S. federal securities laws. Neither Parent nor the Purchaser will pay any fees or commissions to any broker or dealer or other person (other than the Dealer Manager) in connection with the solicitation of tenders of Shares pursuant to the Offer. Brokers, dealers, banks, trust companies and other members will be reimbursed by the Purchaser upon request for customary mailing and handling expenses incurred by them in forwarding material to their customers. 45 17. MISCELLANEOUS The Offer is not being made to (nor will tenders be accepted from or on behalf of) holders of Shares in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. Neither Parent nor the Purchaser is aware of any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. To the extent Parent or the Purchaser becomes aware of any state law that would limit the class of offerees in the Offer, the Purchaser will amend the Offer and, depending on the timing of such amendment, if any, will extend the Offer to provide adequate dissemination of such information to holders of Shares prior to the expiration of the Offer. In any jurisdiction the securities, blue sky or other laws of which require the Offer to be made by a licensed broker or dealer, the Offer is being made on behalf of the Purchaser by the Dealer Manager or one or more registered brokers or dealers licensed under the laws of such jurisdiction. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION ON BEHALF OF PARENT OR THE PURCHASER NOT CONTAINED HEREIN OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. Parent and the Purchaser have filed with the Commission the Schedule TO pursuant to Rule 14d-3 under the Exchange Act, together with exhibits, furnishing certain additional information with respect to the Offer, and may file amendments thereto. In addition, the Company has filed the Schedule 14D-9 pursuant to Rule 14d-9 under the Exchange Act, together with exhibits, setting forth its recommendation with respect to the Offer and the reasons for such recommendation and furnishing certain additional related information. Such Schedules and any amendments thereto, including exhibits, should be available for inspection and copies should be obtainable in the manner set forth in Section 8 (except that such material will not be available at the regional offices of the Commission). PN ACQUISITION SUBSIDIARY INC. August 7, 2000 46 SCHEDULE I DIRECTORS AND EXECUTIVE OFFICERS OF PARENT AND THE PURCHASER 1. DIRECTORS AND EXECUTIVE OFFICERS OF PARENT. The name, business address, present principal occupation or employment and material occupations, positions, offices or employment for the past five years of each of the directors and executive officers of Parent are set forth below. Unless otherwise indicated, each such director and executive officer is a citizen of the United Kingdom.
POSITION WITH PARENT; PRESENT PRINCIPAL NAME; BUSINESS OCCUPATION OR EMPLOYMENT; MATERIAL ADDRESS AND CITIZENSHIP POSITIONS HELD DURING THE PAST FIVE YEARS - --------------------------------------------- ----------------------------------------------------- Lord Stevenson Executive Chairman of Parent since 1997; 3 Dean Trench Street Non-Executive Director of Parent from 1986 through London SW1P 3HB 1997; Chairman of AerFi Group plc since November 1993; Chairman of Halifax plc since April 1999; Director of Manpower Inc. since March 1988; Director of Whitehall Trust Ltd. since May 1997; Director of AerFi International Ltd. since September 1998; Director of The House of Lords Appointment Commission. Marjorie M. Scardino Chief Executive of Parent since January 1997; Pearson plc Director of Pearson Management Services Limited, 3 Burlington Gardens Pearson Overseas Holdings Limited and Pearson London W1X 1LE Services Limited since February 1997; Director of (United States) Recoletos Compania Editorial S.A. since June 1997. Ms. Scardino is also a member of the Board of Directors of America Online Inc., ConAgra Inc., Public Radio International and RTL Group plc. David C. M. Bell Director of Parent since March 1996; "A" Director of Pearson plc Pearson Group Pension Trustees Limited since 3 Burlington Gardens September 1997; Director of Pearson Services Limited London W1X 1LE since September 1999; Director of Recoletos Compania Editorial S.A. since June 1997. Mr. Bell is also a member of the Board of Directors of Zen Research plc, International Youth Foundation, The Millennium Bridge Trust, The Windmill Partnership Ltd. and VITEC Group plc. John C. Makinson Finance Director of Parent since 1996. Mr. Makinson Pearson plc also holds several positions as director for 3 Burlington Gardens subsidiaries and affiliates of Parent (including London W1X 1LE President and Treasurer of the Purchaser). Mr. Makinson is also a member of the Board of Directors of Data Broadcasting Corporation, George Weston Limited, MarketWatch.com Inc., RTL Group plc and International Rescue Committee. Lord Burns Non-Executive Director of Parent since May 1999; 13 North Avenue Member of House of Lords. Lord Burns is also a London W13 8AP director of Legal & General Group plc and The British Land Company. Gill M. Lewis Non-Executive Director of Parent; Managing Partner of Heidrick & Struggles Heidrick & Struggles since 1999. Ms. Lewis has held a 100 Piccadilly number of positions within Heidrick & Struggles since London W1V 9FM 1995. Ms. Lewis is also a trustee of the National Society for the Prevention of Cruelty to Children.
47
POSITION WITH PARENT; PRESENT PRINCIPAL NAME; BUSINESS OCCUPATION OR EMPLOYMENT; MATERIAL ADDRESS AND CITIZENSHIP POSITIONS HELD DURING THE PAST FIVE YEARS - --------------------------------------------- ----------------------------------------------------- Reuben Mark Non-Executive Director of Parent since May of 1988; The Colgate Palmolive Company Chairman and Chief Executive Officer of The Colgate 300 Park Avenue Palmolive Company since 1983. Mr. Mark is also a New York, New York 10022 member of the Board of Directors of Citigroup Inc. (United States) and Time Warner Inc. Vernon L. Sankey Non-Executive Director of Parent since January 1993; Thomson Travel Director of Thomson Travel Group plc since January Greater London House 2000. Mr. Sankey is also a director of Allied Zurich Hampstead Road plc, Zurich Allied AG and Zurich Financial Services. London NW1 7SD Rana Talwar Non-Executive Director of Parent since March 2000; Standard Chartered Bank Chief Executive of Standard Chartered plc since 1 Aldermanbury Square October 1998; Executive Director of Standard London EC2V 7SB Chartered Bank from April 1997 through September (India) 1998; Executive Vice President of Citicorp from 1969 through March 1997. Peter Jovanovich Chief Executive Officer of Pearson Education since Pearson Education, Inc. November 1998; Chairman and Chief Executive Officer One Lake Street of Addison Wesley Longman, Inc. from August 1997 Upper Saddle River, through November 1998; President of McGraw Hill New Jersey 07458 Educational and Professional Publishing Group from (United States) April 1995 through August 1997. Stephen Hill Chief Executive and Director of Financial Times Group Financial Times Group Limited Limited since March 1996. Mr. Hill also holds several One Southwark Bridge positions as director for subsidiaries and affiliates London, SE1 9HL of Financial Times Group Limited. Mr. Hill is also a member of the Board of Directors of Data Broadcasting Corporation and MarketWatch.com Inc. David A. Wan President of The Penguin Group since January 2000; The Penguin Group Executive Vice President and Chief Financial Officer 375 Hudson Street of The Penguin Group from December 1998 through New York, New York 10014 December 1999; President K-12 Group of Simon & (United States) Schuster Inc. from October 1996 through December 1998; Executive Vice President--Strategy and Development of Simon & Schuster Inc. from May 1995 through October 1996.
48 2. DIRECTOR AND EXECUTIVE OFFICERS OF THE PURCHASER. The name, citizenship, business address, present principal occupation or employment and material occupations, positions, offices or employment for the past five years of the sole director and executive officers of the Purchaser are set forth below.
POSITION WITH THE PURCHASER; PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; MATERIAL POSITIONS HELD DURING THE PAST NAME FIVE YEARS - ---- ----------------------------------------------------- Robert L. Dancy Director, Vice President and Secretary of the One Lake Street Purchaser; Senior Vice President and General Counsel Upper Saddle River, of Pearson Education, Inc. since November 1998; Vice New Jersey 07458 President and General Counsel of Addison Wesley (United States) Longman, Inc. from February 1995 through November 1998. John C. Makinson President and Treasurer of the Purchaser; Finance Pearson plc Director of Parent since 1996. Mr. Makinson also 3 Burlington Gardens holds several positions as director for subsidiaries London W1X 1LE and affiliates of Parent. Mr. Makinson is also a (United Kingdom) member of the Board of Directors of Data Broadcasting Corporation, George Weston Limited, MarketWatch.com Inc., RTL Group plc and International Rescue Committee.
49 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal, certificates for Shares and any other required documents should be sent or delivered by each shareholder of the Company or such shareholder's broker, dealer, bank, trust company or other nominee to the Depositary at one of its addresses set forth below. THE DEPOSITARY FOR THE OFFER IS CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
BY MAIL: BY HAND: BY COURIER: ChaseMellon Shareholder Services, ChaseMellon Shareholder Services, ChaseMellon Shareholder Services, L.L.C. L.L.C. L.L.C. Reorganization Department Reorganization Department Reorganization Department P.O. Box 3301 120 Broadway 85 Challenger Road South Hackensack, New Jersey 13th Floor Mail Stop--Reorg 07606 New York, New York 10271 Ridgefield Park, New Jersey 07660
BY FACSIMILE TRANSMISSION: (For Eligible Institutions only) (201) 296-4293 CONFIRM FACSIMILE TRANSMISSION: (By telephone only) (201) 296-4860 Questions and requests for assistance may be directed to the Information Agent or the Dealer Manager at their respective addresses set forth below. Additional copies of the Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery or any other tender offer materials may be obtained from the Information Agent. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. THE INFORMATION AGENT FOR THE OFFER IS: Georgeson Shareholder Communications Inc. 17 STATE STREET, 10TH FLOOR NEW YORK, NEW YORK 10004 BANKS AND BROKERAGE FIRMS CALL COLLECT: (212) 440-9800 ALL OTHERS CALL TOLL FREE: (800) 223-2064 THE DEALER MANAGER FOR THE OFFER IS: GOLDMAN, SACHS & CO. 85 BROAD STREET NEW YORK, NEW YORK 10004 (212) 902-1000 (CALL COLLECT) (800) 323-5678 (CALL TOLL FREE) EX-99.A(1)(B) 3 ex-99_a1b.txt EXHIBIT 99(A)(1)(B) LETTER OF TRANSMITTAL TO TENDER SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) NATIONAL COMPUTER SYSTEMS, INC. PURSUANT TO THE OFFER TO PURCHASE DATED AUGUST 7, 2000 BY PN ACQUISITION SUBSIDIARY INC., A WHOLLY OWNED INDIRECT SUBSIDIARY OF PEARSON PLC THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, SEPTEMBER 7, 2000, UNLESS THE OFFER IS EXTENDED. THE DEPOSITARY FOR THE OFFER IS CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
BY MAIL: BY HAND: BY COURIER: ChaseMellon Shareholder ChaseMellon Shareholder ChaseMellon Shareholder Services, L.L.C. Services, L.L.C. Services, L.L.C. Reorganization Department Reorganization Department Reorganization Department P.O. Box 3301 120 Broadway 85 Challenger Road South Hackensack, New Jersey 13th Floor Mail Stop--Reorg 07606 New York, New York 10271 Ridgefield Park, New Jersey 07660
BY FACSIMILE TRANSMISSION: (For Eligible Institutions only) (201) 296-4293 CONFIRM FACSIMILE TRANSMISSION: By telephone only (201) 296-4860 DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER, OTHER THAN AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS SET FORTH IN THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
- --------------------------------------------------------------------------------------------------------------------------- DESCRIPTION OF SHARES TENDERED - --------------------------------------------------------------------------------------------------------------------------- NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) (PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) APPEAR(S) SHARES TENDERED ON SHARE CERTIFICATE(S) (ATTACH ADDITIONAL SIGNED LIST IF NECESSARY) - --------------------------------------------------------------------------------------------------------------------------- TOTAL NUMBER OF SHARES REPRESENTED BY SHARE CERTIFICATE SHARE NUMBER OF SHARES NUMBER(S)* CERTIFICATE(S)* TENDERED** ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ TOTAL SHARES - --------------------------------------------------------------------------------------------------------------------------- * Need not be completed if transfer is made by book-entry transfer. ** Unless otherwise indicated, it will be assumed that all Shares described above are being tendered. See Instruction 4. IF ANY OF THE CERTIFICATES REPRESENTING SHARES THAT YOU OWN HAVE BEEN LOST OR DESTROYED SEE INSTRUCTION 11. - ---------------------------------------------------------------------------------------------------------------------------
This Letter of Transmittal is to be used either if certificates are to be forwarded herewith or, unless an Agent's Message (as defined in Section 2 of the Offer to Purchase (as defined below)) is utilized, if delivery of Common Stock, $0.03 par value per share, including associated preferred stock purchase rights (the "Shares") is to be made by book-entry transfer to an account maintained by the Depositary at the Book-Entry Transfer Facility (as defined in and pursuant to the procedures set forth in Section 2 of the Offer to Purchase). Shareholders whose certificates for Shares are not immediately available or who cannot deliver either the certificates for, or a Book-Entry Confirmation (as defined in the Offer to Purchase) with respect to, their Shares and all other documents required hereby to the Depositary prior to the Expiration Date (as defined in the Offer to Purchase) must tender their Shares in accordance with the guaranteed delivery procedures set forth in Section 2 of the Offer to Purchase. See Instruction 2. Delivery of documents to a Book-Entry Transfer Facility does not constitute delivery to the Depositary. / / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE DEPOSITARY WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN THE BOOK-ENTRY TRANSFER FACILITY MAY DELIVER SHARES BY BOOK-ENTRY TRANSFER): Name of Tendering Institution _____________________________________________ Account Number ____________________________________________________________ Transaction Code Number ___________________________________________________ / / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY, ENCLOSE A PHOTOCOPY OF SUCH NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING: Name(s) of Registered Owner(s) ____________________________________________ Date of Execution of Notice of Guaranteed Delivery ________________________ Name of Institution that Guaranteed Delivery ______________________________ If delivered by book-entry transfer check box: / / 2 NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: The undersigned hereby tenders to PN Acquisition Subsidiary Inc., a Minnesota corporation (the "Purchaser") and a wholly owned indirect subsidiary of Pearson plc, a public limited company registered in England and Wales ("Parent"), the above-described shares of Common Stock, par value $0.03 per share, including the associated preferred stock purchase rights (the "Shares"), of National Computer Systems, Inc., a Minnesota corporation (the "Company"), upon the terms and subject to the conditions set forth in the Purchaser's Offer to Purchase dated August 7, 2000 (the "Offer to Purchase"), and this Letter of Transmittal (which, together with any amendments or supplements thereto or hereto, collectively constitute the "Offer"), receipt of which is hereby acknowledged. Upon the terms of the Offer, subject to, and effective upon, acceptance for payment of, and payment for, the Shares tendered herewith in accordance with the terms of the Offer, the undersigned hereby sells, assigns and transfers to, or upon the order of, the Purchaser all right, title and interest in and to all the Shares that are being tendered hereby (and any and all other Shares or other securities or rights issued in respect thereof on or after August 7, 2000) and irrevocably constitutes and appoints ChaseMellon Shareholder Services, L.L.C. (the "Depositary"), the true and lawful agent and attorney-in-fact of the undersigned, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to the full extent of the undersigned's rights with respect to such Shares (and any such other Shares or securities or rights) (a) to deliver certificates for such Shares (and any such other Shares or securities or rights) or transfer ownership of such Shares (and any such other Shares or securities or rights) on the account books maintained by the Book-Entry Transfer Facility together, in any such case, with all accompanying evidences of transfer and authenticity to, or upon the order of, the Purchaser, (b) to present such Shares (and any such other Shares or securities or rights) for transfer on the Company's books and (c) to receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares (and any such other Shares or securities or rights), all in accordance with the terms of the Offer. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the tendered Shares (and any and all other Shares or other securities or rights issued or issuable in respect of such Shares on or after August 7, 2000) and, when the same are accepted for payment by the Purchaser, the Purchaser will acquire good title thereto, free and clear of all liens, restrictions, claims and encumbrances and the same will not be subject to any adverse claim. The undersigned will, upon request, execute any additional documents deemed by the Depositary or the Purchaser to be necessary or desirable to complete the sale, assignment and transfer of the tendered Shares (and any such other Shares or other securities or rights). All authority conferred or agreed to be conferred pursuant to this Letter of Transmittal shall be binding upon the successors, assigns, heirs, executors, administrators and legal representatives of the undersigned and shall not be affected by, and shall survive, the death or incapacity of the undersigned. Except as stated in the Offer to Purchase, this tender is irrevocable. The undersigned hereby irrevocably appoints Robert L. Dancy, Peter Jovanovich and John LaVacca, and each of them, and any other designees of the Purchaser, the attorneys-in-fact and proxies of the undersigned, each with full power of substitution, to vote at any annual, special or adjourned meeting of the Company's shareholders or otherwise in such manner as each such attorney-in-fact and proxy or his or her substitute shall in his or her sole discretion deem proper with respect to, to execute any written consent concerning any matter as each such attorney-in-fact and proxy or his or her substitute shall in his or her sole discretion deem proper with respect to, and to otherwise act as each such attorney-in-fact and proxy or his or her substitute shall in his sole discretion deem proper with respect to, the Shares tendered hereby that have been accepted for payment by the Purchaser prior to the time any such action is taken and with respect to which the undersigned is entitled to vote (and any and all other Shares or other securities or rights issued or issuable in respect of such Shares on or after August 7, 2000). This appointment is effective when, and only to the extent that, the Purchaser accepts for payment such Shares as provided in the Offer to Purchase. This power of attorney and proxy are irrevocable and are granted in consideration 3 of the acceptance for payment of such Shares in accordance with the terms of the Offer. Upon such acceptance for payment, all prior powers of attorney, proxies and consents given by the undersigned with respect to such Shares (and any such other Shares or securities or rights) will, without further action, be revoked and no subsequent powers of attorney, proxies, consents or revocations may be given (and, if given, will not be deemed effective) by the undersigned. The undersigned understands that the valid tender of Shares pursuant to any of the procedures described in Section 2 of the Offer to Purchase and in the Instructions hereto will constitute a binding agreement between the undersigned and the Purchaser upon the terms and subject to the conditions of the Offer. Unless otherwise indicated herein under "Special Payment Instructions", please issue the check for the purchase price and/or return any certificates for Shares not tendered or accepted for payment in the name(s) of the registered holder(s) appearing under "Description of Shares Tendered". Similarly, unless otherwise indicated under "Special Delivery Instructions", please mail the check for the purchase price and/or return any certificates for Shares not tendered or accepted for payment (and accompanying documents, as appropriate) to the address(es) of the registered holder(s) appearing under "Description of Shares Tendered". In the event that both the "Special Delivery Instructions" and the "Special Payment Instructions" are completed, please issue the check for the purchase price and/or return any certificates for Shares not tendered or accepted for payment (and any accompanying documents, as appropriate) in the name of, and deliver such check and/or return such certificates (and any accompanying documents, as appropriate) to, the person or persons so indicated. Please credit any Shares tendered herewith by book-entry transfer that are not accepted for payment by crediting the account at the Book-Entry Transfer Facility designated above. The undersigned recognizes that the Purchaser has no obligation pursuant to the "Special Payment Instructions" to transfer any Shares from the name of the registered holder thereof if the Purchaser does not accept for payment any of the Shares so tendered. / / CHECK HERE IF ANY OF THE CERTIFICATES REPRESENTING SHARES THAT YOU OWN HAVE BEEN LOST OR DESTROYED AND SEE INSTRUCTION 11. NUMBER, CLASS AND SERIES OF SHARES REPRESENTED BY THE LOST OR DESTROYED CERTIFICATES: - -------------------------------------------------------------------------------- 4 - ------------------------------------------------ SPECIAL PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if certificates for Shares not tendered or not accepted for payment and/or the check for the purchase price of Shares accepted for payment are to be issued in the name of someone other than the undersigned. Issue / / Check / / Certificate(s) to: Name _______________________________________________________________________ (PLEASE PRINT) Address ____________________________________________________________________ ____________________________________________________________________________ (INCLUDE ZIP CODE) ____________________________________________________________________________ (EMPLOYER IDENTIFICATION OR SOCIAL SECURITY NUMBER) - ------------------------------------------------------------ - ------------------------------------------------------------ SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if certificates for Shares not tendered or not accepted for payment and/or the check for the purchase price of Shares accepted for payment is to be sent to someone other than the undersigned or to the undersigned at an address other than that above. Mail / / Check / / Certificate(s) to: Name _______________________________________________________________________ (PLEASE PRINT) Address ____________________________________________________________________ ____________________________________________________________________________ (INCLUDE ZIP CODE) ____________________________________________________________________________ (EMPLOYER IDENTIFICATION OR SOCIAL SECURITY NUMBER) - ----------------------------------------------------- 5 - -------------------------------------------------------------------------------- SIGN HERE (ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW) ____________________________________________________________________________ . , ____________________________________________________________________________ . , (SIGNATURE(S) OF SHAREHOLDER(S)) Dated: _____________ 2000 (Must be signed by registered holder(s) as name(s) appear(s) on the certificate(s) for the Shares or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, please provide the following information and see Instruction 5.) Name(s) ____________________________________________________________________ ____________________________________________________________________________ (PLEASE PRINT) Capacity (full title) ______________________________________________________ Address ____________________________________________________________________ ____________________________________________________________________________ (INCLUDE ZIP CODE) Daytime Area Code and Telephone Number _____________________________________ Taxpayer Identification or Social Security Number _____________________________________________________ (SEE SUBSTITUTE FORM W-9) GUARANTEE OF SIGNATURE(S) (IF REQUIRED--SEE INSTRUCTIONS 1 AND 5) Authorized Signature _______________________________________________________ , Name _______________________________________________________________________ (PLEASE PRINT) Title ______________________________________________________________________ Name of Firm _______________________________________________________________ Address ____________________________________________________________________ (INCLUDE ZIP CODE) Daytime Area Code and Telephone Number _____________________________________ Dated: ______________ 2000 - -------------------------------------------------------------------------------- INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. GUARANTEE OF SIGNATURES. No signature guarantee is required on this Letter of Transmittal (a) if this Letter of Transmittal is signed by the registered holder(s) (which term, for purposes of this Instruction, includes any participant in the Book-Entry Transfer Facilities' system whose name appears on a security position listing as the 6 owner of the Shares) of Shares tendered herewith, unless such registered holder(s) has completed either the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" on this Letter of Transmittal or (b) if such Shares are tendered for the account of a firm that is a participant in the Security Transfer Agents Medallion Program or the New York Stock Exchange Guarantee Program or the Stock Exchange Medallion Program or by any other "eligible guarantor institution", as such term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended (each, an "Eligible Institution"). In all other cases, all signatures on this Letter of Transmittal must be guaranteed by an Eligible Institution. See Instruction 5. 2. REQUIREMENTS OF TENDER. This Letter of Transmittal is to be completed by shareholders either if certificates are to be forwarded herewith or, unless an Agent's Message (as defined below) is utilized, if delivery of Shares is to be made pursuant to the procedures for book-entry transfer set forth in Section 2 of the Offer to Purchase. For a shareholder validly to tender Shares pursuant to the Offer, either (a) a Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, together with any required signature guarantees or, in the case of a book-entry transfer, an Agent's Message, and any other required documents, must be received by the Depositary at one of its addresses set forth herein prior to the Expiration Date (as defined in the Offer to Purchase) and either certificates for tendered Shares must be received by the Depositary at one of such addresses or Shares must be delivered pursuant to the procedures for book-entry transfer set forth herein (and a Book-Entry Confirmation (as defined in the Offer to Purchase) must be received by the Depositary), in each case, prior to the Expiration Date, or (b) the tendering shareholder must comply with the guaranteed delivery procedures set forth below and in Section 2 of the Offer to Purchase. Shareholders whose certificates for Shares are not immediately available or who cannot deliver their certificates and all other required documents to the Depositary or complete the procedures for book-entry transfer prior to the Expiration Date may tender their Shares by properly completing and duly executing the Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedures set forth in Section 2 of the Offer to Purchase. Pursuant to such procedures, (a) such tender must be made by or through an Eligible Institution, (b) a properly completed and duly executed Notice of Guaranteed Delivery substantially in the form provided by the Purchaser must be received by the Depositary prior to the Expiration Date and (c) the certificates for all tendered Shares in proper form for transfer (or a Book-Entry Confirmation with respect to all such Shares), together with a Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message, and any other required documents, must be received by the Depositary within three trading days after the date of execution of such Notice of Guaranteed Delivery as provided in Section 2 of the Offer to Purchase. A "trading day" is any day on which the National Association of Securities Dealers Automated Quotation System is open for business. "Agent's Message" means a message transmitted by the Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of a Book-Entry Confirmation, that states that such Book-Entry Transfer Facility has received an express acknowledgment from the participant in such Book-Entry Transfer Facility tendering the Shares that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that the Purchaser may enforce such agreement against such participant. THE METHOD OF DELIVERY OF SHARES, THIS LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT THE ELECTION AND RISK OF THE TENDERING SHAREHOLDER. SHARES WILL BE DEEMED DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY (INCLUDING, IN THE CASE OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF DELIVERY IS BY MAIL, REGISTERED MAIL, WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. No alternative, conditional or contingent tenders will be accepted and no fractional Shares will be purchased. All tendering shareholders, by execution of this Letter of Transmittal (or facsimile thereof), waive any right to receive any notice of the acceptance of their Shares for payment. 3. INADEQUATE SPACE. If the space provided herein is inadequate, the certificate numbers and/or the number of Shares should be listed on a separate schedule attached hereto. 7 4. PARTIAL TENDERS (APPLICABLE TO CERTIFICATE SHAREHOLDERS ONLY). If fewer than all the Shares evidenced by any certificate submitted are to be tendered, fill in the number of Shares that are to be tendered in the box entitled "Number of Shares Tendered". In any such case, new certificate(s) for the remainder of the Shares that were evidenced by the old certificate(s) will be sent to the registered holder, unless otherwise provided in the appropriate box on this Letter of Transmittal, as soon as practicable after the acceptance of payment of, and payment for the Shares tendered herewith. All Shares represented by certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. SIGNATURES ON LETTER OF TRANSMITTAL, STOCK POWERS AND ENDORSEMENTS. If this Letter of Transmittal is signed by the registered holder of the Shares tendered hereby, the signature must correspond with the name as written on the face of the certificate(s) without any change whatsoever. If any of the Shares tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any tendered Shares are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of certificates. If this Letter of Transmittal or any certificates or stock powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and proper evidence satisfactory to the Purchaser of their authority so to act must be submitted. When this Letter of Transmittal is signed by the registered owner(s) of the Shares listed and transmitted hereby, no endorsements of certificates or separate stock powers are required unless payment is to be made to or certificates for Shares not tendered or accepted for payment are to be issued to a person other than the registered owner(s). Signatures on such certificates or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered owner(s) of certificates listed, the certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered owner or owners appear on the certificates. Signatures on such certificates or stock powers must be guaranteed by an Eligible Institution. 6. STOCK TRANSFER TAXES. The Purchaser will pay any stock transfer taxes with respect to the transfer and sale of Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price is to be made to, or if certificates for Shares not tendered or accepted for payment are to be registered in the name of, any person(s) other than the registered owner(s), or if tendered certificates are registered in the name of any person(s) other than the person(s) signing this Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered owner(s) or such person(s)) payable on account of the transfer to such person(s) will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes or exemption therefrom is submitted. Except as provided in this Instruction 6, it will not be necessary for transfer tax stamps to be affixed to the certificates listed in this Letter of Transmittal. 7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check is to be issued in the name of, and/or certificates for Shares not accepted for payment are to be returned to, a person other than the signer of this Letter of Transmittal or if a check is to be sent and/or such certificates are to be returned to a person other than the signer of this Letter of Transmittal or to an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. 8. WAIVER OF CONDITIONS. The Purchaser reserves the absolute right in its sole discretion to waive any of the specified conditions (other than the Minimum Tender Condition (as defined in the Offer to Purchase)) of the Offer, in whole or in part, in the case of any Shares tendered. 9. 31% BACKUP WITHHOLDING TAX. In order to avoid U.S. federal backup withholding tax on payments of cash pursuant to the Offer, a shareholder surrendering Shares in the Offer must, unless an exemption applies, provide 8 the Depositary with such shareholder's correct taxpayer identification number ("TIN") on Substitute Form W-9 below in this Letter of Transmittal and certify under penalties of perjury that such TIN is correct and that such shareholder is not subject to backup withholding tax. If a shareholder does not provide such shareholder's correct TIN or fails to provide the certifications described above, the Internal Revenue Service (the "IRS") may impose a $50 penalty on such shareholder and any payment of cash to such shareholder pursuant to the Offer may be subject to backup withholding tax of 31%. Backup withholding tax is not an additional tax. Rather, the amount of the backup withholding tax can be credited against the Federal income tax liability of the person subject to the backup withholding tax, provided that the required information is given to the IRS. If backup withholding tax results in an overpayment of tax, a refund can be obtained by the shareholder upon filing an income tax return. The shareholder is required to give the Depositary the TIN (i.e., social security number or employer identification number) of the record owner of the Shares. If the Shares are held in more than one name or are not in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report. The box in Part 3 of the Substitute Form W-9 may be checked if the tendering shareholder has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future. If the box in Part 3 is checked, the shareholder or other payee must also complete the Certificate of Awaiting Taxpayer Identification Number below in order to avoid backup withholding. Notwithstanding that the box in Part 3 is checked and the Certificate of Awaiting Taxpayer Identification Number is completed, the Depositary will withhold 31% on all payments made prior to the time a properly certified TIN is provided to the Depositary. However, such amounts will be refunded to such shareholder if a TIN is provided to the Depositary within 60 days of the shareholder submitting such Certificate. Certain shareholders (including, among others, all corporations and certain foreign individuals and entities) are not subject to backup withholding tax. Noncorporate foreign shareholders should complete and sign the main signature form and a Form W-8, Certificate of Foreign Status, a copy of which may be obtained from the Depositary, in order to avoid backup withholding tax. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for more instructions. 10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for assistance may be directed to Georgeson Shareholder Communications Inc. (the "Information Agent") or to Goldman, Sachs & Co. (the "Dealer Manager") at their respective addresses listed below. Additional copies of the Offer to Purchase, this Letter of Transmittal, the Notice of Guaranteed Delivery and the Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 may be obtained from the Information Agent or from brokers, dealers, banks, trust companies or other nominees. 11. LOST, DESTROYED OR STOLEN CERTIFICATES. If any certificate representing Shares has been lost, destroyed or stolen, the shareholder should promptly notify the Depositary by checking the box immediately preceding the special payment/special delivery instructions and indicating the number of Shares so lost, destroyed or stolen, or call the Transfer Agent at (651) 450-4064 or (800) 468-9716. The shareholder will then be instructed by the Depositary as to the steps that must be taken in order to replace the certificate. This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost or destroyed certificates have been followed. IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A MANUALLY SIGNED FACSIMILE THEREOF) TOGETHER WITH ANY SIGNATURE GUARANTEES, OR, IN THE CASE OF A BOOK-ENTRY TRANSFER, AN AGENT'S MESSAGE, AND ANY OTHER REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION DATE AND EITHER CERTIFICATES FOR TENDERED SHARES MUST BE RECEIVED BY THE DEPOSITARY OR SHARES MUST BE DELIVERED PURSUANT TO THE PROCEDURES FOR BOOK-ENTRY TRANSFER, IN EACH CASE PRIOR TO THE EXPIRATION DATE, OR THE TENDERING SHAREHOLDER MUST COMPLY WITH THE PROCEDURES FOR GUARANTEED DELIVERY. 9 PAYER'S NAME: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. ---------------------------------------------------------------------------------------------------------------------------- PART 1--PLEASE PROVIDE YOUR TIN IN THE BOX Social Security Number(s) or Employer SUBSTITUTE AT RIGHT AND CERTIFY BY SIGNING AND DATING Identification Number FORM W-9 BELOW. -------------------------------------------------------------------------------------- PART 2--Certification under penalties of perjury, I certify that (1) the number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued for me) and (2) I am not subject to backup withholding because: DEPARTMENT OF THE TREASURY (a) I am exempt from backup withholding or (b) I have not been notified by the INTERNAL REVENUE SERVICE Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. -------------------------------------------------------------------------------------- CERTIFICATION INSTRUCTIONS--You must cross PART 3 out item (2) in Part 2 above if you have Awaiting TIN / / been notified by the IRS that you are ------------------------------------------ subject to backup withholding because of PART 4 underreporting interest or dividends on Exempt TIN / / PAYER'S REQUEST FOR your tax returns. However, if after being TAXPAYER notified by the IRS that you are subject IDENTIFICATION NUMBER to backup withholding, you received (TIN) another notification from the IRS stating that you are no longer subject to backup withholding, do not cross out such item (2). If you are exempt from backup withholding, check the box in Part 4 above. ---------------------------------------------------------------------------------------------------------------------------- Signature: ---------------------------------------------------------------------------------------------------------------------------- Date: ---------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN BACKUP WITHHOLDING TAX OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL INFORMATION. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9. - -------------------------------------------------------------------------------- CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number to the Depositary, 31% of all reportable payments made to me will be withheld, but will be refunded to me if I provide a certified taxpayer identification number within 60 days. Signature: - ------------------------------------------------------------------------ Date: - ---------------------------- - -------------------------------------------------------------------------------- 10 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal, certificates for Shares and any other required documents should be sent or delivered by each shareholder of the Company or such shareholder's broker, dealer, commercial bank, trust company or other nominee to the Depositary at one of its addresses set forth below. THE DEPOSITARY FOR THE OFFER IS CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
BY MAIL: BY HAND: BY COURIER: ChaseMellon Shareholder Services, ChaseMellon Shareholder Services, ChaseMellon Shareholder Services, L.L.C. L.L.C. L.L.C. Reorganization Department Reorganization Department Reorganization Department P.O. Box 3301 120 Broadway 85 Challenger Road South Hackensack, New Jersey 07606 13th Floor Mail Stop--Reorg New York, New York , 10271 Ridgefield Park, New Jersey 07660
BY FACSIMILE TRANSMISSION: (For Eligible Institutions only) (201) 296-4293 CONFIRM FACSIMILE TRANSMISSION: By telephone only (201) 296-4860 Questions and requests for assistance may be directed to the Information Agent or the Dealer Manager at their respective addresses set forth below. Additional copies of the Offer to Purchase, this Letter of Transmittal and the Notice of Guaranteed Delivery may be obtained from the Information Agent. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the Offer is: Georgeson Shareholder Communications Inc. 17 STATE STREET, 10TH FLOOR NEW YORK, NEW YORK 10004 BANKS AND BROKERAGE FIRMS CALL COLLECT: (212) 440-9800 ALL OTHERS CALL TOLL FREE: (800) 223-2064 The Dealer Manager for the Offer is: GOLDMAN, SACHS & CO. 85 BROAD STREET NEW YORK, NEW YORK 10004 (212) 902-1000 (CALL COLLECT) (800) 323-5678 (CALL TOLL FREE) EX-99.A(1)(C) 4 ex-99_a1c.txt EXHIBIT 99(A)(1)(C) NOTICE OF GUARANTEED DELIVERY FOR TENDER OF SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF NATIONAL COMPUTER SYSTEMS, INC. (NOT TO BE USED FOR SIGNATURE GUARANTEES) As set forth in Section 2 of the Offer to Purchase (as defined below), this form or one substantially equivalent hereto, must be used to accept the Offer (as defined below) if certificates representing shares of common stock, par value $0.03 per share, including the associated preferred stock purchase rights (the "Shares"), of National Computer Systems, Inc., a Minnesota corporation (the "Company"), are not immediately available or if the procedures for book-entry transfer cannot be completed on a timely basis or time will not permit all required documents to reach the Depositary prior to the Expiration Date (as defined in the Offer to Purchase). This form may be delivered by hand to the Depositary or transmitted by telegram, facsimile transmission or mail to the Depositary and must include a guarantee by an Eligible Institution (as defined in the Offer to Purchase). See Section 2 of the Offer to Purchase. BY MAIL: BY HAND: BY COURIER: ChaseMellon Shareholder ChaseMellon Shareholder ChaseMellon Shareholder Services, L.L.C. Services, L.L.C. Services, L.L.C. Reorganization Department Reorganization Department Reorganization Department P.O. Box 3301 120 Broadway 85 Challenger Road South Hackensack, New Jersey 13th Floor Mail Stop--Reorg 07606 New York, New York Ridgefield Park, New Jersey 10271 07660 BY FACSIMILE TRANSMISSION: (For Eligible Institutions only) (201) 296-4293 CONFIRM FACSIMILE TRANSMISSION: By telephone only (201) 296-4860
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER, OTHER THAN AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID DELIVERY. THIS FORM IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN ELIGIBLE INSTITUTION UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX ON THE LETTER OF TRANSMITTAL. THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED. Ladies and Gentlemen: The undersigned hereby tenders to PN Acquisition Subsidiary Inc., a Minnesota corporation (the "Purchaser") and a wholly owned indirect subsidiary of Pearson plc, a public limited company registered in England and Wales, upon the terms and subject to the conditions set forth in the Purchaser's Offer to Purchase dated August 7, 2000 (the "Offer to Purchase"), and in the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer"), receipt of which is hereby acknowledged, the number of Shares set forth below, all pursuant to the guaranteed delivery procedures set forth in Section 2 of the Offer to Purchase. - ------------------------------------------- Number of Shares ___________________________________________________________ Certificate Nos. (if available) ____________________________________________ (Check box if Shares will be tendered by book-entry transfer) / / The Depository Trust Company _______________________________________________ Account Number _____________________________________________________________ Dated ______________________________________________________________________ Name(s) of Record Holder(s): ____________________________________________________________________________ ____________________________________________________________________________ PLEASE PRINT Address(es): _______________________________________________________________ ____________________________________________________________________________ (ZIP CODE) Daytime Area Code and Tel. No.: ____________________________________________________________________________ Signature(s): ______________________________________________________________ ____________________________________________________________________________ - ------------------------------------------ 2 GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a firm that is a participant in the Security Transfer Agents Medallion Program or the New York Stock Exchange Guarantee Program or the Stock Exchange Medallion Program or an "eligible guarantor institution", as such term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, hereby guarantees to deliver to the Depositary either the certificates representing the Shares tendered hereby, in proper form for transfer, or a Book-Entry Confirmation (as defined in the Offer to Purchase) with respect to such Shares, in any such case together with a properly completed and duly executed Letter of Transmittal (or a facsimile thereof), with any required signature guarantees, or an Agent's Message (as defined in the Offer to Purchase), and any other required documents, within three National Association of Securities Dealers Automated Quotation System trading days (as defined in the Letter of Transmittal) after the date hereof. The Eligible Institution that completes this form must communicate the guarantee to the Depositary and must deliver the Letter of Transmittal and certificates for Shares to the Depositary within the time period shown herein. Failure to do so could result in a financial loss to such Eligible Institution. - ------------------------------------------- Name of Firm: ______________________________________________________________ Address: ___________________________________________________________________ ____________________________________________________________________________ ZIP CODE Area Code and Tel. No.: ____________________________________________________________________________ ____________________________________________________________________________ AUTHORIZED SIGNATURE Name: ______________________________________________________________________ PLEASE TYPE OR PRINT __________________________________________________________________________ Title: _____________________________________________________________________ Dated: _____________________________________________________________________ - ------------------------------------------ NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE. CERTIFICATES FOR SHARES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL. 3 EX-99.(A)(1)(D) 5 ex-99_a1d.txt EXHIBIT 99(A)(1)(D) OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF NATIONAL COMPUTER SYSTEMS, INC. AT $73.00 NET PER SHARE BY PN ACQUISITION SUBSIDIARY INC., A WHOLLY OWNED INDIRECT SUBSIDIARY OF PEARSON PLC - -------------------------------------------------------------------------------- THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, SEPTEMBER 7, 2000, UNLESS THE OFFER IS EXTENDED. - -------------------------------------------------------------------------------- August 7, 2000 To Brokers, Dealers, Banks, Trust Companies and Other Nominees We have been engaged by PN Acquisition Subsidiary Inc., a Minnesota corporation (the "Purchaser") and a wholly owned indirect subsidiary of Pearson plc, a public limited company registered in England and Wales ("Parent") to act as Dealer Manager in connection with the Purchaser's offer to purchase all outstanding shares of common stock, par value $0.03 per share (the "Common Stock"), including the associated preferred stock purchase rights (the "Rights" and together with the Common Stock, the "Shares"), of National Computer Systems, Inc., a Minnesota corporation (the "Company"), at $73.00 per Share (the "Offer Price"), net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Purchaser's Offer to Purchase dated August 7, 2000 (the "Offer to Purchase"), and in the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer"). Please furnish copies of the enclosed materials to those of your clients for whom you hold Shares registered in your name or in the name of your nominee. Enclosed herewith are copies of the following documents: 1. Offer to Purchase dated August 7, 2000; 2. Letter of Transmittal to be used by shareholders of the Company in accepting the Offer (facsimile copies of the Letter of Transmittal may be used to tender the Shares); 3. The Letter to Shareholders of the Company from the Chairman of the Board and Chief Executive Officer of the Company accompanied by the Company's Solicitation/Recommendation Statement on Schedule 14D-9; 4. A printed form of letter that may be sent to your clients for whose account you hold Shares in your name or in the name of a nominee, with space provided for obtaining such clients' instructions with regard to the Offer; 5. Notice of Guaranteed Delivery with respect to Shares; 6. Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9; and 7. Return envelope addressed to ChaseMellon Shareholder Services, L.L.C., as Depositary. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (A) THERE BEING VALIDLY TENDERED AND NOT VALIDLY WITHDRAWN PRIOR TO THE EXPIRATION DATE (AS DEFINED IN SECTION 1 OF THE OFFER TO PURCHASE) THAT NUMBER OF SHARES THAT WOULD REPRESENT AT LEAST A MAJORITY OF THE FULLY DILUTED SHARES (AS DEFINED IN SECTION 14 OF THE OFFER TO PURCHASE) ON THE DATE OF PURCHASE, AND (B) ANY WAITING PERIOD UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED, APPLICABLE TO THE PURCHASE OF SHARES PURSUANT TO THE OFFER OR TO THE MERGER AND ANY OTHER WAITING PERIODS UNDER ANY OTHER APPLICABLE MATERIAL COMPETITION, MERGER, CONTROL, ANTITRUST OR SIMILAR LAW OR REGULATION SHALL HAVE EXPIRED OR BEEN TERMINATED. We urge you to contact your clients promptly. Please note that the Offer and withdrawal rights will expire at 12:00 midnight, New York City time, on September 7, 2000, unless extended. The Board of Directors of the Company (at a meeting duly called and held) has (i) determined that the Merger Agreement (as defined below), the Offer and the Merger (as defined below) are fair to and in the best interests of the Company and the Company's shareholders, (ii) approved and adopted the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Offer and the Merger, and (iii) resolved to recommend that shareholders of the Company accept the Offer and tender their Shares pursuant to the Offer. A committee of the Board of Directors of the Company, formed pursuant to Section 302A.673 of the Minnesota Business Corporation Act (at a meeting duly called and held) has approved the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Offer and the Merger. The Offer is being made pursuant to the Agreement and Plan of Merger, dated as of July 30, 2000, among Parent, the Purchaser and the Company and amended by Amendment No. 1 to Agreement and Plan of Merger, dated as of August 4, 2000, among Parent, the Purchaser and the Company (as so amended, the "Merger Agreement") pursuant to which, as soon as practicable following the consummation of the Offer and the satisfaction or waiver of certain conditions, the Purchaser will be merged with and into the Company, with the Company surviving the Merger as a wholly owned indirect subsidiary of Parent (the "Merger"). At the effective time of the Merger, each outstanding Share (other than Shares owned by Parent or the Purchaser or by shareholders, if any, who are entitled to and properly exercise dissenters' rights under Minnesota law) will be converted into the right to receive the price per Share paid pursuant to the Offer in cash, without interest thereon, as set forth in the Merger Agreement and described in the Offer to Purchase. The Merger Agreement provides that the Purchaser may assign any or all of its rights and obligations (including the right to purchase Shares in the Offer) to Parent or any wholly owned subsidiary of Parent, but no such assignment shall relieve the Purchaser of its obligations under the Merger Agreement. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (a) certificates for (or a timely Book-Entry Confirmation (as defined in the Offer to Purchase)) with respect to such Shares, (b) a Letter of Transmittal (or a facsimile thereof), properly completed, and duly executed, with any required signature guarantees, or, in the case of a book-entry transfer effected pursuant to the procedure set forth in Section 2 of the Offer to Purchase, an Agent's Message (as defined in the Offer to Purchase), and (c) any other documents required by the Letter of Transmittal. Accordingly, tendering shareholders may be paid at different times depending upon when certificates for Shares or Book-Entry Confirmations with respect to Shares are actually received by the Depositary. Under no circumstances will interest be paid on the purchase price of the Shares to be paid by the Purchaser, regardless of any extension of the Offer or any delay in making such payment. 2 Neither Parent nor the Purchaser will pay any fees or commissions to any broker or dealer or other person (other than the Dealer Manager, as described in the Offer to Purchase) in connection with the solicitation of tenders of Shares pursuant to the Offer. You will be reimbursed by the Purchaser upon request for customary mailing and handling expenses incurred by you in forwarding the enclosed Offering materials to your customers. Questions and requests for additional copies of the enclosed material may be directed to the Information Agent or the Dealer Manager at their respective addresses and telephone numbers set forth on the back cover of the enclosed Offer to Purchase. Very truly yours, GOLDMAN, SACHS & CO. NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL RENDER YOU OR ANY OTHER PERSON THE AGENT OF PARENT, THE PURCHASER, THE DEPOSITARY, THE INFORMATION AGENT OR THE DEALER MANAGER OR AUTHORIZE YOU OR ANY OTHER PERSON TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION ON BEHALF OF ANY OF THEM WITH RESPECT TO THE OFFER NOT CONTAINED IN THE OFFER TO PURCHASE OR THE LETTER OF TRANSMITTAL. 3 EX-99.A(1)(E) 6 ex-99_a1e.txt EXHIBIT 99(A)(1)(E) OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF NATIONAL COMPUTER SYSTEMS, INC. AT $73.00 NET PER SHARE BY PN ACQUISITION SUBSIDIARY INC., A WHOLLY OWNED INDIRECT SUBSIDIARY OF PEARSON PLC - ------------------------------------------------------------ THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, SEPTEMBER 7, 2000, UNLESS THE OFFER IS EXTENDED. - -------------------------------------------------------------------------------- August 7, 2000 To Our Clients: Enclosed for your consideration is an Offer to Purchase dated August 7, 2000 (the "Offer to Purchase"), and the related Letter of Transmittal (which, together with amendments or supplements thereto, collectively constitute the "Offer") relating to the Offer by PN Acquisition Subsidiary Inc., a Minnesota corporation ("Purchaser") and a wholly owned indirect subsidiary of Pearson plc, a public limited company registered in England and Wales ("Parent"), to purchase all outstanding shares of common stock, par value $0.03 per share (the "Common Stock") including the associated preferred stock purchase rights (the "Rights" and together with the Common Stock, the "Shares"), of National Computer Systems, Inc., a Minnesota corporation (the "Company"), upon the terms and subject to the conditions set forth in the Offer. Also enclosed is the Letter to Shareholders of the Company from the Chairman of the Board and Chief Executive Officer of the Company accompanied by the Company's Solicitation/Recommendation Statement on Schedule 14D-9. We (or our nominees) are the holder of record of Shares held by us for your account. A tender of such Shares can be made only by us as the holder of record and pursuant to your instructions. The Letter of Transmittal is furnished to you for your information only and cannot be used to tender Shares held by us for your account. We request instructions as to whether you wish to tender any of or all the Shares held by us for your account pursuant to the terms and conditions set forth in the Offer. Your attention is directed to the following: 1. The offer price is $73.00 per Share net to the seller in cash, without interest thereon, upon the terms and subject to the conditions of the Offer. 2. The Offer is being made for all outstanding Shares. 3. The Board of Directors of the Company (at a meeting duly called and held) has (i) determined that the Merger Agreement (as defined below), the Offer and the Merger (as defined below) are fair to and in the best interests of the Company and the shareholders of the Company, (ii) approved and adopted the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Offer and the Merger and (iii) resolved to recommend that shareholders of the Company accept the Offer and tender their Shares pursuant to the Offer. A committee of the Board of Directors of the Company, formed pursuant to Section 302A.673 of the Minnesota Business Corporation Act (at a meeting duly called and held) has approved the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Offer and the Merger. 4. The Offer is being made pursuant to the Agreement and Plan of Merger, dated as of July 30, 2000, among Parent, the Purchaser and the Company as amended by Amendment No. 1 to Agreement and Plan of Merger, dated as of August 4, 2000, among Parent, the Purchaser and the Company (as so amended, the "Merger Agreement") pursuant to which, as soon as practicable following the consummation of the Offer and the satisfaction or waiver of certain conditions, the Purchaser will be merged with and into the Company with the Company surviving the merger as a wholly owned indirect subsidiary of Parent (the "Merger"). At the effective time of the Merger, each outstanding Share (other than Shares owned by Parent or the Purchaser or by shareholders, if any, who are entitled to and properly exercise dissenters' rights under Minnesota law) will be converted into the right to receive the price per Share paid pursuant to the Offer in cash, without interest, as set forth in the Merger Agreement and described in the Offer to Purchase. The Merger Agreement provides that the Purchaser may assign any or all of its rights and obligations (including the right to purchase Shares in the Offer) to Parent or any direct or indirect wholly owned subsidiary of Parent, but no such assignment shall relieve the Purchaser of its obligations under the Merger Agreement. 5. THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, SEPTEMBER 7, 2000 (THE "EXPIRATION DATE"), UNLESS THE OFFER IS EXTENDED BY THE PURCHASER, IN WHICH EVENT THE TERM "EXPIRATION DATE" SHALL MEAN THE LATEST TIME AT WHICH THE OFFER, AS SO EXTENDED BY THE PURCHASER, WILL EXPIRE. 6. The Offer is conditioned upon, among other things, (a) there being validly tendered and not validly withdrawn prior to the Expiration Date that number of Shares that would represent at least a majority of the Fully Diluted Shares (as defined in Section 14 of the Offer to Purchase) on the date of purchase, and (b) any waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, applicable to the purchase of Shares pursuant to the Offer or to the Merger and any other waiting periods under any other applicable material competition, merger, control, antitrust or similar law or regulation shall have expired or been terminated. 7. Any stock transfer taxes applicable to a sale of Shares to the Purchaser will be borne by the Purchaser, except as otherwise provided in Instruction 6 of the Letter of Transmittal. 8. Tendering shareholders will not be obligated to pay brokerage fees or commissions to the Dealer Manager, the Depositary or the Information Agent or, except as set forth in Instruction 6 of the Letter of Transmittal, transfer taxes on the purchase of Shares by the Purchaser pursuant to the Offer. However, federal income tax backup withholding at a rate of 31% may be required, unless an exemption is provided or unless the required taxpayer identification information is provided. See Instruction 9 of the Letter of Transmittal. Your instructions to us should be forwarded promptly to permit us to submit a tender on your behalf prior to the Expiration Date. If you wish to have us tender any of or all the Shares held by us for your account, please so instruct us by completing, executing, detaching and returning to us the instruction form on the detachable part hereof. An envelope to return your instructions to us is enclosed. If you authorize the tender of your Shares, all such Shares will be tendered unless otherwise specified on the detachable part hereof. YOUR INSTRUCTIONS SHOULD BE FORWARDED TO US IN AMPLE TIME TO PERMIT US TO SUBMIT A TENDER ON YOUR BEHALF PRIOR TO THE EXPIRATION DATE. Payment for Shares accepted for payment pursuant to the Offer will in all cases be made only after timely receipt by ChaseMellon Shareholder Services, L.L.C. (the "Depositary") of (a) certificates for (or a timely Book-Entry Confirmation (as defined in the Offer to Purchase)) with respect to such Shares, (b) a Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees, or, in the case of a book-entry transfer effected pursuant to the procedures set 2 forth in Section 2 of the Offer to Purchase, an Agent's Message, and (c) any other documents required by the Letter of Transmittal. Accordingly, tendering shareholders may be paid at different times depending upon when certificates for Shares or Book-Entry Confirmations with respect to Shares are actually received by the Depositary. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE PURCHASE PRICE OF THE SHARES TO BE PAID BY THE PURCHASER, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT. The Offer is not being made to (nor will tenders be accepted from or on behalf of) holders of Shares in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer is being made on behalf of the Purchaser by Goldman, Sachs & Co., the Dealer Manager for the Offer, or one or more registered brokers or dealers that are licensed under the laws of such jurisdiction. 3 INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF NATIONAL COMPUTER SYSTEMS, INC. The undersigned acknowledge(s) receipt of your letter, the Offer to Purchase of National Computer Systems, Inc., dated August 7, 2000 (the "Offer to Purchase"), and the related Letter of Transmittal relating to shares of common stock, par value $0.03 per share (the "Common Stock") including the associated preferred stock purchase rights (the "Rights", and together with the Common Stock, the "Shares"), of National Computer Systems, Inc., a Minnesota corporation. This will instruct you to tender the number of Shares indicated below held by you for the account of the undersigned, on the terms and subject to the conditions set forth in the Offer to Purchase and related Letter of Transmittal. - ------------------------------------ NUMBER OF SHARES TO BE TENDERED(1): ______________ SHARES - ------------------------------------ SIGN HERE ______________________________________ SIGNATURE(S) ______________________________________ ______________________________________ PLEASE TYPE OR PRINT NAME(S) ______________________________________ ______________________________________ PLEASE TYPE OR PRINT ADDRESS(ES) ______________________________________ AREA CODE AND TELEPHONE NUMBER ______________________________________ TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NO. DATED: ______________________, 2000 - ------------------------ (1) Unless otherwise indicated, it will be assumed that all your Shares are to be tendered. 4 EX-99.A(1)(F) 7 ex-99_a1f.txt EXHBIT 99(A)(1)(F) GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.-Social Security numbers have nine digits separated by two hyphens, e.g., 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen, e.g., 00-0000000. The table below will help determine the number to give the payer.
- ------------------------------------------------------------------------------------------------------ GIVE THE SOCIAL SECURITY GIVE THE EMPLOYER NUMBER IDENTIFICATION NUMBER FOR THIS TYPE OF FOR THIS TYPE OF ACCOUNT: NUMBER OF ACCOUNT: NUMBER OF - ------------------------------------------------------------------------------------------------------
1. An individual's The individual account account 2. Two or more The actual owner of individuals the account, or if (joint account) combined funds, the first individual on the account(1) 3. Husband and wife The actual owner of (joint account) the account or, if joining funds, either person(1) 4. Custodian account The minor(2) of a minor (Uniform Gift to Minors Act) 5. Adult and minor The adult or, if (joint account) the minor is the only contributor, the minor(1) 6. Account in the name The ward, minor or of guardian or incompetent committee for a person(3) designated ward, minor, or incompetent person 7.a. A revocable savings The grantor- trust account (in trustee(1) which grantor is also trustee) b. Any "trust" account The actual owner that is not a legal (1) or valid trust under State law 8. Sole proprietorship The owner(4) 9. A valid trust, The legal entity estate or pension (do not furnish the trust identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title)(5) 10. Corporate account The corporation 11. Religious, The organization charitable, organization or educational account 12. Partnership account The partnership 13. Association, club, The organization or other tax-exempt organization 14. A broker or The broker or registered nominee nominee 15. Account with the The public entity Department of (such as a State or Agriculture in the local government, name of a public school district, or entity prison) that receives agricultural program payments
- -------------------------------------------------------------------------------- (1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) Circle the ward's, minor's or incompetent person's name and furnish such person's social security number. (4) Show the name of the owner. If the owner does not have an employer identification number, furnish the owner's social security number. (5) List first and circle the name of the legal trust, estate or pension trust. NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 PAGE 2 OBTAINING A NUMBER If you do not have a taxpayer identification number or you do not know your number, obtain Form SS-5, Application for a Social Security Number Card (for resident individuals), Form SS-4, Application for Employer Identification Number (for businesses and all other entities), or Form W-7 for International Taxpayer Identification Number (for alien individuals required to file U.S. tax returns), at an office of the Social Security Administration of the Internal Revenue Service. To complete Substitute Form W-9, if you do not have a taxpayer identification number, check the "Awaiting TIN" box in Part 3, sign and date the Form, and give it to the requester. Generally, you will then have 60 days to obtain a taxpayer identification number and furnish it to the requester. If the requester does not receive your taxpayer identification number within 60 days, backup withholding tax, if applicable, will begin and will continue until you furnish your taxpayer identification number to the requester. PAYEES EXEMPT FROM BACKUP WITHHOLDING PENALTIES Payees specifically exempted from backup withholding tax on ALL payments include the following:* - A corporation. - A financial institution. - An organization exempt from tax under section 501(a), or an individual retirement plan, or a custodial account under section 403(b)(7) if the account satisfies the requirements of section 401(f)(2). - The United States or any agency or instrumentality thereof. - A State, the District of Columbia, a possession of the United States, or any political subdivision or instrumentality thereof. - A foreign government or a political subdivision, agency or instrumentality thereof. - An international organization or any agency or instrumentality thereof. - A registered dealer in securities or commodities registered in the United States or a possession of the United States. - A real estate investment trust. - A common trust fund operated by a bank under section 584(a). - An entity registered at all times during the tax year under the Investment Company Act of 1940. - A foreign central bank of issue. Exempt payees described above should file a substitute Form W-9 to avoid possible erroneous backup withholding tax. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: - Payments to non-resident aliens subject to withholding under section 1441. - Payments to partnerships not engaged in a trade or business in the United States and which have at least one nonresident partner. - Payments of patronage dividends where the amount received is not paid in money. - Payments made by certain foreign organizations. - Payments made to a nominee. Payments of interest not generally subject to backup withholding include the following: - Payments of interest on obligations issued by individuals. NOTE: You may be subject to backup withholding if (i) this interest is $600 or more, (ii) the interest is paid in the course of the payer's trade or business and (iii) you have not provided your correct taxpayer identification number to the payer. - Payments of tax-exempt interest (including exempt-interest dividends under section 852). - Payments described in section 6049(b)(5) to non-resident aliens. - Payments on tax-free covenant bonds under section 1451. - Payments made by certain foreign organizations. - Payments made to a nominee. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.-If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) CIVIL PENALTY FOR FALSE STATEMENTS WITH RESPECT TO WITHHOLDING.-If you make a false statement with no reasonable basis which results in no imposition of backup withholding tax, you are subject to a $500 penalty. (3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.-If you willfully falsify certifications or affirmations, you are subject to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER. Certain payments other than interest, dividends and patronage dividends that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under sections 6041, 6041(A)(a), 6045, and 6050A. PRIVACY ACT NOTICES. Section 6109 requires most recipients of dividends, interest or other payments to give taxpayer identification numbers to payers who must report the payments to the IRS. The IRS uses the numbers for identification purposes and to help verify the accuracy of your tax return. Payers must be given the numbers whether or not recipients are required to file tax returns. Payers must generally withhold 31% of taxable interest, dividends, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. - -------------------------- * Unless otherwise noted herein, all references below to section numbers or to regulations are references to the Internal Revenue Code and the regulations promulgated thereunder. EX-99.(A)(1)(G) 8 ex-99_a1g.txt EXHIBIT 99(A)(1)(G) Exhibit (a)(1)(G) PRESS RELEASE FOR ISSUE IN THE UNITED STATES NOT FOR RELEASE UNTIL MONDAY JULY 31, 2000 MONDAY 31 JULY, 2000 PEARSON PLC TO ACQUIRE NATIONAL COMPUTER SYSTEMS, INC. New York, New York - July 31, 2000 - Pearson plc announced today that it has entered into a definitive merger agreement providing for the acquisition of National Computer Systems, Inc. (NCS) for cash consideration of $73 per share. Pearson believes that the combination of NCS with Pearson Education will create a world leading integrated education company, with strong market positions in curriculum, online learning, assessment, enterprise applications for US schools and professional accreditation. INFORMATION ON PEARSON EDUCATION Pearson Education is one of the world's largest providers of curriculum materials in print, electronic and online formats. Pearson Education was formed in November 1998 through the acquisition of the Simon & Schuster education business and its subsequent merger with Addison Wesley Longman (AWL). In 1999, its first full year of operation, pro forma revenues of Pearson Education increased by 10% to $2.7 billion, with operating profits of $411 million for that year. In the six months ended June 30, 2000, Pearson Education increased underlying revenues by 10% to $970.5 million and reduced seasonal first half losses by 27% to $39 million. In early September, Pearson will launch, its online Learning Network, which will comprise four vertically integrated networks serving the K-12, Higher Education, Professional Development and Lifelong Learning markets. INFORMATION ON NCS NCS was founded and began operation in Minnesota in 1962. NCS is a global information services company providing software, services, systems, and Internet-based technologies for the collection, management and interpretation of data. NCS serves important segments of the education, testing, assessment and complex data management markets. For nearly four decades, NCS has provided the technology, experience and quality customer services essential for improving customers' information systems. Today, 75 per cent. of NCS' revenues come from the Education (primarily K-12) market, and 25 per cent. comes from the Large-Scale Data Management (or non-Education) market. NCS is the nation's largest single provider of student, curriculum, instructional and financial management software for schools. NCS is also the nation's largest commercial processor of student assessment tests for K-12 schools and districts. This year NCS was one of four processors of the U.S. 2000 Census for the U.S. Census Bureau. MANAGEMENT On completion of the transaction, NCS will become part of Pearson Education, with Peter Jovanovich continuing as CEO of the enlarged business. Russ Gullotti, chairman, president and CEO of NCS announced earlier this year that, due to health reasons, he planned to step down from his position by June 2001. Mr Gullotti will play a key role in the integration of the two companies. A new CEO of NCS, reporting to Peter Jovanovich, will be appointed in due course. THE ACQUISITION Pearson will commence a cash tender offer to purchase all of the outstanding shares of NCS common stock no later than August 7, 2000. Pearson is funding the tender offer by means of a partially underwritten rights issue intended to raise L1.7 billion. The funds from the rights issue are expected to be available in early September 2000, at which time the tender offer would expire, unless extended pursuant to the merger agreement. The tender offer contains no financing condition. The tender offer is conditional on the tender of a sufficient number of shares to give Pearson ownership of at least a majority of the fully diluted outstanding shares of NCS. Shares not tendered will be converted in the merger into the right to receive the same $73 per share in cash. The merger agreement contains customary closing conditions, including the need to obtain regulatory approvals. This announcement is neither an offer to purchase nor a solicitation of an offer to sell shares of NCS nor does it constitute an offer to sell any securities of Pearson plc. At the time the offer for the purchase of shares of NCS is commenced, Pearson plc and a subsidiary of Pearson plc will file a tender offer statement with the SEC and NCS will file a solicitation / recommendation statement with respect to the offer. Investors and security holders are strongly advised to read both the tender offer statement and the solicitation / recommendation statement regarding the tender offer referred to in this press release, when it becomes available, because they will contain important information. The tender offer statement will be filed by Pearson plc and a subsidiary of Pearson plc with the Securities and Exchange Commission (SEC), and the solicitation / recommendation statement will be filed by NCS with the SEC. Investors and security holders may obtain a free copy of these statements (when available) and other documents filed by Pearson plc and NCS at the SEC's site at www.sec.gov. The tender offer statement and related materials may be obtained for free by directing such request to Pearson plc Investor Relations. The solicitation / recommendation statement and such other documents may be obtained by directing such request to NCS investor relations. 2 NEWS RELEASE [GRAPHIC OMITTED] CONTACT: Maggie Knack (NASDAQ: NLCS) Director, Investor Relations 952-829-3203 mpknack@ncs.com NCS TO BE ACQUIRED BY PEARSON PLC IN $2.5 BILLION MERGER; NCS SHAREHOLDERS TO RECEIVE $73 CASH PER SHARE MINNEAPOLIS - JULY 31, 2000 - NATIONAL COMPUTER SYSTEMS, INC., (NCS) (NASDAQ: NLCS) a Minneapolis-based global information services company, and Pearson plc, a U.K.-based international media, publishing and education company, announced today that the two companies have entered into a definitive agreement under which NCS will be acquired by Pearson. The transaction is valued at about $2.5 billion. Under the terms of the agreement, which have been approved by the boards of directors of both companies, NCS shareholders will receive $73.00 per share in cash for the Company's outstanding shares of common stock. NCS' stock closed last Friday at $58.13. Pearson plc is an international media company with market leading businesses in education, strategic business information, international television production and consumer publishing, nearing $6 billion in revenue. NCS will become part of Pearson Education, a $2.7 billion division of Pearson plc, and the world's leading educational publisher, consisting of Addison Wesley Longman, Simon & Schuster, and other well known publishing brands. Pearson Education has leading positions in every major sector of educational publishing, including elementary and secondary schools, higher education, professional education, English Language Teaching (ELT), and educational technology, both in the U.S. and internationally. Pearson will commence a cash tender offer to purchase all of the outstanding shares of NCS common stock no later than August 7, 2000. Shares not tendered will be converted in a merger into the right to receive the same $73.00 per share in cash. Completion of the transaction is subject to customary conditions, including certain regulatory approvals. The companies expect the transaction to be completed sometime in September 2000. "This proposed merger is wonderful news for NCS shareholders, customers and employees," said Russ Gullotti, chairman, president and chief executive officer of NCS. "The merger of NCS and Pearson plc is an outstanding strategic and cultural fit. Both companies have a strong presence in the education market, and the core products and skills of the two businesses are remarkably complementary, but without direct overlap. The acquisition of NCS by Pearson allows for the kind of presence needed for both of us to continue our strong growth and maintain our market leadership positions. Also commenting on today's announcement, Marjorie Scardino, chief executive officer of Pearson plc, said "NCS is a superb company in its own right with a record of delivering consistently high levels of innovation and growth. Together, we can transform our business into one that can reach further and grow faster. We will lead in content, technology and testing, the three factors that are driving the education revolution around the world." Ms. Scardino continued, "Together, we can create the `intelligent classroom,' where teaching is customized so that each child learns in his own way, at his own speed, with constant assessment, feedback and help. Together, we can take the next great leap in education - adding applications and testing to curriculum and changing the way we teach and learn." ABOUT NCS NCS was founded and began operation in Minnesota in 1962. The Company is a global information services company providing software, services, systems, and Internet-based technologies for the collection, management and interpretation of data. NCS serves important segments of the education, testing, assessment and complex data management markets. For nearly four decades, NCS has provided the technology, experience and quality customer services essential for improving customers' information systems. Today, 75 percent of NCS' revenues come from the Education (primarily K-12) market, and 25 percent comes from the Large-Scale Data Management (or non-Education) market. NCS is the nation's largest single provider of student, curriculum, instructional and financial management software for schools. NCS is also the nation's largest commercial processor of student assessment tests for K-12 schools and districts. This year NCS was one of four processors of the U.S. 2000 Census for the U.S. Census Bureau. Headquartered in Minneapolis (Eden Prairie), NCS has nearly 5,000 employees at 30 locations serving customers worldwide. The Company's web site address is www.ncs.com. # # # Shareholders are advised to read the tender offer statement regarding the acquisition of NCS referenced in this press release, which will be filed by Pearson plc and PN Acquisition Subsidiary Inc. with the U.S. Securities and Exchange Commission, and the related solicitation/recommendation statement, which will be filed by NCS with the Commission. The tender offer statement (including an offer to purchase, letter of transmittal and related tender offer documents) and the solicitation/recommendation statement will contain important information that should be read carefully before any decision is made with respect to the offer. These documents will be made available to all shareholders of NCS, at no expense to them, by contacting the information agent, Georgeson Shareholder Communications Inc. collect at (800) 223-2064. These documents also will be available at no charge at the SEC's web site at WWW.SEC.GOV. Any statements made about the Company's anticipated financial results or other forward-looking statements are subject to risks and uncertainties such as those described in Exhibit 99 to the Company's Annual Report on Form 10-K for the year ended January 29, 2000. NCS' actual results may differ materially from anticipated results. 2 July 31, 2000 DEAR EVERYONE AT NCS, Greetings on behalf of everyone at Pearson. This is a wonderful day for us, and we hope you'll agree it's at least that good for NCS too. I have a habit of writing everyone in Pearson an e-mail any time we have something going on that I want them to hear straight from me rather than read it in the newspaper. This is certainly news I'm thrilled to be able to tell. As you will have heard from Russ, we have agreed with your board of directors to merge NCS with Pearson Education, giving each of your shareholders $73 a share for his or her interest in NCS. This is at a big premium to the market price of NCS shares because we all see that together we can make a more exciting, able and valuable company than either of us could ever do alone. In fact, there are going to be so many ideas springing up for our joint company, it's going to be hard not to address them, and even harder not to get going making them a reality. But we have a little time and a lot of work to go until the merger can be completed. Regulatory bodies have to agree. NCS's shareholders, a group which includes all of you, need to agree. You'll have a lot of questions in that period, some of which we will want very much to answer but won't be able to. Please bear with us and keep on thinking about the possibilities, not the problems. During this time I know you'll be hearing from Peter Jovanovich, who heads Pearson Education, and I hope you get a chance to get to know him. He's a talented, committed and thoroughly wonderful colleague. Although it was utterly clear from the beginning of our meetings with NCS that our businesses fit together beautifully, the best surprise of getting acquainted was that we are also cultural matches. You may be tempted to think that we're a giant, European media company without much resemblance to you. But you'd be wrong. More than half of Pearson's 23,000 people work in the United States. Even some of us who have migrated across the ocean have spent a fair amount of time in the U.S. (I'm a Texan, and don't you forget it.) We try hard in Pearson to communicate with each other as much as we can. We believe everyone in the company should be a shareholder, and we have a number of plans to get us there, including a company-wide annual bonus plan for everyone who works in Pearson. And we don't do well with people who can't laugh at themselves or people who think they're more important than their neighbor. And though we don't always get all this right, our aim is to be the best place in the world to work. So I hope you'll recognize something of NCS in us, and something of the great promise of our two companies in the material you'll ultimately see about our combination. We can't tell how long the waiting process will take, but I hope you will join us in having enough enthusiasm for the possibility that you can keep focused on what we can achieve together. I look forward to meeting every single one of you sooner or later. I may not accomplish that very soon, but I'll give it a try. My usual practice in these e-mails is to give my e-mail address so that I can answer (or get someone's help answering) any questions you have. In this case, I know you must have a million questions, so for those serious questions, write RGULLOTTI@NCS.COM. If you just want to say something nice or funny, write me at MARJORIE.SCARDINO@PEARSON.COM. All the very best, Marjorie National Computer Systems, Inc. (NCS) shareholders are advised to read the tender offer statement regarding the acquisition of NCS, referenced in this employee announcement, which will be filed by Pearson plc and PN Acquisition Subsidiary Inc. with the U.S. Securities and Exchange Commission, and the related solicitation/recommendation statement, which will be filed by NCS with the Commission. The tender offer statement (including an offer to purchase, letter of transmittal and related tender offer documents) and the solicitation/recommendation statement will contain important information that should be read carefully before any decision is made with respect to the offer. These documents will be made available to all shareholders of NCS, at no expense to them, by calling the information agent, Georgeson Shareholder Communications Inc. collect at (800) 223-2064. These documents also will be available at no charge at the SEC's website at www.sec.gov ((http://www.sec.gov)) EX-99.(A)(1)(H) 9 ex-99_a1h.txt EXHIBIT 99(A)(1)(H) Exhibit (a)(1)(H) THIS ANNOUNCEMENT IS NEITHER AN OFFER TO PURCHASE NOR A SOLICITATION OF AN OFFER TO SELL SHARES (AS DEFINED BELOW). THE OFFER (AS DEFINED BELOW) IS MADE SOLELY BY THE OFFER TO PURCHASE DATED AUGUST 7, 2000, AND THE RELATED LETTER OF TRANSMITTAL AND ANY AMENDMENTS OR SUPPLEMENTS THERETO AND IS NOT BEING MADE TO (NOR WILL TENDERS BE ACCEPTED FROM OR ON BEHALF OF) HOLDERS OF SHARES IN ANY JURISDICTION IN WHICH THE MAKING OF THE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH JURISDICTION. IN ANY JURISDICTION IN WHICH THE SECURITIES, BLUE SKY OR OTHER LAWS REQUIRE THE OFFER TO BE MADE BY A LICENSED BROKER OR DEALER, THE OFFER SHALL BE DEEMED MADE ON BEHALF OF THE PURCHASER (AS DEFINED BELOW) BY GOLDMAN, SACHS & CO., THE DEALER MANAGER (AS DEFINED BELOW), OR BY ONE OR MORE REGISTERED BROKERS OR DEALERS THAT ARE LICENSED UNDER THE LAWS OF SUCH JURISDICTION. NOTICE OF OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF NATIONAL COMPUTER SYSTEMS, INC. AT $73.00 NET PER SHARE BY PN ACQUISITION SUBSIDIARY INC., A WHOLLY OWNED INDIRECT SUBSIDIARY OF PEARSON PLC PN Acquisition Subsidiary Inc., a Minnesota corporation (the "Purchaser") and a wholly owned indirect subsidiary of Pearson plc, a public limited company registered in England and Wales ("Parent") is offering to purchase all outstanding shares of Common Stock, par value $0.03 per share (the "Common Stock"), of National Computer Systems, Inc., a Minnesota corporation (the "Company") including the associated preferred stock purchase rights (the "Rights"), issued pursuant to the Second Amended and Restated Rights Agreement, dated as of March 4, 1996, between the Company and Norwest Bank Minnesota, N.A., as amended (the Common Stock and the Rights together are referred to herein as the "Shares"), at $73.00 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase dated August 7, 2000, and in the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer"). Tendering shareholders who have Shares registered in their names and who tender directly to ChaseMellon Shareholder Services, L.L.C. (the "Depositary") will not be obligated to pay brokerage fees or commissions or, except as set forth in the Letter of Transmittal, transfer taxes on the purchase of Shares by the Purchaser pursuant to the Offer. Shareholders who hold their Shares through a broker or bank should consult with such institution as to whether it charges any service fees. The purpose of the Offer is to acquire for cash as many outstanding Shares as possible as a first step in acquiring the entire equity interest in the Company. Following the consummation of the Offer, the Purchaser intends to effect the Merger (as defined below). THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, SEPTEMBER 7, 2000 UNLESS THE OFFER IS EXTENDED. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (A) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE (AS DEFINED BELOW) THAT NUMBER OF SHARES THAT WOULD REPRESENT AT LEAST A MAJORITY OF THE FULLY DILUTED SHARES (AS DEFINED IN THE OFFER TO PURCHASE) ON THE DATE OF PURCHASE (THE "MINIMUM TENDER CONDITION"), AND (B) ANY WAITING PERIOD UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED, APPLICABLE TO THE PURCHASE OF SHARES PURSUANT TO THE OFFER OR TO THE MERGER AND ANY OTHER WAITING PERIODS UNDER ANY OTHER APPLICABLE MATERIAL COMPETITION, MERGER, CONTROL, ANTITRUST OR SIMILAR LAW OR REGULATION SHALL HAVE EXPIRED OR BEEN TERMINATED. The Offer is being made pursuant to the Agreement and Plan of Merger dated as of July 30, 2000, among Parent, the Purchaser and the Company (as amended, the "Merger Agreement") pursuant to which, following the consummation of the Offer and the satisfaction or waiver of certain conditions, the Purchaser will be merged with and into the Company, with the Company surviving the merger as a wholly owned indirect subsidiary of Parent (the "Merger"). In the Merger, each outstanding Share (other than Shares owned by Parent, the Purchaser or the Company or any subsidiary of Parent or the Company or by shareholders, if any, who are entitled to and properly exercise dissenters' rights under Minnesota law) will be converted into the right to receive the price per Share paid pursuant to the Offer in cash, without interest thereon. The Merger Agreement provides that the Purchaser may assign any or all of its rights and obligations (including the right to purchase Shares in the Offer) to Parent or any direct or indirect wholly owned subsidiary of Parent, but no such assignment shall relieve the Purchaser of its obligations under the Merger Agreement. THE BOARD OF DIRECTORS OF THE COMPANY (THE "COMPANY BOARD") (AT A MEETING DULY CALLED AND HELD) HAS (X) DETERMINED THAT THE MERGER AGREEMENT, THE OFFER AND THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND THE SHAREHOLDERS OF THE COMPANY; (Y) APPROVED AND ADOPTED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT, INCLUDING THE OFFER AND THE MERGER; AND (Z) RESOLVED TO RECOMMEND THAT SHAREHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER AND APPROVE AND ADOPT THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT. A COMMITTEE OF THE COMPANY BOARD FORMED PURSUANT TO SECTION 302A.673 OF THE MINNESOTA BUSINESS CORPORATION ACT (AT A MEETING DULY CALLED AND HELD) HAS APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT, INCLUDING THE OFFER AND THE MERGER. For purposes of the Offer, the Purchaser will be deemed to have accepted for payment pursuant to the Offer, and thereby purchased, Shares properly tendered to the Purchaser and not properly withdrawn as, if and when the Purchaser gives oral or written notice to the Depositary of the Purchaser's acceptance for payment of such Shares. Upon the terms and subject to the conditions of the Offer, payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for tendering shareholders for the purpose of receiving payment from the Purchaser and transmitting payment to tendering shareholders whose Shares have been accepted for payment. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (a) the certificates for such Shares, together with a Letter of Transmittal (or facsimile thereof), properly completed and duly executed, and any required signature guarantees or (b) in the case of a transfer effected pursuant to the book-entry transfer procedures described in Section 2 of the Offer to Purchase, a Book-Entry Confirmation (as defined in the Offer to Purchase) and either a Letter of Transmittal (or facsimile thereof), properly completed and duly executed, and any required signature guarantees, or an Agent's Message (as defined in the Offer to Purchase), and any other required documents. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE PURCHASE PRICE FOR TENDERED SHARES, REGARDLESS OF ANY EXTENSION OF OR AMENDMENT TO THE OFFER OR ANY DELAY IN PAYING FOR SUCH SHARES. The term "Expiration Date" means 12:00 midnight, New York City time, on Thursday, September 7, 2000, unless and until the Purchaser shall have extended the period of time during which the Offer is open in accordance with the terms of the Merger Agreement, in which event the term "Expiration Date" shall mean the latest time and date on which the Offer, as so extended by the Purchaser, will expire. The Purchaser may, at any time and from time to time, take one or more of the following actions without the consent of the Company: (a) extend the Offer for one or more periods of time that the Purchaser reasonably believes are necessary to cause the conditions to the Offer to be satisfied, if at the Expiration Date any of the conditions to the Purchaser's obligation to accept Shares for payment is not satisfied or waived, until such time as all such conditions are satisfied or waived, (b) extend the Offer for any period required by any rule, regulation, interpretation or position of the Securities and Exchange Commission or the staff thereof that is applicable to the Offer, (c) extend the Offer for an aggregate period of not more than seventeen business days beyond the initial Expiration Date of the Offer to the extent required by Parent to enable Parent and the Purchaser to complete the financing of the purchase of Shares tendered pursuant to the Offer or (d) extend the Offer for an aggregate period of not more than ten business days beyond the latest applicable date that would otherwise be permitted under clause (a), (b) or (c) of this sentence, if, as of such date, all of the conditions to the Purchaser's obligation to accept Shares for payment (including the Minimum Tender Condition) are satisfied or waived but the number of Shares validly tendered and not withdrawn pursuant to the Offer equals less than 90% of the outstanding Shares on a fully diluted basis. If (x) all of the conditions to the Offer are not satisfied on any scheduled Expiration Date of the Offer and (y) the Company is in compliance with all of its covenants in the Merger Agreement, then the Purchaser will extend the Offer for one or more periods of time that the Purchaser reasonably believes are necessary to cause the conditions of the Offer to be satisfied until all such conditions are satisfied or waived; provided, however, that the Purchaser will not be required to extend the Offer pursuant to this sentence beyond December 31, 2000. Any such extension will be followed by a public announcement thereof no later than 9:00 a.m., Eastern time, on the next business day after the previously scheduled Expiration Date. During any such extension, all Shares previously tendered and not withdrawn will remain subject to the Offer, subject to the right of a tendering shareholder to withdraw such shareholder's Shares. Except as otherwise provided below, tenders of Shares are irrevocable. Shares tendered pursuant to the Offer may be withdrawn pursuant to the procedures set forth below at any time prior to the Expiration Date and, unless theretofore accepted for payment and paid for by the Purchaser pursuant to the Offer, may also be withdrawn at any time after October 5, 2000 unless, as described below, such Shares are tendered during a Subsequent Offering Period. For a withdrawal to be effective, a written or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of the Offer to Purchase and must specify the name of the person having tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder of the Shares to be withdrawn, if different from the name of the person who tendered the Shares. If certificates for Shares have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such certificates, the serial numbers shown on such certificates must be submitted to the Depositary and, unless such Shares have been tendered by an Eligible Institution (as defined in the Offer to Purchase), any and all signatures on the notice of withdrawal must be guaranteed by an Eligible Institution. If Shares have been delivered pursuant to the book-entry transfer procedures described in Section 2 of the Offer to Purchase, any notice of withdrawal must also specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares and otherwise comply with the Book-Entry Transfer Facility's procedures. Withdrawals of tenders of Shares may not be rescinded, and any Shares properly withdrawn will thereafter be deemed not validly tendered for purposes of the Offer. However, withdrawn shares may be retendered by again following one of the procedures described in Section 2 of the Offer to Purchase at any time prior to the Expiration Date. Under the Merger Agreement and pursuant to Rule 14d-11 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), although the Purchaser does not currently intend to do so, the Purchaser may, subject to certain conditions, elect to provide a subsequent offering period of from three business days to 20 business days in length following the expiration of the Offer on the Expiration Date and acceptance of the Shares for payment pursuant to the Offer (a "Subsequent Offering Period"). During a Subsequent Offering Period, tendering shareholders will not have withdrawal rights and the Purchaser will promptly purchase and pay for any Shares tendered at the same price paid in the Offer. See Section 1 of the Offer to Purchase. All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by the Purchaser, in its sole discretion, which determination will be final and binding. None of Parent, the Purchaser, the Company, the Depositary, the Information Agent, the Dealer Manager or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. The Company has provided the Purchaser with the Company's shareholder lists and security position listings for the purpose of disseminating the Offer to holders of Shares. The Offer to Purchase and the related Letter of Transmittal and other relevant materials will be mailed to record holders of Shares and furnished to brokers, dealers, banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the Company's shareholder lists, or, if applicable, who are listed as participants in a clearing agency's security position listing, for subsequent transmittal to beneficial owners of Shares. The receipt of cash pursuant to the Offer or the Merger will be a taxable transaction for U.S. federal income tax purposes under the Internal Revenue Code of 1986, as amended, and may also be a taxable transaction under applicable state, local or foreign tax laws. Generally, for U.S. federal income tax purposes, a tendering shareholder will recognize gain or loss equal to the difference between the amount of cash received by the shareholder as consideration for Shares tendered by the shareholder and purchased pursuant to the Offer or converted into cash in the Merger, as the case may be, and the adjusted tax basis of such Shares. If tendered Shares are held by a tendering shareholder as capital assets, gain or loss recognized by such shareholder will be capital gain or loss, which will be long-term capital gain or loss if such shareholder's holding period for the Shares exceeds one year. Shareholders are urged to consult their own tax advisors to determine the particular tax consequences (including the applicability and effect of any state, local or foreign income and other tax laws) of the Offer and the Merger. For a more complete description of certain U.S. federal income tax consequences of the Offer and the Merger see Section 5 of the Offer to Purchase. The Purchaser expressly reserves the right to waive any condition to the Offer or modify the terms of the Offer, subject to the terms of the Merger Agreement, which contains certain conditions that may not be waived and modifications that may not be made without the consent of the Company. The information required to be disclosed by paragraph (d)(1) of Rule 14d-6 of the General Rules and Regulations under the Exchange Act is contained in the Offer to Purchase and is incorporated herein by reference. THE OFFER TO PURCHASE AND LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION AND SHOULD BE READ CAREFULLY AND IN THEIR ENTIRETY BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. Questions and requests for assistance may be directed to the Information Agent or the Dealer Manager, at their respective addresses and telephone numbers set forth below. Requests for copies of the Offer to Purchase, the Letter of Transmittal and all other tender offer materials may be directed to the Information Agent as set forth below, or from brokers, dealers, banks, trust companies or other nominees. No fees or commissions will be payable to brokers, dealers or other persons (other than the Dealer Manager) for soliciting tenders of Shares pursuant to the Offer. THE INFORMATION AGENT FOR THE OFFER IS: GEORGESON SHAREHOLDER COMMUNICATIONS INC. 17 State Street, 10th Floor New York, New York 10004 Banks and Brokerage Firms Call Collect: (212) 440-9800 ALL OTHERS CALL TOLL FREE: (800) 223-2064 THE DEALER MANAGERS FOR THE OFFER ARE: GOLDMAN, SACHS & CO. 85 Broad Street New York, New York 10004 Call Toll Free: (800) 323-5678 August 7, 2000 EX-99.(B)(1) 10 ex-99_b1.txt EXHIBIT (B)(1) Exhibit (b)(1) DATED 31ST JULY, 2000 PEARSON PLC - AND - GOLDMAN SACHS INTERNATIONAL - AND - CAZENOVE & CO. ----------------------------- A G R E E M E N T RELATING TO A RIGHTS ISSUE OF ORDINARY SHARES OF 25P EACH IN PEARSON PLC ----------------------------- Slaughter and May 35 Basinghall Street London EC2V 5DB (DRJ/ARR) CE003695632 CONTENTS PAGE ---- 1. Interpretation 1 2. Admission to listing and trading 6 3. Obligations of the Company 7 4. Conditions 8 5. Certain Overseas Qualifying Holders 10 6. Allotment 10 7. Subscription of New Shares 11 8. Underwriting 14 9. Announcements 16 10. Warranties 17 11. Commissions and Expenses 17 12. Indemnity 19 13. Miscellaneous 22 14. Contracts (Rights of Third Parties) Act 1999 22 15. Notices 22 16. Governing Law 24 Schedule 1 25 Schedule 2 27 THIS AGREEMENT is made on 31st July, 2000 BETWEEN: (1) PEARSON PLC (registered in England with number 53723) whose registered office is at 3 Burlington Gardens, London W1X 1LE (the "COMPANY"); (2) GOLDMAN SACHS INTERNATIONAL of Peterborough Court, 133 Fleet Street, London EC4A 2BB ("GOLDMAN SACHS"); and (3) CAZENOVE & CO. of 12 Tokenhouse Yard, London EC2R 7AN ("CAZENOVE"). WHEREAS: (A) The Company proposes to issue the New Shares pursuant to the Rights Issue and the Directors have authority and have been empowered under Sections 80 and 95 of the Companies Act 1985, respectively, to allot the New Shares and to do so otherwise than in compliance with Section 89 of that Act. (B) Goldman Sachs and Cazenove have agreed, on the terms and subject to the conditions referred to in this Agreement, to underwrite the Rights Issue and have sought and are proposing to seek sub-underwriters of the Rights Issue. WHEREBY IT IS AGREED AS FOLLOWS: 1. INTERPRETATION 1.1 In this Agreement (including the Schedules) the following expressions shall, unless the context otherwise requires, have the following meanings:- "ACCEPTANCE DATE" means the date for acceptance and payment in full under the Rights Issue expected to fall 21 days after the Posting Date Provided always that it shall not be later than the date falling three Dealing Days before the day falling 43 days after the date of this Agreement; "ACCOUNTS DATE" means 31st December 1999; "ACQUISITION" means the proposed acquisition by a wholly owned subsidiary of the Company of National Computer Systems, Inc. to be effected by means of the tender offer (and subsequent merger)as detailed in the Acquisition Documents; 2 "ACQUISITION DOCUMENTS" means the merger agreement between the Company, a wholly-owned subsidiary of the Company and National Computer Systems, Inc. dated 30th July 2000 (the "Merger Agreement") and a tender offer document to be sent to National Computer Systems Inc.'s shareholders; "AUSTRALIAN HOLDERS" means Qualifying Holders with registered addresses in the Commonwealth of Australia, its territories or possessions; "BROKERS" means Cazenove & Co. and Goldman Sachs in their capacity as brokers to the Company; "CIRCULAR" means the circular to be issued by the Company to its shareholders giving details of the Rights Issue, the Interim Results, and the Acquisition, and constituting a Prospectus; "COMMENCEMENT OF DEALINGS" means the commencement of dealings in the New Shares (nil paid) on and with the authority of the London Stock Exchange; "DEALING DAY" means a day upon which dealings in domestic securities may take place on and with the authority of the London Stock Exchange; "DIRECTORS" means the directors of the Company; "EXCLUDED HOLDERS" means Qualifying Holders to whom, in accordance with Clause 5, no Provisional Allotment Letter is to be sent; "GROUP" means the Company and its subsidiaries and subsidiary undertakings; "INTERIM RESULTS" means the unaudited interim results of the Group for the six months ended 30th June, 2000 as set out in the Press Announcement; "IRISH HOLDERS" means Qualifying Holders with registered addresses in the Republic of Ireland; "LISTING RULES" means the current edition of the publication entitled "The Listing Rules" produced by the UK Listing Authority and incorporating the listing rules made by the UK Listing Authority pursuant to Part IV of the Financial Services Act 1986; 3 "LONDON STOCK EXCHANGE" means the London Stock Exchange plc; "NEW SHARES" means the 170,500,067 new Ordinary Shares to be allotted pursuant to the Rights Issue; "NORTH AMERICAN HOLDERS" means Qualifying Holders with registered addresses either in the United States of America or any of its states, territories or possessions, including the District of Columbia; "OFFICIAL LIST" means the Official List of the UK Listing Authority; "ORDINARY SHARES" means ordinary shares of 25p each in the capital of the Company; "ORDINARY SHAREHOLDERS" means holders of Ordinary Shares; "POSTING DATE" means the date not later than 17th August, 2000 or such other date as the Company and the Underwriters may agree in writing that the Circular and Provisional Allotment Letter are, subject to clause 5, issued by the Company to Qualifying Holders; "PRESS ANNOUNCEMENT" means the press announcement giving details of the Rights Issue, the Interim Results and the Acquisition in the form of the draft initialled by or on behalf of the Company and the Underwriters for the purpose of identification only and MARKED "A"; "PROSPECTUS" means a prospectus for the purposes of the listing rules made by the UK Listing Authority pursuant to Part IV of the Financial Services Act 1986 relating to the Company and the New Shares; "PROVISIONAL ALLOTMENT LETTER" means the form of the renounceable provisional allotment letter to be issued by the Company, subject to CLAUSE 5, to Qualifying Holders in connection with the Rights Issue; "QUALIFYING HOLDERS" means Ordinary Shareholders on the register of members of the Company as at the close of business on the Record Date; "RECEIVING BANKER" means Lloyds TSB Registrars, The Causeway, Worthing, West Sussex BN99 6DA; 4 "RECORD DATE" means the close of business on 28th July, 2000; "REPORT AND ACCOUNTS" means the published annual report and audited accounts of the Group as at and for the financial period ended on the Accounts Date; "RIGHTS ISSUE" means the offer of New Shares by way of rights to Qualifying Holders (other than Excluded Holders) at the Subscription Price on the basis of:- 3 New Shares for every 11 Ordinary Shares held as at the close of business on the Record Date and otherwise on the terms and subject to the conditions in the Circular and Provisional Allotment Letter; "STANDARDS" means the current edition of the Admission and Disclosure Standards produced by the London Stock Exchange; "SUBSCRIPTION PRICE" means a price of(pound)10.00 per New Share; "SUPPLEMENTARY PROSPECTUS" means any Prospectus published by the Company pursuant to Section 147 of the Financial Services Act 1986 supplementary to the Prospectus contained in the Circular; "UK LISTING AUTHORITY" means the Financial Services Authority in its capacity as the competent authority under Part IV of the Financial Services Act 1986 and in the exercise of its function in respect of admission to the Official List otherwise than in accordance with Part IV of the Financial Services Act 1986; "UNDERWRITERS" means Goldman Sachs and Cazenove; "UNDERWRITTEN NEW SHARES" means 150,000,000 New Shares. 1.2 In this Agreement unless otherwise specified:- 5 (A) references to clauses, sub-clauses, paragraphs and schedules are to clauses, sub-clauses, paragraphs of, and schedules to, this Agreement; (B) words and expressions defined in the Companies Act 1985 shall bear the same meaning; (C) a reference to any statute or statutory provision shall be construed as a reference to the same as it may have been, or may from time to time be, amended, modified or re-enacted, provided that no amendment, modification or re-enactment subsequent to the date of this Agreement shall increase or extend the liability of any party under this Agreement; (D) references to this Agreement are to it as amended or supplemented from time to time ; (E) references to times of the day are to London time; and (F) headings to clauses and schedules are for convenience only and do not affect the interpretation of this Agreement. 1.3 The document referred to in this Agreement marked "A" (the Press Announcement), may be amended by agreement between the Company and the Underwriters in accordance with CLAUSE 3.7 and references in this Agreement to such documents shall, where appropriate, be construed as references to such documents as so amended. 2. ADMISSION TO LISTING AND TRADING 2.1 The Company undertakes to the Underwriters that it has, at its own expense, through the Brokers made an application to the UK Listing Authority for permission to be granted for the admission of the New Shares to the Official List in accordance with the Listing Rules and an application to the London Stock Exchange for permission to be granted for the admission of the New Shares to trading on the London Stock Exchange. 2.2 The Company will, in conjunction with the Brokers, use its best endeavours:- (A) to obtain the permissions referred to in CLAUSES 2.1 (subject only to the despatch of Provisional Allotment Letters) by not later than the Posting Date; and (B) to procure that the admission of the New Shares to the Official List becomes effective in accordance with paragraph 7.1 of the Listing Rules and the admission of the New Shares to trading becomes effective in accordance with paragraph 2.1 of the Standards by not later than 8.30 a.m. on the first Dealing Day after the Posting Date. The Company will supply all such information, give all such undertakings, execute all such documents, pay all such fees and do or procure to be done all such things as may be reasonably necessary or required by the UK Listing Authority and/or the London Stock Exchange for the purpose of obtaining such approval, permissions and admissions. 6 3. OBLIGATIONS OF THE COMPANY 3.1 The Company shall:- (A) so far as it is able procure that forthwith, and in any event by not later than 8.30 a.m. on the date of this Agreement, the Press Announcement is released to the London Stock Exchange; (B) use its best endeavours to procure delivery to the Underwriters of the documents referred to in paragraph 1 of Schedule 1 by not later than the time at which copies of the Circular are delivered to the Registrar of Companies in England and Wales in accordance with CLAUSE 3.2(A); (C) subject to the allotment of the New Shares pursuant to CLAUSE 6. 1, procure that there are delivered to the Underwriters the documents referred to in PARAGRAPH 2 of SCHEDULE 1 as provided therein. 3.2 Subject to the prior receipt from the UK Listing Authority of formal approval of the Circular as a Prospectus, the Company shall procure that:- (A) two copies of the Circular are delivered by or on behalf of the Company to the Registrar of Companies in England and Wales for registration pursuant to Section 149 of the Financial Services Act 1986 by not later than the Posting Date; (B) subject to the fulfilment of CLAUSE 3.2(A), further copies of the Circular, together with the Report and Accounts, are made available by or on behalf of the Company in accordance with paragraphs 8.4, 8.4A, 8.5, 8.6 and 8.21 of the Listing Rules; (C) subject to the fulfilment of CLAUSE 3.2(A) and the provisional allotments of the New Shares having been made subject to and in accordance with CLAUSE 6.1, the Circular and Provisional Allotment Letters are posted, subject to CLAUSE 5, to all Qualifying Holders (other than Excluded Holders) by not later than the Posting Date with such Provisional Allotment Letters recording the respective entitlements of each such Qualifying Holder to subscribe New Shares; and (D) the relevant announcements referred to in paragraph 4.20 of the Listing Rules shall be lodged with the Company Announcements Office of the London Stock Exchange as required by such paragraph. 3.3 The Company shall notify the Underwriters forthwith of any event referred to in paragraph (a) or (b) of Section 147(1) of the Financial Services Act 1986 which arises between the time of publication of the Circular and the Commencement of Dealings and, without prejudice to CLAUSES 4.1(D) AND 9.2, shall deal with every such matter in accordance with Section 147 of that Act and paragraphs 5.14, 5.15, 5.16 and 8.20 of the Listing Rules. 7 3.4 The Company undertakes that it will not, without the consent in writing of the Underwriters, prior to completion of the Acquisition make any material increase in the terms of the tender offer. 3.5 The Company shall not make any material amendment to the Circular, the Press Announcement or the Provisional Allotment Letter without the prior written consent of the Underwriters, such consent not to be unreasonably withheld or delayed. 4. CONDITIONS 4.1 The obligations of the Underwriters under CLAUSES 7 (other than CLAUSES 7.6 TO 7.8) AND 8 are conditional upon:- (A) the release of the Press Announcement to the London Stock Exchange in accordance with CLAUSE 3.1(A); (B) the posting of the Circular and Provisional Allotment Letters in accordance with CLAUSE 3.2(C); (C) none of the representations, warranties or undertakings being breached or untrue or inaccurate or misleading in any respect when made which in any such case is material in the context of the Rights Issue or the underwriting of the New Shares and there being no change in fact or circumstance or in the knowledge, opinion, intention or expectation such that, if repeated at any time up to immediately prior to the Commencement of Dealings by reference to the facts and circumstances and the knowledge, opinions, intentions and expectations of the Directors then existing, any of such representations, warranties or undertakings would be breached or untrue or inaccurate or misleading in any respect, which in any such case is material in the context of the Rights Issue or the underwriting of the New Shares; (D) no event referred to in paragraph (a) or (b) of Section 147(1) of the Financial Services Act 1986 arising between the time of publication of the Circular and the Commencement of Dealings and no Supplementary Prospectus being published by or on behalf of the Company; (E) the admission of the New Shares to the Official List becoming effective in accordance with paragraph 7.1 of the Listing Rules and the admission of the New Shares to trading becoming effective in accordance with paragraph 2.1 of the Standards by not later than 8.30 a.m. on the first Dealing Day after the Posting Date; (F) the Acquisition not ceasing to be capable of completion by reason of any condition in Exhibit A to the Merger Agreement being invoked; and (G) no act of the Company having been carried out in breach of CLAUSE 3.4 (whether prior to or after the Commencement of Dealings). 8 4.2 The conditions referred to in CLAUSE 4.1 (other than those set out in CLAUSES 4.1(B) AND (E)) may be waived, in whole or in part, by notice in writing given by the Underwriters to the Company and the respective times for satisfaction of the conditions referred to in CLAUSE 4.1 may be extended by notice in writing given by the Underwriters to the Company. 4.3 If the conditions referred to in CLAUSE 4.1 are not fulfilled (or waived) on or by the required times or dates therefor, the Company shall forthwith make an announcement to the London Stock Exchange to that effect and this Agreement (other than Clauses 7.6 to 7.8) shall ipso facto cease and terminate and neither party shall have any claim against the other for any costs, damages, compensation or otherwise under this Agreement except:- (A) as regards any breach of any provision of this Agreement which has occurred prior to such termination; and (B) that the provisions of CLAUSES 11 AND 12 shall still apply in accordance with their respective terms. 5. CERTAIN OVERSEAS QUALIFYING HOLDERS 5.1 Provisional Allotment Letters sent to Qualifying Holders with registered addresses in South Africa will carry no right to renounce. 5.2 Provisional Allotment Letters will not be sent to North American Holders without the prior written consent of the Underwriters. 5.3 The Company will not exercise any right reserved to it to reject a Provisional Allotment Letter in the circumstances referred to in the Circular without first consulting with the Underwriters. 5.4 The parties will investigate in good faith the feasibility of making the Rights Issue available to Excluded Holders. 6. ALLOTMENT 6.1 Subject to:- (A) the formal approval by the UK Listing Authority of the Circular as a Prospectus by not later than the Posting Date; (B) the delivery of two copies of the Circular to the Registrar of Companies in England and Wales in accordance with CLAUSE 3.2(A); and (C) the UK Listing Authority having granted permission for the New Shares to be admitted to the Official List and the London Stock Exchange having granted permission for the New Shares to be admitted to trading on the London Stock Exchange's market for listed securities (subject only to the despatch of Provisional Allotment Letters), 9 the New Shares will be provisionally allotted on the Posting Date to Qualifying Holders (other than Excluded Holders) on the basis referred to in the definition of "Rights Issue" in CLAUSE 1.1 pursuant to a resolution of the Board of Directors (or a duly authorised Committee of such Board) and in accordance with CLAUSE 6.2. 6.2 The provisional allotment of the New Shares referred to in CLAUSE 6.1 will be made upon the terms and subject to the conditions set out in the Circular and the Provisional Allotment Letter and on the basis referred to in CLAUSE 6.4 for acceptance and payment in full by not later than 3.00 p.m. on the Acceptance Date and will be expressed to be subject to the admission of the New Shares to the Official List becoming effective in accordance with paragraph 7.1 of the Listing Rules and to the admission of the New Shares to trading becoming effective in accordance with paragraph 2.1 of the Standards by not later than 8.30 a.m. on the first Dealing Day after the Posting Date (or such later time and/or date as the Company and the Underwriters may agree). Fractions of New Shares shall not be allotted to Qualifying Holders. All such fractions will be aggregated and the resultant aggregate number of New Shares and the New Shares attributable to Excluded Holders will be dealt with in accordance with CLAUSES 7.1 AND 7.2. 6.3 Subject to:- (A) the provisional allotments of the New Shares referred to in CLAUSE 6.1 having been made; and (B) the admission of the New Shares to the Official List and to trading on the London Stock Exchange having become effective as referred to in Clause 6.2, the provisional allotments of the New Shares which have been taken up will be confirmed and the provisional allotments of the New Shares which have not been taken up will be cancelled and new allotments thereof made in favour of the persons who, pursuant to CLAUSES 7.6 AND/OR 8, are subscribing such New Shares pursuant to a resolution of the Board of Directors (or a duly authorised Committee of such Board) in each case by not later than the third Dealing Day after the Acceptance Date. 6.4 The New Shares will be allotted on terms that, when fully paid, they are free from all liens, charges and encumbrances and that they will rank pari passu in all respects with the existing issued Ordinary Shares save that they will not rank for the interim dividend in respect of the six months ended 30th June, 2000 announced on 31st July, 2000. 7. SUBSCRIPTION OF NEW SHARES 7.1 By not later than 5.00 p.m. on the Dealing Date prior to the Posting Date the Company will (or will procure that the Receiving Banker will) notify the Underwriters in writing of the number of New Shares which represents the aggregate of fractional entitlements arising in respect of the Rights Issue and of the number of New Shares attributable to Excluded Holders under the Rights Issue. On the Dealing Day before the Acceptance Date (or such earlier date as the Underwriters may specify subject to the consent of the Company, such consent not to be unreasonably withheld or delayed), the Underwriters will, as agents of the Company, instruct 10 the Brokers to endeavour to procure (a) purchaser(s) for so many of the rights to such New Shares as can be sold nil paid at a premium net of expenses (including value added tax). As soon as reasonably practicable thereafter the Underwriters will account to the Receiving Banker for the net proceeds of sale (after deduction of expenses, including Broker's commission) of so many of such rights to New Shares as shall have been so sold nil paid against delivery to the Underwriters (or as they may direct) of nil paid Provisional Allotment Letters in respect of the rights to the New Shares so sold in such names and denominations as the Underwriters may require. Such sales will be deemed to have been made in the first instance in respect of rights to New Shares attributable to Excluded Holders and, to the extent that there are sufficient such sales, thereafter in respect of rights to New Shares attributable to fractional entitlements. If any of the rights to such New Shares are not so sold by 3.00 p.m. on the Acceptance Date, such New Shares will be dealt with as New Shares not taken up in accordance with CLAUSE 7.6. 7.2 The Company will procure that the Receiving Banker pays to Excluded Holders pro rata to their holdings of Ordinary Shares as at the close of business on the Record Date the net proceeds received by the Receiving Banker in respect of the sale of rights to New Shares attributable to Excluded Holders pursuant to CLAUSE 7.1 as soon as practicable after receipt (save that individual amounts of less than (pound)3.00 per holding shall not be so paid but shall be retained by the Company). The Company will procure that the Receiving Banker pays to relevant Qualifying Holders pro rata to their fractional entitlements to New Shares the net proceeds received by the Receiving Banker in respect of the sale of such fractional entitlements pursuant to CLAUSE 7.1 as soon as practicable after receipt (save that individual amounts of less than (pound)3.00 per holding shall not be so paid but shall be retained by the Company). 7.3 If, by 3.00 p.m. on the Acceptance Date, all of the New Shares shall have been taken up, or are subsequently deemed to have been taken up by such time pursuant to the proviso to CLAUSE 7.4, the obligations of the Underwriters under CLAUSES 7.6 AND 8 shall thereupon terminate. 7.4 Subject to CLAUSE 7.5, New Shares comprised in Provisional Allotment Letters which, by 3.00 p.m. on the Acceptance Date, shall be lodged for acceptance (whether by the person to whom they were provisionally allotted or by renouncees of the right to accept allotment) in accordance with the terms of the Circular and the Provisional Allotment Letter, accompanied by cheques or other remittances for the full amount payable in respect of such New Shares (and whether or not such cheques or other remittances shall be honoured) are referred to in this Agreement as having been "taken up" provided that (i) cheques dishonoured or other applications rejected by 3.00 p.m. on Acceptance Date and notified to the Underwriters in accordance with 7.6 shall not be treated as taken up and (ii) at the discretion of the Company New Shares shall for the purpose of this Agreement be deemed to have been taken up by 3.00 p.m. on the Acceptance Date if a cheque or other remittance for the full amount payable in respect of such New Shares (and whether or not such cheque or other remittance shall be honoured) is received prior to 3.00 p.m. on the Acceptance Date from an authorised person (as defined in the Financial Services Act 1986) identifying the New Shares concerned and undertaking to lodge the relevant Provisional Allotment Letter duly completed in due course. 7.5 Notwithstanding CLAUSE 7.4, New Shares shall be deemed not to have been taken up where they are comprised in a Provisional Allotment Letter which has been lodged for acceptance and in respect of which, by not later than 7.30 a.m. on the first Dealing Day after the Acceptance Date, 11 the Company has notified the Underwriters that it is with the consent of the Underwriters rejecting such Provisional Allotment Letter on the basis that, verification of the identity of the applicant having been required and a reasonable period having elapsed, the Receiving Banker has advised the Company that it is unable to process such Provisional Allotment Letter in accordance with the Money Laundering Regulations 1993. 7.6 As soon as practicable after 3.00 p.m. on the Acceptance Date and by not later than 7.30 a.m. on the first Dealing Day after the Acceptance Date, the Company will (or will procure that the Receiving Banker will) notify the Underwriters in writing of the number of New Shares which have not been taken up or deemed taken up. The Underwriters will, as agents of the Company, instruct the Brokers to endeavour to procure (a) subscriber(s) for such New Shares (or as many as can be so procured) upon the terms (in so far as the same are applicable) of the Circular and the Provisional Allotment Letter as soon as reasonably practicable and in any event by not later than 3.00 p.m. on the second Dealing Day after the Acceptance Date if a premium over the total of the Subscription Price and expenses of procurement (including value added tax) can be obtained provided that the Underwriters may, at any time after 3.00 p.m. on the Acceptance Date, instruct the Brokers no longer to endeavour to procure any such subscriber(s) if they have been informed by the Brokers that, in the reasonable opinion of the Brokers, it is unlikely that any such subscriber(s) can be so procured at such a premium by such time. The Underwriters shall not be under any obligation to endeavour to procure any such subscriber(s) save as expressly set out in this Agreement. The Underwriters will procure payment to the Receiving Banker of the net proceeds of any such subscriptions by not later than the third Dealing Day after the Acceptance Date against delivery to the Underwriters (or as they may direct) of duly receipted fully paid Provisional Allotment Letters in respect of the New Shares for which subscribers are procured pursuant to this CLAUSE 7.6 in such names and denominations as the Underwriters may require. 7.7 The Company will procure that the Receiving Banker pays the excess of the net proceeds of subscription over the Subscription Price (less expenses, including value added tax) received by the Receiving Banker pursuant to CLAUSE 7.6 to the non-accepting Qualifying Holders to whom the relevant New Shares were provisionally allotted pro rata to their lapsed provisional entitlements as soon as practicable after receipt (save that individual amounts of less than (pound)3.00 will not be so paid but will be retained by the Company). The Company shall be entitled to retain for its own use aNd benefit the Subscription Price for each New Share subscribed and received by the Receiving Banker pursuant to CLAUSE 7.6. 7.8 Any transactions carried out by the Underwriters pursuant to this CLAUSE 7 will constitute transactions carried out at the Company's request and as its agent and not for the Underwriters' own account. The Underwriters shall, however, be entitled to receive and/or retain and/or allow the Brokers and/or its other agents to receive and/or retain any commission or brokerages paid to it or its agents in connection with the implementation of any such transactions and shall not be under any liability to account for any benefit or advantage derived from such transactions by it or any company connected with it. Neither the Underwriters nor the Brokers are to be responsible, whether to the Company, any Qualifying Holder or any other shareholder or otherwise, for any loss or damage to any person arising from any such transactions or for any insufficiency or alleged insufficiency of any dealing price at which any rights to New Shares may be sold or subscribers for New Shares may be procured by them or 12 for the timing of any such sale or subscription or any failure to procure any sale or subscription unless and to the extent that the same result from the negligence or wilful default of the Underwriters or of the Brokers. 8. UNDERWRITING 8.1 The Underwriters shall, as agents of the Company, procure subscribers, or to the extent such subscribers are not procured themselves as principal subscribe, on the terms and subject to the conditions and on the basis of the information contained in the Circular and the Provisional Allotment Letter (other than as to the time and method of acceptance and payment) for any of the New Shares notified to them in accordance with CLAUSE 7.6 as not taken up and for which subscribers are not procured pursuant to CLAUSE 7.6, provided that this obligation shall be limited to the number of Underwritten New Shares after deducting any New Shares taken up or for which subscribers are procured under pursuant to CLAUSE 7.6 (and for the avoidance of doubt if the number of New Shares taken up or for which subscribers are procured pursuant to CLAUSE 7.6 is equal to or exceeds the number of Underwritten New Shares, the obligations of the Underwriters under this CLAUSE 8.1 shall terminate). 8.2 The Underwriters shall procure payment of the Subscription Price for the Underwritten New Shares for which the Underwriters subscribe or procure subscribers pursuant to CLAUSE 8.1 to the Company (or to the Receiving Banker) by not later than the fourth Dealing Day after the Acceptance Date against delivery to the Underwriters (or as they may direct) of duly receipted fully paid Provisional Allotment Letters in respect of such Underwritten New Shares in such names and denominations as the Underwriters may require. In default of the Underwriters so doing in respect of any such Underwritten New Shares, the Company is hereby irrevocably authorised to treat this Agreement as an application by the Underwriters on the terms and subject to the conditions and on the basis of the information contained in the Circular and the Provisional Allotment Letter (other than as to the time and method of acceptance and payment) for such Underwritten New Shares and to allot and issue the same to the Underwriters on such terms and conditions, and payment of the Subscription Price in respect thereof shall be made by the Underwriters against delivery to them (or as they may direct) of duly receipted fully paid Provisional Allotment Letters in respect of such Underwritten New Shares in such names and denominations as they shall require. 8.3 The obligations of the Underwriters under this CLAUSE 8 are separate, each Underwriter being responsible only for its proportionate share of the Underwritten New Shares as set out below: (A) in respect of the first 82,000,000 Underwritten New Shares: Goldman Sachs 72.222% Cazenove 27.778% (B) in respect of any Underwritten New Shares in excess of 82,000,000: Goldman Sachs 50% 13 Cazenove 50% and for the avoidance of doubt one of the Underwriters shall not have any liability or obligation in respect of any default by the other. 9. ANNOUNCEMENTS 9.1 The Company will not, and will procure that no other member of the Group will, between the date of this Agreement and the fourth Dealing Day after the Acceptance Date (inclusive) save for the Acquisition enter into any commitment or agreement, or put itself in a position where it is obliged to announce that any commitment or agreement may be entered into, which is or may be material in the context of the Group or issue any shares or options over shares (other than pursuant to and in accordance with entitlements described in the Circular) or enter into any agreement or undertaking to do the same without in any such case the prior written consent of the Underwriters, not to be unreasonably withheld or delayed. 9.2 The Company undertakes to the Underwriters that, save for the release of the Press Announcement and the posting of the Circular and Provisional Allotment Letters in accordance with the terms of this Agreement, or as may be required by law or the requirements of the Listing Rules or by the tender offer document and any other US listing documentation no:- (A) public announcement or communication concerning any member of the Group which is or may be material in the context of the Rights Issue or the underwriting of New Shares; (B) notice, bill, poster or document announcing the publication or despatch of the Circular or the Provisional Allotment Letters or the issue of the New Shares and indicating the essential characteristics of the New Shares; or (C) document relating to the admission of the New Shares to the Official List and to trading on the London Stock Exchange, will be published, made or despatched by or on behalf of any member of the Group between the date hereof and the fourth Dealing Day after the Acceptance Date (inclusive) without the prior written consent of the Underwriters or as may be required by law or the requirements of the Listing Rules or by the tender offer document and any other US Listing documentation. The Underwriters shall not withhold or delay such consent in circumstances where such publication is required pursuant to any applicable law or regulation. 10. WARRANTIES 10.1 Execution of this Agreement by the Company shall constitute a representation, warranty and undertaking by the Company to the Underwriters in the terms set out in SCHEDULE 2. 10.2 The Company accepts that the Underwriters are entering into this Agreement in reliance upon each of such representations, warranties and undertakings. Each of such representations, warranties and undertakings shall be construed separately and shall not be limited or restricted 14 by reference to or inference from the terms of any other of such representations, warranties and undertakings or any other term of this Agreement. 10.3 The Company will notify the Underwriters immediately if it comes to the knowledge of the Company or any of the Directors that any of the representations, warranties and undertakings referred to in CLAUSE 10.1 was breached or untrue or inaccurate or misleading in any respect when made and/or that any of such representations, warranties and undertakings is or would be breached or untrue or inaccurate or misleading in any respect if it were to be repeated by reference to the facts and circumstances or the knowledge, opinions, intentions or expectations of any of the Directors subsisting at any time up to immediately prior to the Commencement of Dealings. 10.4 The representations, warranties and undertakings referred to in CLAUSE 10.1 shall remain in full force and effect notwithstanding completion of this Agreement. 11. COMMISSIONS AND EXPENSES 11.1 In consideration of their services under this Agreement, the Company will pay to the Underwriters:- (A) a commission of 0.5 per cent. of the value of the Underwritten New Shares at the Subscription Price; and (B) a commission of 0.1 per cent. of the value of the Underwritten New Shares at the Subscription Price in respect of each period of seven days or part thereof from (and including) the date falling 30 days after the date of this Agreement to (and including) the earlier of (a) the day on which sub-underwriters are informed either in writing or by the publication of an announcement on the Stock Exchange Regulatory News Service of the number of New Shares for which they are required to subscribe or (b) the third Dealing Day after the Acceptance Date or (c) the date on which the announcement referred to in CLAUSE 4.3 is made. 11.2 The commissions referred to in CLAUSE 11.1 shall be paid to the Underwriters whether or not they shall be called upon to subscribe or procure subscribers for any of the New Shares under this Agreement and whether or not any of the obligations of the Underwriters under this Agreement terminate or fail to become unconditional. Out of such commissions the Underwriters shall pay sub-underwriting commissions to such persons, if any, as they may procure to subscribe New Shares pursuant to CLAUSE 8. 11.3 The commissions referred to in CLAUSE 11.1 shall be paid by the Company to the Underwriters by not later than 3.00 p.m. on the fourth Dealing Day after the Acceptance Date or, if earlier, on the first Dealing Day after the date on which the obligations of the Underwriters under this Agreement terminate or fail to become unconditional. The Underwriters shall be entitled to deduct some or all of such commissions from any amount otherwise payable by the Underwriters to the Company under this Agreement. 15 11.4 In addition to the commissions referred to in CLAUSE 11.1, all costs and expenses of, and in connection with, the Acquisition, this Agreement, the Rights Issue and the allotment and issue of the New Shares shall be borne by the Company including, without limitation to the generality of the foregoing, any stamp duty or stamp duty reserve tax (other than any stamp duty reserve tax chargeable under sections 93 or 96 of the Finance Act 1986) and all listing fees, admission fees, registrars' fees, Receiving Banker's fees, legal fees and expenses of the Company and (to the extent the same are reasonable) those of the Underwriters, the Company's accountancy fees and expenses, costs of printing, advertising and circulating the Press Announcement, the Circular, Provisional Allotment Letters and any Supplementary Prospectus and the Company's and the Underwriters' out-of-pocket expenses. 11.5 The Company shall forthwith upon request by the Underwriters pay or reimburse the Underwriters the amount of any expenses which are to be borne by the Company and which the Underwriters may have paid. 11.6 Where in pursuance of CLAUSE 11.4 OR 11.5 or CLAUSE 12 a sum (a "RELEVANT SUM") is to be reimbursed to either Goldman Sachs or Cazenove in respect of any cost, charge or expense and that cost, charge or expense includes an amount in respect of value added tax (the "VAT ELEMENT"), the Company shall pay an amount to Goldman Sachs and/or Cazenove by reference to the VAT Element that shall be determined as follows:- (A) if the Relevant Sum constitutes for value added tax purposes (without regard to Section 47(3) Value Added Tax Act 1994) the reimbursement of the consideration for a supply of goods or services made to Goldman Sachs and/or Cazenove (and so not to the Company), a sum equal to the proportion of the VAT Element that Goldman Sachs and/or Cazenove certifies as representing irrecoverable input tax in the hands of Goldman Sachs and/or Cazenove, that certificate to be conclusive save in the case of manifest error; and (B) if the Relevant Sum constitutes for value added tax purposes the reimbursement of a cost or expense incurred by Goldman Sachs and/or Cazenove as agent for the Company, a sum equal to the whole of the VAT Element, and where a sum equal to the VAT Element has been reimbursed to Goldman Sachs and/or Cazenove under PARAGRAPH (B) above, Goldman Sachs and/or Cazenove shall provide the Company with an appropriate tax invoice in respect of the supply to which the Relevant Sum relates, that is to say a tax invoice naming the Company as the recipient of the supply and issued either by Goldman Sachs and/or Cazenove or, if Goldman Sachs and/or Cazenove have treated the relevant cost or expense as a disbursement for value added tax purposes, by the person making the supply. 12. INDEMNITY 12.1 The Company will not make any claim against Goldman Sachs or any subsidiary undertaking or parent company of Goldman Sachs or any subsidiary undertaking of any such parent company or any of their respective affiliates, directors, officers, partners, agents or employees and controlling persons (if any) (together "Goldman Sachs Indemnified Persons" and, separately, 16 each "Goldman Sachs Indemnified Person") or Cazenove or any subsidiary undertaking or parent company of Cazenove or any subsidiary undertaking of any such parent company or any of their respective affiliates, directors, officers, partners, agents or employees and controlling persons (if any) together "Cazenove Indemnified Persons" and, separately, each "Cazenove Indemnified Person") (Goldman Sachs Indemnified Persons and Cazenove Indemnified Persons together being "Indemnified Persons") to recover any loss or damage which the Company or the Directors or any other person may suffer by reason of or arising out of the carrying out or performance by any Indemnified Person or on their behalf of their obligations or services under this Agreement or in connection with the Rights Issue unless and to the extent that in the case of a Goldman Sachs Indemnified Person such loss or damage results from the negligence or wilful default of a Goldman Sachs Indemnified Person, a breach by a Goldman Sachs Indemnified Person of his or its duties or obligations under the FSA or under the regulatory system (as defined in the Rules of the Securities and Futures Authority Limited) or of his or its duties or obligations under this Agreement and in the case of a Cazenove Indemnified Person such loss or damage result from the negligence or wilful default of a Cazenove Indemnified Person, a breach by a Cazenove Indemnified Person of his or its duties or obligations under the FSA or under the regulatory system (as defined in the Rules of the Securities and Futures Authority Limited) or of his or its duties or obligations under this Agreement. 12.2 Without limitation to clause 12.1, the Company agrees with, and acknowledges to, Goldman Sachs and Cazenove that none of the Indemnified Persons shall be responsible, in the absence of specific written agreement to the contrary, to such other parties for verifying the accuracy and/or fairness of any information in the Circular or otherwise published or caused to be published by the Company in connection with the Rights Issue. 12.3 The Company undertakes to Goldman Sachs to hold each Goldman Sachs Indemnified Person and to Cazenove to hold each Cazenove Indemnified Person fully and effectively indemnified against all claims, actions, demands, liabilities, proceedings and judgements brought or established or threatened to be brought against that Indemnified Person (whether or not successful, compromised or settled) and against all losses, costs, charges and expenses (including, without limitation, legal fees and expenses properly incurred) which that Indemnified Person may suffer or incur (including, without prejudice to the generality of the foregoing, all costs, charges and expenses which such Indemnified Person suffers or incurs in investigating or disputing any such claim, action or demand) and the reasonable costs and expenses of such Indemnified Person enforcing its rights under this CLAUSE 12.3 and which in any case is occasioned by or results from or is attributable to or would not have arisen but for, directly or indirectly:- (A) any breach by the Company of any of its obligations under this Agreement and/or breach of the warranties; (B) the carrying out or performance by the Underwriters or on their behalf of any of their obligations or services under this Agreement or in connection with the Rights Issue; (C) the issue of the New Shares, the publication, release or despatch of the Press Announcement and/or the Circular and/or any of the Provisional Allotment Letters and/or any Supplementary Prospectus; or 17 (D) any breach or alleged breach of any of the representations, warranties and undertakings in this Agreement, unless and to the extent that such losses, costs, charges or expenses result (i) in respect of indemnification of a Goldman Sachs Indemnified Person from the negligence or wilful default of a Goldman Sachs Indemnified Person, a breach by a Goldman Sachs Indemnified Person of his or its duties or obligations under the FSA or under the regulatory system (as defined in the Rules of the Securities and Futures Authority Limited) or of his or its duties or obligations under this agreement or (ii) in respect of indemnification of a Cazenove Indemnified Person from the negligence or wilful default of a Cazenove Indemnified Person, a breach by a Cazenove Indemnified Person of his or its duties or obligations under the FSA or under the regulatory system (as defined in the Rules of the Securities and Futures Authority Limited) or of his or its duties or obligations under this agreement and provided that an Indemnified Person shall not be entitled to be indemnified pursuant to this Clause 12.3 in respect of any losses, costs, charges and expenses suffered or incurred by such Indemnified Person as a result of it having been required to subscribe New Shares pursuant to Clause 8 unless and to the extent that such losses, costs, charges and expenses are occasioned by, or result from, or are attributable to or would not have arisen but for (in each case directly or indirectly) any breach by the Company of any of its obligations under this Agreement or any breach of the representations, warranties and undertakings referred to in CLAUSE 10.1 or any circumstances which constitute such a breach. 12.4 If the United Kingdom Inland Revenue or any other taxing authority beings into any charge to taxation any sum payable under the indemnity contained in CLAUSE 12.3, the amount so payable shall be grossed up by such amount as will ensure that after deduction of the tax so chargeable there shall remain a sum equal to the amount than would otherwise have been payable under CLAUSE 12.3 provided that there shall be taken into account, in computing the amount payable hereunder in respect of the loss, cost, charge or expense indemnified, any amount by which the liability to tax of the Indemnified Person is reduced in consequence of such loss, cost, charge or expense. 13. MISCELLANEOUS 13.1 The Company confirms that it has instructed or will instruct the Receiving Banker and the Company's registrars to act as receiving banker and registrars respectively in connection with the Rights Issue and to perform the obligations assigned to it or them under the Circular, the Provisional Allotment Letters and this Agreement as receiving banker and registrar respectively. 13.2 No delay or omission on the part of the Underwriters in exercising any right, power or remedy under this Agreement shall impair such right, power or remedy or operate as a waiver thereof. The single or partial exercise of any right, power or remedy by the Underwriters under this Agreement shall not preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The rights, powers and remedies of the Underwriters provided in this Agreement are cumulative and not exclusive of any rights, powers and remedies provided by law. 18 13.3 Any time, date or period mentioned in any Clause of or Schedule to this Agreement may be extended by agreement between the Company and the Underwriters but as regards any time, date or period originally fixed or any time, date or period so extended, time shall be of the essence. 13.4 If the performance by Goldman Sachs and/or Cazenove of any of their obligations under this Agreement shall represent for value added tax purposes the making by Goldman Sachs and/or Cazenove of any supply of goods or services to the Company that is taxable at a positive rate, the Company shall pay to Goldman Sachs and/or Cazenove, in addition to the amounts otherwise payable by the Company to Goldman Sachs and/or Cazenove pursuant to this Agreement, an amount equal to the value added tax chargeable on any such supply, that payment to be made within seven days of Goldman Sachs and/or Cazenove requesting the same and against production by Goldman Sachs and/or Cazenove of an appropriate tax invoice. 14. CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999 The parties to this Agreement do not intend that any term of this Agreement, should be enforceable by virtue of the Contracts (Rights of Third Parties) Act 1999 by any person who is not a party to this Agreement. 15. NOTICES 15.1 Any notice or other communication given or made under or in connection with the matters contemplated by this Agreement shall be in writing (not including writing on the screen of a visual display unit or other similar device which shall not be treated as writing for the purposes of this Clause). 15.2 Any such notice or other communication shall be addressed as provided in CLAUSE 15.3 and, if so addressed, shall be deemed to have been duly given or made as follows:- (A) if sent by personal delivery, upon delivery at the relevant address of the relevant party; (B) if sent by first class post, two Dealing Days after the date of posting; and (C) if sent by facsimile, when received. 15.3 The relevant addressee, address and facsimile number of each party for the purposes of this Agreement, subject to CLAUSE 15.4, are:- Name of Party Address Facsimile No. ------------- ------- ------------- The Company 3 Burlington Gardens 020 7411 2254 London W1X 1LE F.A.O. Gary Rinck 19 Goldman Sachs Peterborough Court 020 7774 4212 133 Fleet Street London EC4A 2BB F.A.O. Richard Murley Cazenove 12 Tokenhouse Yard 020 7796 2118 London EC2R 7AN F.A.O. John Paynter 15.4 A party may notify the other party to this Agreement of a change to its name, relevant addressee, address or facsimile number for the purposes of this Clause provided that such notification shall only be effective on:- (A) the date specified in the notification as the date on which the change is to take place; or (B) if no date is specified or the date specified is less than five Dealing Days after the date on which notice is given, the date falling five Dealing Days after notice of any such change has been given. 16. GOVERNING LAW This Agreement shall be governed by and construed in accordance with English law. 20 SCHEDULE 1 DOCUMENTS TO BE DELIVERED 1. The following documents are to be delivered by the Company to the Underwriters as referred to in CLAUSE 3.1(B):- (A) a certified copy of the Memorandum and Articles of Association of the Company; (B) a certified copy of the resolution of the Board of Directors (or of the duly authorised Committee of such Board) approving the Rights Issue and the Acquisition and approving and authorising the issue and/or execution of the Circular, the Provisional Allotment Letter, the Acquisition Documents, the Press Announcement and this Agreement (and, if the said resolution is of such a Committee, a certified copy of the resolution of the Board of Directors appointing such Committee); (C) the Circular; (D) certified copies of letters to the UK Listing Authority signed by all the Directors containing the confirmation required by paragraph 5.5 of the Listing Rules; (E) certified copies of any power of attorney pursuant to which any Director signed any of the documents mentioned above in a form reasonably acceptable to the Underwriters; (F) letters to the Underwriters from the solicitors to the Company in connection with the Rights Issue and the auditors to the Company in each case in relation to the matters referred to in paragraph 2.8 of the Listing Rules in a form reasonably acceptable to the Underwriters; (G) the working capital report relating to the Group in the form reasonably acceptable to the Underwriters; (H) a letter to the Underwriters from the Company's auditors relating to the said working capital report and the financial information contained in the in the Circular, in a form reasonably acceptable to the Underwriters; and (I) a letter to the Underwriters from the Company relating to the adequacy of the Group's working capital in the form of the draft initialled by or on behalf of the Company and the Underwriters for the purpose of identification only and marked "B". 2. The following document is to be delivered by the Company to the Underwriters forthwith after the provisional allotment of the New Shares pursuant to CLAUSE 6.1:- a certified copy of the resolution of the Board of Directors (or of the duly authorised Committee of such Board) provisionally allotting the New Shares as referred to in CLAUSE 6.1 (and, if the said resolution is of such a Committee, a certified copy of the 21 resolution of the Board of Directors appointing such Committee (if not previously delivered to the Underwriters)). 3. The following document is to be delivered by the Company to the Underwriters forthwith after the confirmation of allotments and/or new allotments of the New Shares pursuant to CLAUSE 6.3:- a certified copy of the resolution of the Board of Directors (or of the duly authorised Committee of such Board) confirming the allotments of the New Shares taken up and making new allotments of the New Shares not taken up as referred to in CLAUSE 6.3 (and, if the said resolution is of such a Committee, a certified copy of the resolution of the Board of Directors appointing such Committee (if not previously delivered to the Underwriters)). 22 SCHEDULE 2 REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS (A) All statements contained in the Press Announcement (other than expressions of opinion, intention or expectation of the Directors) are true and accurate in all material respects and not misleading in any material respect and all expressions of opinion, intention or expectation of the Directors contained therein are made on reasonable grounds and are truly and honestly held by the Directors and are fairly based and there are no other facts known or which could on reasonable inquiry have been known to the Directors the omission of which would make any such statement or expression in the Press Announcement misleading in any material respect or which are or might be material in the context of the Acquisition, the Rights Issue or the underwriting of the New Shares. (B) All statements contained in the Circular (other than expressions of opinion, intention or expectation of the Directors) will, when published, be true and accurate in all material respects and not misleading in any material respect and all expressions of opinion, intention or expectation of the Directors contained therein will, when published, be made on reasonable grounds and will be truly and honestly held by the Directors and will be fairly based and there will be no other facts known or which could on reasonable inquiry have been known to the Directors the omission of which would make any such statement or expression in the Circular misleading in any material respect or which will or might be material in the context of the Acquisition, the Rights Issue or the underwriting of the New Shares. (C) The Circular will, when published, contain all such information as investors and their professional advisers would reasonably require, and reasonably expect to find there, for the purpose of making an informed assessment of the assets and liabilities, financial position, profits and losses, and prospects of the Company and the rights attaching to the New Shares having regard to the matters specified in Section 146(3) of the Financial Services Act 1986. (D) With respect to the Report and Accounts and each announcement made by or on behalf of the Company to the London Stock Exchange or the UK Listing Authority since the date of publication of the Report and Accounts ("PREVIOUS ANNOUNCEMENTS"), at the date the Report and Accounts were published or, as the case may be, at the date such announcement was made, (and save as disclosed in any such document or announcement issued or made after the publication of the Report and Accounts or any other previous announcement) all statements contained therein (other than expressions of opinion, intention or expectation of the Directors) were true and accurate in all material respects and not misleading in any material respect and all expressions of opinion, intention or expectation of the Directors contained therein were made on reasonable grounds and were truly and honestly held by the Directors and were fairly based and all previous announcements complied, in all material respects, with the Companies Act 1985, the Financial Services Act 1986, the rules and regulations of the UK Listing Authority and the London Stock Exchange and all regulations made thereunder (including the Listing Rules). (E) All statements contained in any Supplementary Prospectus (other than expressions of opinion, intention or expectation of the Directors) will, when published, be true and accurate in all material respects and not misleading in any material respect and all expressions of opinion, 23 intention or expectation of the Directors contained therein will, when published, be made on reasonable grounds and will be truly and honestly held by the Directors and will be fairly based and there will be no other facts known or which could on reasonable inquiry have been known to the Directors the omission of which would make any such statement or expression in any such Supplementary Prospectus misleading in any material respect or which will be or might be material in the context of the Rights Issue or the underwriting of the New Shares. (F) If any Supplementary Prospectus is published, then the Circular, together with such Supplementary Prospectus, will, when the Supplementary Prospectus is published, contain all such information as investors and their professional advisers would reasonably require, and reasonably expect to find there, for the purpose of making an informed assessment of the assets and liabilities, financial position, profits and losses, and prospects of the Company and the rights attaching to the New Shares having regard to the matters specified in Section 146(3) of the Financial Services Act 1986. (G) The Interim Results contain an accurate statement in all material respects of the turnover, profit before tax and profit after tax of the Group for the six months ended 30th June, 2000 and, save for the fact that they are unaudited, have been prepared in accordance with generally accepted accounting principles consistently applied (and applied consistently with those used in the preparation of the Report and Accounts) and all relevant Statements of Standard Accounting Practice and comply with the Companies Act 1985 as applicable. (H) The Report and Accounts give a true and fair view of the state of affairs of the Company and of the Group at the Accounts Date and of the results and source and application of funds of the Group for the financial period then ended and have been prepared in accordance with generally accepted accounting principles consistently applied and all relevant Statements of Standard Accounting Practice and comply in all material respects with the Companies Act 1985 as applicable. (I) Since the Accounts Date, save as disclosed in the Circular or any previous announcement, the business of the Group has been carried on in the ordinary and usual course and there has been no material adverse change in the financial or trading position of the Group. (J) Save as disclosed in the Circular, no member of the Group is engaged in any legal or arbitration proceedings which may have or have had during the 12 months preceding the date hereof a significant effect on the financial position of the Group or which individually or collectively are material for disclosure in the context of the Acquisition, the Rights Issue or the underwriting of the New Shares. (K) The allotment and issue of the New Shares, the issue of the Press Announcement, the Circular, the Forms of Proxy and the Provisional Allotment Letters and the making of the Rights Issue will comply with the Companies Act 1985, the Financial Services Act 1986, the rules and regulations of the UK Listing Authority and the London Stock Exchange and all regulations made thereunder (including the Listing Rules and the Standards), and, in each case so far as the Directors are aware, having made such enquiries (if any) as are reasonable, the rules and regulations of any other exchange or securities market on which any of the securities of the Company are listed, quoted or traded and all other relevant laws and regulations of the United Kingdom and 24 elsewhere and there are no matters other than those disclosed in the Circular or otherwise in writing to the UK Listing Authority which should be taken into account by the UK Listing Authority in considering the suitability for listing of the New Shares. (L) The Company and the Directors have power under the Memorandum and Articles of Association of the Company to allot and issue the New Shares in the manner contemplated by this Agreement without any sanction or consent by members of the Company or any class of them and there are no consents required by the Company for the allotment and issue of the New Shares which have not been unconditionally obtained. (M) So far as the Directors are aware, having made such enquiries (if any) as are reasonable, entering into and performance of this Agreement by the Company and the issue of the New Shares will comply in all material respects with all agreements to which any member of the Group is a party or by which it or any of them or any of their respective properties or assets is bound. (N) So far as the Directors are aware, having made such enquiries (if any) as are reasonable, no event has occurred or circumstance arisen such that any person is entitled, or could, with the giving of notice and/or lapse of time and/or the fulfilment of any condition and/or the making of any determination, become entitled, to require repayment before its stated maturity of, or to take any step to enforce any security for, any indebtedness of any member of the Group. (O) The working capital forecast of the Group contained in the memorandum dated 28th July, 2000 has been approved by the Board of Directors or a Committee thereof and has been made after due and careful inquiry, all statements of fact therein are true and accurate in all material respects and not misleading in any material respect, all expressions of opinion, intention or expectation contained therein are made on reasonable grounds and are fairly based, all the assumptions on which that forecast is based are reasonable assumptions, so far as the Directors are aware, having made such inquiries (if any) as are reasonable and there are no other assumptions on which that forecast ought to have been based which have not been made. (P) Neither the Company, nor any affiliate of the Company, nor any person acting on its or their behalf has offered or sold the Rights or the New Shares by means of any (i) general solicitation or general advertising within the meaning of Rule 502(c) under the United States Securities Act of 1933 (the "Securities Act") or (ii) directed selling efforts within the meaning of Rule 903 under the Securities Act and the Company has complied and will comply with the offering restriction requirements of such Rule 903. 25 IN WITNESS whereof the parties hereto have entered into this Agreement the day and year first before written. SIGNED BY ) duly authorised for and on ) behalf of ) PEARSON PLC ) SIGNED BY ) duly authorised for and on ) behalf of GOLDMAN ) SACHS INTERNATIONAL ) SIGNED BY ) duly authorised for and on ) behalf of ) CAZENOVE & CO. ) EX-99.(B)(2) 11 ex-99_b2.txt EXHIBIT (B)(2) Exhibit (b)(2) DATED ___________ AUGUST, 2000 PEARSON PLC - AND - GOLDMAN SACHS INTERNATIONAL - AND - CAZENOVE & CO. ----------------------------- AMENDING AGREEMENT TO AN UNDERWRITING AGREEMENT ----------------------------- Slaughter and May 35 Basinghall Street London EC2V 5DB (DRJ/ARR) CE003696430 THIS AGREEMENT is made on August, 2000 BETWEEN: (1) PEARSON PLC (registered in England with number 53723) whose registered office is at 3 Burlington Gardens, London W1X 1LE (the "COMPANY"); (2) GOLDMAN SACHS INTERNATIONAL of Peterborough Court, 133 Fleet Street, London EC4A 2BB ("GOLDMAN SACHS"); and (3) CAZENOVE & CO. of 12 Tokenhouse Yard, London EC2R 7AN ("CAZENOVE"). WHEREAS: (A) Goldman Sachs and Cazenove agreed, on the terms and subject to the conditions contained in an underwriting agreement (the "Underwriting Agreement") dated 31st July 2000, to underwrite the Rights Issue (as such term is defined in the Underwriting Agreement). (B) The parties to the Underwriting Agreement have agreed to amend the Underwriting Agreement. WHEREBY IT IS AGREED AS FOLLOWS: 1. Clause 1.1 of the Underwriting Agreement shall be amended as follows: (A) New definitions shall be inserted as follows: "Canadian Holders" means Qualifying Holders with registered addresses in Canada or any of its provinces; "Dutch Holders" means Qualifying Holders with registered addresses in the Netherlands; "French Holders means Qualifying Holders with registered addresses in France; "South African Holders" means Qualifying Holders with registered addresses in the Republic of South Africa;" (B) The definition of "New Shares" shall be amended to read as follows: "New Shares" means the 170,528,278 New Ordinary Shares to be allotted pursuant to the rights issue;" 2. A new clause 3.6 shall be added to the Underwriting Agreement as follows: "3.6 The Company shall comply with the terms and provisions set out in SCHEDULE 3. The Underwriters shall not be entitled to rescind this Agreement or treat it as terminated (and shall accordingly remain bound to perform all the obligations and services which are the subject of this agreement on the terms set out in this agreement) in the event of a breach of this CLAUSE 3.6 or SCHEDULE 3 but shall be entitled to claim damages or exercise any other right, power or remedy, in each case subject to the foregoing, under this Agreement or as otherwise provided in law." 3. The following wording shall be inserted at the beginning of clause 4.3 of the Underwriting Agreement: "The conditions set out in CLAUSES 4.1 (C), (F) AND (G) shall be deemed to have been fulfilled, if they have not been invoked by the Underwriters giving written notice to the Company, by the earlier of 3.00 p.m. on the second Dealing Day after the Acceptance Date and the time at which the Underwriters instruct the Brokers no longer to endeavour to procure any subscribers in accordance with CLAUSE 7.6." 4. Clause 4.3(B) of the Underwriting Agreement shall be amended by inserting "and CLAUSE 3.6 and Sections [3] (Covenants) and [5] (Indemnities) of SCHEDULE 3" after the words "CLAUSES 11 AND 12". 5. The existing clause 5.1 of the Underwriting Agreement will be deleted and replaced with the following: "5.1 The Company will provide such documents and notifications and pay such fees to the Australian Securities Commission (and shall do so by not later than such dates) as are necessary to ensure that the Circular and the Provisional Allotment Letters can be sent to Qualifying Holders with registered addresses in the Commonwealth of Australia, its territories or possessions in compliance with Australian law." 6. The reference in clause 5.2 of the Underwriting Agreement to "North American Holders" shall be changed to "Canadian Holders, French Holders, Irish Holders, South African Holders or Dutch Holders". 7. A new clause 5.3 shall be inserted in the Underwriting Agreement as follows and the existing clauses 5.3 and 5.4 shall be renumbered 5.4 and 5.5 respectively: "5.3 The Company will not send the Circular to North American Holders. Provisional Allotment Letters will only be sent to North American Holders once (i) each of the Registration Statement (as defined in SCHEDULE 3) and the ADR Registration Statement (as defined in SCHEDULE 3) has become effective and (ii) the due diligence opinions from Sullivan & Cromwell and Morgan, Lewis & Bockius have been delivered [and such Provisional Allotment Letters shall be sent in accordance with the provisions of the Supplemental Agreement (as defined in SCHEDULE 3)." 8. In clause 7.2 (in both places in which it occurs) and clause 7.7 of the Underwriting Agreement, the following words shall be deleted: "(save that individual amounts of less than (pound)3.00 per holding shall not be so paid but shall be retained by the Company)". 9. A new clause 8.4 shall be inserted as follows: "8.4 For the avoidance of doubt, nothing in this Agreement shall oblige the Underwriters to: (i) subscribe for, or to procure subscribers for, ADR or ADSs (each as defined in SCHEDULE 3) or to purchase, or endeavour to procure purchasers for, ADRs or ADSs (each as defined in SCHEDULE 3); or (ii) to convert, or procure the conversion of, any amount from pounds sterling into any other currency or to account for, or pay to, any other person any sum in a currency other than pounds sterling." 10. In clause 10.4 of the Underwriting Agreement the words "and in SECTION [2] of SCHEDULE 3" shall be inserted after the words "CLAUSE 10.1". 11. A new clause 12.5 will be inserted as follows: "12.5 No Indemnified Person will bring a claim or seek indemnification pursuant to CLAUSE 12.3 in respect of any losses, claims, damages or liabilities (or actions in respect thereof) to the extent that the same are the subject of the indemnities set out in Section [5(A)] of Schedule 3 but will instead bring such claim or seek such indemnification under the indemnity contained in SECTION [5(A)] of SCHEDULE 3." 12. The following words will be inserted into Clause 16 after the words "This Agreement": "with the exception of SCHEDULE 3". 13. A new schedule 3 in the form of the Schedule to this Agreement shall be inserted in the Underwriting Agreement. 14. All other provisions of the Underwriting Agreement will remain unchanged. IN WITNESS whereof the parties hereto have entered into this Agreement the day and year first before written. SCHEDULE 3 PROVISIONS RELATING TO THE US RIGHTS ISSUE AND UNDERWRITING(1) The provisions set forth in this SCHEDULE 3 relate solely and exclusively to the Underwriters' activities in connection with the US Offering. No breach or inaccuracy of any representation or warranty of the Company contained herein, nor any breach of any covenant of the Company contained in the SCHEDULE 3, shall relieve the Underwriters of, or in any way affect, the obligations of the Underwriters under the Agreement. 1. DEFINITIONS In addition to the definitions in CLAUSE 1 of this Agreement, in this SCHEDULE 3, the following expressions shall, unless the context otherwise requires, have the following meanings:- "Act" The United States Securities Act of 1933, as amended "ADSs" The American Depositary Shares representing the Ordinary Shares "ADRs" The American Depositary Receipts issued by the Depositary and evidencing the ADSs "ADR Registration Statement" The registration statement on Form F-6, including all exhibits thereto, relating to the ADRs, as amended at the time it becomes effective "ADS Rights" The transferable rights to subscribe for New ADSs, pursuant to the terms of the Rights Agency Agreement in connection with the Rights Issue "ADS Subscription Agent" The Bank of New York "Agreement" The underwriting agreement entered into among the Company and the Underwriters, dated July 31, 2000, as amended by a supplemental agreement dated August 8, 2000 "Authorized Agent" Pearson Inc., New York, New York "Commission" The United States Securities and Exchange Commission "Deposit Agreement" The deposit agreement, dated as of March 21, 1998 and as amended and restated as of August 8, 2000, among the Company, the Depositary and holders from time to time of ADRs "Depositary" The Bank of New York - -------- 1 For the avoidance of doubt, this SCHEDULE 3 is divided into "SECTIONS" whereas the Agreement is divided into "CLAUSES". "Exchange Act" The United States Securities Exchange Act of 1934, as amended "Governmental Agency" Any court or governmental agency or body "Investment Company Act" The United States Investment Company Act of 1940, as amended "NCS" National Computer Systems, Inc. "New ADSs" The New ADSs to be offered pursuant to the terms of the Rights Agency Agreement "NYSE" The New York Stock Exchange "PFIC" Passive Foreign Investment Company "Registration Statement" The registration statement on Form F-1 in respect of the Ordinary Shares and ADSs, including the US Prospectus relating to the US Offering and all exhibits thereto, as amended at the time it becomes effective "Rights Agency Agreement" The agreement entered into between the Company and The Bank of New York dated August 8, 2000 relating to the issue of ADS Rights "US Offering" The Rights Issue in the United States and the reoffering of unsubscribed shares in the US by the Underwriters "US Prospectus" The prospectus included in the Registration Statement, in the form first filed with the Commission pursuant to Rule 424(b) under the Act "Underwritten Shares" The Ordinary Shares that the Underwriters are required to take up pursuant to CLAUSE 8.2 of the Agreement "Underwriters" Goldman Sachs and Cazenove and their respective US broker-dealer affiliates who are acting as selling agents in connection with the US Offering. 2. REPRESENTATIONS AND WARRANTIES In addition to the representations, warranties and undertakings referred to in CLAUSES 3 AND 10, of this Agreement, the Company represents and warrants to, and agrees with, each of the Underwriters that:- ii (A) The Registration Statement has been filed with the Commission; the Registration Statement and any post-effective amendment thereto, each in the form heretofore delivered to the Underwriters, have been declared effective by the Commission in such form; no other document with respect to the Registration Statement has heretofore been filed with the Commission; and no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto, if any, has been issued and no proceeding for that purpose has been initiated or, to the Company's knowledge, threatened by the Commission; (B) The Registration Statement conforms, and the US Prospectus and any further amendments or supplements to the Registration Statement or the US Prospectus will conform, at the time of the applicable effective date in the case of the Registration Statement and any amendment and as of the date of the US Prospectus and any supplement thereto, in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder and do not and will not, as of the applicable effective date as to the Registration Statement and any amendment thereto and as of the applicable filing date as to the US Prospectus and any amendment or supplement thereto, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the case of the US Prospectus, in the light of the circumstances under which they were made, not misleading; PROVIDED, HOWEVER, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by an Underwriter expressly for use therein; (C) An ADR Registration Statement has been filed with the Commission; the ADR Registration Statement in the form heretofore delivered to the Underwriters has been declared effective by the Commission in such form; no other document with respect to such registration statement has heretofore been filed with the Commission; no stop order suspending the effectiveness of the ADR Registration Statement has been issued and no proceeding for that purpose has been initiated or threatened by the Commission; and the ADR Registration Statement when it became effective conformed, and any further amendments thereto will conform as of their effective date, in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder, and did not, as of the applicable effective date, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (D) This Agreement, the Deposit Agreement and the Rights Agency Agreement have been duly authorized, executed and delivered by the Company, and constitute valid and legally binding agreements of the Company, and (insofar as the Agreement is governed by English law) such agreements are enforceable in accordance with its terms, subject, as to enforceability, to bankruptcy, insolvency, reorganization and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles; upon issuance by the Depositary of the ADS Rights and the underlying ADRs evidencing ADSs against the deposit of Shares in respect thereof in accordance with the provisions of the Deposit Agreement, such ADS Rights and underlying ADRs will be duly and validly issued and the persons in whose names the ADS Rights are issued and the ADRs are registered will be entitled to the rights specified therein, in the Deposit Agreement and the Rights Agency Agreement; and the Deposit Agreement, the Rights Agency Agreement, the ADS Rights and the ADRs conform in all material respects to the descriptions thereof contained in the US Prospectus; (E) All dividends and other distributions declared and payable on the shares of the capital stock of the Company may, under the current laws and regulations of the United Kingdom, be paid to the Depositary in Great Britain Pounds that may be converted into iii foreign currency that may be freely transferred out of the United Kingdom and, except as set forth in the US Prospectus under the caption "Tax Considerations", all such dividends and other distributions will not be subject to withholding or other taxes under the laws and regulations of the United Kingdom and are otherwise free and clear of any other tax, withholding or deduction in the United Kingdom and without the necessity of obtaining any Governmental Authorization in the United Kingdom; (F) The issue and sale of the New Shares and the New ADSs by the Company, any deposit of the New Shares with the Depositary against issuance of New ADRs evidencing New ADSs and the compliance by the Company with all of the provisions of this Agreement, including the terms and provisions of this SCHEDULE 3, the Deposit Agreement and the Rights Agency Agreement and - the consummation of the transactions herein and therein contemplated will not result in any violation of the provisions of the Memorandum and Articles of Association of the Company or any statute or any order, rule or regulation of any Governmental Agency having jurisdiction over the Group or any of their properties or, so far as the directors are aware, having made such inquiries (if any) as are reasonable, such actions will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan stock, loan agreement or other agreement or instrument to which any member of the Group is a party or by which it or any of them is bound or to which any of their respective property or assets is subject except for such conflict, breach, violation or default as would not have a material adverse effect on the Group taken as a whole; and no consent, approval, authorization, order, registration or qualification of or with any such Governmental Agency is required for the issue and sale of the New Shares or the New ADSs, for the deposit of any New Shares being deposited with the Depositary against issuance of the New ADRs evidencing the New ADSs or the consummation by the Company of the transactions contemplated by this Agreement, including the terms and provisions of this SCHEDULE 3, except (A) the registration under the Act of the New Shares, the New ADSs and the New ADRs, (B) registration of the ordinary shares under the Exchange Act in connection with the listing on the NYSE, (C) such Governmental Authorizations as have been duly obtained and are in full force and effect and copies of which have been furnished to the Underwriters and (D) such Governmental Authorizations as may be required under state securities or Blue Sky laws or any laws of jurisdictions outside the United Kingdom and the United States in connection with the purchase and distribution of the New Shares and New ADSs by or for the account of the Underwriters; (G) Neither the Company nor any of its subsidiaries has taken, directly or indirectly, any action which was designed to or which has constituted or which might reasonably be expected to cause or result in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares and ADSs in the US; (H) The statements set forth in the US Prospectus under the caption "Description of Share Capital" and "Description of American Depositary Shares", insofar as they purport to constitute a summary of the terms of the Ordinary Shares and the ADSs, respectively, and under the caption "Tax Consideration", insofar as it purports to describe the provisions of the laws and documents referred to therein, constitute a fair summary; (I) The Company is not and, after giving effect to the offering and sale of the Shares, will not be an "investment company", as such term is defined in the Investment Company Act; and (J) The Company is not a PFIC within the meaning of Section 1296 of the United States Internal Revenue Code of 1986, as amended, and is not likely to become a PFIC. 3. COVENANTS iv The Company agrees with each Underwriter:- (A) From time to time as practicable after the Posting Date, to furnish the Underwriters with copies of the US Prospectus in London in such quantities as they may reasonably request. If any events shall have occurred as a result of which the US Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such US Prospectus is delivered, not misleading, or, if for any other reason it shall be necessary during such period to amend or supplement the US Prospectus in order to comply with the Act, to notify the Underwriters and, at any time prior to the date 10 business days, but in no event later than October 7, 2000, following the Acceptance Date upon request of the Underwriters, to prepare and furnish without charge to each Underwriter and to any dealer in securities as many copies as the Underwriters may from time to time reasonably request of an amended US Prospectus or a supplement to the US Prospectus which will correct such statement or omission or effect such compliance; (B) To use its best efforts to list, subject to notice of issuance, the ADSs on the NYSE. If the ADSs are not listed on the NYSE, to use its best efforts to qualify the Shares or ADSs under the securities laws of such jurisdictions as the Underwriters may request; (C) That it will pay or cause to be paid the following: (i) the fees, disbursements and expenses of the Company's counsel and accountants in connection with the registration of the Shares and ADSs under the Act and all other expenses in connection with the preparation, printing and filing of the Registration Statement, the ADR Registration Statement, and the US Prospectus and amendments and supplements thereto and the mailing and delivering of copies thereof to the Underwriters and dealers; (ii) the cost of printing or producing this Agreement, the Deposit Agreement, the Rights Agency Agreement, any Blue Sky Memorandum, and any other documents in connection with the offering, purchase, sale and delivery of the New Shares and New ADSs in the United States; (iii) any expenses in connection with the qualification of the New Shares and New ADSs for offering and sale under state securities laws, including the fees and disbursements of counsel for the Underwriters in connection with such qualification and in connection with the Blue Sky survey; (iv) all fees and expenses in connection with listing the ADSs on the New York Stock Exchange; (v) the filing fees incident to, and the fees and disbursements of counsel for the Underwriters in connection with, securing any required review by the National Association of Securities Dealers, Inc. of the terms of the sale of the New Shares and New ADSs; (vi) the reasonable fees and disbursements of the Underwriters' counsel in connection with the transactions contemplated hereby; (vii) all expenses and taxes, other than the 1.5% UK tax described in the US Prospectus, arising as a result of the deposit by the Company of the New Shares with the Depositary and the issuance and delivery of the New ADRs evidencing New ADSs in exchange therefor by the Depositary in connection with exercise of rights pursuant to the Rights Issue; (viii) the fees and expenses (excluding any applicable taxes but including fees and disbursements of counsel), if any, of the Depositary and any custodian appointed under the Deposit Agreement, and ADS Subscription Agent under the Rights Agency Agreement other than the fees and expenses to be paid by holders of ADRs (other than the Underwriters, in connection with the initial purchase of ADSs and the Shares); (ix) the fees and expenses of the Authorized Agent; (x) the cost of preparing the ADRs; (xi) the cost and charges of any transfer agent or registrar; and (xii) all other costs and expenses of the Company incident to the performance of its obligations hereunder which are not otherwise specifically provided for in this Section. It is understood, however, that, except as provided in this Section and Section 5 hereof, the Underwriters will pay all of their own costs and expenses, stock transfer taxes on resale of any of the New Shares v and New ADSs by them, and any advertising expenses connected with any offers they may make. 4. DOCUMENTS TO BE DELIVERED ON POSTING DATE The following documents are to be delivered to the Underwriters in form and substance satisfactory to the Underwriters on the Posting Date and the Company agrees that none of the US Prospectus, the Provisional Allotment Letters or warrants evidencing ADS Rights will be posted to US shareholders until such documents have been delivered:- (A) Opinions of Sullivan & Cromwell, counsel for the Underwriters; (B) An opinion of Morgan Lewis & Bockius, US counsel for the Company; (C) An opinion of Freshfields Bruckhaus Deringer, English counsel for the Company; (D) An opinion of Emmet, Marvin and Martin, counsel for the Depositary and the ADS Subscription Agent; (E) An opinion of Slaughter and May, English counsel for the Underwriters; (E) A letter or letters from PricewaterhouseCoopers, accountants for the Company; (F) A letter or letters from Ernst & Young, accountants for NCS; 5. INDEMNITIES (A) The Company will indemnify and hold harmless each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, the ADR Registration Statement or the US Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending any such action or claim as such expenses are incurred; PROVIDED, HOWEVER, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, the ADR Registration Statement or the US Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by any Underwriter expressly for use therein. (B) Each Underwriter will indemnify and hold harmless the Company against any losses, claims, damages or liabilities to which the Company may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, the ADR Registration Statement or the US Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, the ADR Registration Statement or the US Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by such Underwriter expressly for use therein; and will reimburse the Company for any legal vi or other expenses reasonably incurred by the Company in connection with investigating or defending any such action or claim as such expenses are incurred. (C) Promptly after receipt by an indemnified party under subsection (A) or (B) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against an indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party otherwise than under such subsection. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (which shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the written consent of the indemnified party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such action or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any indemnified party. (D) If the indemnification provided for in this Section 5 is unavailable to or insufficient to hold harmless an indemnified party under subsection (A) or (B) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other from the offering of the Ordinary Shares and ADSs. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law or if the indemnified party failed to give the notice required under subsection (C) above, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering of the Ordinary Shares and ADSs (before deducting expenses) received by the Company bear to the total underwriting commissions received by the Underwriters with respect to the Ordinary Shares and ADSs. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the Underwriters on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contributions pursuant to this vii this subsection (D) were determined by PRO RATA allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this subsection (D). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (D) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (D), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Ordinary Shares and ADSs underwritten by it and distributed to the public in the US were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this subsection (D) to contribute are several in proportion to their respective underwriting obligations and not joint. (E) The obligations of the Company under this Section 5 shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Underwriter within the meaning of the Act; and the obligations of the Underwriters under this Section 5 shall be in addition to any liability which the respective Underwriters may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company and to each person, if any, who controls the Company within the meaning of the Act. (F) This Section 5 shall be the exclusive provision under the terms of the Agreement pertaining to indemnification and contribution arising out of the Registration Statement, the ADR Registration Statement or the US Prospectus, and no person entitled to indemnification or contribution hereunder shall have the right to proceed under any other provision of the Agreement in respect of such documents. 6. SURVIVAL OF PROVISIONS The respective indemnities, agreements, representations and warranties of the Company and the several Underwriters, as set forth in this SCHEDULE 3, shall remain in full force and effect, regardless of any investigation (or any statement as to the results thereof) made by or on behalf of any Underwriter or any controlling person of any Underwriter or the Company, or any officer or director or controlling person of the Company, or any controlling person, and shall survive delivery of and payment for the Underwritten Shares. 7. BINDING EFFECT The provisions of this Schedule 3 shall be binding upon, and inure solely to the benefit of, the Underwriters and the Company and to that extent provided in Sections 5 and 6 hereof, the officers and directors of the Company and each person who controls the Company or any Underwriter, and their respective heirs, executors, administrators, successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. No purchaser of any of the New Shares or New ADSs from any Underwriter shall be deemed a successor or assign by reason merely of such purchase. 8. GOVERNING LAW AND SUBMISSION TO JURISDICTION THE TERMS AND PROVISIONS OF THIS SCHEDULE 3 SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. viii Each of the parties hereto irrevocably (i) agrees that any legal suit, action or proceeding arising out of or based upon the terms and provisions of this SCHEDULE 3 or the transactions contemplated hereby may be instituted in any New York court, (ii) waives, to the fullest extent it may effectively do so, any objection which it may now or hereafter have to the laying of venue of any such proceeding and (iii) submits to the exclusive jurisdiction of such courts in any such suit, action or proceeding. The Company has appointed an Authorized Agent upon whom process may be served in any such action arising out of or based on this SCHEDULE 3 or the transactions contemplated hereby which may be instituted in any New York Court by any Underwriter or by any person who controls any Underwriter, expressly consents to the jurisdiction of any such court in respect of any such action, and waives any other requirements of or objections to personal jurisdiction with respect thereto. Such appointment shall be irrevocable. The Company represents and warrants that the Authorized Agent has agreed to act as such agent for service at process and agrees to take any and all action, including the filing of any and all documents and instruments, that may be necessary to continue such appointment in full force and effect as aforesaid. Service of process upon the Authorized Agent and written notice of such service to the Company shall be deemed, in every respect, effective service of process upon the Company. SIGNED BY ) duly authorised for and ) on behalf of ) PEARSON PLC ) SIGNED BY ) duly authorised for and ) on behalf of GOLDMAN ) SACHS INTERNATIONAL ) SIGNED BY ) duly authorised for and ) on behalf of ) CAZENOVE & CO. ) EX-99.(D)(1) 12 ex-99_d1.txt EXHIBIT (D)(1) Exhibit (d)(1) EXECUTION COPY - -------------------------------------------------------------------------------- AGREEMENT AND PLAN OF MERGER among PEARSON PLC, PN ACQUISITION SUBSIDIARY INC. and NATIONAL COMPUTER SYSTEMS, INC. Dated as of July 30, 2000 - --------------------------------------------------------------------------------
TABLE OF CONTENTS PAGE ARTICLE I THE OFFER AND THE MERGER.........................................................................................2 Section 1.01. The Offer....................................................................2 Section 1.02. Company Actions..............................................................4 Section 1.03. Directors....................................................................5 Section 1.04. The Merger...................................................................6 Section 1.05. Closing......................................................................6 Section 1.06. Effective Time...............................................................6 Section 1.07. Articles of Incorporation and By-Laws........................................7 Section 1.08. Directors and Officers.......................................................7 ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES..........................................................7 Section 2.01. Effect On Capital Stock......................................................7 Section 2.02. Dissenters' Rights...........................................................8 Section 2.03. Exchange Of Certificates.....................................................8 Section 2.04. Taking of Necessary Action; Further Action..................................10 ARTICLE III REPRESENTATIONS AND WARRANTIES..................................................................................10 Section 3.01. Representations and Warranties of the Company...............................10 Section 3.02. Representations and Warranties of Parent and Sub............................23 ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS.......................................................................24 Section 4.01. Conduct Of Business.........................................................24 Section 4.02. No Solicitation.............................................................28 ARTICLE V ADDITIONAL AGREEMENTS...........................................................................................30 Section 5.01. Preparation Of The Proxy Statement; Shareholders Meeting; Offering Circular....................................................................30 Section 5.02. Access To Information.......................................................31 Section 5.03. Commercially Reasonable Efforts; Notification...............................32 Section 5.04. Stock Options And Other Equity Based Awards.................................33 Section 5.05. Indemnification, Exculpation And Insurance..................................35 Section 5.06. Fees And Expenses...........................................................35 Section 5.07. Post-Effective Date Employee Benefits.......................................36 Section 5.08. Public Announcements........................................................37 ARTICLE VI CONDITIONS PRECEDENT............................................................................................38 Section 6.01. Conditions to Each Party's Obligation to Effect the Merger..................38 Section 6.02 Conditions to Parent's and Sub's Obligations to Effect the Merger...........................................................38 ARTICLE VII TERMINATION, AMENDMENT AND WAIVER...............................................................................38 Section 7.01. Termination.................................................................38 Section 7.02. Amendment...................................................................40 Section 7.03. Extension; Waiver...........................................................40 ARTICLE VIII GENERAL PROVISIONS..............................................................................................40 Section 8.01. Nonsurvival of Representations and Warranties...............................40 Section 8.02. Notices.....................................................................41 Section 8.03. Definitions.................................................................42 Section 8.04. Interpretation..............................................................45 Section 8.05. Counterparts................................................................46 Section 8.06. Entire Agreement; No Third-Party Beneficiaries..............................46 Section 8.07. Governing Law...............................................................46 Section 8.08. Assignment..................................................................46 Section 8.09. Enforcement.................................................................46 Section 8.10. Severability................................................................47
EXHIBITS Exhibit A Conditions to the Offer ii
SCHEDULES Schedule I Company Disclosure Schedule Section 3.01(b) Subsidiaries Section 3.01(c) Capital Structure Section 3.01(d) Noncontravention; Governmental Approvals Section 3.01(f) Certain Changes or Events Section 3.01(g) Litigation Section 3.01(h) Contracts Section 3.01(i) Compliance with Laws Section 3.01(l) Employee Compensation and Benefit Plans Section 3.01(m)(ii) Tax Deficiencies Section 3.01(m)(iii) Tax Extensions Section 3.01(m)(viii) Tax-Free Stock Distribution Section 3.01(n)(ii) Intellectual Property Section 3.01(n)(iii) Intellectual Property Infringement by Company Section 3.01(n)(iv) Intellectual Property Infringement by Third Parties Section 3.01(n)(v) Termination/Impairment of Intellectual Property Section 3.01(o) Property Section 4.01(a) Conduct of Business Section 5.04(d) Phantom Stock Options Section 5.07(b)(1) Level 1 Employees Section 5.07(b)(2) Level 2 Employees Section 8.03(a)(viii) Knowledge of the Company Schedule II Parent Disclosure Schedule Section 3.02(b) Governmental Approvals
iii AGREEMENT AND PLAN OF MERGER, dated as of July 30, 2000, by and among PEARSON PLC, a public limited company registered in England and Wales ("PARENT"), PN ACQUISITION SUBSIDIARY INC., a Minnesota corporation and a wholly owned subsidiary of Parent ("SUB"), and NATIONAL COMPUTER SYSTEMS, INC., a Minnesota corporation (the "COMPANY"). WHEREAS, the respective Boards of Directors of Parent, Sub and the Company have approved the acquisition of the Company by Parent on the terms and subject to the conditions set forth in this Agreement (the "ACQUISITION"); WHEREAS, as a first step in the Acquisition, Parent proposes to cause Sub to make a cash tender offer (as it may be amended from time to time as permitted under this Agreement, the "OFFER") to purchase all the issued and outstanding shares of common stock, par value $0.03 per share, of the Company (the "COMPANY COMMON STOCK") (including the associated rights ("RIGHTS") issued pursuant to the Second Amended and Restated Rights Agreement, dated as of March 4, 1996, between the Company and Norwest Bank Minnesota, N.A. (the "RIGHTS AGREEMENT")), at a price per share of $73.00 (the "MERGER CONSIDERATION"), net to the seller in cash without interest, on the terms and subject to the conditions set forth in this Agreement and the Offer; WHEREAS, to complete the Acquisition, the respective Boards of Directors of Parent, Sub and the Company and the Committee have approved this Agreement and the merger of Sub with and into the Company (the "MERGER"), pursuant to which, on the terms and subject to the conditions set forth in this Agreement, each issued and outstanding share of Company Common Stock not tendered and purchased by Sub pursuant to the Offer and not owned by Parent, Sub or the Company (other than Dissenting Shares) will be converted into the right to receive the Merger Consideration in accordance with the Minnesota Business Corporation Act (the "MBCA"); WHEREAS, the Board of Directors of the Company (the "COMPANY BOARD") has resolved to recommend that all holders of Company Common Stock ("SHAREHOLDERS") accept the Offer, tender their shares of Company Common Stock pursuant to the Offer and approve this Agreement and the Merger, and has determined that the Offer and the Merger are fair to and in the best interests of the Company and the Shareholders; and WHEREAS, the parties hereto desire to make certain representations, warranties, covenants and agreements in connection with the Offer and the Merger and also to prescribe various conditions to the Offer and the Merger. NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I THE OFFER AND THE MERGER SECTION 1.01. THE OFFER. (a) Subject to the conditions of this Agreement, as promptly as practicable, but in no event later than August 7, 2000, Sub shall, and Parent shall cause Sub to, commence the Offer within the meaning of the applicable rules and regulations of the United States Securities and Exchange Commission (the "SEC"). The obligations of Sub to, and of Parent to cause Sub to, accept for payment or pay for any shares of Company Common Stock tendered pursuant to the Offer are subject to the conditions set forth in Exhibit A. The initial expiration date of the Offer shall be the 20th business day following the date on which the Offer is commenced. Sub expressly reserves the right to waive any condition to the Offer or to modify the terms of the Offer, in each case in its sole discretion; PROVIDED, HOWEVER, that without the consent of the Company, Sub shall not (i) reduce the number of shares of Company Common Stock subject to the Offer, (ii) reduce or change the form of the Merger Consideration, (iii) amend or waive the Minimum Tender Condition or add to the conditions set forth in Exhibit A, (iv) except as provided below in this Section 1.01(a), extend the Offer, or (v) otherwise amend the terms of the Offer in any manner adverse to the holders of Company Common Stock. Notwithstanding the foregoing, Sub may, at any time and from time to time, take one or more of the following actions without the consent of the Company: (A) extend the Offer for one or more periods of time that Sub reasonably believes are necessary to cause the conditions to the Offer to be satisfied, if at the scheduled expiration date of the Offer any of the conditions to Sub's obligation to accept shares of Company Common Stock for payment is not satisfied or waived, until such time as all such conditions are satisfied or waived, (B) extend the Offer for any period required by any rule, regulation, interpretation or position of the SEC or the staff thereof that is applicable to the Offer, (C) extend the Offer for an aggregate period of not more than 20 business days beyond the initial expiration date of the Offer to the extent required by Parent to enable Parent and Sub to complete the financing of the purchase of shares of Company Common Stock tendered pursuant to the Offer or (D) extend the Offer for an aggregate period of not more than 10 business days beyond the latest applicable date that would otherwise be permitted under clause (A), (B) or (C) of this sentence, if, as of such date, all of the conditions to Sub's obligation to accept shares of Company Common Stock for payment (including the Minimum Tender Condition) are satisfied or waived, but the number of shares of Company Common Stock validly tendered and not withdrawn pursuant to the Offer equals less than 90% of the outstanding shares of Company Common Stock. Without limiting the rights of Sub to extend the Offer pursuant to the immediately preceding sentence, Parent and Sub agree that if (x) all of the conditions to the Offer are not satisfied on any scheduled expiration date of the Offer and (y) the Company is in compliance with all of its covenants in this Agreement, then Sub shall extend the Offer for one or more periods of time that Sub reasonably believes are necessary to cause the conditions of the Offer to be satisfied, until all such conditions are satisfied or waived; PROVIDED, HOWEVER, that Sub shall not be required to extend the Offer pursuant to this sentence beyond December 31, 2000. Sub may, without the consent of the Company, elect to provide a subsequent offering period for the Offer in accordance with Rule 14d-11 under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), following its acceptance of shares of Company Common Stock for payment pursuant to the Offer. On the terms and subject to the conditions of the Offer 2 and this Agreement, Sub shall, and Parent shall cause Sub to, pay for all shares of Company Common Stock validly tendered and not withdrawn pursuant to the Offer that Sub becomes obligated to purchase pursuant to the Offer as soon as practicable after the expiration of the Offer. (b) As soon as practicable on the date of commencement of the Offer, Sub shall, and Parent shall cause Sub to, file with the SEC a Tender Offer Statement on Schedule TO with respect to the Offer (such Tender Offer Statement, together with all amendments and supplements thereto, the "SCHEDULE TO"), which shall contain an offer to purchase and a related letter of transmittal and summary advertisement (such Schedule TO and the documents contained therein pursuant to which the Offer will be made, in each case together with all supplements and amendments thereto, the "OFFER DOCUMENTS"). Parent and Sub (i) agree that, on the date on which the Schedule TO is filed with the SEC and on each date on which any amendment or supplement to any Offer Document is filed with the SEC, the Offer Documents shall comply as to form in all material respects with the Exchange Act and the rules and regulations promulgated thereunder, and (ii) represent and warrant that, on the date first published, sent or given to Shareholders, the Offer Documents will 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 to make the statements therein, in light of the circumstances under which they were made, not misleading, except that no representation or warranty is made by Parent or Sub with respect to information supplied by or on behalf of the Company or any of its officers or directors for inclusion or incorporation by reference in any Offer Document. Each of Parent and Sub (or the Company, in the case of any information supplied by or on behalf of the Company or any of its officers or directors specifically for inclusion or incorporation by reference in any Offer Document) agree promptly to correct any information contained in the Offer Documents if and to the extent that such information shall have become false or misleading in any material respect, and each of Parent and Sub shall take all steps necessary to amend or supplement the Offer Documents to reflect such correction and to cause the Offer Documents as so amended or supplemented to be filed with the SEC and disseminated to the Shareholders, in each case as and to the extent required by applicable Federal securities laws. Parent and Sub agree to give the Company and its counsel reasonable opportunity to review and comment upon the Offer Documents (including, without limitation, any amendment or supplement thereto) prior to their filing with the SEC or dissemination to the Shareholders. Parent and Sub shall provide the Company and its counsel in writing with any written comments (and orally, with any oral comments) that Parent, Sub or their counsel may receive from the SEC or its staff with respect to the Offer Documents promptly after the receipt of such comments and shall consult with the Company and its counsel prior to responding to any such comments. (c) Parent and Sub agree to promptly file with the Commissioner of Commerce of the State of Minnesota any registration statement relating to the Offer required to be filed pursuant to Chapter 80B of the Minnesota Statutes. Parent and Sub shall deliver to all offerees the information contained in any such registration statement relating to the Offer required to be filed pursuant to Chapter 80B of the Minnesota Statutes as required by Chapter 80B of the Minnesota Statutes. 3 SECTION 1.02. COMPANY ACTIONS. (a) The Company hereby approves of and consents to the Offer and represents that (i) the Company Board (at a meeting duly called and held) has (x) determined that this Agreement, the Offer and the Merger are fair to and in the best interests of the Company and the Shareholders, (y) approved and adopted this Agreement and the transactions contemplated hereby, including the Offer and the Merger, and (z) resolved to recommend that the Shareholders accept the Offer and tender their shares of Company Common Stock pursuant to the Offer, and approve and adopt this Agreement and the transactions contemplated hereby (the determinations, approvals and recommendations of the Company Board set forth in this clause (i) being hereinafter collectively referred to as the "RECOMMENDATION"), (ii) a committee of the Company Board formed pursuant to Section 302A.673 of the MBCA (the "COMMITTEE") (at a meeting duly called and held) has approved this Agreement and the transactions contemplated hereby, including the Offer and the Merger (the approval of the Committee set forth in this clause (ii) being hereinafter referred to as the "COMMITTEE APPROVAL"), (iii) Salomon Smith Barney Inc. has provided to the Company Board the opinion described in Section 3.01(r) and (iv) assuming the accuracy of Parent's and Sub's representation in Section 3.02(c), the Offer, the Merger, this Agreement and the transactions contemplated hereby will not be impeded by the provisions of Sections 302A.671, 302A.673 and 302A.675 of the MBCA. The Company hereby consents to the inclusion in the Offer Documents of the Recommendation and the Committee Approval, and the Company shall not permit the Recommendation and disclosure regarding the Committee Approval or any component thereof to be modified in any manner adverse to Parent or Sub or withdrawn by the Company Board or the Committee, as applicable, or in any other manner, except as provided in Section 4.02(b). (b) On the date on which the Offer Documents are filed with the SEC, the Company shall file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 under the Exchange Act with respect to the Offer (such Schedule 14D-9, as amended or supplemented from time to time, the "SCHEDULE 14D-9") containing the Recommendation and disclosure regarding the Committee Approval, and shall mail the Schedule 14D-9 to the Shareholders. The Company shall include in the Schedule 14D-9 information furnished by Parent in writing concerning Parent's designees for directors of the Company as required by Section 14(f) of the Exchange Act and Rule 14f-1 thereunder, and shall use its commercially reasonable efforts to have the Schedule 14D-9 available for inclusion in the initial mailing of the Offer Documents to the Shareholders. The Company (i) agrees that on the date on which the Schedule 14D-9 is filed with the SEC and on each date on which any amendment or supplement to the Schedule 14D-9 is filed with the SEC, the Schedule 14D-9 shall comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations promulgated thereunder, and (ii) represents and warrants that, on the date filed with the SEC and on the date first published, sent or given to Shareholders, the Schedule 14D-9 will 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 to make the statements therein, in light of the circumstances under which they were made, not misleading, except that no representation or warranty is made by the Company with respect to information supplied by Parent pursuant to this Section 1.02(b) for inclusion in the Schedule 14D-9. The Company (or Parent, with respect to information supplied by Parent pursuant to this Section 1.02(b) for inclusion in the Schedule 14D-9) agrees promptly to correct any information contained in the Schedule 14D-9 if and to the extent that such 4 information shall have become false or misleading in any material respect, and the Company shall take all steps necessary to amend or supplement the Schedule 14D-9 to reflect such correction and to cause the Schedule 14D-9 as so amended or supplemented to be filed with the SEC and disseminated to the Shareholders, in each case as and to the extent required by applicable Federal securities laws. The Company agrees to give Parent, Sub and their counsel reasonable opportunity to review and comment upon the Schedule 14D-9 prior to its filing with the SEC or dissemination to the Shareholders. The Company shall provide Parent, Sub and their counsel in writing with any written comments (and orally, with any oral comments) that the Company or its counsel may receive from the SEC or its staff with respect to the Schedule 14D-9 promptly after the receipt of such comments and shall consult with Parent and its counsel prior to responding to such comments. (c) In connection with the Offer and the Merger, the Company shall as promptly as reasonably practicable but, in any event, within three business days after the date hereof, furnish, or cause its transfer agent to furnish, Sub promptly with mailing labels containing the names and addresses of all record holders of Company Common Stock as of a recent date and of those persons becoming record holders subsequent to such date, together with copies of all lists of Shareholders, security position listings and computer files and all other information in the Company's possession or control regarding the beneficial owners of Company Common Stock, and shall furnish to Sub such information and assistance (including updated lists of Shareholders, security position listings and computer files) as Sub or Parent may reasonably request in communicating the Offer to Shareholders. Subject to the requirements of applicable law, and except for such steps as are necessary to disseminate the Offer Documents and any other documents necessary to consummate the Offer, the Merger and the other transactions contemplated by this Agreement, Parent and Sub shall, and shall instruct each of their respective Affiliates, associates, employees, agents and advisors to, hold in confidence the information contained in any such labels, listings and files. SECTION 1.03. DIRECTORS. Promptly upon the acceptance for payment of, and payment by Sub for, any shares of Company Common Stock pursuant to the Offer, Sub shall, subject to compliance with Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder, be entitled to designate such number of directors on the Company Board as will give Sub representation on the Company Board equal to that number of directors, rounded up to the next whole number, which is the product of (a) the total number of directors on the Company Board (giving effect to the directors elected pursuant to this sentence) MULTIPLIED BY (b) a fraction, the numerator of which is the number of shares of Company Common Stock so accepted for payment and paid for by Sub and the denominator of which is the number of shares of Company Common Stock outstanding at the time of Sub's designation, and the Company shall, at such time, cause Sub's designees to be elected or appointed to the Company Board; PROVIDED, HOWEVER, that during the period commencing with the election or appointment of Sub's designees to the Company Board until the Effective Time, the Company Board shall have at least three directors who are directors on the date of this Agreement and who are not officers of the Company or representatives of any Affiliates of the Company (the "INDEPENDENT DIRECTORS"); and PROVIDED FURTHER, HOWEVER, that if during such period the number of Independent Directors shall be reduced below three for any reason whatsoever, the remaining Independent Directors (or Independent Director, if there shall be only one remaining) shall be entitled to designate persons 5 to fill any such vacancies who shall be deemed to be Independent Directors for purposes of this Agreement or, if no Independent Directors then remain, the other directors shall designate three persons to fill such vacancies who are not Shareholders, officers or Affiliates of the Company, Parent or Sub, and such persons shall be deemed to be Independent Directors for purposes of this Agreement. Subject to applicable law, the Company shall take all action requested by Parent for the purpose of effecting any such election or appointment of Sub's designees. In connection with the foregoing, the Company shall promptly, at the option of Sub, either increase the size of the Company Board or obtain the resignation of such number of its current directors as is necessary to enable Sub's designees to be elected or appointed to the Company Board as provided above. Prior to the Effective Time, the Company shall cause each member of the Company Board, other than Sub's designees, to execute and deliver a letter effectuating his or her resignation as a director of the Company Board effective immediately prior to the Effective Time. SECTION 1.04. THE MERGER. (a) Subject to the terms and conditions of this Agreement and in accordance with the MBCA, at the Effective Time, Sub will merge with and into the Company. The separate corporate existence of Sub shall cease at the Effective Time, and the Company shall be the surviving corporation in the Merger and shall continue in existence following the Effective Time under its current name (the "SURVIVING CORPORATION"). (b) At the Effective Time, the Merger will have the effects provided in the applicable provisions of the MBCA. Without limiting the generality of the foregoing, at the Effective Time, all the property, rights, privileges, powers, immunities and franchises of the Company and Sub will vest in the Surviving Corporation, and all debts, liabilities, obligations and duties of the Company and Sub will become the debts, liabilities, obligations and duties of the Surviving Corporation. SECTION 1.05. CLOSING. The closing of the Merger (the "CLOSING") shall take place at the offices of Morgan, Lewis & Bockius LLP, 101 Park Avenue, New York, New York, commencing at 10:00 a.m. New York City time, on the second business day immediately following the satisfaction or waiver of the conditions set forth in Article VI (other than those provisions that by their terms cannot be satisfied until the time of the Closing, it being understood that the Merger shall nonetheless be subject to the satisfaction or waiver of such conditions), or at such other time, date or place as the parties hereto may mutually determine in writing; PROVIDED, HOWEVER, that if all the conditions set forth in Article VI shall not have been satisfied or waived on such second business day, then the Closing shall take place on the first business day on which all such conditions shall have been satisfied or waived. The date on which the Closing occurs is referred to in this Agreement as the "CLOSING DATE". SECTION 1.06. EFFECTIVE TIME. Concurrently with the Closing, Sub and the Company will execute in the manner required by the MBCA and deliver for filing to the Secretary of State of the State of Minnesota articles of merger with respect to the merger (the "ARTICLES OF MERGER"). The Merger will become effective upon the filing of the Articles of Merger in accordance with the MBCA. The time at which the Merger becomes effective is herein referred to as the "EFFECTIVE TIME." 6 SECTION 1.07. ARTICLES OF INCORPORATION AND BY-LAWS. (a) At the Effective Time, the articles of incorporation of the Surviving Corporation shall be the articles of incorporation of Sub as in effect immediately prior to the Effective Time, until thereafter amended in accordance with the MBCA and the terms of such certificate of incorporation. (b) At the Effective Time, the by-laws of the Surviving Corporation shall be the by-laws of Sub as in effect immediately prior to the Effective Time, until thereafter amended in accordance with by the MBCA, the articles of incorporation of the Surviving Corporation and such by-laws. SECTION 1.08. DIRECTORS AND OFFICERS. The directors of Sub shall be the initial directors of the Surviving Corporation and the officers of the Company shall be the initial officers of the Surviving Corporation, each to hold office in accordance with the articles of incorporation and by-laws of the Surviving Corporation. ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES SECTION 2.01. EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of the Merger and without any action on the part of Parent, Sub or any Shareholder: (a) CAPITAL STOCK OF SUB. All of the issued and outstanding shares of common stock, par value $.03 per share, of Sub (the "SUB COMMON STOCK") shall be converted into an equal number of fully paid and nonassessable shares of common stock, $.03 par value per share, of the Surviving Corporation (the "SURVIVING CORPORATION COMMON STOCK"), which will constitute all of the issued and outstanding shares of capital stock of the Surviving Corporation immediately after the Effective Time. From and after the Effective Time, each outstanding certificate theretofore representing shares of Sub Common Stock will be deemed for all purposes to evidence ownership of, and to represent the same number of shares of, Surviving Corporation Common Stock. (b) CANCELLATION OF PARENT-OWNED STOCK. Each share of Company Common Stock that is owned by Parent or Sub immediately prior to the Effective Time shall automatically be canceled and retired and shall cease to exist, without payment of any consideration in respect thereof. (c) CONVERSION OF COMPANY COMMON STOCK. Each share of Company Common Stock issued and outstanding immediately prior to the Effective Time (other than shares to be canceled in accordance with Section 2.01(b) and any Dissenting Shares) shall automatically be canceled and converted into the right to receive the Merger Consideration from the Surviving Corporation, and all such shares of Company Common Stock shall no longer be outstanding and shall cease to exist. Each holder of a certificate that immediately prior to the Effective Time represented any such shares (a "CERTIFICATE") shall cease to have any rights with 7 respect thereto, except the right to receive the Merger Consideration upon the surrender of such Certificate as provided in Section 2.03. SECTION 2.02. DISSENTERS' RIGHTS. (a) Notwithstanding any provision of Section 2.01 to the contrary, any shares of Company Common Stock which are issued and outstanding immediately prior to the Effective Time and which are held by a Shareholder who has not voted such shares of Company Common Stock in favor of the Merger and who has properly exercised, preserved and perfected dissenters' rights with respect to such shares of Company Common Stock in accordance with the MBCA (including Sections 302A.471 and 302A.473 thereof) and, as of the Effective Time, has neither effectively withdrawn nor otherwise lost for any reason its right to exercise such dissenters' rights ("DISSENTING SHARES"), will not be converted into or represent a right to receive the Merger Consideration pursuant to Section 2.01(c). The holders of Dissenting Shares will be entitled to only such rights as are granted by Section 302A.471 of the MBCA. (b) Notwithstanding the provisions of Section 2.01(c), if any holder of shares of Company Common Stock who demands dissenters' rights with respect to its shares of Company Common Stock under the MBCA effectively withdraws or otherwise loses for any reason (including failure to perfect) its dissenters' rights, then as of the Effective Time or the occurrence of such event, whichever later occurs, such Shareholder's shares of Company Common Stock will automatically be cancelled and converted into and represent only the right to receive the Merger Consideration as provided in Section 2.01(c), without interest thereon, upon surrender of the certificate or certificates formerly representing such shares of Company Common Stock. (c) The Company shall give Parent (x) prompt notice of any written intent to demand payment of the fair value of any shares of Company Common Stock, withdrawals of such demands and any other instruments delivered pursuant to the MBCA in respect of shares of Company Common Stock or the Merger received by the Company and (y) the opportunity to control and resolve all negotiations and proceedings with respect to dissenters' rights under the MBCA. The Company may not voluntarily make any payment with respect to any exercise of dissenters' rights and may not, except with the prior written consent of Parent, settle or offer to settle any such dissenters' rights. SECTION 2.03. EXCHANGE OF CERTIFICATES. (a) PAYING AGENT. Prior to the Effective Time, Sub or Parent shall designate, or shall cause to be designated, a bank or trust company reasonably acceptable to the Company to act as agent for the payment of the Merger Consideration upon surrender of Certificates in accordance with Section 2.03(b) (the "PAYING AGENT"). From time to time after the Effective Time, Parent shall provide, or cause the Surviving Corporation to provide, to the Paying Agent funds in such amounts and at such times as are necessary for the payment of the Merger Consideration pursuant to Section 2.01(c), and any payments that holders of Dissenting Shares become entitled to under Section 2.01(d), in each case upon surrender of the applicable Certificates in accordance herewith, it being understood that any and all interest or income earned on funds made available to the Paying Agent pursuant to this Agreement shall be for the benefit of, and shall be paid to, Parent. 8 (b) EXCHANGE PROCEDURE. As soon as reasonably practicable after the Effective Time, the Paying Agent shall mail to each holder of record of shares of Company Common Stock entitled to receive the Merger Consideration pursuant to Section 2.01(c) (i) a form of letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates representing such shares shall pass, only upon proper delivery of such Certificates to the Paying Agent and shall be in customary form and have such other provisions as Parent may reasonably specify) and (ii) instructions for use in effecting the surrender of such Certificates pursuant to such letter of transmittal. Upon surrender of a Certificate for cancellation to the Paying Agent, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, and such other documents as may reasonably be required by the Paying Agent, the holder of such Certificate shall be entitled to receive in exchange therefor the Merger Consideration for the shares represented thereby, and the Certificate so surrendered shall forthwith be canceled. In the event of a transfer of ownership of Company Common Stock that is not registered in the stock transfer books of the Company, the proper amount of cash may be paid in exchange therefor to a person other than the person in whose name the relevant surrendered Certificate is registered if (x) such Certificate shall be properly endorsed, or otherwise be in proper form for transfer, to the person requesting such payment and (y) the person requesting such payment shall have paid any transfer or other taxes required by reason of the payment of Merger Consideration to a person other than the registered holder of such Certificate or shall have established to the satisfaction of Parent that such taxes have been paid or that no such taxes are applicable. No interest shall be paid or shall accrue on the cash payable upon surrender of any Certificate. (c) NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. The Merger Consideration paid upon the surrender of a Certificate in accordance with the terms of this Article II shall be deemed to have been paid in full satisfaction of all rights pertaining to the shares of Company Common Stock formerly represented by such Certificate. At the Effective Time, the stock transfer books of the Company shall be closed, and there shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of the shares of Company Common Stock that were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation or the Paying Agent for transfer or any other reason, they shall be canceled and exchanged for Merger Consideration as provided in this Article II. (d) NO LIABILITY. To the fullest extent permitted by applicable law, none of Parent, Sub, the Surviving Corporation or the Paying Agent shall be liable to any Shareholder or other person in respect of any cash delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. If any Certificate shall not have been surrendered prior to two years after the Effective Time (or immediately prior to such earlier date on which any Merger Consideration would otherwise escheat to or became the property of any Governmental Entity), any such Merger Consideration in respect thereof shall, to the fullest extent permitted by applicable law, become the property of the Surviving Corporation, free and clear of all claims or interests of any person previously entitled thereto. (e) LOST, STOLEN OR DESTROYED CERTIFICATES. In the event that any Certificate shall have been lost, stolen or destroyed, the Surviving Corporation or Paying Agent shall pay in 9 exchange for such lost, stolen or destroyed Certificate, upon the making of an affidavit of that fact by the holder thereof in form and substance satisfactory to the Surviving Corporation or Paying Agent, as the case may be, the Merger Consideration in respect of the shares of Company Common Stock evidenced thereby; PROVIDED, HOWEVER, that the Surviving Corporation may, in its discretion and as a condition precedent to the payment of such Merger Consideration, require the owner of such lost, stolen or destroyed Certificate to deliver a bond in such sum as the Surviving Corporation may reasonably direct as indemnity against any claim that may be made against the Surviving Corporation or the Paying Agent with respect to such Certificate. (f) WITHHOLDING RIGHTS. Parent, the Surviving Corporation or the Paying Agent shall be entitled to deduct and withhold, from the consideration otherwise payable pursuant to this Agreement to any Shareholder, such amounts as Parent, the Surviving Corporation or the Paying Agent reasonably believes that it is required to deduct and withhold with respect to the making of such payment under the Internal Revenue Code of 1986, as amended (the "CODE"), or any provision of state, local or foreign tax law. To the extent that amounts are so withheld and paid over to the appropriate taxing authority by Parent, the Surviving Corporation or the Paying Agent, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the shares of Company Common Stock in respect of which such deduction and withholding was made by Parent, the Surviving Corporation or the Paying Agent (as applicable). SECTION 2.04. TAKING OF NECESSARY ACTION; FURTHER ACTION. Each of Sub, Parent and the Company will take all such reasonable and lawful action as may be necessary or appropriate in order to effectuate the Merger in accordance with this Agreement as promptly as possible. If, at any time after the Effective Time, any further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right, title and possession to all the assets, properties, rights, privileges, powers, immunities and franchises of the Company and Sub, the officers and directors of the Company and Sub immediately prior to the Effective Time are fully authorized in the name of their respective corporations or otherwise to take, and will take, all such lawful and necessary action. ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.01. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. As an inducement to Parent and Sub to enter into this Agreement, the Company represents and warrants to Parent and Sub that the statements contained in this Article III are true and correct as of the date hereof. Unless otherwise specified, no information contained in any particular numbered section of the Company Disclosure Schedule shall be deemed to be contained in any other numbered section of the Company Disclosure Schedule unless it is reasonably apparent that it should be included therein (by cross-reference or otherwise). (a) ORGANIZATION, STANDING AND POWER. Each of the Company and its Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has the requisite corporate power and authority to 10 own, lease and operate its properties and to carry on its business as it is now being conducted. Each of the Company and its Subsidiaries is duly qualified or licensed as a foreign corporation to do business, and is in good standing, in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its business makes such qualification or licensing necessary, except for such failures to be so qualified or licensed or in good standing that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company has made available to Parent true and complete copies of its articles of incorporation and by-laws, in each case as amended to the date of this Agreement. Such articles of incorporation and by-laws are in full force and effect and the Company is not in violation or breach of any of the provisions of its articles of incorporation or by-laws. (b) SUBSIDIARIES. A true and complete list of all the Subsidiaries of the Company, together with the jurisdiction of incorporation of each such Subsidiary and the percentage of the outstanding capital stock of each Subsidiary owned by the Company and each other Subsidiary thereof, is set forth in SECTION 3.01(b) OF THE COMPANY DISCLOSURE SCHEDULE. Except as set forth in SECTION 3.01(b) OF THE COMPANY DISCLOSURE SCHEDULE, there are no outstanding options, warrants or other securities or subscription, preemptive or other rights convertible into or exchangeable or exercisable for any shares of capital stock of or other equity or voting interests in any Subsidiary of the Company and there are no "phantom stock" rights, stock appreciation rights or other similar rights with respect to any Subsidiary of the Company. Except as set forth in SECTION 3.01(b) OF THE COMPANY DISCLOSURE SCHEDULE, as of the date hereof, the Company does not directly or indirectly own any equity interest in, or any interest convertible into or exchangeable or exercisable for any equity interest in, any corporation, partnership or other entity. The Company has made available to Parent true and complete copies of the articles of incorporation, the by-laws or equivalent organizational documents of each Subsidiary of the Company, in each case together with all amendments thereto. Such articles of incorporation and by-laws (or, if applicable, such equivalent organizational documents) are in full force and effect. No Subsidiary of the Company is in violation or breach of any of the provisions of its articles of incorporation or by-laws (or, if applicable, its equivalent organizational documents). (c) CAPITAL STRUCTURE. The authorized capital stock of the Company consists of (i) 100,000,000 shares of Company Common Stock (of which, as of July 21, 2000, 32,757,155 shares were issued and outstanding) and (ii) 10,000,000 shares of preferred stock, par value $0.01 per share (of which no shares are issued and outstanding). No other capital stock of the Company is authorized or issued and outstanding. SECTION 3.01(c) OF THE COMPANY DISCLOSURE SCHEDULE sets forth (u) all plans or agreements (the "STOCK PLANS") pursuant to which the Company or any of its Subsidiaries has granted or committed to grant any option or right to acquire stock or any other award payable in or based upon Company Common Stock; (v) the number of shares of Company Common Stock reserved for issuance under the Stock Plans, as of July 21, 2000, (w) the number of shares of Company Common Stock subject to outstanding stock options, as of July 21, 2000 (the "STOCK OPTIONS"); (x) the grant dates and exercise prices of each such Stock Option and the names of the holders thereof; (y) the number of shares of Company Common Stock subject to restrictions based on satisfaction of performance criteria (the "RESTRICTED STOCK") and the names of the holders thereof; and (z) all other rights to purchase or receive Company Common Stock under the Stock Plans. Except as set forth in SECTION 11 3.01(c) OF THE COMPANY DISCLOSURE SCHEDULE, there are no outstanding options, warrants or other securities or subscription, preemptive or other rights convertible into or exchangeable or exercisable for any shares of capital stock or other equity or voting interests of the Company and there are no "phantom stock" rights, stock appreciation rights or other similar rights with respect to the Company. No shares of Company Common Stock are owned by any Subsidiary of the Company. During the period from July 21, 2000 to the date of this Agreement, (A) there have been no issuances by the Company of shares of capital stock of, or other equity or voting interests in, the Company, other than issuances of shares of Company Common Stock pursuant to the exercise of Stock Options outstanding on such date as required by their terms as in effect on such date and (B) there have been no issuances by the Company of options, warrants or other rights to acquire shares of capital stock or other equity or voting interests from the Company. All outstanding shares of Company Common Stock are, and all shares of Company Common Stock that may be issued pursuant to the Option Plans or rights or agreements set forth in SECTION 3.01(c) OF THE COMPANY DISCLOSURE SCHEDULE will be when issued in accordance with the terms thereof, duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights. There are no bonds, debentures, notes or other indebtedness of the Company or any of its Subsidiaries, and no securities or other instruments or obligations of the Company or any of its Subsidiaries, the value of which is in any way based upon or derived from any capital or voting stock of the Company or any such Subsidiary or having the right to vote (or convertible into, or exchangeable or exercisable for, securities having the right to vote) on any matters on which the Shareholders or the shareholders of any such subsidiary may vote. Except as set forth above or in SECTION 3.01(c) OF THE COMPANY DISCLOSURE SCHEDULE or as specifically permitted under Section 4.01(a), there are no Contracts of any kind to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound, obligating the Company or any of its Subsidiaries to issue, deliver, grant or sell, or cause to be issued, delivered, granted or sold, additional shares of capital stock of, or other equity or voting interests in, or options, warrants or other securities or subscription, preemptive or other rights convertible into, or exchangeable or exercisable for, shares of capital stock of, or other equity or voting interests in, the Company or any of its Subsidiaries, or any "phantom stock" right, stock appreciation right or other similar right with respect to the Company or any of its Subsidiaries, or obligating the Company or any of its Subsidiaries to enter into any such Contract. There are no Contracts obligating the Company or any of its Subsidiaries to (x) repurchase, redeem or otherwise acquire any shares of capital stock of, or other equity or voting interests in, the Company or any of its Subsidiaries or (y) vote or dispose of any shares of the capital stock of, or other equity or voting interests in, any of its Subsidiaries. To the knowledge of the Company, as of the date of this Agreement, there are no irrevocable proxies and no voting agreements with respect to any shares of the capital stock or other voting securities of the Company or any of its Subsidiaries. Except as set forth in SECTION 3.01(c) OF THE COMPANY DISCLOSURE SCHEDULE, each outstanding share of capital stock of each Subsidiary of the Company is duly authorized, validly issued, fully paid and nonassessable, and each such share is owned by the Company or another Subsidiary of the Company free and clear of all liens, rights of first refusal or other contractual transfer restrictions, agreements and limitations on the Company's or any of its Subsidiaries' voting rights of any nature whatsoever. 12 (d) AUTHORITY; NONCONTRAVENTION. The Company has the requisite corporate power and authority to execute and deliver this Agreement and, subject only to, if required by law, approval of the Merger by an affirmative vote of the holders of a majority of the outstanding shares of the Company Common Stock (the "SHAREHOLDER APPROVAL"), to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly authorized on the part of the Company by the Committee and the Company Board and, other than the Shareholder Approval (if such approval is required by law) and the filing of the Articles of Merger in compliance with the MBCA, no other corporate proceedings on the part of the Company are necessary to approve this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by the Company and, assuming the due authorization, execution and delivery hereof by Parent and Sub, constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. The Company Board at a meeting duly held and in accordance with the MBCA, has adopted and consented to the Recommendation and the Committee at a meeting duly held and in accordance with the MBCA has made the Committee Approval. Except as set forth on SECTION 3.01(d) OF THE COMPANY DISCLOSURE SCHEDULE, the execution and delivery of this Agreement by the Company does not, and the consummation of the transactions contemplated by this Agreement will not, (i) conflict with, or result in any violation or breach of, any provision of the articles of incorporation or by-laws (or, if applicable, equivalent organizational documents) of the Company or any of its Subsidiaries, (ii) result in any violation or breach of, or constitute (with or without notice or lapse of time, or both) a default (or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any material benefit) under, or require a consent or waiver under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, debenture, guarantee, lease, contract or other agreement, document, commitment, arrangement, understanding, undertaking, permit, concession, franchise, license, instrument or obligation, whether oral or written (each, a "CONTRACT"), to which the Company or any of its Subsidiaries is a party or by which any of them or any of their properties or assets may be bound, or (iii) conflict with or violate any permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation of or issued by any Governmental Entity (a "LAW") applicable to the Company or any of its Subsidiaries or any of its or their properties or assets, except in the case of clauses (ii) and (iii) above for any such conflicts, violations, breaches, defaults, terminations, cancellations, accelerations, losses, consents or waivers that would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. Except as set forth on SECTION 3.01(d) OF THE COMPANY DISCLOSURE SCHEDULE, no consent, approval, order or authorization of, or registration, declaration or filing with, any domestic or foreign (whether national, federal, state, provincial, local or otherwise) government or political subdivision thereof or any court, administrative agency or commission or other governmental or regulatory authority or agency (whether domestic, foreign or supranational), or any arbitrator or arbitral tribunal (a "GOVERNMENTAL ENTITY"), is required by the Company or any Subsidiary of the Company in connection with the execution and delivery of this Agreement by the Company or the consummation by the Company of the transactions contemplated hereby or compliance with the provisions hereof, except for any such consents, approvals, orders, authorizations, registrations, declarations and filings that if not made or obtained, as the case may be, would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect or to 13 prevent or materially delay the consummation of the Offer or the Merger or otherwise materially impair or delay the Company's performance of its obligations under this Agreement. (e) SEC DOCUMENTS. The Company has filed with the SEC all forms, reports, schedules, statements and other documents required to be filed with the SEC by the Company since December 31, 1997 (together with and giving effect to, any amendments, supplements and exhibits thereto and any information incorporated therein by reference, the "SEC DOCUMENTS"). No Subsidiary of the Company is required to file any form, report, schedule, statement or other document with the SEC. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Securities Act of 1933, as amended (the "SECURITIES ACT"), or the Exchange Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to such SEC Documents as of the date of the filing thereof. Except to the extent that information contained in any SEC Document has been revised or superseded by a later filed SEC Document, none of the SEC Documents contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements (including the related notes) included in the SEC Documents comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP") applied on a consistent basis during the periods involved (except as may be indicated therein or in the notes thereto) and fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and their consolidated results of operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal and recurring year-end audit adjustments). Except as set forth in the SEC Documents and in SECTION 3.01(e) OF THE COMPANY DISCLOSURE SCHEDULE, the Company and its Subsidiaries have no liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise), other than (i) other liabilities and obligations that were incurred since April 29, 2000 in the ordinary course of business, consistent with past practices and (ii) liabilities and obligations that, individually and in the aggregate, would not reasonably be expected to have a Material Adverse Effect. (f) ABSENCE OF CERTAIN CHANGES OR EVENTS. From April 29, 2000 through the date of this Agreement, except as set forth in SECTION 3.01(f) OF THE COMPANY DISCLOSURE SCHEDULE, or as expressly contemplated by this Agreement, (a) the Company and its Subsidiaries in all material respects have conducted their businesses only in the ordinary course and in a manner consistent with past practice, (b) there has not been any Material Adverse Effect and (c) there has not been (i) any declaration, setting aside or payment of any dividend of other distribution with respect to its capital stock, (ii) any split, combination or reclassification of any of the Company's capital stock or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of or in substitution for any shares of the Company's capital stock, (iii) any granting by the Company or any of its Subsidiaries to any director or executive officer of the Company of any increase in compensation, other than in the ordinary course of business consistent with past practice, (iv) any granting by the Company or any of its Subsidiaries to any director or employee of any increase in severance or termination pay, (v) any entry by the Company or any of its Subsidiaries into any employment, severance or termination agreement 14 with any director or executive officer of the Company or any Subsidiary thereof or (vi) except insofar as may be required by a change in GAAP, any change in accounting methods, principles or practices by the Company. (g) LITIGATION. Except as disclosed in the SEC Documents and as set forth in SECTION 3.01(g) OF THE COMPANY DISCLOSURE SCHEDULE, there is (i) no pending and (ii) to the knowledge of the Company there is no threatened litigation, suit, claim, action, investigation or proceeding against or affecting the Company or any Subsidiary of the Company or any of their respective assets that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect or prevent or materially delay consummation of the Offer or the Merger or otherwise prevent or materially delay the Company from performing its obligations under this Agreement. There is not any statute, law, ordinance, rule, regulation, judgment, order, injunction or decree of any Governmental Entity or arbitrator outstanding against, or, to the knowledge of the Company, any investigation, proceeding, notice of violation, order of forfeiture or complaint by any Governmental Entity involving, the Company or any Subsidiary of the Company or any of their respective assets that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect or to prevent or materially delay consummation of the Offer or the Merger or otherwise prevent or materially delay the Company from performing its obligations under this Agreement. (h) CONTRACTS. SECTION 3.01(h) OF THE COMPANY DISCLOSURE SCHEDULE, together with SEC Documents, sets forth a true and complete list of the following Contracts (together with any Contract that is an Exhibit to the SEC Documents, "MATERIAL CONTRACTS"): (i) Contracts relating to or evidencing any indebtedness for borrowed money of the Company or any Subsidiary thereof in excess of $5,000,000; (ii) Any Contract providing for payments to or from the Company or any Subsidiary thereof of (A) in the case of the Assessments and Testing Services business segment (as such term is used in the Company's Annual Report on Form 10-K for the fiscal year ended January 29, 2000 (the "FORM 10-K")), $10,000,000 or more per year; (B) in the case of the NCS Services business segments (as such term is used in the Form 10-K), $10,000,000 or more per year; (C) in the case of the International business segment (as such term is used in the Form 10-K), $10,000,000 or more per year; (D) in the case of the Educational Software and Services business segment (as such term is used in the Form 10-K), $5,000,000 or more per year; and (E) in the case of the Data Collection Systems business segment (as such term is used in the Form 10-K), $5,000,000 or more per year, other than purchase orders entered into in the ordinary course of business consistent with past practice; (iii) any material distribution agreement granted to or held by the Company or any Subsidiary thereof; (iv) any Contract that limits the freedom of the Company or any Subsidiary thereof to compete in any line of business or with any Person or in any geographical area or which could so limit the freedom of the Company or any Subsidiary thereof so to compete after the Effective Time; 15 (v) any Shareholders', investors' or similar agreement known to the Company; and (vi) any Contract relating to the future disposition or acquisition of any assets or properties material to the business, other than dispositions or acquisitions in the ordinary course of business consistent with past practice. Except as disclosed on SECTION 3.01(h) OF THE COMPANY DISCLOSURE SCHEDULE, none of the Company or any Subsidiary thereof is in violation of or default (with or without notice or lapse of time or both) under, or has waived or failed to enforce any rights or benefits under, any Material Contract to which it is a party or by which it or any of its properties or assets is bound, and, to the knowledge of the Company or such Subsidiary, no other party to any of its Material Contracts is in violation or default (with or without notice or lapse of time or both) under, or has waived or failed to enforce any rights or benefits under, and there has occurred no event giving to others any right of termination, amendment or cancellation of, with or without notice or lapse of time or both, any such Contract, except, in each case, for violations, defaults, waivers or failures to enforce benefits that, individually and in the aggregate, would not reasonably be expected to have a Material Adverse Effect. The Company has furnished or made available to Parent true and complete copies of each Contract (including any amendments thereto) listed on SECTION 3.01(h) OF THE COMPANY DISCLOSURE SCHEDULE. (i) COMPLIANCE WITH LAWS. Except as set forth in SECTION 3.01(i) OF THE COMPANY DISCLOSURE SCHEDULE, the Company and its Subsidiaries and their relevant personnel and operations are in compliance in all material respects with all statutes, laws, ordinances, rules, regulations, judgments, orders and decrees of any Governmental Entity applicable to their businesses or operations, except for violations or possible violations that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. None of the Company or any Subsidiary of the Company has received a notice or other written communication alleging or relating to a possible violation of any statute, law, ordinance, rule, regulation, judgment, order or decree of any Governmental Entity applicable to its businesses or operations, except for violations or possible violations that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. The Company and its Subsidiaries have in effect all material permits, licenses, variances, exemptions, authorizations, franchises, orders, registrations and approvals of all Governmental Entities (collectively, "PERMITS"), necessary or advisable for them to own, lease or operate their properties and assets and to carry on their businesses as now conducted, and there has occurred no violation of, default (with or without notice or lapse of time or both) under, or event giving to others any right of termination, amendment or cancellation of, with or without notice or lapse of time or both, any such Permit, except for such failings that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. No suspension or cancellation of any of the Permits is pending or to the knowledge of the Company threatened, except for such suspensions or cancellations that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (j) LABOR MATTERS. The Company and its Subsidiaries have not been engaged in any unfair labor practice and there are no unfair labor practice complaints against the 16 Company or any Subsidiary pending before any Governmental Entity, except where such unfair labor practice or unfair labor practice complaint, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. Except as disclosed in the SEC Documents, there is no labor dispute, strike, work stoppage or lockout, or, to the knowledge of the Company, threat thereof, by or with respect to any employee of the Company or any Subsidiary, except where such dispute, strike, work stoppage or lockout individually or in the aggregate would not reasonably be expected to have a Material Adverse Effect. Neither the Company nor any Subsidiary thereof is a party to any collective bargaining or similar agreements. (k) ENVIRONMENTAL MATTERS. Except as disclosed in the SEC Documents and except for such inconsistencies with the following clauses (i) through (v) that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect: (i) each of the Company and its Subsidiaries possesses all Environmental Permits necessary to conduct its businesses and operations as currently conducted; (ii) each of the Company and its Subsidiaries is in compliance with all Environmental Laws and all Environmental Permits; (iii) there are no Environmental Claims pending or, to the knowledge of the Company, threatened against the Company or any of its subsidiaries; (iv) there have been no Releases of any Hazardous Materials that would reasonably be expected to form the basis of any Environmental Claim against the Company or any of its Subsidiaries; and (v) neither the Company, its Subsidiaries, nor to the Company's knowledge, any predecessor of the Company or any of its Subsidiaries has transported or arranged for the treatment, storage, handling, disposal, or transportation of any Hazardous Substance to any off-site location which is an Environmental Clean-up Site. (l) EMPLOYEE COMPENSATION AND BENEFIT PLANS. SECTION 3.01(l) OF THE COMPANY DISCLOSURE SCHEDULE lists all compensation or benefits plans, programs or arrangements (including, but not limited to, those subject to the Employee Retirement Income Security Act of 1974 ("ERISA"), employment agreements, cash or equity-based bonus or incentive arrangements, severance arrangements and vacation policies) sponsored, maintained or contributed to by the Company or any Subsidiary of the Company or to which the Company or any Subsidiary of the Company is a party (the "BENEFIT PLANS"), documentation for which has been delivered or made available to Parent. Each Benefit Plan has been maintained and operated in material compliance with its terms and all applicable laws, and each Benefit Plan intended to qualify under Section 401(a) of the Code has at all times so qualified or, to the extent the law has changed, the plan is still within the remedial amendment period in which amendments may be adopted. No Benefit Plan (i) is a "defined benefit plan" within the meaning of Section 3(35) of ERISA, or (ii) provides or provided post-retirement health or death benefit coverage (other than as required under Part 6 of Subtitle B of Title I of ERISA or Section 4980B of the Code), and no such plan was terminated at any time during the six year period prior to the date hereof. The Company is not now, and at no time has been, a member of a "controlled group" within the meaning of Section 412(n)(6)(B) of the Code with any entity other than a Subsidiary of the Company, and there are no circumstances pursuant to which the Company or any Subsidiary of the Company could have been liable (either directly, secondarily, jointly or contingently) under Title IV of ERISA or Sections 4971 through 4980E of the Code or under Section 502(i) or (l) of ERISA. The consummation of the transactions contemplated by this Agreement, either alone or in conjunction with any other event, will not (i) result in a violation of ERISA, or (ii) except as 17 set forth in SECTION 3.01(l) OF THE COMPANY DISCLOSURE SCHEDULE, trigger any payment or benefit under any Benefit Plan, or accelerate the timing thereof. The tax deductibility of any amount payable under any Benefit Plan will not be limited by operation of Sections 162(m) or 280G of the Code. Except as disclosed in the SEC Documents or in SECTION 3.01(L) OF THE COMPANY DISCLOSURE SCHEDULE, since December 31, 1999, no Benefit Plan has been adopted, entered into, terminated or materially modified, and there has not been an increase in compensation, bonus or other benefits payable to directors, officers or employees of the Company or any Subsidiary of the Company thereof other than, in the ordinary course of business consistent with past practice. (m) TAXES. (i) (A) Each of the Company and its Subsidiaries has duly and timely filed all domestic and foreign (whether national, federal, state, provincial, local or otherwise) tax returns and reports required to be filed by it and each such return or report is true and correct, except, in each case, for failures to file or failures to file truly and correctly that, individually and in the aggregate, would not reasonably be expected to have a Material Adverse Effect; (B) each of the Company and its Subsidiaries has timely paid all Taxes owed by it, whether or not shown on such returns and reports, except, in each case, for failures to timely pay that, individually and in the aggregate, would not reasonably be expected to have a Material Adverse Effect; and (C) the most recent financial statements contained in the SEC Documents reflect an adequate reserve for all current Taxes payable by the Company and each of its Subsidiaries (in addition to any reserve for deferred Taxes established to reflect timing differences between book and Tax items) for all taxable periods and portions thereof through the date of such financial statements. (ii) No material domestic or foreign (whether national, federal, state, provincial, local or otherwise) tax return or report of the Company or any Subsidiary of the Company is under audit or examination by any taxing authority, and no written or, to the knowledge of the Company, unwritten notice of such an audit or examination or other inquiry or questionnaire has been received by the Company or any Subsidiary of the Company. The Company has received no notice of deficiency, proposed adjustment or matter in controversy or other similar notice with respect to any material amount of Taxes due and owing by the Company or any Subsidiary of the Company. Except as set forth in SECTION 3.01(m)(ii) OF THE COMPANY DISCLOSURE SCHEDULE, each deficiency in Taxes resulting from any completed audit or examination by any taxing authority or any concluded litigation has been timely paid. The United States federal income tax returns of the Company Affiliated Group have been examined by the Internal Revenue Service and settled or have closed by virtue of the expiration of the relevant statute of limitations for all years through January 31, 1994. (iii) Except as set forth in SECTION 3.01(m)(iii) OF THE COMPANY DISCLOSURE SCHEDULE, with respect to the Company and each of its Subsidiaries, there is no currently effective agreement or other document extending, or having the effect of extending, the period of assessment or collection of any Taxes, and no power of attorney with respect to any Taxes has been executed or filed with any taxing authority. Except as set forth in SECTION 3.01(m)(iii) OF THE COMPANY DISCLOSURE SCHEDULE, neither the Company nor any Subsidiary of the Company is the beneficiary of any extension of time to file any tax return or report that has not been filed. 18 (iv) No liens for Taxes exist upon any assets or properties of the Company or any Subsidiary of the Company, except for statutory liens for Taxes not yet due and payable and liens for Taxes that the Company or Subsidiary of the Company is contesting in good faith and for which adequate reserves have been established. (v) None of the Company or any Subsidiary of the Company is a party to or bound by any tax sharing agreement, tax indemnity obligation or other agreement or arrangement with respect to Taxes (including any advance pricing agreement, closing agreement, gain recognition agreement or other material agreement relating to Taxes with any taxing authority). (vi) None of the Company or any Subsidiary of the Company was, at any time during a period specified in Section 897(c)(1)(A)(ii) of the Code, a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code. (vii) None of the Company or any Subsidiary of the Company has at any time since January 31, 1990 been a member of any Affiliated Group other than the Company Affiliated Group and, other than the several liability for federal income taxes of the Company and those of its Subsidiaries that file federal income tax returns as members of the Company Affiliated Group, none of the Company or any Subsidiary of the Company has any liability for Taxes of any other person under Treasury Regulation Section 1.1502-6 (or comparable provisions of foreign, state or local law), as a transferee or successor, by contract or otherwise. (viii) Except as set forth in SECTION 3.01(m)(viii) OF THE COMPANY DISCLOSURE SCHEDULE, none of the Company or any Subsidiary of the Company has constituted either a "distributing corporation" or a "controlled corporation" in a distribution of stock qualifying or intended to qualify for tax-free treatment under Section 355 of the Code in the two years prior to the date of this Agreement. (ix) Neither the Company nor any Subsidiary of the Company has participated in or cooperated with an international boycott within the meaning of Section 999 of the Code. Each of the Company and its Subsidiaries has proper receipts, within the meaning of Treasury Regulation Section 1.905-2, for any foreign Tax that has been or in the future may be claimed as a foreign tax credit for United States federal income tax purposes. No foreign Subsidiary of the Company has, or at any time has had, an investment in "United States property" within the meaning of Section 956(c) of the Code. No foreign Subsidiary of the Company is, or at any time has been, a passive foreign investment company within the meaning of Section 1297 of the Code, and neither the Company nor any Subsidiary of the Company is a shareholder, directly or indirectly, in a passive foreign investment company. No foreign Subsidiary of the Company is, or at any time has been, engaged in the conduct of a trade or business within the United States within the meaning of Section 864(b) or Section 882(a) of the Code, or treated as or considered to be so engaged under Section 882(d) or Section 897 of the Code or otherwise. No foreign Subsidiary of the Company holds, or at any time has held, a United States real property interest within the meaning of Section 897(c)(1) of the Code. Neither the Company nor any Subsidiary of the Company is, or at any time has been, subject to (i) the dual consolidated loss provisions of Section 1503(d) of the Code, (ii) the overall foreign loss provisions of Section 904(f) of the Code or (iii) the recharacterization provisions of Section 952(c)(2) of the Code. Neither the Company 19 nor any Subsidiary of the Company has any "non-recaptured net Section 1231 losses" within the meaning of Section 1231(c)(2) of the Code. (x) As used in this Agreement, (A) "TAXES" shall include all (x) domestic and foreign (whether national, federal, state, provincial, local or otherwise) income, franchise, property, sales, excise, employment, payroll, social security, value-added, ad valorem, transfer, withholding, license, severance, stamp, premium, environmental, customs, duties, capital stock, unemployment, disability, registration, estimated, alternative or add-on minimum and other taxes, including taxes based on or measured by gross receipts, profits, sales, use or occupation, tariffs, levies, impositions, assessments, liabilities under abandoned property, escheat or similar Law or governmental charges of any nature whatever, whether disputed or not, including any interest, penalties or additions with respect thereto, (y) liability for the payment of any amounts of the type described in clause (x) as a result of being a member of an affiliated, consolidated, combined, unitary or similar group and (z) liability for the payment of any amounts as a result of being party to any tax sharing agreement or as a result of any express or implied obligation to indemnify any other person with respect to the payment of any amounts of the types described in clause (x) or (y); (B) "AFFILIATED GROUP" shall mean each group of which the Company or any Subsidiary of the Company is or has been a member during a period for which the group filed a tax return or report on an affiliated, combined, consolidated, unitary or similar basis; and (C) "COMPANY AFFILIATED GROUP" means the consolidated group for federal income tax purposes of which the Company is the common parent corporation. (n) INTELLECTUAL PROPERTY. (i) For the purposes of this Section 3.01(n), the term the "Company" shall mean the Company and all of its Subsidiaries and other relevant Affiliates and the following terms shall have the following meanings: "COMPANY LICENSED INTELLECTUAL PROPERTY" means all registered patents and patent applications, registered trademarks and trademark applications, copyright registrations, domain name registrations and Third Party Software used by the Company pursuant to license agreements. "INTELLECTUAL PROPERTY" means United States and international: (A) patents, patent applications and statutory invention registrations, including reissues, divisions, continuations, continuations in part, extensions and reexaminations thereof, and all rights therein provided by international treaties or conventions, (B) inventions, processes, formulae, industrial models, designs, specifications, data, technology, methodologies, and all related technical information, manufacturing, engineering, technical drawings, and know-how, (C) trademarks, service marks, trade dress, logos, trade names, corporate names, and other source identifiers (whether or not registered) including all common law rights, and registrations and applications for registration thereof, all rights therein provided by international treaties or conventions, and all extensions and renewals of any of the foregoing, (D) copyrightable works, copyrights (whether or not registered) and registrations and applications for registration thereof, and all rights therein provided by international treaties or conventions, (E) confidential and proprietary information, whether or not subject to statutory registration, (F) Software and Third Party Software, (G) 20 coded values, formats, data, historical or current databases, whether or not copyrightable and (H) URLs, domain names, Internet web sites or identities used or held for use exclusively by the Company. "SOFTWARE" means all computer software owned by the Company including source code, object code, comments, user interfaces, menus, buttons and icons, and all files, data, manuals, design notes and other items and documentation related thereto or associated therewith, but excluding Third Party Software. "THIRD PARTY SOFTWARE" means all computer software used by the Company and owned by a third party (including source code, object code, comments, user interfaces, menus, buttons and icons and all files, data, manuals, design notes and other items and documentation related thereto or associated therewith), but excluding commercially available shrink-wrapped software. (ii) Except as set forth in SECTION 3.01(n)(ii) OF THE COMPANY DISCLOSURE SCHEDULE, the Company owns exclusively or has the licensed right to use all Intellectual Property and commercially available shrink-wrapped software that is material and necessary to the operation of the business of the Company as it is conducted currently. SECTION 3.01(n)(ii) OF THE COMPANY DISCLOSURE SCHEDULE sets forth a true and complete list of (a) all registered patents and patent applications, registered trademarks and trademark applications, copyright registrations and domain name registrations owned by the Company (the "COMPANY OWNED INTELLECTUAL PROPERTY"). (iii) Except as set forth in SECTION 3.01(n)(iii) OF THE COMPANY DISCLOSURE Schedule, to the Company's knowledge, the Company's use of the Company Owned Intellectual Property and the Company Licensed Intellectual Property in the operation of the business as currently conducted, do not infringe upon the Intellectual Property rights of any third party, and no written claim has been asserted to the Company which is currently pending or to the Company's knowledge, is threatened that the use of such Company Owned Intellectual Property or Company Licensed Intellectual Property does or may infringe upon the Intellectual Property rights of any third party. (iv) Subject to any prior right of the U.S. government, the Company is the exclusive owner of the entire right, title and interest in and to all the Company Owned Intellectual Property and is entitled to use all the Company Owned Intellectual Property and the Company Licensed Intellectual Property in the continued operation of its business in a manner consistent in all material respects with past practice. Except as set forth in SECTION 3.01(n)(iv) OF THE COMPANY DISCLOSURE SCHEDULE, to the Company's knowledge, no third party is engaging in any activity that infringes upon the Company Owned Intellectual Property. (v) Except as set forth in SECTION 3.01(n)(v) OF THE COMPANY DISCLOSURE SCHEDULE, to the Company's knowledge, the consummation of the transactions contemplated by this Agreement will not result in the termination or impairment of any of the Company Owned Intellectual Property or the Company Licensed Intellectual Property, or any license or other agreement relating thereto. 21 (vi) The Company is not in breach of, or default under, any material term of any license or sublicense of the Company Owned Intellectual Property or the Company's Licensed Intellectual Property and, to the Company's knowledge, no other party to such license or sublicense is in breach thereof or default thereunder. (vii) All of the products, services, operations and businesses of the Company sold or offered for sale after January 1, 1996 are free of any "YEAR 2000 PROBLEM" such that such products, services, operations and businesses do not and will not, without requiring any modifications, experience any malfunctions, premature cancellation or deletion of data or invalid or incorrect results, or abnormally cease to function, or exhibit any other problems in connection with, (i) the year 2000 (and all subsequent years to 2020) as distinct from 1900s years, (ii) the date February 29, 2000 and all subsequent leap years to 2020 or (iii) any other calendar date. (o) PROPERTY. SECTION 3.01(o) OF THE COMPANY DISCLOSURE SCHEDULE (together with Item 2 of the Form 10-K) contains a true and complete list, as of the date hereof, of all real property owned or material real property leased by the Company or any of its Subsidiaries. The Company and each of its Subsidiaries has good and marketable title or valid leasehold interests to all its real and personal property, free and clear of all mortgages, liens, pledges, charges or encumbrances of any nature whatsoever, except (i) liens for current taxes, payments of which are not yet delinquent, (ii) such imperfections in title and easements and encumbrances, if any, as are not substantial in character, amount or extent and do not materially detract from the value, or interfere with the present use of the property subject thereto or affected thereby, or otherwise materially impair the Company's business operations, (iii) as disclosed in SEC Documents, or (iv) such matters, which individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. All leases under which the Company or any of its Subsidiaries leases any material real property are in good standing, valid and effective in accordance with their respective terms, and there is not, under any of such leases, any existing default or event which with notice or lapse of time or both would become a default by the Company or, to the Company's knowledge, any other party thereto, which would reasonably be expected individually or in the aggregate to have a Material Adverse Effect on the Company. There are no pending or, to the knowledge of the Company, threatened condemnation proceedings against or affecting any material real property owned by the Company or its Subsidiaries. (p) STATE TAKEOVER STATUTES. The Company Board and the Committee have approved the Offer, the Merger, this Agreement and the transactions contemplated hereby and, assuming the accuracy of Parent's and Sub's representation in Section 3.02(c) and as a result of such approvals, the Offer, the Merger, this Agreement and the transactions contemplated hereby, will not be impeded by provisions of Sections 302A.671, 302A.673 and 302A.675 of the MBCA. No other "fair price," "merger moratorium," "control share acquisition" or other anti-takeover statute or similar statute or regulation (other than Section 302A.553 of the MBCA and Chapter 80B of the Minnesota Statutes) applies or purports to apply to the Merger, this Agreement, the Offer or any of the transactions contemplated hereby or thereby. 22 (q) BROKERS; SCHEDULE OF FEES AND EXPENSES. No broker, investment banker, financial advisor, finder or other similar person, other than Salomon Smith Barney Inc., the fees and expenses of which will be paid by the Company, is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company. The Company has delivered to Parent true and complete copies of all Contracts under which any such fees or expenses are payable and all indemnification and other Contracts related to the engagement of the persons to whom such fees are payable. (r) OPINION OF FINANCIAL ADVISOR. The Company Board has received the opinion of Salomon Smith Barney Inc., to the effect that, as of the date of this Agreement, the consideration to be received in the Offer and the Merger by the Shareholders is fair from a financial point of view to the Shareholders (other than Parent and its Affiliates). A true and complete copy of such opinion shall be delivered to Parent. (s) RIGHTS AGREEMENT. The Company Board has taken all necessary action to authorize, and the Company has taken, or will take promptly, and notwithstanding any other provision of this Agreement will continue to take promptly, all necessary action to (i) render the Rights Agreement inapplicable with respect to the Offer and the Merger and (ii) ensure that (A) neither Parent or Sub nor any of their Affiliates (as defined in the Rights Agreement) or Associates (as defined in the Rights Agreement) is considered to be an Acquiring Person or an Adverse Person (as defined in the Rights Agreement) and (B) the provisions of the Rights Agreement, including the occurrence of a Distribution Date (as defined in the Rights Agreement), are not and shall not be triggered by reason of the announcement or consummation of the Offer or the Merger. SECTION 3.02. REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB. As an inducement to the Company to enter into this Agreement, Merger Sub and the Parent represent and warrant to the Company that the statements contained in this Section 3.02 are true and correct as of the date hereof. (a) ORGANIZATION. Each of Parent and Sub is a corporation duly incorporated or organized, validly existing and, to the extent applicable, in good standing under the laws of the jurisdiction in which it is incorporated or organized and has all requisite corporate power and authority to carry on its business as now being conducted. (b) AUTHORITY; NONCONTRAVENTION. Parent and Sub have the requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by Parent and Sub and the consummation by Parent and Sub of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Parent and Sub and, other than filing of the Articles of Merger in compliance with the MBCA, no other corporate proceedings on the part of Parent or Sub are necessary to approve this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by Parent and Sub, as applicable, and, assuming the due authorization, execution and delivery hereof by the Company, constitutes a valid and binding obligation of Parent and Sub, as applicable, 23 enforceable against Parent and Sub, as applicable, in accordance with its terms. The execution and delivery of this Agreement by Parent and Sub does not, and the consummation of the transactions contemplated by this Agreement will not, (i) conflict with or result in any violation or breach of, any provision of the articles of incorporation or bylaws of Parent or Sub, (ii) result in any violation or breach of, or constitute (with or without notice or lapse of time, or both) a default (or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any material benefit) under, or require a consent or waiver under, any of the terms, conditions or provisions of any Contract to which Parent or Sub is a party or by which either of them or any of their properties or assets may be bound, or (iii) conflict with or violate any Law applicable to Parent or Sub or any of their properties or assets, except in the case of (ii) and (iii) for any such conflicts, violations, breaches, defaults, terminations, cancellations, accelerations, losses, consents or waivers that are not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect. Except as set forth on SECTION 3.02(b) OF THE PARENT DISCLOSURE SCHEDULE, no consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity, is required by Parent or Sub in connection with the execution and delivery of this Agreement by Parent or Sub or the consummation by Parent or Sub of the transactions contemplated hereby or compliance with the provisions hereof, except for any such consents, appeals, orders, authorizations, registrations, declarations or filings that if not made or obtained, as the case may be, would not reasonably be expected, individually or in the aggregate, to prevent or materially delay the consummation of the Offer or the Merger or otherwise impair or delay the performance by Parent or Sub of its obligations under this Agreement. (c) OWNERSHIP OF SHARES. Neither Parent nor any of its Affiliates or associates, individually or in the aggregate, has Beneficial Ownership (as such term is defined in Section 302A.011 of the MBCA) of more than 5% of the outstanding capital stock of the Company. (d) FUNDS. Parent or Sub at the expiration date of the Offer and at the Effective Time, will have the funds necessary to consummate the Offer and the Merger, respectively, and to pay all associated costs and expenses of the transactions contemplated hereby. Without prejudice to the fact that this Agreement does not provide for any financing condition or contingency, Parent and Sub will use commercially reasonable efforts (i) to obtain any financing necessary to consummate the Offer and the Merger as promptly as practicable and (ii) to consummate the Offer as promptly as practicable upon obtaining the financing referred to in Section 1.01(a)(C). ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS SECTION 4.01. CONDUCT OF BUSINESS. (a) CONDUCT OF BUSINESS BY THE COMPANY. During the period from the date of this Agreement to the Effective Time, except (i) as consented to in writing by Parent, (ii) as specifically contemplated by this Agreement or (iii) as disclosed on SECTION 4.01(a) OF THE COMPANY DISCLOSURE SCHEDULE (with specific reference to the subsection of this Section 4.01 to which the information stated in such disclosure relates and 24 such other subsections of this Section 4.01 to the extent a matter is disclosed in such a way as to make its relevance to the information called for by such other subsection readily apparent), the Company shall, and shall cause its Subsidiaries to, carry on their respective businesses in the ordinary course consistent with past practice and use their commercially reasonable efforts to comply with all applicable laws, rules and regulations and, to the extent consistent therewith, use their commercially reasonable efforts to preserve their assets and technology and preserve their relationships with customers, suppliers, licensors, licensees, distributors and others having business dealings with them in all material respects. Without limiting the generality of the foregoing, but subject to clauses (i), (ii) and (iii) above, the Company shall not, and shall not permit any of its Subsidiaries to: (i) (w) declare, set aside or pay any dividends on, or make any other distributions (whether in cash, stock or property) in respect of, any of its capital stock except for cash dividends payable to the Company or a Subsidiary of the Company by a Subsidiary of the Company, (x) purchase, redeem or otherwise acquire any shares of capital stock or any other securities of the Company or its Subsidiaries (except in connection with and consistent with the terms of the Stock Plans or the Benefit Plans, as in effect on the date hereof) or any options, warrants, calls or rights to acquire any such shares or other securities, (y) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or any of its other securities or (z) liquidate, merge or consolidate with any other person; (ii) issue, deliver, sell, pledge, dispose of, grant, encumber or otherwise transfer or authorize the issuance, delivery, sale, pledge, disposition, grant or encumbrance of any shares of its or any of its Subsidiaries' capital stock, any other equity or voting interests or any securities convertible into, or exchangeable for, or any options, warrants, calls or rights to acquire, any such shares, voting securities or convertible securities or any stock appreciation rights or other rights (other than the issuance of shares of Company Common Stock upon the exercise of Stock Options and the other rights and agreements set forth in SECTION 3.01(c) OF THE COMPANY DISCLOSURE SCHEDULE that are in existence on the date of this Agreement); (iii) amend or propose to amend its or any of its Subsidiaries' articles of incorporation or by-laws (or similar organizational documents); (iv) directly or indirectly acquire or agree to acquire (A) by merging or consolidating with, or by purchasing all or a substantial portion of the assets or stock of, or in any other manner, any assets constituting a business or any corporation, partnership, joint venture or association or other entity or division thereof, or any direct or indirect interest in any of the foregoing, or (B) any assets other than purchases of assets (including, subject to clause (vii) below, capital assets) in the ordinary course of business consistent with past practice; (v) directly or indirectly sell, lease, license, sell and lease back, mortgage or otherwise encumber or subject to any lien or otherwise dispose of any of its properties or assets or any interest therein, except (i) sales of assets or any interest therein in the ordinary course of business consistent with past practice, (ii) pledges or encumbrances pursuant 25 to existing borrowing arrangements or (iii) any such transaction not otherwise permitted with an aggregate value not to exceed $5,000,000; (vi) (x) repurchase, accelerate, prepay or incur any indebtedness or guarantee any indebtedness of another person or issue or sell any debt securities or options, warrants, calls or other rights to acquire any debt securities of the Company or any of its Subsidiaries, guarantee any debt securities of another person, enter into any "keep well" or other agreement to maintain any financial statement condition of another person or enter into any arrangement having the economic effect of any of the foregoing (PROVIDED that the Company may incur indebtedness for borrowed money under its existing credit facilities up to an aggregate amount of $30,000,000), (y) make any loans, advances or capital contributions to, or investments in, any other person, other than the Company or any direct or indirect wholly-owned Subsidiary of the Company, or (z) enter into any hedging agreement or other financial agreement or arrangement designed to protect the Company against fluctuations in interest rates, commodities prices, currency exchange rates or otherwise, except, in the cases of clauses (x), (y) and (z) above, agreements or arrangements entered into in the ordinary course of business consistent with past practice; (vii) incur or commit to incur any capital expenditures in an aggregate amount exceeding $10,000,000; (viii) pay, discharge, settle or satisfy any litigation, claims (including claims of Shareholders), liabilities or obligations (whether absolute, accrued, asserted or unasserted, contingent or otherwise) in an aggregate amount exceeding $5,000,000, other than the payment, discharge or satisfaction in the ordinary course of business consistent with past practice or as required by their terms as in effect on the date of this Agreement of claims, liabilities or obligations reflected, reserved against or otherwise disclosed in the most recent audited financial statements (or the notes thereto) of the Company included in the SEC Documents (for amounts not in excess of such reserves or as otherwise disclosed) or incurred since the date of such financial statements in the ordinary course of business consistent with past practice, or waive, release, grant or transfer any right of material value, other than in the ordinary course of business consistent with past practice, or waive any material benefits of, or agree to modify in any material adverse respect, or fail to enforce, or consent to any matter with respect to which its consent is required under, any confidentiality, standstill or similar agreement to which the Company or any Subsidiary of the Company is a party; (ix) (A) grant to any employee, officer, director, consultant or independent contractor of the Company or any Subsidiary of the Company any increase in cash compensation or pay any bonus, other than in the ordinary course of business consistent with past practice, (B) grant to any employee, officer, director, consultant or independent contractor of the Company or any Subsidiary of the Company any increase in severance or termination pay, (C) establish, adopt, enter into or amend in any material respect any collective bargaining agreement or Benefit Plan, (D) take any action to accelerate any rights or benefits, take any action to fund or in any other way secure the payment of compensation or benefits under any Benefit Plan, or make any material determinations not in the ordinary course of business consistent with past practice, under any collective bargaining agreement or Benefit Plan, other 26 than pursuant to the provisions of Section 5.04 hereof, including any payment of cash pursuant thereto or (E) amend or modify or grant any Stock Option, in each case above other than (i) changes that are required by applicable law or (ii) to satisfy obligations existing as of the date hereof; (x) fail to maintain existing insurance at levels substantially comparable to current levels; (xi) transfer or license to any person or entity or otherwise extend, amend or modify any rights to the Intellectual Property rights of the Company and its Subsidiaries other than in the ordinary course of business consistent with past practice; PROVIDED that in no event shall the Company license on an exclusive basis or sell any Intellectual Property rights of the Company or its Subsidiaries; (xii) enter into or amend any agreements pursuant to which any person is granted exclusive marketing, manufacturing or other rights with respect to any material Company product, process or technology, other than in the ordinary course of business consistent with past practice; (xiii) except insofar as may be required by a change in GAAP or generally accepted accounting principles of the applicable jurisdiction or changes in applicable law, make any changes in accounting methods, principles or practices; (xiv) take any action that could reasonably be expected to result in (A) any representation and warranty of the Company set forth in this Agreement that is qualified as to materiality becoming untrue, (B) any such representation and warranty that is not so qualified becoming untrue in any material respect or (C) any condition to the Offer or the Merger not being satisfied except as provided in Section 4.02(b); (xv) take any action, other than reasonable and usual actions in the ordinary course of business and consistent with past practice, with respect to accounting policies or procedures; (xvi) amend, modify or consent to the termination of any Material Contract, or amend, waive, modify or consent to the termination of the Company's or any of its Subsidiaries material rights thereunder; (xvii) commence any material litigation; or (xviii) authorize any of, or commit, resolve or agree to take any of, the foregoing actions. (b) CERTAIN TAX MATTERS. During the period from the date of this Agreement to the Effective Time, the Company shall, and shall cause each of its Subsidiaries to, (i) timely file all tax returns and reports ("POST-SIGNING RETURNS") required to be filed by each such entity; (ii) timely pay all Taxes due and payable in respect of such Post-Signing Returns that are so filed; (iii) accrue a reserve in the books and records and financial statements of any such entity in 27 accordance with past practice for all Taxes payable by such entity for which no Post-Signing Return is due prior to the Effective Time; (iv) promptly notify Parent of any suit, claim, action, investigation, proceeding or audit (collectively, "ACTIONS") pending against or with respect to the Company or any Subsidiary of the Company in respect of any Tax and not settle or compromise any such Action without Parent's consent; and (v) not make any material Tax election without Parent's consent, which consent shall not be unreasonably withheld. SECTION 4.02. NO SOLICITATION. (a) The Company shall not, nor shall it permit any of its Affiliates to, nor shall it authorize or permit any Affiliate, director, officer or employee of the Company or any such Affiliate or any investment banker, financial adviser, attorney, accountant or other advisor or representative of the Company or any such Affiliate to, directly or indirectly, (i) solicit, seek, initiate or encourage (including by way of furnishing information), or take any other action to facilitate the submission of any inquiries or the making of any proposal or offer that constitutes, or would be reasonably likely to constitute or lead to, a Takeover Proposal, (ii) enter into, continue or otherwise participate in any discussions or negotiations (including by way of furnishing information), or otherwise cooperate in any way with, or assist, participate in, facilitate or encourage, any effort or attempt by any person to submit or otherwise act in furtherance of, a Takeover Proposal, (iii) agree to, approve or recommend any Takeover Proposal, or (iv) take any other action inconsistent with the obligations and commitments of the Company contained in this Section 4.02 provided that nothing herein shall prohibit the presentation of a Takeover Proposal to the Company Board which was not obtained or received in violation of this Section 4.02. Notwithstanding the foregoing, in the event that the Company Board determines in good faith after consultation with outside counsel that the failure to do so would constitute a breach of the Company Board's fiduciary duties to the Shareholders under applicable law, the Company Board may, in response to (A) a Superior Proposal or (B) a bona fide Takeover Proposal that the Company Board determines in good faith is reasonably likely to lead to a Superior Proposal (a "LIKELY SUPERIOR PROPOSAL") at any time prior to the acceptance for payment of shares of Company Common Stock pursuant to the Offer (the "SPECIFIED DATE"), that in each case was unsolicited and did not otherwise result from a breach of this Section 4.02, and subject to compliance with Section 4.02(c): (x) furnish information with respect to the Company and its Subsidiaries to the person making such Superior Proposal or Likely Superior Proposal (and its representatives) pursuant to an appropriate and customary confidentiality and standstill agreement that is no less restrictive than the Confidentiality Agreement between Pearson Education, Inc. and the Company, dated June 14, 2000 (the CONFIDENTIALITY AGREEMENT") and (y) participate in discussions or negotiations with the person making such Superior Proposal or Likely Superior Proposal (and its representatives) regarding such Superior Proposal or Likely Superior Proposal. For purposes of this Agreement, "SUPERIOR PROPOSAL" means any bona fide written offer made by a third party to consummate a tender offer, exchange offer, merger, consolidation or similar transaction that would result in such third party (or its shareholders) owning, directly or indirectly, more than 50% of the shares of Company Common Stock then outstanding (or of the surviving entity in a merger) or all or substantially all of the assets of the Company and its Subsidiaries, taken as a whole, and that is otherwise on terms and conditions which the Company Board determines in good faith (after consultation with a financial advisor of nationally recognized reputation) to provide consideration to the holders of Company Common Stock with 28 a greater value than the Merger Consideration after taking into account (i) the amount and type of consideration offered, (ii) any changes to the terms of this Agreement proposed in writing by Parent in response to such Superior Proposal or otherwise, (iii) the likelihood of consummation of such transaction and (iv) the identity of the Person making the proposal; PROVIDED, HOWEVER, that no such offer shall constitute a Superior Proposal unless (A) such offer is first received by the Company after the date hereof and (B) such offer is unsolicated and does not otherwise result from a breach of Section 4.02. For purposes of this Agreement, "TAKEOVER PROPOSAL" means any inquiry, proposal or offer from any person relating to (i) any direct or indirect purchase, lease, pledge or other acquisition of 10% or more of the assets of the Company and its Subsidiaries, taken as a whole, or 10% or more (on either an issued and outstanding or a fully-diluted basis) of any class or series of capital stock of the Company or any Subsidiary of the Company, (ii) any tender offer or exchange offer that if consummated would result in any person (or group of related persons) beneficially owning 10% or more (on either an issued and outstanding or a fully-diluted basis) of any class or series of capital stock of the Company or any Subsidiary of the Company, or (iii) any merger, consolidation, business combination, recapitalization, liquidation, dissolution or other similar transaction involving the Company or any Subsidiary of the Company, in each case other than the transactions to be effected pursuant to this Agreement. (b) Neither the Company Board nor any committee thereof (including the Committee) shall (i) withdraw (or modify in a manner adverse to Parent or Sub) or propose to withdraw (or modify in a manner adverse to Parent or Sub) the Recommendation and the Committee Approval, (ii) adopt, approve or recommend, or propose to adopt, approve or recommend, any Takeover Proposal, (iii) cause or permit the Company to enter into any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement or other Contract other than a confidentiality agreement as required by Section 4.02(a) (each, an "ACQUISITION AGREEMENT") constituting or related to, or which is intended to or is reasonably likely to lead to, any Takeover Proposal, or (iv) agree or resolve to take any of the actions contemplated by clause (i), (ii) or (iii) of this sentence; PROVIDED, HOWEVER, that the Company Board or any committee thereof may take any of such actions if (and only if) each of the following conditions has been satisfied: (w) the Company Board or such committee thereof (as applicable) shall have determined in good faith, after consultation with outside counsel, that failure to do so would constitute a breach of its fiduciary duties to the Shareholders under applicable Law; (x) no breach of any of the Company's obligations under paragraph (a) or (c) of this Section 4.02 shall have occurred; (y) the Company shall have given Parent three business days' prior written notice of its intention to take such action and if such action is being taken in connection with a Superior Proposal or a Takeover Proposal which may lead to a Superior Proposal, Parent shall not have proposed changes to the terms of this Agreement which would have the effect of causing the Takeover Proposal in question no longer to constitute a Superior Proposal or otherwise cause the condition set forth in clause (w) above no longer to be satisfied; and (z) the Company shall have terminated this Agreement and, prior to such termination, the Company has paid the Termination Fee to Parent. (c) In addition to the obligations of the Company set forth in paragraphs (a) and (b) of this Section 4.02, the Company shall promptly (and in any event within 24 hours or, in 29 the case of any action described in clause (x) or (y) of Section 4.02(a), not less than 48 hours prior to taking any such action) (i) advise Parent orally and in writing of any request for information that the Company reasonably believes could lead to or contemplates a Takeover Proposal or of any Takeover Proposal or of any inquiry the Company reasonably believes could lead to any Takeover Proposal, the terms and conditions of any such request, Takeover Proposal or inquiry (including any subsequent amendment or other modification to such terms and conditions) and the identity of the person making any such request, Takeover Proposal or inquiry and (ii) keep Parent informed in all material respects of the status and details (including amendments or proposed amendments) of any such request, Takeover Proposal or inquiry and of any discussions or negotiations with respect thereto. (d) Nothing contained in this Section 4.02 or elsewhere in this Agreement shall prohibit the Company from (i) taking and disclosing to the Shareholders a position contemplated by Rule 14d-9 or Rule 14e-2(a) promulgated under the Exchange Act or (ii) making any disclosure to the Shareholders if, in the good faith judgment of the Company Board, after consultation with outside counsel, failure so to disclose would be inconsistent with applicable law; PROVIDED, HOWEVER, that, except as expressly permitted by Section 4.02(b), in no event shall the Company Board or any committee thereof withdraw or modify, or propose to withdraw or modify, its position with respect to this Agreement, the Offer or the Merger or adopt, approve or recommend, or propose to adopt, approve or recommend, any Takeover Proposal. Article V ADDITIONAL AGREEMENTS SECTION 5.01. PREPARATION OF THE PROXY STATEMENT; SHAREHOLDERS MEETING; OFFERING CIRCULAR. (a) If the approval of this Agreement by the Shareholders is required by law, the Company and Parent shall, as promptly as practicable following the expiration of the Offer, prepare and file with the SEC a proxy statement or information statement relating to the Shareholder Approval (as amended or supplemented from time to time, the "PROXY STATEMENT") and the Company shall use its commercially reasonable efforts to have the Proxy Statement promptly cleared by the SEC and to cause the Proxy Statement to be mailed to the Shareholders as promptly as practicable following the expiration of the Offer in accordance with the provisions of the MBCA. The Company shall promptly notify Parent upon the receipt of any comments from the SEC or its staff or any request from the SEC or its staff for amendments or supplements to the Proxy Statement and shall provide Parent with copies of all correspondence between the Company and its representatives, on the one hand, and the SEC and its staff, on the other hand. Notwithstanding the foregoing, prior to filing or mailing the Proxy Statement (or any amendment or supplement thereto) or responding to any comments of the SEC with respect thereto, the Company (i) shall provide Parent a reasonable opportunity to review and comment on such document or response, (ii) shall include in such document or response all comments reasonably proposed by Parent and (iii) shall not file or mail such document or respond to the SEC prior to receiving Parent's approval, which approval shall not be unreasonably withheld or delayed. 30 (b) If the approval of this Agreement by the Shareholders is required by law, the Company shall, as promptly as practicable following the expiration of the Offer, establish a record date (which will be as promptly as reasonably practicable following the expiration of the Offer) for, duly call, give notice of, convene and hold a meeting of the Shareholders (the "SHAREHOLDERS MEETING") for the purpose of obtaining the Shareholder Approval. Subject to Section 4.02(b), the Company shall, through the Company Board, declare advisable and recommend to its Shareholders that they adopt this Agreement, and shall include the Recommendation and disclosure regarding the Committee Approval in the Proxy Statement. Without limiting the generality of the foregoing, the Company agrees that its obligations pursuant to the first sentence of this Section 5.01(b) shall not be affected by (i) the commencement, public proposal, public disclosure or communication to the Company or any other person of any Takeover Proposal or (ii) the withdrawal or modification by the Board of Directors of the Company or any committee thereof of such Board's or committee's approval or recommendation of the Offer, the Merger or this Agreement. (c) The Company represents and warrants that the information (other than information with respect to Parent and Sub which is supplied by Parent and Sub in writing to the Company specifically for use in the Proxy Statement) contained in the Proxy Statement will not, at the date of mailing to the Shareholders or at the date of such Shareholders Meeting, contain any statement which, at the time and in light of the circumstances under which it is made, is false or misleading with respect to any material fact required to be stated therein or necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for such Shareholders Meeting. The Company represents and warrants that the Proxy Statement will comply as to form in all material respects with the Exchange Act and the rules and regulations of the SEC thereunder. Parent and Sub represent and warrant that the information supplied by Parent and Sub in writing to the Company specifically for use in the Proxy Statement will not, at the date of mailing to the Shareholders or at the date of the Shareholders Meeting, contain any statement which, at the time and in light of the circumstances under which it is made, is false or misleading with respect to any material fact required to be stated therein or necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for the Shareholders Meeting. (d) Notwithstanding Section 5.01(a), (b) or (c), in the event that Parent, Sub or any other Subsidiary of Parent acquires, directly or indirectly, at least 90% of the outstanding shares of Company Common Stock pursuant to the Offer or otherwise, the parties hereto will take all necessary and appropriate action to cause the Merger to become effective in accordance with Section 302A.621 of the MBCA without a meeting of the Shareholders as soon as practicable after the acceptance for payment and purchase of the shares of Company Common Stock by Parent pursuant to the Offer. SECTION 5.02. ACCESS TO INFORMATION. Except as otherwise required by applicable law, the Company shall, and shall cause its Subsidiaries and the officers, directors, employees, auditors and agents of the Company and its Subsidiaries to, afford to Parent, and to Parent's officers, employees, investment bankers, attorneys, accountants and other advisors and representatives, reasonable and reasonably prompt access during normal business hours during the period prior to the Effective Time or the termination of this Agreement to all their respective 31 properties, assets, books, contracts, commitments, directors, officers, employees, attorneys, accountants, auditors, other advisors and representatives and records and, during such period, the Company shall, and shall cause each of its Subsidiaries to, make available to Parent on a prompt basis (a) a copy of each report, schedule, form, statement and other document filed or received by it during such period pursuant to the requirements of domestic or foreign (whether national, federal, state, provincial, local or otherwise) laws and (b) all other information concerning its business, properties and personnel as Parent may reasonably request (including access to, but not copies of, the work papers of Ernst & Young LLP). SECTION 5.03. COMMERCIALLY REASONABLE EFFORTS; NOTIFICATION. (a) Upon the terms and subject to the conditions set forth in this Agreement, each of the parties agrees to use all commercially reasonable efforts to take, or cause to be taken, all actions that are necessary, proper or advisable to consummate and make effective the Offer, the Merger and the other transactions contemplated by this Agreement, including using all commercially reasonable efforts to accomplish the following: (i) the taking of all commercially reasonable acts necessary to cause the conditions to the Offer and the Merger to be satisfied, (ii) the obtaining of all necessary actions or nonactions, waivers, consents, approvals, orders and authorizations from Governmental Entities and the making of all necessary registrations, declarations and filings, including the making of all filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (the "HSR ACT") and the relevant foreign antitrust laws as promptly as reasonably practicable, and in any event, within five business days after the date hereof, and (iii) the obtaining of all necessary consents, approvals or waivers from third parties. In connection with and without limiting the foregoing, the Company and the Company Board shall, if any state takeover statute or similar statute or regulation is or becomes applicable to this Agreement, the Offer, the Merger or any of the other transactions contemplated hereby or thereby, use its commercially reasonable efforts to ensure that the Offer, the Merger and the other transactions contemplated by this Agreement may be consummated as promptly as practicable on the terms contemplated by this Agreement and otherwise to minimize the effect of such statute or regulation on this Agreement, the Offer, the Merger and the other transactions contemplated hereby or thereby. The Company and Parent shall keep the other apprised of the status of matters relating to the completion of the transactions contemplated hereby and work cooperatively in connection with obtaining any such waivers, consents, approvals, orders and authorizations, including, without limitation: (i) promptly notifying the other of, and if in writing, furnishing the other with copies of (or, in the case of material oral communications, advise the other orally of) any communications from or with any Governmental Entity with respect to the Offer, the Merger or any of the other transactions contemplated by this Agreement, (ii) permitting the other party to review and discuss in advance, and considering in good faith the views of one another in connection with, any proposed written (or material proposed oral) communication with any Governmental Entity, (iii) not participating in any meeting with any Governmental Entity unless it consults with the other party in advance and to the extent permitted by such Governmental Entity gives the other party the opportunity to attend and participate there at, (iv) furnishing the other party with copies of all correspondence, filings and communications (and memoranda setting forth the substance thereof) between it and any Governmental Entity with respect to this Agreement, the Offer and the Merger, and (v) furnishing the other party with such necessary information and reasonable assistance as such 32 other party may reasonably request in connection with its preparation of necessary filings or submissions of information to any Governmental Entity. The Company and Parent may, as each deems advisable and necessary, reasonably designate any competitively sensitive material provided to the other under this Section as "outside counsel only." Such materials and the information contained therein shall be given only to the outside legal counsel of the recipient and will not be disclosed by such outside counsel to employees, officers, or directors of the recipient unless express permission is obtained in advance from the source of the materials (the Company or Parent, as the case may be) or its legal counsel. (b) The Company shall give prompt notice to Parent, and Parent shall give prompt notice to the Company, of (i) any representation or warranty made by it contained in this Agreement that is qualified as to materiality becoming untrue or inaccurate in any respect or any such representation or warranty that is not so qualified becoming untrue or inaccurate in any material respect, (ii) the failure by it to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it under this Agreement, or (iii) any change or event having, or that is reasonably likely to have, a Material Adverse Effect on the notifying party or on the truth of their respective representations and warranties or the ability of the conditions contained in this Agreement to be satisfied; PROVIDED that no such notification shall affect the representations, warranties, covenants or agreements of the parties or the conditions to the obligations of the parties under this Agreement. SECTION 5.04. STOCK OPTIONS AND OTHER EQUITY BASED AWARDS. (a) STOCK OPTIONS. Prior to the Effective Time, the Company (acting, where appropriate, through the Company Board or a committee thereof) shall take all action as may be necessary, and shall use commercially reasonable efforts to obtain any necessary consents, so that each Stock Option outstanding immediately prior to the Effective Time is fully vested and canceled at the Effective Time in exchange for a right to receive a cash payment from the Company, payable as soon as practicable after such cancellation, equal to the product of (x) the excess, if any, of (A) the Merger Consideration over (B) the exercise price per share of Company Common Stock subject to such Stock Option, MULTIPLIED BY (y) the number of shares of Company Common Stock issuable pursuant to the unexercised portion of such Stock Option, less any tax withholding required by applicable law. Notwithstanding the foregoing, at the request of Parent, the Company (acting, where appropriate, through the Company Board or a committee thereof) shall take all action as may be necessary, and shall use commercially reasonable efforts to obtain any necessary consents, so that each Stock Option outstanding immediately prior to the first purchase of shares of Company Common Stock pursuant to the Offer is fully vested and canceled at such time in exchange for the right to receive such payment. (b) RESTRICTED STOCK. Prior to or as soon as practicable following the date of this Agreement, the Company (acting, where appropriate, through the Company Board or a committee thereof) shall take all action as may be necessary, and shall use commercially reasonable efforts to obtain any necessary consents, so that the Merger Consideration received in respect of each share of Restricted Stock pursuant to Section 2.01(c) shall be held in custody by the Company and distributed to the holder of such Restricted Stock only upon satisfaction of the performance criteria contained in the Restricted Stock Award Agreement related thereto. 33 (c) EARNOUT SHARES. Prior to or as soon as practicable following the date of this Agreement, the Company shall take any action (including the giving of notice to the Accredited Sellers (as such term is defined in the Macro Agreement)) as is required by the Macro Agreement and the Macro Side Letters so that, in accordance with the terms of the Macro Agreement and the Macro Side Letters, the right to receive a share of Company Common Stock under the Macro Agreement and the Macro Side Letters shall be converted into the right to receive the Merger Consideration when and if such shares of Company Common Stock become issuable to the Accredited Sellers pursuant to the terms of the Macro Agreement and the Macro Side Letters. (d) PHANTOM STOCK AWARDS. Prior to or as soon as practicable following the date of this Agreement, the Company (acting, where appropriate, through the Company Board or a committee thereof) shall take all action as may be necessary, and shall use commercially reasonable efforts to obtain any necessary consents, so that all phantom stock awards (including, for this purpose, any award payable in cash in an amount based in whole or in part on the value of a share of Company Common Stock) outstanding under any Stock Plan are cancelled as of the Effective Time. As soon as practicable after such cancellation, Parent shall cause a payment to be made with respect to each such award granted on March 2, 1998 under the 1997 Long-Term Incentive Plan and listed on Section 5.04(d) of the Company Disclosure Schedule (by name of holder and number of phantom shares) equal to the product of (i) the number of phantom shares so awarded, and (ii) $38.125, less any tax withholding required by applicable law. No cash payments shall be made directly or indirectly in respect of any award of phantom shares granted on March 2, 1999 or March 7, 2000. Immediately following the Effective Time, Parent shall cause payment to be made of the remaining, unpaid, portion of the award granted on March 3, 1997 under the Long-Term Incentive Plan and which would have been due and payable, absent this Agreement, in 2001. (e) EMPLOYEE STOCK PURCHASE PLAN. Prior to or as soon as practicable following the date of this Agreement and contingent on the closing of the transaction contemplated by this Agreement, the Company (acting, where appropriate, through the Company Board or a committee thereof) shall take all action as may be necessary, and shall use commercially reasonable efforts to obtain any necessary consents, to suspend or to terminate the Company's Employee Stock Purchase Plan so that, with regard to employee contributions withheld from pay after the date hereof, no additional shares of Company Common Stock may be purchased thereunder if those shares would be subject to direct or indirect purchase under this Agreement. (f) EMPLOYEE STOCK OWNERSHIP PLAN. Prior to the Effective Time and contingent on the closing of the transaction contemplated by this Agreement, the Company (acting, where appropriate, through the Company Board or a committee thereof) shall take all action as may be necessary so that the accounts of all employees under the Company's Employee Stock Ownership Plan are fully vested as of the Effective Time. (g) TERMINATION. Prior to the Effective Time, the Company Board (or, if appropriate, any committee administering the Stock Plans) shall take or cause to be taken such actions as are required (x) to cause the Stock Plans to terminate as of the Effective Time, (y) to 34 cause the provisions in any other Benefit Plan providing for the issuance, transfer or grant of any capital stock of the Company or any interest on or following the Effective Time in respect of any capital stock of the Company to be deleted as of the Effective Time, and (z) modify or cancel any award outstanding thereunder so that no shares of Company Common Stock are outstanding or are issuable under such award after the Effective Time. SECTION 5.05. INDEMNIFICATION, EXCULPATION AND INSURANCE. (a) The parties hereto agree that all rights to indemnification and exculpation from liabilities for acts or omissions occurring at or prior to the Effective Time now existing in favor of the current or former directors or officers of the Company and its Subsidiaries as provided in their respective articles of incorporation or by-laws (or similar organizational documents) shall be assumed by the Surviving Corporation in the Merger, without further action, at the Effective Time and shall survive the Merger and shall continue in full force and effect in accordance with their terms. (b) In the event that the Surviving Corporation or any of its successors or assigns (i) consolidates with or merges into any other person and is not the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers or conveys all or substantially all its properties and assets to any person, then, and in each such case, Parent shall cause proper provision to be made so that the successors and assigns of the Surviving Corporation assume the obligations set forth in this Section 5.05. (c) For not less than six years after the Effective Time, Parent shall maintain in effect the Company's current directors' and officers' liability insurance covering each person currently covered by the Company's directors' and officers' liability insurance policy for acts or omissions occurring prior to the Effective Time on terms with respect to coverage and amounts that are no less favorable in any material respect to such directors and officers than those of such policy as in effect on the date of this Agreement; PROVIDED, HOWEVER, that (i) Parent may substitute therefor policies of a reputable insurance company the material terms of which, including coverage and amount, are no less favorable in any material respect to such directors and officers than the insurance coverage otherwise required under this Section 5.05(c) and (ii) in no event shall Parent be required to pay aggregate premiums for insurance under this Section 5.05(c) in excess of 200% of the amount of the aggregate premiums paid by the Company in respect of such coverage for the calendar year 1999; PROVIDED FURTHER, HOWEVER, that Parent shall nevertheless be obligated to provide such coverage as may be obtained for such 200% amount. (d) The provisions of this Section 5.05 are intended to be for the benefit of, and will be enforceable by, each indemnified party, his or her heirs and his or her representatives. SECTION 5.06. FEES AND EXPENSES. (a) Except as provided in Section 5.06(b), all fees and expenses incurred in connection with this Agreement, the Offer, the Merger and the other transactions contemplated by this Agreement shall be paid by the party incurring such fees or expenses, whether or not the Merger is consummated. (b) In the event that: 35 (i) (A) a Takeover Proposal shall have been made (whether to the Company, any Subsidiary thereof, the Shareholders or otherwise) or become publicly known or any person shall have publicly proposed or publicly announced an intention (whether or not conditional and whether or not withdrawn) to make a Takeover Proposal, (B) thereafter this Agreement is terminated by either Parent or the Company pursuant to Section 7.01(b)(i) and (C) within 12 months after such termination, the Company or any Subsidiary of the Company enters into any Acquisition Agreement with respect to, or otherwise consummates the transaction contemplated by, any Takeover Proposal; or (ii) this Agreement is terminated by Parent pursuant to Section 7.01(c), 7.01(d)(i) or 7.01(g) or by the Company pursuant to Section 7.01(f); then, in each case, the Company shall pay Parent a fee equal to $98,000,000 (the "TERMINATION FEE") by wire transfer of same day funds to an account designated by Parent. In the event that such payment is being made as a result of any event referred to in Section 5.06(b)(i)(C) such payment shall be made not later than the date of such event and, in the event that such payment is being made as a result of any event referred to in Section 5.06(b)(ii), such payment shall be made no later than the date of such termination (and in the case of a termination by the Company, as the condition to such termination). For purposes of Section 5.06(b)(i),"Takeover Proposal" shall have the meaning assigned to such term in Section 4.02(b), except that references to "10%" in such definition shall in each case be deemed to be references to "50%". The parties acknowledge that the agreements contained in this Section 5.06(b) are an integral part of the transactions contemplated by this Agreement, and that, without these agreements, the parties would not enter into this Agreement; accordingly, if the Company fails promptly to pay any amount due pursuant to this Section 5.06(b) and, in order to obtain such payment, Parent commences a suit that results in a judgment against the Company for such amounts, the Company shall pay to Parent interest on such amount at the prime rate of Citibank, N.A. in effect on the date such payment was required to be made. SECTION 5.07. POST-CLOSING EMPLOYEE BENEFITS. (a) GENERALLY. Following the Closing Date, and allowing for such period of time thereafter as may be administratively advisable in order to effect the transition from the Benefit Plans, Parent shall provide, or cause to be provided, the employees of the Surviving Corporation and its Subsidiaries with employee benefits (other than bonuses and severance benefits to the extent covered by subsections (b) and (c) of this Section 5.07) that are no less favorable in the aggregate than those made available by Parent to its similarly situated employees, PROVIDED that after the Closing Date, Parent shall retain the right to amend or terminate any of such benefits to the extent permitted by applicable Law and consistent with this Agreement. To the extent that service is relevant for eligibility and vesting under any retirement plan or employee benefit plan, program or arrangement established or maintained for the benefit of the employees of the Surviving Corporation and its Subsidiaries, such plan, program or arrangement shall credit such employees for service on or prior to the Closing Date with the Company or any of its Subsidiaries, except where such credit would result in a duplication of benefits or unintended windfall or with respect to any benefit where, as to similarly situated employees of Parent, only future service is taken into account. 36 (b) SEVERANCE. With respect each employee of the Company who is listed in SECTION 5.07(b)(1) OF THE COMPANY DISCLOSURE SCHEDULE (the "LEVEL 1 EMPLOYEES"), Parent shall cause the Change in Control Agreement or Severance Agreement to which such employee is a party and is in effect at the Effective Date to be honored in accordance with its terms, PROVIDED, HOWEVER, that the reference, if any, to "two times" contained in the definition of "Applicable Incentive Amount" in any Change in Control Agreement shall be disregarded. With respect to each employee of the Company who is listed IN SECTION 5.07(b)(2) OF THE COMPANY DISCLOSURE SCHEDULE (the "LEVEL 2 EMPLOYEES"), Parent shall cause each such employee whose employment is terminated by Parent or its Affiliates (or by the employee if (and only if) on account of a reduction in the employee's base pay or annual target bonus percentage under the Company's Management Incentive Plan or a relocation of the employee's primary work site of more than 40 miles) within the one year period following the Closing Date to receive over a 15 month period such percentage of such employee's annual base pay as is equal to 125% plus 100% of such employee's annual target bonus percentage. With respect to each employee of the Company who is not a Level 1 Employee or a Level 2 Employee (the "LEVEL 3 EMPLOYEES"), Parent shall cause each such employee whose employment is terminated by Parent or its Affiliates within the one year period following the Closing Date to receive severance payments equal to those payable pursuant the Company's Severance Pay Plan as in effect on the date hereof (the "SEVERANCE PLAN") and shall not exercise any retained right to amend or to terminate the Severance Pay Plan and shall not exercise any right to issue a "severance pay award" under the Severance Pay Plan for the purpose of diminishing the entitlement to these payments. For up to 12 months following a termination of employment entitling a Level 2 or Level 3 Employee to severance payments, Parent shall subsidize such employee's COBRA continuation coverage in an amount that allows such employee to continue to participate in the Company's medical program on the same basis as similarly situated active employees. Notwithstanding the foregoing, no Level 2 or Level 3 Employee shall be entitled to severance benefits if (i) such employee's employment is terminated by Parent or its Affiliates for any reason set forth in Section 3.3 of the Severance Plan or by reason of death or disability or (ii) such employee fails to execute a release of claims in favor of Parent and its Affiliates in a form that is reasonably acceptable to Parent. (c) ANNUAL BONUS AWARDS. Parent shall cause the annual bonus opportunities with respect to the Company's fiscal year ending February 3, 2001 under the Company's Management Incentive Plan and 2000 Long-Term Incentive Program to remain in place, subject to such reasonable adjustments in the performance targets as Parent determines are necessary to reflect consummation of the transactions contemplated by this Agreement. SECTION 5.08. PUBLIC ANNOUNCEMENTS. Promptly after the date hereof, Parent and the Company will develop a joint communications plan and each party will ensure that all press releases and other public statements with respect to the transactions contemplated by this Agreement shall be consistent with such joint communications plan. Parent and the Company will consult with each other before issuing any press release or otherwise making any written public statement with respect to the transactions contemplated by this Agreement, and shall not issue any such press release or make any such written public statement prior to such consultation, except as either party may determine is required by applicable law or by obligations pursuant to any listing agreement with any securities exchange or national trading system. The parties agree 37 that the initial press release to be issued with respect to the transactions contemplated by this Agreement shall be in the form theretofore agreed to by the parties. ARTICLE VI CONDITIONS PRECEDENT SECTION 6.01. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The obligation of each party to effect the Merger is subject to the satisfaction or waiver on or prior to the Closing Date of the following conditions: (a) SHAREHOLDER APPROVAL. The Shareholder Approval shall have been obtained, if required by applicable law. (b) ANTITRUST. The waiting periods (and any extension thereof) applicable to the transactions contemplated hereby under the HSR Act and any applicable foreign antitrust and competition laws shall have been terminated or shall have expired, and any necessary consents or approvals with respect to such transactions under any applicable foreign antitrust and competition laws shall have been obtained. (c) NO INJUNCTIONS OR LEGAL RESTRAINTS. No temporary restraining order, preliminary or permanent injunction or other order or decree issued by any court of competent jurisdiction or other legal restraint or prohibition (collectively, "LEGAL RESTRAINTS") that has the effect of preventing the consummation of the Merger shall be in effect. (d) PURCHASE OF SHARES IN THE OFFER. Sub shall have previously accepted for payment and paid for the shares of Company Common Stock pursuant to the Offer. SECTION 6.02. CONDITIONS TO PARENT'S AND SUB'S OBLIGATIONS TO EFFECT THE MERGER. The obligation of Parent and Sub to effect the Merger will be subject to the fulfillment at or prior to the Closing Date (or such other date as may be specified below) of the additional condition that the Company shall have performed in all material respects its covenants contained in Section 1.03 of this Agreement required to be performed on or prior to the Closing Date. ARTICLE VII TERMINATION, AMENDMENT AND WAIVER SECTION 7.01. TERMINATION. This Agreement may be terminated, and the Offer and the Merger contemplated hereby may be abandoned, at any time prior to the Effective Time whether before or after the Shareholder Approval has been obtained: (a) by mutual written consent of Parent and the Company; (b) by either Parent or the Company: 38 (i) if Sub shall not have accepted for payment any shares of Company Common Stock pursuant to the Offer prior to December 31, 2000; PROVIDED that the right to terminate this Agreement pursuant to this Section 7.01(b)(i) shall not be available to any party whose breach of this Agreement has been a principal reason the Offer has not been consummated by such date; (ii) if any Governmental Entity shall have issued an order, injunction or other decree or ruling or taken any other action (a "RESTRAINT") permanently enjoining, restraining or otherwise prohibiting the acceptance for payment of, or payment for the Company Common Stock pursuant to the Offer or the Merger and such order, injunction, decree or ruling or other action shall have become final and nonappealable; (c) by Parent, if the Company Board shall have failed to confirm the Recommendation to the Shareholders that they accept the Offer and give the Shareholder Approval within four business days after a written request by Parent that it do so if such request is made following the making of a Takeover Proposal; (d) by Parent (i) if the Company shall have breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in this Agreement, which breach, individually or in the aggregate with other such breaches, would give rise to the failure of a condition set forth in paragraph (d) or (e) of Exhibit A and has not been or is incapable of being cured by the Company within 20 business days after its receipt of written notice thereof from Parent, or (ii) if any suit, action or proceeding described in paragraph (a) of Exhibit A shall have prevailed and become final and nonappealable; (e) by the Company, if any of Parent or Sub shall have breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in this Agreement except for such failures to be true and correct that, individually or in the aggregate, would not reasonably be expected to have a material adverse effect on Parent's or Sub's ability to consummate the transactions contemplated hereby, which breach or failure to perform has not been or is incapable of being cured by Parent within 20 business days after its receipt of written notice thereof from the Company; (f) by the Company, in accordance with Section 4.02(b), subject to compliance by the Company with the notice provisions therein and the Termination Fee provisions of Section 5.06; or (g) by Parent, if there is any material breach of the obligations set forth in Section 4.02 or (i) if the Company Board (A) withdraws or modifies in any manner adverse to Parent or Sub the Recommendation, (B) accepts, approves or recommends any Takeover Proposal or (C) resolves or publicly discloses any intention to do any of the foregoing or (ii) the Committee (A) withdraws or modifies in any manner adverse to Parent or Sub the Committee Approval, (B) approves a Takeover Proposal or (C) resolves or publicly discloses any intention to do any of the foregoing. 39 (h) EFFECT OF TERMINATION. In the event of termination of this Agreement by either the Company or Parent as provided in Section 7.01, this Agreement shall forthwith become void and have no effect, without any liability or obligation on the part of Parent, Sub or the Company, other than the provisions of Section 5.06, this Section 7.01 and Article VIII; PROVIDED, HOWEVER, that no such termination shall relieve any party hereto from any liability or damages resulting from a breach by such party of any of its representations, warranties or covenants set forth in this Agreement, except that payment of the Termination Fee shall be liquidated damages and shall discharge any liability of the Company relating to this Agreement other than in the case of a willful breach of any representation, warranty or covenant set forth in this Agreement. SECTION 7.02. AMENDMENT. This Agreement may be amended by the parties hereto at any time, whether before or after the Shareholder Approval has been obtained; PROVIDED that, after the purchase of shares of Company Common Stock pursuant to the Offer, no amendment shall be made which decreases the Merger Consideration and, after the Shareholder Approval has been obtained, there shall be made no amendment that by law requires further approval by the Shareholders or shareholders of the parties without the further approval of such Shareholders or shareholders. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. Following the election or appointment of Sub's designees pursuant to Section 1.03 and prior to the Effective Time, the affirmative vote of a majority of the Independent Directors then in office shall be required by the Company to (i) amend or terminate this Agreement by the Company, (ii) exercise or waive any of the Company's rights or remedies under this Agreement or (iii) extend the time for performance of Parent and Sub's respective obligations under this Agreement. SECTION 7.03. EXTENSION; WAIVER. At any time prior to the Effective Time, the parties may (a) extend the time for the performance of any of the obligations or other acts of the other parties, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto or (c) waive compliance with any of the agreements or conditions contained herein; PROVIDED that after the Shareholder Approval has been obtained, there shall be made no waiver that by law requires further approval by Shareholders or shareholders of the parties without the further approval of such Shareholders or shareholders. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. The failure or delay by any party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights nor shall any single or partial exercise by any party to this Agreement of any of its rights under this Agreement preclude any other or further exercise of such rights or any other rights under this Agreement. ARTICLE VIII GENERAL PROVISIONS SECTION 8.01. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the representations and warranties in this Agreement shall survive the Effective Time. This Section 40 8.01 shall not limit any covenant or agreement of the parties which by its terms contemplates performance after the Effective Time. SECTION 8.02. NOTICES. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed given if delivered personally or sent by overnight courier (providing proof of delivery) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): If to Parent or Sub: Pearson plc 3 Burlington Garden London W1X 1LE England Attention: General Counsel Telecopier: 44-207-411-2390 and Pearson Education, Inc. One Lake Street Upper Saddle River, New Jersey 07458 Attention: General Counsel Telecopier: 201-236-4675 with a copy to: Morgan, Lewis & Bockius LLP 101 Park Avenue New York, New York 10178 Attention: Charles E. Engros, Jr. Telecopier: 212-309-6273 If to the Company: National Computer Systems, Inc. 11000 Prairie Lakes Drive Eden Prairie, Minnesota 55344 Attention: General Counsel Telecopier: 612-829-3066 with a copy to: Dorsey & Whitney LLP Pillbury Center South 220 South Sixth Street Minneapolis, Minnesota 55402 41 Attention: Michael Trucano and Jay L. Swanson Telecopier: 612-340-2868 SECTION 8.03. DEFINITIONS. (a) For purposes of this Agreement: (i) an "AFFILIATE" of any person means another person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first person; (ii) "COMPANY DISCLOSURE SCHEDULE" means the Disclosure Schedule of the Company attached to this Agreement as Schedule I. (iii) "ENVIRONMENTAL CLAIMS" means any and all administrative, regulatory or judicial actions, orders, decrees, suits, demands, demand letters, directives, claims, liens, investigations, proceedings or notices of noncompliance or violation by any Governmental Entity or other person alleging potential responsibility or liability (including potential responsibility or liability for costs of enforcement, investigation, cleanup, governmental response, removal or remediation, for natural resources damages, property damage, personal injuries or penalties or for contribution, indemnification, cost recovery, compensation or injunctive relief) arising out of, based on or related to (A) the presence, Release or threatened Release of, or exposure to, any Hazardous Materials at any location or (B) circumstances forming the basis of any violation or alleged violation of any Environmental Law or Environmental Permit. (iv) "ENVIRONMENTAL CLEAN-UP SITE" means any location which is listed or proposed for listing on the National Priorities List, the Comprehensive Environmental Response, Compensation and Liability Information System, or on any similar state list of sites requiring investigation or cleanup, or which is the subject of any pending or threatened action, suit, proceeding, or investigation related to or arising from any alleged violation of any Environmental Law. (v) "ENVIRONMENTAL LAWS" means all applicable laws, rules, regulations, orders, decrees, common law, judgments or binding agreements issued, promulgated or entered into by or with any Governmental Entity relating to pollution or protection of the environment (including ambient air, surface water, groundwater, soils or subsurface strata) or protection of human health as it relates to Hazardous Materials, including laws and regulations relating to Releases or threatened Releases of Hazardous Materials or otherwise relating to the generation, manufacture, processing, distribution, use, treatment, storage, transport, handling of or exposure to Hazardous Materials. (vi) "ENVIRONMENTAL PERMITS" means all permits, licenses, registrations and other authorizations required under applicable Environmental Laws. (vii) "HAZARDOUS MATERIALS" means all hazardous, toxic, explosive or radioactive substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing material, polychlorinated biphenyls ("PCBS") or PCB- 42 containing materials or equipment, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. (viii) "KNOWLEDGE OF THE COMPANY", "the Company's knowledge" or any similar phrase mean the actual knowledge, after due inquiry, of the executive officers of the Company and the persons set forth on SECTION 8.04(a)(viii) OF THE COMPANY DISCLOSURE SCHEDULE, and shall not refer to the knowledge of any other Person. (ix) "MACRO AGREEMENT" means the Purchase and Sale Agreement dated January 21, 1997 between the Company and Robert E. Weathers, Dom Roguly, Raymond Funderburk, Gary Goff, Tom McGrew, The Berkus Trust dated September 17, 1993 and the Robert and Nonna Weathers, Charitable Remainder Unitrust dated January 13, 1997. (x) "MACRO SIDE LETTERS" mean the letters between the Company and the Accredited Sellers dated January 5, 2000 regarding the Contingent Debentures. (xi) "MATERIAL ADVERSE EFFECT" means any state of facts, change, development, effect, event, condition or occurrence that is materially adverse to the business, financial condition, results of operations of the Company and its Subsidiaries, taken as a whole; PROVIDED, HOWEVER, that none of the following shall be deemed to constitute, and none of the following shall be taken into account in determining whether there has been or will be, a Material Adverse Effect: any state of facts, change, development, effect, event, condition or occurrence (i) to the extent attributable to the announcement of the Offer and the other transactions contemplated hereby or, (ii) attributable to conditions generally affecting the information services industry, the United States economy as a whole or foreign economies in any locations where the Company or any of its Subsidiaries has material operations or sales. (xii) "PARENT DISCLOSURE SCHEDULE" means the Disclosure Schedule of Parent attached to this Agreement as Schedule II. (xiii) "PERSON" or "PERSON" means an individual, corporation, partnership, joint venture, association, trust, limited liability company, Governmental Entity, unincorporated organization or other entity; (xiv) "RELEASE" means, with respect to any Hazardous Material, any release, spill, emission, leaking, dumping, injection, pouring, deposit, disposal, discharge, dispersal, leaching or migration of such Hazardous Materials into or through the environment (including ambient air, surface water, groundwater, land surface or subsurface strata) or within any building, structure, facility or fixture. (xv) a "SUBSIDIARY" of any person means any other person as to which (i) an amount of the voting securities, other voting ownership or voting partnership interests of such other person sufficient to elect at least a majority of its Board of Directors or other governing body or 50% or more of the equity interests in such other person is or are owned by such first person and its other Subsidiaries taken as a whole. 43 (b) The following terms have the meanings defined for such terms in the Sections set forth below.
TERM SECTION Acquisition Preamble Acquisition Agreement 4.02(b) Actions 4.01(b) Affiliated Group 3.01(m)(x) Articles of Merger 1.06 Benefit Plans 3.01(l) Certificate 2.01(c) Closing 1.05 Closing Date 1.05 Code 2.03(f) Committee 1.02(a) Committee Approval 1.02(a) Company Preamble Company Affiliated Group 3.01(m)(x) Company Board Preamble Company Common Stock Preamble Company Licensed Intellectual Property 3.01(n)(i) Company Owned Intellectual Property 3.01(n)(ii) Confidentiality Agreement 4.02(a) Contract 3.01(d) Dissenting Shares 2.02(a) Effective Time 1.06 ERISA 3.01(l) Exchange Act 1.01(a) Form 10-K 3.01(h) GAAP 3.01(d) Governmental Entity 3.01(d) HSR Act 5.03(a) Independent Directors 1.03 Intellectual Property 3.01(n)(i) Law 3.01(d) Legal Restraints 6.01(d) Level 1 Employees 5.07(b) Level 2 Employees 5.07(b) Level 3 Employees 5.07(b) Likely Superior Proposal 4.02(a) Material Contracts 3.01(h) MBCA Preamble Merger Preamble Merger Consideration Preamble 44 Minimum Tender Condition Exhibit A Offer Preamble Offer Documents 1.01(b) Parent Preamble Paying Agent 2.03(a) Permits 3.01(i) Post-Signing Returns 4.01(b) Proxy Statement 5.01(a) Recommendation 1.02(a) Restraint 7.01(b)(ii) Restricted Stock 3.01(c) Rights Preamble Rights Agreement Preamble Schedule TO 1.01(b) Schedule 14D-9 1.02(b) SEC 1.01(a) SEC Documents 3.01(e) Securities Act 3.01(e) Severance Plan 5.07(b) Shareholder Approval 3.01(d) Shareholders Preamble Shareholders Meeting 5.01(b) Software 3.01(n)(i) Specified Date 4.02(a) Stock Options 3.01(c) Stock Plans 3.01(c) Sub Preamble Sub Common Stock 2.01(a) Superior Proposal 4.02(a) Surviving Corporation 1.04(a) Surviving Corporation Common Stock 2.01(a) Takeover Proposal 4.02(a) Taxes 3.01(m)(x) Termination Fee 5.06(b) Third Party Software 3.01(n)(i) Year 2000 Problem 3.01(n)(vii)
SECTION 8.04. INTERPRETATION. When a reference is made in this Agreement to a Section, Schedule or subsection, such reference shall be to a Section or subsection of, or a Schedule to, this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words 45 "without limitation". The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The term "or" is not exclusive. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms. Any agreement or instrument defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement or instrument as from time to time amended, modified or supplemented. References to a person are also to its permitted successors and assigns. SECTION 8.05. COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. SECTION 8.06. ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This Agreement (a) constitutes the entire agreement, and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter of this Agreement, other than the Confidentiality Agreement and (b) is not intended to confer upon any person other than the parties hereto (and their respective successors and assigns) any rights or remedies hereunder, except for the provisions of Sections 5.04, 5.05 and 5.07, which are intended for the benefit of the persons referred to therein. SECTION 8.07. GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Minnesota, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. SECTION 8.08. ASSIGNMENT. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned, in whole or in part, except by operation of law, by any of the parties hereto without the prior written consent of the other parties hereto, except that Sub may assign, in its sole discretion, any of or all its rights, interests and obligations under this Agreement to Parent or to any direct or indirect wholly-owned Subsidiary of Parent, but no such assignment shall relieve Sub of any of its obligations hereunder. Subject to the preceding sentence, this Agreement shall be binding upon, inure to the benefit of and be enforceable by, the parties hereto and their respective successors and assigns. SECTION 8.09. ENFORCEMENT. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in any court of the United States located in the State of Minnesota or in any Minnesota state court, this being in addition to any other remedy to which they are entitled at law or in equity. In addition, each of the parties hereto (a) consents to submit itself to the personal jurisdiction of any court of the United States located in the State of Minnesota or of any Minnesota state court in the event any dispute arises out of this Agreement or the transactions contemplated by this Agreement, (b) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court and (c) agrees that it will not bring any action relating to this Agreement or the 46 transactions contemplated by this Agreement in any court other than a court of the United States located in the State of Minnesota or a Minnesota state court. SECTION 8.10. SEVERABILITY. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible to the fullest extent permitted by applicable law in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible. [Signature page follows.] 47 IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement to be signed by their respective officers thereunto duly authorized, all as of the date first written above. PEARSON PLC By: /s/ Marjorie Scardino --------------------- Name: Marjorie Scardino Title: Chief Executive PN ACQUISITION SUBSIDIARY INC. By: /s/ John Makinson ----------------- Name: John Makinson Title: President NATIONAL COMPUTER SYSTEMS, INC. By: /s/ Russell A. Gullotti ----------------------- Name: Russell A. Gullotti Title: Chairman, President and Chief Executive Officer SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER EXHIBIT A CONDITIONS OF THE OFFER Notwithstanding any other term of the Offer or this Agreement, Sub shall not be required to accept for payment or, subject to any applicable rules and regulations of the SEC, including Rule 14e-l(c) under the Exchange Act (relating to Sub's obligation to pay for or return tendered shares of Company Common Stock promptly after the termination or withdrawal of the Offer), to pay for any shares of Company Common Stock tendered pursuant to the Offer and may postpone the acceptance for payment or payment for any shares of Company Common Stock tendered, and, when permited by the Agreement, amend or terminate the Offer if (i) there shall not have been validly tendered and not withdrawn prior to the expiration of the Offer that number of shares of Company Common Stock which would represent at least a majority of the outstanding Company Common Stock (determined on a fully diluted basis for all outstanding stock options, convertible debentures and any other rights to acquire Company Common Stock on the date of purchase) (the "MINIMUM TENDER CONDITION"), and (ii) any requisite waiting period under the HSR Act (and any extension thereof) applicable to the purchase of shares of Company Common Stock pursuant to the Offer or to the Merger and any other requisite waiting periods under any other applicable material competition, merger, control, antitrust or similar law or regulation shall not have been terminated or shall not have expired. Furthermore, notwithstanding any other term of the Offer or this Agreement, Sub shall not be required to accept for payment or, subject as aforesaid, to pay for any shares of Company Common Stock not theretofore accepted for payment or paid for, and, subject to this Agreement, may terminate or amend the Offer, immediately prior to the applicable expiration of the Offer, if any of the following conditions exists: (a) there shall be pending or formally threatened in writing any suit, action or proceeding by any Governmental Entity having a reasonable likelihood of success on the merits (i) challenging the acquisition by Parent or Sub of any shares of Company Common Stock, seeking to restrain or prohibit consummation of the Offer or the Merger, or seeking to place limitations on the ownership of shares of Company Common Stock (or shares of common stock of the Surviving Corporation) by Parent or Sub, (ii) seeking to prohibit or limit the ownership or operation by the Company or Parent and their respective Subsidiaries of any material portion of the business or assets of the Company or Parent and their respective Subsidiaries taken as a whole, or to compel the Company or Parent and their respective Subsidiaries to dispose of or hold separate any material portion of the business or assets of the Company or Parent and their respective Subsidiaries taken as a whole, as a result of the Offer, the Merger or any of the other transactions contemplated by this Agreement, (iii) seeking to prohibit Parent or any of its subsidiaries from effectively controlling in any material respect the business or operations of the Company or Parent and Subsidiaries taken as a whole, or (iv) which otherwise is reasonably expected to have a Material Adverse Effect; (b) any Legal Restraint that has the effect of preventing the purchase of shares of Company Common Stock pursuant to the Offer or the Merger shall be in effect; (c) except as set forth in the Company Disclosure Schedule or in the SEC Documents, since April 29, 2000, there shall have been any state of facts, change, development, effect, event, condition or occurrence that, individually or in the aggregate, constitutes or would reasonably be expected to have, a Material Adverse Effect; (d) as of the date of the consummation of the Offer, the representation and warranty of the Company contained in Section 3.01(c) of this Agreement shall not be true and correct in all material respects, or the other representations and warranties of the Company contained in this Agreement shall not be true and correct (without giving effect to any limitation as to "materiality" or Material Adverse Effect set forth therein), as if such representations and warranties were made on the date thereof except for such failures to be true and correct that, individually and in the aggregate, would not reasonably be expected to have a Material Adverse Effect; (e) the Company shall have failed to perform in any material respect any material obligation required to be performed by it under this Agreement at or prior to the Specified Date; (f) Parent shall not have obtained all consents, approvals, authorizations, qualifications and orders of all Governmental Entities legally required in connection with this Agreement and the transactions contemplated by this Agreement, other than any such consents, approvals, authorizations, qualifications and orders, the failure of which to obtain, individually and in the aggregate, would not reasonably be expected to have a Material Adverse Effect; (g) this Agreement shall have been terminated in accordance with its terms; (h) (i) the Company Board shall have (A) withdrawn or modified or changed, in any manner adverse to Parent or Sub, the Recommendation, (B) accepted, approved or recommended any Takeover Proposal, or (C) resolved or publicly disclosed any intention to do any of the foregoing or (ii) the Committee shall have (A) withdrawn or modified in any manner adverse to Parent or Sub, the Committee Approval, (B) approved a Takeover Proposal or (C) resolved or publicly disclosed any intention to do any of the foregoing; or (i) there shall have occurred (i) any general suspension of trading in or on the NASDAQ National Market or the London Stock Exchange in excess of 24 hours (other than a shortening of trading hours or any coordinated trading halt triggered solely as a result of a specified increase or decrease in a market index or a trading halt resulting from physical damage or interference with such market or exchange not related to market conditions), (ii) a decline of at least 25% in all of the Dow Jones Average of Industrial Stocks, the Standard & Poor's 500 Index and the Financial Times-Stock Exchange All Shares Index measured from the date hereof to the date on which the Offer has expired, (iii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States or the United Kingdom, (iv) the imposition of any limitation (whether or not mandatory) by any government or Governmental Entity that materially adversely affects the extension of credit by banks or other lending institutions or (v) a commencement of a war or armed hostilities or any other national or international calamity directly or indirectly involving the United States or the United Kingdom; which, in the sole discretion of Sub or Parent, in any such case, and regardless of the circumstances giving rise to any such condition (including any action or inaction by Parent or any of its Affiliates), makes it inadvisable to proceed with such acceptance for payment or payment. The foregoing conditions are for the sole benefit of Sub and Parent and may be asserted by Sub or Parent regardless of the circumstances giving rise to such condition or may be waived by Sub and Parent in whole or in part at any time and from time to time in their sole discretion. The failure by Parent, Sub or any other Affiliate of Parent at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right; the waiver of any such right with respect to particular facts and circumstances shall not be deemed a waiver with respect to any other facts and circumstances and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time. The terms in this Exhibit A that are defined in the attached merger agreement have the meanings set forth therein. EX-99.(D)(2) 13 ex-99_d2.txt EXHIBIT (D)(2) Exhibit (d)(2) AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER Amendment No. 1 to Agreement and Plan of Merger, dated as of August 4, 2000 (this "AMENDMENT"), to the Agreement and Plan of Merger, dated as of July 30, 2000 (the "MERGER AGREEMENT") among Pearson plc, a public limited company registered in England and Wales, PN Acquisition Subsidiary Inc., a Minnesota corporation and National Computer Systems, Inc., a Minnesota corporation. WHEREAS, the parties desire to amend the Merger Agreement in certain respects. NOW, THEREFORE, the parties hereto hereby agree as follows: SECTION 1. AMENDMENTS TO MERGER AGREEMENT. (a) The third sentence of Section 1.01(a) of the Merger Agreement is hereby deleted in its entirety and replaced with: "The initial expiration date of the Offer shall be the 23rd business day following the date on which the Offer is commenced." (b) Clause (C) of Section 1.01(a) of the Merger Agreement shall be deleted in its entirety and replaced with: "(C) extend the Offer for an aggregate period of not more than 17 business days beyond the initial expiration date of the Offer to the extent required by Parent to enable Parent and Sub to complete the financing of the purchase of shares of Company Common Stock tendered pursuant to the Offer or" SECTION 2. MISCELLANEOUS. Except as and to the extent expressly modified by this Amendment, the Merger Agreement (including all exhibits thereto) shall remain in full force and effect in all respects. This Amendment shall be governed by, and construed in accordance with, the laws of the State of Minnesota. This Amendment 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 taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment. [SIGNATURE PAGE FOLLOWS.] IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first written above by their respective officers thereunto duly authorized. PEARSON PLC By: /s/ Marjorie Scardino --------------------- Name: Marjorie Scardino Title: Chief Executive PN ACQUISITION SUBSIDIARY INC. By: /s/ Robert Dancy ---------------- Name: Robert Dancy Title: Vice President NATIONAL COMPUTER SYSTEMS, INC. By: /s/ Russell A. Gullotti ----------------------- Name: Russell A. Gullotti Title: Chairman, President and Chief Executive Officer Signature page to Amendment No. 1 to Agreement and Plan of Merger EX-99.(D)(3) 14 ex-99_d3.txt EXHIBIT (D)(3) EXHIBIT (d)(3) June 14, 2000 Pearson Education, Inc. One Lake Street Upper Saddle River, NJ 07458 Attention: Robert L. Dancy Senior Vice President, General Counsel Pearson Education, Inc. Ladies and Gentlemen: In connection with your consideration of a possible acquisition by you of all or part of, or investment in, National Computer Systems Inc. (the "Company") by way of merger, a sale of assets or stock, or otherwise (a "Transaction"), you have requested information concerning the Company. Salomon Smith Barney Inc. ("SSB") is acting as adviser to the Company. As a condition to your being furnished with such information, including any confidential materials prepared by the Company, you agree to treat any information concerning the Company, its affiliates and subsidiaries that is furnished to you by or on behalf of the Company, whether furnished before or after the date of this letter, together with analyses, compilations, studies or other documents prepared by you or any of your directors, officers, employees, agents or advisers (including, without limitation, your parent corporations and your and their attorneys, accountants, consultants, bankers, financial advisers and any representatives of your advisers) (collectively, "Representatives") that contain or otherwise reflect such information (herein collectively referred to as the "Evaluation Material"), in accordance with the provisions of this agreement. The term "Evaluation Material" does not include information that (a) was or becomes generally available to the public other than as a result of a disclosure by you or your Representatives, (b) was or becomes available to you on a non-confidential basis from a source other than the Company or its advisors, provided that such source was not known by you to be bound by any agreement with the Company to keep such information confidential, or otherwise prohibited from transmitting the information to you by a contractual, legal or fiduciary obligation, (c) is furnished by the Company to others with written permission to disclose, or (d) is independently developed by you without reference to the Evaluation Material. You hereby agree that the Evaluation Material will be used solely for the purpose of evaluating a possible Transaction between the Company and you, and that such Pearson Education, Inc. June 14, 2000 Page 2 information will be kept confidential by you and your Representatives, except to the extent that disclosure of such information (a) has been consented to in writing by the Company, (b) is required by law, regulation, supervisory authority or other applicable judicial or governmental order or (c) is made to your Representatives who need to know such information for the purpose of evaluating any such possible Transaction between the Company and you (it being understood that such Representatives shall have been advised of this agreement and shall have agreed to be bound by the provisions hereof). In any event, you shall be responsible for any breach of this agreement by any of your Representatives and you agree, at your sole expense, to take all reasonable measures (including but not limited to court proceedings) to restrain your Representatives from prohibited or unauthorized disclosure or use of the Evaluation Material. You further agree that the Evaluation Material that is in written form shall not be copied or reproduced at any time without the prior written consent of the Company except as required for your and your Representatives' use for the purpose of evaluating a possible Transaction. In addition, without the prior written consent of the Company, you will not, and will direct your Representatives not to, disclose to any person (a) that the Evaluation Material has been made available to you or your Representatives, (b) that discussions or negotiations are taking place concerning a possible Transaction between the Company and you or (c) any terms, conditions or other facts with respect to any such possible Transaction, including the status thereof. Without your prior written consent, the Company will not, and will direct its representatives not to, disclose to any person (a) that the Evaluation Material has been made available to you or your Representatives, (b) that discussions or negotiations are taking place concerning a possible Transaction between the Company and you or (c) any terms, conditions or other facts with respect to any such possible Transaction, including the status thereof. In the event that you are requested or required by law, regulation, supervisory authority or other applicable judicial or governmental order to disclose any Evaluation Material, you will provide the Company with prompt written notice of such request or requirement so that the Company may seek an appropriate protective order. If, failing the entry of a protective order, you are, in the opinion of your counsel, compelled to disclose Evaluation Material, you may disclose that portion of the Evaluation Material that the Company's counsel advises that you are compelled to disclose and will exercise reasonable efforts to obtain assurance that confidential treatment will be accorded to that portion of the Evaluation Material that is being disclosed. In any event, you will not oppose action by the Company to obtain an appropriate protective order or other reliable assurance that confidential treatment will be accorded the Evaluation Material. Until the earliest of (a) the execution by you of a definitive agreement regarding a Transaction with the Company, (b) an acquisition of the Company by a third party, or (c) twenty four months from the date of this agreement, you agree not to initiate or Pearson Education, Inc. June 14, 2000 Page 3 maintain contact (except for those contacts made in the ordinary course of business) with any officer, director or employee of the Company regarding the Company's business, operation, prospects or finances, except with the express permission of the Company. It is understood that SSB will arrange for appropriate contacts for due diligence purposes. All (i) communications regarding this Transaction, (ii) requests for additional information, (iii) requests for facility tours or management meetings, and (iv) discussions or questions regarding procedures, will be submitted or directed to SSB. You agree not to solicit for employment with Pearson Education or its subsidiaries, any of the current employees of the Company that are substantially involved in the Transaction and to whom you had been directly or indirectly introduced or otherwise had contact with as a result of your consideration of a Transaction so long as they are employed by the Company, during the period in which there are discussions conducted pursuant hereto and for a period of fifteen months thereafter, without the prior written consent of the Company. The Company agrees not to solicit for employment any of your current employees that are substantially involved in the Transaction and to whom the Company had been directly or indirectly introduced or otherwise had contact with as a result of your consideration of a Transaction so long as they are employed by any such subsidiary, during the period in which there are discussions conducted pursuant hereto and for a period of fifteen months thereafter, without your prior written consent. The provisions of this paragraph shall not apply to general advertisements or searches by executive recruiters not solely directed at the other party's employees. In consideration of the Evaluation Material being furnished to you, you hereby further agree that, without the prior written consent of the Company, for a period of fifteen months from the date hereof, neither you nor any of your affiliates (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended), acting alone or as part of a group, will (1) acquire or offer or agree to acquire, directly or indirectly, by purchase or otherwise, any voting securities or securities convertible into voting securities of the Company, (2) propose to enter into, directly or indirectly, any merger or business combination involving the Company or any of its subsidiaries, (3) otherwise seek to influence or control, in any manner whatsoever (including proxy solicitation or otherwise), the management or policies of the Company or (4) assist, advise or encourage (including by knowingly providing or arranging financing for that purpose) any other person in doing any of the foregoing. The foregoing provisions of this paragraph shall be of no further force or effect in the event that (i) the Company enters into an agreement to engage in a merger or consolidation transaction involving the Company or a transaction related to the sale of all or substantially all of the Company's assets or more than fifty percent of the Company's outstanding securities or aggregate voting interests or (ii) a third party makes a tender offer, exchange offer or any other public offer or announcement of an intention to acquire control of the Company. Pearson Education, Inc. June 14, 2000 Page 4 You hereby acknowledge that you are aware and that you will advise your Representatives that the federal and state securities laws prohibit any person who has material, non-public information about a company from purchasing or selling securities of such a company or from communicating such information to any other person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell such securities. All Evaluation Material disclosed by the Company shall be and shall remain the property of the Company. Within five days after being so requested by the Company, you shall return or destroy all documents thereof furnished to you by the Company. Except to the extent a party is advised in writing by counsel such destruction is prohibited by law, you will also destroy all written material, memoranda, notes, copies, excerpts and other writings or recordings whatsoever prepared by you or your Representatives based upon, containing or otherwise reflecting any Evaluation Material. Notwithstanding the foregoing provisions of this paragraph, you shall not be required to destroy analyses, compilations, studies, reports or other documents maintained for your senior management records or those of your parent corporations, nor the portions of the Evaluation Material contained therein. Any destruction of materials shall be confirmed by you in writing. Any Evaluation Material that is not returned or destroyed, including without limitation any oral Evaluation Material, shall remain subject to the confidentiality obligations set forth in this agreement. You understand and acknowledge that any and all information contained in the Evaluation Material is being provided without any representation or warranty, express or implied, as to the accuracy or completeness of the Evaluation Material, on the part of the Company or SSB. You agree that none of the Company, SSB or any of their respective affiliates or representatives shall have any liability to you or any of your Representatives based upon the inaccuracy or incompleteness of the Evaluation Material. It is understood that the scope of any representations and warranties to be given by the Company will be negotiated along with other terms and conditions in arriving at a mutually acceptable form of definitive agreement should discussions between you and the Company progress to such a point. Each party agrees that unless and until a definitive agreement regarding a Transaction between the Company and you has been executed, neither the Company nor you will be under any legal obligation of any kind whatsoever with respect to such a Transaction by virtue of this agreement except for the matters specifically agreed to herein. Each party further acknowledges and agrees that the other party reserves the right, in its sole discretion, to reject any and all proposals made by the other party with regard to a Transaction between the Company and you, and to terminate discussions and negotiations at any time. You understand that (a) the Company shall be free to conduct any process with respect to a possible Transaction as the Company in its sole discretion shall determine Pearson Education, Inc. June 14, 2000 Page 5 (including, without limitation, by negotiating with any prospective party and entering into a definitive written agreement without prior notice to you or any other person), (b) any procedures relating to such Transaction may be changed at any time without notice to you or any other person and (c) you shall not have any claim whatsoever against the Company or SSB or any of their respective directors, officers, stockholders, owners, affiliates, agents or representatives, arising out of or relating to any possible or actual Transaction (other than those as against parties to a definitive written agreement with you in accordance with the terms thereof). Each party recognizes that the other (including certain of its corporate affiliates) may be engaged in the research, development, production, marketing, licensing and/or sale of similar services or products to those being considered under this agreement. Such services or products may be competitive with those of the other and may display the same or similar functionality. Nothing in this agreement shall be construed to prevent either party from engaging independently in such activities, provided it does not utilize the other party's confidential information in order to do so. The parties acknowledge that detailed information on products and services in development will not be shared with the other party under this agreement unless otherwise specifically agreed by the parties. It is understood and agreed that money damages would not be a sufficient remedy for any breach of this agreement and that the Company shall be entitled to specific performance and injunctive or other equitable relief as a remedy for any such breach and you further agree to waive any requirement for the security or posting of any bond in connection with such remedy. Such remedy shall not be deemed to be the exclusive remedy for breach of this agreement but shall be in addition to all other remedies available at law or equity to the Company. In the event of litigation relating to this agreement, if a court of competent jurisdiction determines in a final, non-appealable order that a party has breached this agreement, then such party shall be liable and pay to the non-breaching party the reasonable legal fees such non-breaching party has incurred in connection with such litigation, including any appeal therefrom. This agreement is for the benefit of the Company, SSB and you and is governed by the laws of the State of New York without regard to conflict of laws principles. Any action brought in connection with this agreement shall be brought in the federal or state courts located in the City of New York, and the parties hereto hereby irrevocably consent to the jurisdiction of such courts. Your obligations under this agreement shall terminate two (2) years after the date hereof, except as otherwise explicitly stated above. This agreement may not be amended except in writing signed by both parties hereto. No failure or delay by the Company in exercising any right hereunder or any partial Pearson Education, Inc. June 14, 2000 Page 6 exercise thereof shall operate as a waiver thereof or preclude any other or further exercise of any right hereunder. The invalidity or unenforceability of any provision of this agreement shall not affect the validity or enforceability of any other provisions of this agreement, which shall remain in full force and effect. This agreement may be executed in counterparts. Please confirm that the foregoing is in accordance with your understanding of our agreement by signing and returning to us a copy of this letter. Very truly yours, SALOMON SMITH BARNEY INC. on behalf of NATIONAL COMPUTER SYSTEMS, INC. By: /s/ Joseph Gallo ------------------------------ Joseph Gallo Managing Director Accepted and agreed to as of the date set forth above: PEARSON EDUCATION, INC. By: /s/ Robert L. Dancy --------------------------- Robert L. Dancy Senior Vice President, General Counsel Pearson Education, Inc. -----END PRIVACY-ENHANCED MESSAGE-----