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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
- --- THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED, EFFECTIVE
OCTOBER 7, 1996)
For the fiscal year ended December 31, 1996
OR
- --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ____________ to ______________
Commission File Number 0-27574
POWERCERV CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C>
FLORIDA 59-3350778
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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400 NORTH ASHLEY DRIVE, SUITE 2700, TAMPA, FLORIDA 33602
(Address of principal executive offices, including zip code)
(813) 226-2600
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES x NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ _ ]
The aggregate market value of the registrant's voting stock held by
non-affiliates as March 14, 1997 was approximately $20,076,700. As of March
14, 1997, there were 13,845,142 shares of the registrant's common stock, $.001
par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for its 1997 Annual
Meeting of Shareholders, scheduled to be held on June 2, 1997, which Proxy
Statement will be filed no later than 120 days after the close of the
registrant's fiscal year ended December 31, 1996, are incorporated by reference
in Part III of this Annual Report on Form 10-K.
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POWERCERV CORPORATION
FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PART I Page No.
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Item 1 Business............................................................................................. 2
Item 2 Properties........................................................................................... 17
Item 3 Legal Proceedings.................................................................................... 17
Item 4 Submission of Matters to a Vote of Security Holders.................................................. 17
PART II
- -------
Item 5 Market for the Registrant's Common Stock and Related Stockholder Matters.............................. 18
Item 6 Selected Financial Data............................................................................... 19
Item 7 Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................................................ 21
Item 8 Financial Statements and Supplementary Data........................................................... 32
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure ........................................................................................... 32
PART III
- --------
Item 10 Directors and Executive Officers of the Registrant.................................................. 33
Item 11 Executive Compensation.............................................................................. 33
Item 12 Security Ownership of Certain Beneficial Owners and Management...................................... 33
Item 13 Certain Relationships and Related Transactions...................................................... 33
PART IV
- -------
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K...................................... 34
Signatures........................................................................................... 54
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PART 1
The statements contained in this Annual Report on Form 10-K that are not
historical are "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including statements regarding PowerCerv
Corporation's (which, for purposes hereof, includes its wholly-owned
subsidiary, PowerCerv Technologies Corporation, and may be referred to as
"PowerCerv" or the "Company") expectations, beliefs, intentions or strategies
regarding the future. "Forward-looking statements" include, without limitation,
statements regarding the extent and timing of future revenues and expenses and
customer demand under "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Forward Looking Statements and Associated
Considerations;" "--Ability to Manage Change;" "--Fluctuations in Quarterly
Activities and Results of Operations;" "--Dependence on New Products,"
"--Dependence on Client/Server Environment," "--Dependence on PowerBuilder and
Other Third-Party Products;" "--Availability of Consulting Personnel;"
"--Product Development Risks;" "--Competition;" "--Dependence on Proprietary
Technology; Risks of Third-Party Claims for Infringement;" "--Expansion of
Indirect Channels; Potential for Channel Conflict;" "--Voting Control by
Management;" "--Dependence on Key Personnel;" and "--Possible Volatility of
Stock Price." All forward-looking statements included in this document are
based on information available to the Company as of the date hereof, and the
Company assumes no obligation to update any such forward-looking statement. It
is important to note that the Company's actual results could differ materially
from those in such forward-looking statements.
ITEM 1. BUSINESS
Founded in 1992, PowerCerv's mission is to build and deliver open,
adaptable client/server solutions that provide mid-tier organizations a
sustainable competitive advantage. The Company's software products and
services assist its customers in successfully designing, developing, deploying
and maintaining adaptable solutions for their specific needs, whether those
needs are best met by buying pre-written applications, building custom
applications from scratch or combining elements of both approaches. The
Company not only provides development tools to customers designing their own
applications, but also provides application products that can themselves be
adapted to the customers' specific requirements. In addition, the Company
provides consulting and education services to assist customers in designing and
deploying an optimal solution for their business problems, and third party
technology resale products to complement the Company products and services
offering. PowerCerv's development tools and application products are based on
the technology foundation of widely-used products provided by vendors such as
Microsoft Corporation, Powersoft Corporation, Sybase, Inc., and Oracle
Corporation, and utilize an open architecture enabling their implementation
with multiple databases, multiple operating systems, and integration to their
industry standard applications.
INDUSTRY BACKGROUND
The increasing performance capabilities and declining cost of desktop
computers, coupled with improvements in network communications and graphical
user interface technology, have motivated many organizations to transition from
host-centric systems dominated by centralized mainframes or minicomputers to
distributed client/server environments. At the same time, to achieve increased
flexibility, improve end-user access to information and gain a competitive
advantage in today's rapidly changing business and technology environment,
organizations are migrating from closed, proprietary legacy environments to
open systems composed of hardware, networking components, databases and
development tools from multiple vendors.
The increasing acceptance of client/server systems has created a need for
the development of more complex client/server applications that handle
critical business functions, such as financial reporting, manufacturing,
inventory and production control, sales order management, customer service and
human resource administration. The demand for these applications has grown
significantly over the past few years as expectations of their business value
have increased and organizations seek to realize the potential benefits of
their investment in client/server systems.
Client/server software development has been unable to keep pace with this
increased demand. The increasing complexity of applications and systems, the
growing inventory of existing applications that require maintenance, year 2000
compatibility issues, issues related to the web-enablement of existing or new
client/server applications, the difficulty of coordination and communication
between business analysts and software developers, and a shortage of qualified
developers have created a backlog in the development of new applications, as
well as
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enhancements to existing applications. This backlog can prevent organizations
from fully realizing the potential of client/server systems to meet their
business requirements.
Organizations have traditionally attempted to address their client/server
application needs either by buying pre-written application packages or by using
development tools to design and develop custom applications from scratch.
Pre-written applications offer the potential of more rapid initial deployment
at a lower initial cost, but often do not fit with a customer's existing
business process or technology. Pre-written applications are typically
difficult to extend or adapt and may force the customer to change its business
methods to fit the application. Moreover, some pre-written applications, in an
attempt to remove the need to customize, provide the customer with unnecessary
features that are not geared to the customer's specific business, resulting in
an application that may be difficult to implement and use.
The traditional alternative to the use of pre-written application packages
is to select widely-used development tools and databases and then design and
build fully customized client/server application solutions. This approach
typically involves a longer lead-time to deployment and higher initial cost,
but permits an organization, at least in theory, to design applications
specifically suited to its business environment and technology preferences.
The Company believes that, in many cases, this approach falls short of
expectations, primarily because many organizations lack experience in building
client/server systems and underestimate the time and expenditure necessary for
custom development. Because of the length of time required to develop
applications and enhancements, the related business requirements have often
changed by the time the application or enhancement is ready to implement.
Therefore, a market has developed for providing a wide range of client/server
development tools, client/server application products and related services to
assist organizations in the successful design, development and deployment of
client/server systems.
THE POWERCERV APPROACH
PowerCerv's broad range of client/server development tools, application
products and services enables its customers to successfully design, develop,
deploy and maintain client/server solutions to meet their specific business
needs, whether those needs are best met by buying pre-written applications,
building custom applications from scratch or combining elements of both
approaches.
PowerCerv released its "ADAPTlication Series" of open, adaptable
client/server application products in September 1996. These products, which
represent incremental improvement over previous releases of the Company's
application products, were renamed for marketing purposes to focus attention to
their adaptability. The September 1996 release provides enhanced integration
among each of the individual application products as well as enhanced
integration potential with applications from other vendors. The ADAPTlication
Series includes Sales Force Automation, Customer Support, Customer Asset
Management, Financials, Distribution and Manufacturing. When licensed as an
entire application suite, ADAPTlication Series offers a total Customer
Lifecycle Management (CLM) Solution. Additionally, any of the individual
application products comprising the ADAPTlication Series may be licensed on an
individual basis and sold in a cross industry, best of breed environment.
These application products are sufficiently robust that they may be installed
without modification or, by using the Company's Object Extensible Architecture
Kit (OEA Kit), may be adapted to meet the specific unique aspects of the
customer's business. In addition, the Company provides a breadth of quality
client/server and internet enablement consulting services and education
services that assist the customer in designing and deploying an optimal
solution to their business problems.
The Company's software development tools, used in conjunction with other
industry leading development tool sets, comprise the PowerCerv development
environment referred to above by the Company as its OEA Kit, and enable the
Company's software developers to more efficiently build applications that
contain fewer defects, run faster and are easier to maintain. The Company also
licenses the OEA Kit to customers who desire to extend and enhance an
ADAPTlication Series product or to design and build their own applications.
The technology resale products offered by the Company are available to
complement the Company's development tools. The Company also offers consulting
services at all stages of client/server software design, development and
implementation, as well as education in the use of its products and technology
resale products.
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The following table depicts the range of the Company's product and service
offerings and how each might be utilized by a customer building a custom
system, deploying a pre-written application product or adapting a pre-written
application product.
CUSTOMER APPROACH
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POWERCERV DEPLOY ADAPT & DEPLOY BUILD AND DEPLOY
PRODUCTS AND ADAPTLICATION ADAPTLICATION CUSTOM
SERVICES SERIES SERIES APPLICATIONS
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Client/Server X X X
Architecture Consulting
Resell Client/Server X X
Development Tools
Company's X X
Development Tools
Technical Training X X
ADAPTlication Series of X X
Products
Design & Development X X
Services
End-User Education X X
Deployment Consulting X X X
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Client/Server Architecture Consulting. The Company typically analyzes the
customer's existing technology infrastructure and assesses the customer's
business needs and time and resource constraints to determine the high level
architectural requirements.
Resell Client/Server Development Tools. The Company resells
industry-leading client/server and internet development tools that complement
the Company's own development tools and that may be necessary to establish the
fundamental development platform, including the tools necessary for data model
design, process and object-oriented modeling, application and database
development, data warehousing, documentation development and quality testing.
These tools include Powersoft's PowerBuilder, Haht Software's Hahtsite,
Rational Software's Rose, SQA's Team Test, Intersolv's PVCS, LogicWorks' Erwin,
Cast Software's SQL Builder, Sybase's Sybase IQ and relational databases from
Microsoft, Sybase, Oracle and Informix.
The Company's Development Tools. The Company licenses its development
tools which complement industry-leading client/server development tools that
are resold by the Company. The Company's object-oriented development tools,
which include an object class library, client side security, work flow
enabling engine and software distribution tools, offer high reusability and are
designed to reduce development time and result in fewer program defects, better
application performance and lower ongoing maintenance costs.
Technical Training. The Company provides comprehensive education and
training classes to assist the customer's technical staff in implementing and
using the client/server development tools licensed or resold by the Company.
ADAPTlication Series of Application Products. The Company offers a wide
range of pre-written adaptable client/server application products, including
Sales Force Automation, Customer Support, Customer Asset Management,
Financials, Distribution and Manufacturing. Each is a separate, individual
product, and may be
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licensed in combination as an entire application suite offering a Customer
Lifecycle Management (CLM) Solution or may be licensed on an individual basis.
Although these products are sufficiently robust to be installed without
modification, they can also be adapted to a particular customer's unique needs.
Design & Development Services. The Company provides technical assistance
in designing and developing custom applications from scratch or in adapting the
Company's pre-written application products to meet the customer's specific
needs. These services include relational data modeling, process modeling,
graphical user interface design, application design, application coding,
documentation and quality testing.
End-User Education. The Company provides comprehensive education and
training classes for end users on the implementation and use of the
ADAPTlication Series of products selected by the customer.
Deployment Consulting. The Company provides installation and
implementation assistance necessary to deploy custom-built applications or to
deploy the standard or adapted pre-written application products selected by the
customer.
STRATEGY
The Company's objective is to build and deliver a full suite of open,
adaptable application products to the mid-tier market. The mid-tier target
market is represented by organizations (or divisions of larger organizations)
having annual revenues between $50 million and $1 billion. The Company's
strategy to achieve this objective includes the following key components:
- - Offer An Adaptable Customer Lifecycle Management (CLM) Solution.
PowerCerv seeks to offer a full suite of integrated, adaptable
client/server applications to its customers, which the Company refers to
as its Customer Lifecycle Management (CLM) Solution. The full suite of
products includes Sales Force Automation, Customer Support, Financials,
Distribution and Manufacturing, each of which may also be licensed in an
individual, best of breed environment. As two subsets of the total CLM
Solution, the Company offers what it terms as a Customer Asset Management
(CAM) Solution (which includes Sales Force Automation and Customer
Support) and secondarily an Enterprise Resource Planning (ERP) Solution
(which includes Distribution, Manufacturing and Financials). The Company
knows of no other commercial application provider that offers a full CLM
Solution from a single source. The Company believes that the breadth and
adaptability of its application products are a competitive advantage.
- - Maintain Open Architecture. The Company designs its development tools and
application products to adhere to industry standards in order to meet its
customers' demands for open solutions. The Company's products have an
open architecture and operate with several popular client operating
systems, relational databases, server operating systems and communication
protocols. All of the Company's application products operate on a
Microsoft NT (as well as UNIX) platform and are also able to use the
Microsoft SQL Server Relational Database. The Company believes that its
open systems/open architecture approach represents a competitive advantage
over other pre-written application products that are written with
proprietary toolsets.
- - Increase Percentage of Revenue From License Fees. The Company believes
that organizations are becoming increasingly aware of the value and
benefits of open, flexible and adaptable application products and are
implementing this type of adaptable solution in response to their current
and prospective business needs. As a result of this belief, the Company
intends to focus on increasing sales of its ADAPTlication Series of
products as a percentage of total revenue. The Company believes that this
will also result in greater demand for services directly related to these
application products. Though it is the Company's objective to increase
the percentage of revenue from license fees, the Company continues to
focus on providing its customers with a breadth of quality client/server
and internet enablement services, including architecture consulting,
design, development, training and deployment services.
- - Organize Sales Force to Meet Customers' Needs. In July 1996, the Company
reorganized its direct sales force into five separate teams, each focused
on meeting the specific needs of its customers. These five teams include:
(i) the U.S. direct sales force, which is responsible for generating
license revenues from the Company's application products to end users in
the U.S.; (ii) the Business Development Group, which is
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responsible for accelerating the Company's U.S. channel business
(establishing VAR, OEM and teaming partner relationships) and leveraging
the Company's strategic alliances; (iii) the Client/Server Migration
Group, which is responsible for selling the Company's software
development tools and related services on custom development projects in
the U.S.; (iv) the Corporate Telesales Group, which is responsible for
selling the Company's development tools and reselling third party
client/server and internet development tools; and (v) the International
Sales Group, which is responsible for generating license revenues from
the Company's application products and development tools to end users
outside the U.S. and for building and accelerating distributor and
channel relationships outside of the U.S. See "Business -- Sales and
Marketing."
- - Leverage Strategic Alliances. Since its inception, the Company has
sought to establish cooperative marketing and product development
relationships with software vendors, hardware vendors, leading consulting
firms and major system integrators. The parties with which the Company
has developed strategic relationships include MCI Systemhouse, Microsoft
Corporation, Oracle Corporation, Powersoft Corporation, SBT Accounting
Systems, Inc., Sybase, Inc., and Unisys Corporation. The Company believes
these relationships provide both a valuable source of qualified sales
leads and in many cases, an alternate source of implementation services.
The Company also believes these relationships are beneficial in exposing
its products and services to new markets and organizations. See "Business
- Strategic Alliances."
- - Develop Alternate Channels of Distribution. The Company believes that a
broad range of distribution channels is necessary to reach the full extent
of its diverse customer base. During 1996, the Company expanded its
methods of distribution through its establishment of the Business
Development Group and the opening of an international headquarters in
Amsterdam, The Netherlands. The Company will continue to increase its
distribution by establishing indirect channels for its products, both in
the U.S. and abroad, and working together in a joint, cooperative manner
with its channel partners. In the U.S., the Company intends to identify
and establish additional strategic relationships with VARs, OEMs and
teaming partners having vertical expertise and pursue strategic
relationships. Internationally, the Company intends to increase the
number and effectiveness of its distributors. See "Business - Sales and
Marketing."
PRODUCTS AND SERVICES
The Company's development tools, application products and services are
designed to enable the Company's customers to design, deploy and maintain
client/server-based information systems.
Development Tools and Application Products.
The following table summarizes certain information about the Company's
products:
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COMMERCIAL DATE OF MOST SUGGESTED PRODUCT
PRODUCT RELEASE DATE RECENT UPGRADE U.S. LIST PRICE DESCRIPTION
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SOFTWARE DEVELOPMENT
TOOLS
PowerTOOL 4Q93 v5.0 $1,200 per Object-oriented class
4Q96 developer library for PowerBuilder-
based applications
PADLock 3Q95 v5.0 $2,300 per server Data and application
4Q96 security for
PowerBuilder-based
applications
FLOWBuilder 4Q95 v5.0 $15,000 per server Workflow enabling
1Q97 + $1,500 per engine for PowerBuilder-
developer based applications
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COMMERCIAL DATE OF MOST SUGGESTED PRODUCT
PRODUCT RELESE DATE RECENT UPGRADE U.S. LIST PRICE DESCRIPTION
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AppSync 2Q96 v3.0 $80 per seat Software and file
1Q97 distribution
PFCtool 1Q97 - $695 per Class library for
developer PowerBuilder using
Powersoft's PFC product
ADAPTLICATION
PRODUCTS
ADAPTlication for Sales 2Q95 v6.0 Starts at $35,000 Sales force automation
Force Automation 3Q96 and contract management
(formerly called
Xceed)
ADAPTlication for 3Q95 v6.0 Starts at $27,000 Customer support,
Customer Support 3Q96 including problem
(formerly called Management and tracking
Response)
ADAPTlication for 3Q95 v6.0 Starts at $50,000 Combined, integrated
Customer Asset 3Q96 package of
Management (formerly ADAPTlication for Sales
called GrowthPlan) Force Automation and
Customer Support
ADAPTlication for 2Q95 v6.0 Starts at $14,000 Multiple modules that
Financials (formerly 3Q96 per module address accounting,
called INTERGY) financial and business
management needs
ADAPTlication for 3Q95 v6.0 Starts at $32,000 Customer order
Distribution (formerly 3Q96 management system
called PowerCOM)
ADAPTlication for 3Q94 v6.0 Starts at $23,000 Multiple modules that
Manufacturing (formerly 3Q96 address manufacturing re
called PowerMAN) source planning,
scheduling, shop floor
control, configuration
management and
performance
management
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SOFTWARE DEVELOPMENT TOOLS
The Company's software development tools extend the functionality of
PowerBuilder and are designed to assist PowerBuilder developers in more quickly
building applications that contain fewer defects, run faster and are easier to
maintain. The Company's software development tool products are:
PowerTOOL (PowerBuilder Template Object-Oriented Library). Object class
libraries can assist software development teams in efficiently developing and
maintaining medium- to large-sized applications written with object-oriented
development tools. PowerTOOL, the Company's award-winning object class library
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for the PowerBuilder development environment, addresses these complex
development needs. PowerTOOL directly and seamlessly extends the PowerBuilder
development environment and includes programming standards, reusable visual
interface components (e.g., menus, windows, data windows, command buttons),
reusable non-visual processing objects, error handling objects, communications
objects and pre-written window and application templates. PowerTOOL
facilitates accelerated development, while promoting consistency and enforcing
standards. The typical PowerTOOL license configuration includes a PowerTOOL
development license for each PowerBuilder development license owned.
PADLock (PowerBuilder Application and Data Locking). Data and application
security in any mid-to large-size client/server application usually involves
significant design and development time. PADLock is a pre-written, reusable
security methodology and software product that provides object, function, row
or column level security to any existing or new PowerBuilder-based application.
The typical PADLock license configuration includes a development server
license for developing and testing application security and a deployment server
license for each server where a PADLock-secured application is deployed.
FLOWBuilder (First Library Optimizing Workflow for PowerBuilder). As
organizations build PowerBuilder based applications (especially mid- to
large-size applications), workflow is often a design requirement.
Unfortunately, many programmers build or "hard code" the work flow logic
directly into the application. As a result, subsequent workflow changes are
time consuming as programmers must modify the source code, and then recompile
and re-distribute the updated version. FLOWBuilder is a pre-written, reusable
workflow enabling engine that provides PowerBuilder developers a means to more
easily and efficiently "workflow-enable" PowerBuilder-based applications.
FLOWBuilder incorporates functionality from the Company's BatchBuilder
development tool, which resulted in the Company discontinuing its BatchBuilder
marketing efforts in 1996. The FLOWBuilder licensing configuration includes a
development server license and two developer licenses to develop and test a
workflow-enabled application and a deployment server license for each server
where a FLOWBuilder-enabled application is deployed.
AppSync (Application Distribution and Synchronization Tool). AppSync is
an automated software distribution system for client/server computing
environments. AppSync automatically distributes entire applications, updated
versions of software, or files of any type using a local area network (LAN),
wide area network (WAN) or the internet. AppSync licensing configurations are
based on the number of end users accessing and using the software.
PFCtool (Object Class Library for the PowerBuilder Foundation Class
Product). PFCtool is a class library that extends the base functionalities of
Powersoft's release of the PowerBuilder Foundation Class (PFC) library.
PFCtool is used by developers who choose to use the service-based architecture
of PFC for application development. PFCtool provides advanced services,
template objects, and inheritable windows, menus, and controls for efficient
and productive application development. The typical PFCtool license
configuration includes a development server license for developing and testing
purposes.
THE ADAPTLICATION SERIES OF APPLICATION PRODUCTS
The Company's application products are robust graphical client/server
systems that are based on open industry standard development tools that can be
integrated with other industry standard applications and utilities. The
ADAPTlication Series, which by name change and a new functional release in
September 1996 replaced the Company's EnPower Series, may be installed without
modification, but were designed and built with extensibility in mind. The
Company employs a modular, object-based architecture built upon industry
standard development tools. This object-extensible architecture, in
conjunction with the Company's methodology, permits developers to modify and
extend the Company's application products without affecting the underlying
integrity of the unmodified portions of the application. In this manner, the
Company's customers gain the ability to customize and extend the application,
while maintaining the benefits of a fully supported and enhanced application.
The Company's application products are licensed with or without source
code to customers for internal use based on a maximum number of servers and
users. Customers may select one or more ADAPTlication Series of products and
may install them on a stand-alone basis or as part of an integrated suite of
products. The ADAPTlication Series consists of the following six application
products and the Application Integration Server (AIS):
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ADAPTlication for Sales Force Automation (SFA). SFA provides a
cross-industry solution to the contact management and sales force automation
needs of sales and marketing organizations. SFA is designed to allow
professional sales organizations to manage their prospect and customer
databases pro-actively, track the complex sales cycle, capture and leverage
sales and marketing trend data and thus improve productivity of sales
personnel.
ADAPTlication for Customer Support. Customer Support is a cross-industry
solution to the problem management/tracking needs of internal or external
support organizations. Customer Support is designed to provide support
organizations with increased productivity and improved responsiveness, and
allows them to use trend data to improve overall company quality performance
and caller satisfaction.
ADAPTlication for Customer Asset Management. Customer Asset Management is
a cross-industry, integrated solution that supports the automation needs of an
organization's sales and support services. Customer Asset Management
integrates the Company's SFA and Customer Support application products into an
integrated sales and support solution via a common database architecture.
ADAPTlication for Financials. Financials is a comprehensive
cross-industry suite of financial/accounting and business management modules
designed to automate administration and improve information flow. The
Financials suite currently consists of General Ledger, Purchasing, Accounts
Payable, Accounts Receivable, Project Accounting, Order Entry, Inventory
Control and Fixed Assets. The Company intends to release an automated, time
and expense system with remote accessing capabilities later in 1997.
ADAPTlication for Distribution. Distribution is a full-feature customer
order management system that allows mid- to large-size organizations to expand
and improve their customer order management and distribution efforts by
integrating technology with customer-oriented concepts. Distribution's robust
feature set is targeted to meet the complex order management needs of
manufacturing companies and other mid- to large-size industrial organizations.
ADAPTlication for Manufacturing. Manufacturing is a full-feature,
multi-module manufacturing resource planning system and manufacturing execution
system for discrete manufacturers. Manufacturing has a robust feature set that
provides an efficient supply-side management tool. Manufacturing, combined
with Distribution, Financials and Customer Asset Management, allows the Company
to deliver a complete Enterprise Resource Planning (ERP) Solution.
Application Integration Server (AIS). AIS provides a distributed,
message-based environment for integrating multiple application products. The
AIS may link multiple PowerCerv application products or alternatively PowerCerv
application products and non-PowerCerv application products. The AIS software
engine permits the end user to distribute logical components on one or more
physical servers that may be in different geographical locations or use
different relational database engines.
TECHNOLOGY RESALES
The Company resells industry-leading client/server development tools that
complement the Company's own development tools and, when installed and utilized
in conjunction with the Company's development tools, can provide a
comprehensive client/server development environment as well as an internet
development environment. These tools include the tools necessary for data
model design, process and object-oriented modeling, application and database
development, data warehousing, documentation development and quality testing.
These tools include PowerBuilder, Hahtsite, Rose, Team Test, PVCS, Erwin, SQL
Builder, Sybase IQ and relational databases from Microsoft, Sybase and Oracle.
SERVICES
The Company's service offerings consist of the following:
Consulting Services. The Company's consulting services are available at
all stages of client/server design, development and implementation. The
Company offers a variety of consulting services, including client/server
architecture consulting, application design and application development,
internet consulting, and general
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deployment application consulting. Client/server architecture consulting
involves analyzing the customer's existing technology infrastructure and
assessing the customer's business needs as well as time and resource
constraints to determine whether the customer should build and deploy a custom
application, deploy a pre-written application or adapt and deploy the Company's
pre-written application products. Design and development services include
relational data modeling, process and object-oriented modeling, application and
database development and customization, data warehousing and quality testing.
Internet consulting includes designing, developing and modifying applications
to use the internet capabilities to promote and/or operate a business
organization. General deployment consulting involves providing installation
and implementation assistance necessary to install the Company's application
products selected by the customer.
In order to be responsive to the specific needs of each customer, the
Company offers three service options, representing varied levels of customer
and Company involvement. The first option is technical mentoring, whereby the
customer retains primary responsibility for the project. A senior Company
consultant occasionally visits the customer site, assisting on the most
difficult aspects of a project. The second option is co-development, whereby
Company consultants work side-by-side with a customer's technical staff. This
is a popular option with customers because there is a significant transfer of
knowledge to the customer. The third option, popular when the customer lacks
the time or resources to participate in the project, is the "Client/Server
Software Factory," whereby the Company assigns the work to its internal design
and development center, which the Company calls the Client/Server Software
Factory. Under this option, the work is performed at the Company's facility by
the Company's technicians, and typically upon project completion the customer's
technical personnel are briefed so that they may provide on-going support if
they so desire. Consulting services are usually only offered on a time and
materials basis.
Education Services. Education services consist of technical training and
end-user education. Technical training involves providing comprehensive
education and training classes to assist the customer's technical staff in
implementing and using the client/server development tools licensed or resold
by the Company. End-user education involves providing comprehensive education
and training classes for end-users on the implementation and use of the
ADAPTlication Series of products selected by the customer. The Company
provides its customers classroom training in nine classrooms in eight cities
across the U.S. In addition, training courses are frequently provided at
customer sites, using customer facilities and equipment, with the Company
providing the instructor and class materials. Some classes are offered on a
per-student basis and other classes are offered on a negotiated fixed fee
basis.
Maintenance Services. Maintenance services are generally provided
pursuant to maintenance agreements between the Company and its customers.
These agreements entitle customers to telephone support, notification of
product upgrades, the upgrades themselves, functional releases and maintenance
releases, technical bulletins, replacement of damaged products and access to
the Company's electronic bulletin board. The Company currently charges a
percentage of its product license fee for renewable one-year to three-year
maintenance agreements.
CUSTOMERS
Since its inception, the Company had more than 2,800 customers
worldwide. The Company's customer base reflects the cross-industry
applicability of the Company's development tools, application products and
services. The following is a representative list of the Company's customers
that have each purchased more than $100,000 in the aggregate of the Company's
products and services since January 1, 1994:
<TABLE>
<CAPTION>
CUSTOMER NAME TOOLS APPLICATIONS SERVICES
------------- ----- ------------ --------
<S> <C> <C> <C>
AAA AutoClub South X X
Agencies of the State of Florida X X
Allied Signal/Oak Mitsui X X X
Aluminum Company of America X X
AMTEC Corporation X X
Andersen Tax X X X
ARAMCO Services Company X X
Automated Packaging Systems X X X
Barnett Technologies X X X
</TABLE>
10
<PAGE> 12
<TABLE>
<CAPTION>
CUSTOMER NAME TOOLS APPLICATIONS SERVICES
------------- ----- ------------ --------
<S> <C> <C> <C>
Chatsworth Products X X X
Creative Concept in Advertising X X X
Chase Manhattan Mortgage X X
Comdial Corporation X X X
Crown Vantage, Inc. X X X
Dana Corporation X X X
Fine Arts Express X X X
Fleet Mortgage Group X X X
HealthPlan Services, Inc. X
Holiday Rambler Corporation X X X
Hutterian Bretherin - New York X X
Intel Corporation X X
Johnson & Johnson X X X
Merck & Co., Inc. X X
Metal Industries X X X
Mobil Oil Corporation X X
NationsBank Corporation X X X
Reliance Electric, Ltd. X X X
RISCORP, Inc. X X X
Rohm and Haas Company X X
Southern Indiana Gas & Electric X
Wells Fargo Bank, N.A. X X X
The Scotsman Group, Inc. X X X
</TABLE>
SALES AND MARKETING
The Company targets mid-tier organizations and government entities as the
primary market for its development tools, application products and services.
Mid tier organizations are organizations (or divisions of larger organizations)
with annual revenues between $50 million and $1 billion. To address the broad
range of its sales opportunities, the Company relies on the coordinated efforts
of its U.S. direct sales force, International Sales Group, the application and
technical consultants, corporate marketing and corporate telesales, together
with the newly established Business Development Group and Client/Server
Migration Group.
The Company's U.S. direct sales force is responsible for the sale of the
Company's ADAPTlication Series of products to customers in the United States.
The direct sales organization includes three regional offices in Philadelphia,
Atlanta, and Seattle. Each region is managed by a regional sales vice
president and has up to seven field sales representatives. Additionally,
product sales specialists are available to provide pre-sales technical support
for the Company's products. At December 31, 1996, the Company had 19 field
sales representatives and 12 product sales specialists.
The Company employs application consultants and technical consultants to
assist the sales team as may be necessary in competitive sales opportunities,
though these consultants primary function is to provide customers with
billable services related to installing, customizing, supporting and
maintaining its products. The Company employs application and technical
consultants that are experienced professionals with in-depth knowledge of their
particular field of expertise, many of which are members of the American
Product Inventory Control Society ("APICS"), or are certified in production and
inventory management or are certified public accountants. Application
consultants provide additional support specific to a particular application
product. Technical consultants are responsible for assisting customers with
development of client/server systems using the Company's software development
tools and other development tools resold by the Company. Many of the technical
consultants employed by the Company are Certified PowerBuilder Developers
("CPDs") or Certified PowerBuilder Instructors ("CPIs"). Additionally, the
Company utilizes its technical consultants as instructors for providing
education services to its customers. As of December 31, 1996, the Company had
224 employees serving as technical or application consultants.
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<PAGE> 13
The Company maintains a page on the World Wide Web that contains
background on the Company and its products, press releases, human resources
information and information on how to contact the Company. In addition, the
Company's Web page contains demonstration or "sampler" versions of its
development tools.
The Company's telesales professionals complement the direct sales
organization by pursuing sales for the Company's software development tools,
technology resale products, internet development tools and other typically
small purchase quantities of products involving little or no support. The
telesales group also develops and qualifies application product sales leads
prior to referral to the direct sales organization. As of December 31, 1996,
the Company's telesales group totaled 12 persons.
The Company recently formed the Business Development Group to generate
application product sales and service revenues through indirect sales channels
in the United States. The Business Development Group establishes and maintains
value-added resellers ("VARs"), original equipment manufacturers ("OEMs") and
strategic alliance partners assisting in generating product sales and providing
consulting services to end users ("teaming partners"), generally in
non-competing markets or niches. These partners typically have expertise in
particular vertical markets and geographic ties to their target markets. The
Company believes that these relationships can assist in penetrating new
markets, expanding existing markets and creating increased product awareness
for the Company's development tools and application products. The Business
Development Group totaled two persons as of December 31, 1996.
The Company also recently formed its Client/Server Migration Group to
identify and sell custom services projects in the U.S. The Client/Server
Migration Group seeks to accelerate the Company's service revenue growth in the
U.S. by focusing on medium- to large-scale client/server and/or internet
services projects. This group is also focused on the sale of the Company's
development tools and third party development tools. As of December 31, 1996,
the Client/Server Migration Group totaled four persons.
In August 1996, the Company opened its first international sales office in
Amsterdam, The Netherlands. The International Sales Group is responsible for
generating license revenues for the Company's development tools and application
products. The Company primarily utilizes independent distributors to promote,
license and support its products. Distributors must have demonstrated
capabilities for selling and supporting client/server development tools or
application products in their particular territory. As of December 31, 1996,
the Company had arrangements with distributors in Australia, Canada, Europe,
the Pacific Rim and South America, covering 19 countries in total. Generally
these agreements grant distributors non-exclusive rights to distribute the
Company's products in a particular territory and do not restrict the Company
from marketing its products directly. At December 31, 1996, the International
Sales Group totaled seven persons.
In support of its sales organization, the Company conducts comprehensive
marketing programs intended to promote and market the Company's development
tools, application products and services, and to create awareness and position
the Company in the client/server industry. These efforts include product
advertising, public relations and press tours, trade show participation, direct
mail and telemarketing campaigns, preparation of marketing collateral and
participation in industry programs and forums. The Company also uses a
structured sales methodology that is intended to guide its direct sales
professionals through the sales process and increase their probability of
success. As of December 31, 1996, the Company had six employees in its
corporate marketing department.
PRODUCT DEVELOPMENT
The Company has made substantial investments in research and development
through internal development in fiscal 1996, and through both internal
develpment and technology acquisition in prior fiscal years. The Company
believes its future performance will depend in large part on its ability to
maintain and enhance its current product line, develop new products, maintain
technological competitiveness and meet an expanding range of customer
requirements. The Company's product development efforts are focused on
continued enhancement of existing development tools and application products,
development of new complementary development tools and application products and
exploring emerging technologies. As of December 31, 1996, the Company had 69
employees in its research and development organization.
The Company maintains product development groups that engage in research
and development activities with a long-term objective of identifying, planning
and developing new products and enhancements to existing Company products. The
goal of the Company's development tools product development group, located in
Minneapolis, Minnesota, is to continue to design and develop timely, open and
robust development tools and
12
<PAGE> 14
methodologies that extend and augment the client/server development
environment. The objectives of the ADAPTlication Series product development
group, principally located in Pendleton, South Carolina, include taking
advantage of features in the Company's underlying core technologies. These
features include multiple hardware platform support, database independence,
multiple network support and support for various operating systems (primarily
Microsoft Windows, Microsoft Windows NT and various versions of UNIX) while
offering a broad and robust product function and feature set that may be
extended and adapted as needed by the customer.
The client/server development tool and business application markets are
highly influenced by rapid technological change, adoption of new industry
standards, frequent new product introductions and changing customer demands
that can render existing products unmarketable and obsolete. The Company plans
in the future to release new versions of its development tools and application
products and to introduce new development tools and application products.
There can be no assurance that the Company will be successful in developing and
marketing new versions or new products, or that the Company will be successful
in addressing changing customer demands and the adoption of new industry
standards.
STRATEGIC ALLIANCES
A key element of the Company's strategy is the continued creation and
development of strategic alliances with key industry participants. The
Company's goals in establishing these relationships are to create marketing
alliances that will endorse and promote the Company's products to a larger
potential customer base than can be reached through the Company's direct
marketing efforts and to assist the Company in developing a supply of
aftermarket service providers, who will train personnel to implement the
Company's products, thereby leveraging the Company's resources and reach. The
Company seeks strategic alliances with companies that have maximum penetration
and leading reputations for quality with the Company's target customers. Many
of these relationships are in the early stages of development and have not yet
resulted in material revenue for the Company. Generally, existing agreements
outlining the Company's alliances do not impose significant financial
obligations or liabilities on either party and have terms no longer than one
year. There can be no assurance these relationships will successfully develop
to the extent that they will contribute materially to the Company's financial
results in the future.
To date, the Company's significant alliances include the following
organizations:
MCI Systemhouse. The Company signed a memorandum of understanding with
MCI Systemhouse relating to the marketing, sales and implementation of the
Company's ADAPTlication Series of products. MCI Systemhouse, a wholly-owned
subsidiary of MCI Communications Corporation, provides its customers with
enterprise systems integration capabilities and client/server migration
services. The Company provides pre- and post-sales implementation training to
representatives of MCI Systemhouse under this relationship.
Microsoft Corporation. The Company has entered into an agreement with
Microsoft that permits the Company to resell Microsoft's products as a
"Microsoft Solution Provider." In addition, the Company receives frequent
briefings on Microsoft's strategic and technical product direction,
participates in joint marketing activities, and receives early access to new
software releases. The Company's ADAPTlication Series of products operate
in conjunction with Microsoft SQL Server, Windows NT Workstation, Windows NT
Server and Windows 95.
Oracle Corp. The Company has entered into an agreement with Oracle that
provides the Company the ability to sublicense Oracle's relational database
management systems to is customers. The Company has also joined Oracle's
"Business Alliance Programme" and established a marketing relationship with
Oracle whereby the two companies may team together in proposing solutions that
include both companies' products and/or services.
13
<PAGE> 15
Powersoft Corporation. The Company is a major reseller of PowerBuilder
and is a formal Premier PowerChannel member as well as a CODE (Client/Server
Open Development Environment) Partner and Training Partner for Powersoft.
Powersoft includes the Company's products in its listing of applications
available on the PowerBuilder platform and frequently conducts joint product
seminars with the Company around the U.S. Powersoft is a subsidiary of Sybase.
SBT Accounting Systems, Inc. The Company entered into a partnering
agreement providing SBT with OEM license rights on the ADAPTlication for
Financials software. In addition, SBT and its VARs will be able to resell the
Company's products in the U.S. SBT is a leading provider of accounting
software in the small-to-medium enterprise market and has established a network
of approximately 2,000 value-added resellers. In December 1996, the Company
purchased a five percent ownership interest in SBT Accounting Systems, Inc.
parent organization, Software Business Technologies.
Sybase, Inc. The Company has entered into a strategic marketing
relationship with Sybase. The relationship includes joint sponsorship of
seminars highlighting the Company's applications, press releases announcing the
availability and performance of the Company's products on Sybase platforms,
publications of joint success stories and other items of a similar nature. The
Company also packages and resells Sybase's database products and provides
formal Sybase training.
Unisys Corporation. The Company has signed two agreements with Unisys
whereby Unisys sales personnel promote Unisys systems in conjunction with the
Company's ADAPTlication Series of products. Additionally in January 1997, the
Company formalized an alliance with the Computer Systems Group (CSG) of Unisys
in which the Company's ADAPTlication Series of products will be marketed as
optional additions to buyers of the Unisys enterprise server hardware, creating
comprehensive business solutions for CSG's client/server customers.
In addition to those strategic alliances referenced above, the Company has
entered into agreements and relationships with several of the "big six"
accounting firms. Under these agreements and relationships, representatives of
the accounting firms promote the Company's ADAPTlication Series of products to
their client base. The Company provides training to individuals from these
firms on product implementation.
Competition could develop between the Company and certain of the parties
with which it has strategic alliances. There can be no assurance that the
Company would be able to effectively compete with any such parties in such
circumstances.
COMPETITION
The market for development tools, application products and services in
the client/server industry is intensely competitive and rapidly changing. The
Company expects competition to continue and to increase. The Company believes
its ability to compete successfully depends upon a number of factors both
within and beyond its control, including product performance, quality of
support services, timeliness of enhancements and new product releases by the
Company and its competitors, the emergence of new client/server products and
standards, salesforce and sales management execution, and industry and general
economic trends. The Company competes by offering a broad product line, open
architecture software designed to be adaptable, scaleable and integrateable
with other open architecture client/server products, high quality and timely
technical support services, product improvements and new product introductions.
The Company competes with different competitors in each category of its
product and service offerings. For its development tools, the Company
currently competes with predominately small, privately-held companies that
offer only tools or that offer only tools and services. The Company believes
that in the future it will also compete in this category with large,
publicly-held companies. For the technology resale products offered by the
Company, the Company currently competes with a large number of organizations,
including in some cases the original manufacturer. While many of these
competitors also offer professional services, few offer application products
that utilize the technology resale products being offered as the underlying
technology. The Company expects the technology resale market to remain highly
competitive with relatively low gross margins.
14
<PAGE> 16
For the application products, the Company's primary competitors are either
large, publicly-held companies that offer an enterprise resource planning
solution or organizations the same relative size as the Company. The
competitors in the latter category generally have more focused application
product sets, typically Sales Force Automation, Customer Support, and.or
Financials, but do not offer full enterprise solutions. The Company competes
against these companies based on its software architecture that reflects open
industry standards, ease of extensibility and customization, product features,
ease of use and implementation, and based on price and existing Company
relationships.
For the Company's service business, the competition is primarily based on
the type of project or the type of service being rendered. When the services
are related to the Company's development tools or application products,
generally there is less competition. The Company also provides client/server
design and development services on client/server software development projects
where the Company's development tools and application products have little or
no material contribution to the project. In this circumstance, the Company
competes with a large number of consulting service providers, both large and
small in size, and price pressure is more intense.
There is currently little competition for education services related to
the Company's development tools and application products. There is, however,
significant competition for education services on its technology resale
products. Competition in the latter case comes from the original
manufacturers, regional firms specializing in training and other product or
consulting firms that also offer education services. The Company competes
based on the quality of its instructors, its broad course offering and its
total solution approach.
In addition to direct competition, the Company faces indirect competition
from its existing and potential future customers, many of which internally
design and use their own software tools or design their own software
applications for their particular needs, and therefore may be reluctant to
license products offered by independent vendors such as the Company. As a
result, the Company must educate prospective customers concerning the
advantages of the Company's products over internally developed tools and
applications. These advantages include adaptable, scaleable, open architecture
products that are easier to integrate into existing customer information
systems and improved implementation times. There can be no assurance that the
Company will be able to adequately educate potential customers as to the
benefits provided by the Company's products.
Many of the Company's competitors have longer operating histories and
greater financial, technical, sales, marketing and other resources, as well as
greater name recognition and market acceptance of their products and
technologies, than the Company. As a result, they may be able to respond more
quickly to technological changes or market opportunities. Also, in the markets
in which the Company operates, there are relatively low barriers to entry, and
new competition may arise either from expansion by established companies or
from new emerging companies. Increased competition will result in pressure for
price reductions and related reductions in gross margins and market share, any
of which could materially and adversely affect the Company's ability to achieve
its financial and business goals. To achieve the Company's strategy to attain
larger market share, the Company will have to continue to enhance its existing
products, introduce new products, recruit and train additional consulting staff
and recruit and train sales and marketing professionals. There can be no
assurance that in the future the Company will be able to successfully compete
against current and future competitors.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY TECHNOLOGY
The Company currently holds no patents and attempts to protect its
products through a combination of copyright, trademark and trade secrets laws.
The Company also utilizes employee and third-party nondisclosure agreements and
contractual provisions to protect its products. Despite these precautions, it
may be possible for unauthorized parties to copy or reverse engineer portions
of the Company's products.
The Company's software products are usually licensed to customers under a
non-transferable, non-exclusive license that specifies the number of servers
and concurrent users that may use the system. The Company relies on negotiated
agreements for its application products, which may include the licensing of its
source code, enabling customers to modify or enhance the code under certain
conditions. The disclosure of its source code increases the likelihood of
misappropriation or other misuse of the Company's products. For its
development tools, which are generally provided in source code form, the
Company relies on both "shrink wrap" licenses and negotiated agreements,
depending on various factors including the size of the transaction, the number
of programs, and the level of support or customization. A shrink wrap license
is a printed agreement included in the product
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<PAGE> 17
packaging that purports to bind the licensee when the package is opened. It is
not signed by a licensee and, therefore, may be unenforceable under the laws of
certain jurisdictions. In addition, the laws of some foreign countries do not
protect the Company's proprietary rights to as great an extent as do the law of
the United States. There can be no assurance that the Company's means of
protecting its proprietary rights will be adequate or that the Company's
competitors will not independently develop similar technology.
Although the Company's competitive position may be affected by its ability
to protect its proprietary information, the Company believes that the rapid
pace of technological change in the industry will cause other factors, such as
the technical and creative skills of the Company's management and technical
personnel, name recognition, the ability to develop, produce, enhance and
market innovative products, and the timeliness and quality of support services,
to be more significant in maintaining the Company's competitive position.
EMPLOYEES
As of December 31, 1996, the Company had 420 full-time employees. These
employees include 65 in sales, marketing and related activities, 69 in research
and development, 242 in customer support, training and consulting services, and
44 in finance, administration and human resources. The Company's employees are
not represented by any collective bargaining organization and the Company has
never experienced a work stoppage. The Company believes that its relations
with employees are good.
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ITEM 2. PROPERTIES
The Company's corporate headquarters are located in Tampa, Florida in a
24,000 square foot facility, including office space and customer training
facilities, occupied under a lease expiring in September 2000. The Company
leases additional sales offices in three other Florida cities and in Alabama,
California, Georgia, Illinois, Michigan, Minnesota, New Jersey, North Carolina,
Oregon, Pennsylvania, Texas, Virginia, Washington, and The Netherlands.
Additionally, the Company leases research and development facilities in
Minnesota and South Carolina. The Company believes that its existing offices
and facilities are adequate to support its current needs and that suitable
additional facilities will be available, when needed, on commercial reasonable
terms.
ITEM 3. LEGAL PROCEEDINGS
In December 1995, the Company, Synergistic Technologies Business Systems,
Inc. ("STI") and the sole shareholder of STI were named as defendants in a
lawsuit filed by a former STI employee in the Fourth Judicial District Court of
the State of Minnesota. The Company acquired substantially all of the assets
of and assumed certain specified liabilities of STI on November 1, 1995. The
suit alleges employment discrimination and tort, contract and equitable claims
arising from the plaintiff's employment with STI prior to the Company's
acquisition of STI's assets. The liabilities expressly assumed by the Company
do not include any of the claims raised by the plaintiff in the suit. The
plaintiff alleges that the Company had a relationship with STI such that the
Company was nonetheless liable for the claims asserted in the complaint. In
addition, the plaintiff has brought a motion to amend the complaint to allege
tortious interference with a prospective business relationship and conversion
against the Company. The complaint seeks, among other things, compensatory and
punitive damages, and other legal and equitable relief. The Company denies the
plaintiff's assertion. The Company believes it has meritorious defenses and is
defending such litigation. In addition, STI and its sole shareholder agreed to
indemnify the Company from the plaintiff's claims.
The Company is also subject to miscellaneous legal proceedings in the
normal course of business. The Company is currently defending these
proceedings and claims, and anticipates that it will be able to resolve these
matters in a manner that will not have a material adverse effect on the
Company's results of operations, cash flow or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 1996.
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PART II
ITEM 5. MARKET VALUE OF THE REGISTRANT'S COMMON STOCK
The Company's Common Stock, $.001 par value ("Common Stock"), is traded on
the Nasdaq National Market System under the symbol "PCRV." Following the
Company's March 1, 1996 initial public offering ("IPO"), the following high and
low sales prices were reported by Nasdaq in each quarter:
<TABLE>
<CAPTION>
Fiscal 1996: High Low
------------ ---- ---
<S> <C> <C>
1st Quarter (subsequent to March 1, 1996) $18.00 $14.00
2nd Quarter 19.50 11.25
3rd Quarter 13.25 3.125
4th Quarter 5.625 2.875
</TABLE>
As of December 31, 1996, the Company had approximately 1,701 holders of
record of its Common Stock. The Company paid no cash dividends in respect of
its Common Stock in 1995 and 1996, except for a $4,084,121 distribution to its
shareholders attributable to the Company's S Corporation status, $3,712,000 of
which was distributed in the form of promissory notes that were repaid in cash
in 1996, and a $10,000,000 distribution to its shareholders in 1995 in the form
of sixty-day promissory notes which the Company paid in cash in 1995. Other
than such distributions, the Company has never declared or paid dividends and
does not expect to pay any such dividends in the foreseeable future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
On January 30, 1996, the Company entered into an Agreement and Plan of
Reorganization pursuant to which it acquired substantially all of the assets of
Visual Systems Development Group of Michigan, Inc. ("Visual") and issued
110,000 shares of its Common Stock to Visual as the consideration for the sale.
The issuance of such securities was deemed to be exempt from registration under
the Securities Act of 1933, as amended, in reliance on Section 4(2) of the
Securities Act of 1933, as amended, and Regulation D promulgated thereunder,
as transactions by an issuer not involving a public offering. The recipients
of such securities represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof, and appropriate legends were affixed to the securities
issued in such transaction.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
The following historical selected consolidated financial data of the
Company is qualified by reference to and should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this Form 10-K. The balance sheet data set forth below
for the years ended December 31, 1996 and 1995 and the operating data for the
years in the three-year period ended December 31, 1996 are derived from the
Consolidated Financial Statements of the Company audited by KPMG Peat Marwick
LLP, independent certified public accountants. The statement of operations
data set forth below with respect to the fiscal years ended December 31, 1993
and 1992 (from inception of the Company on April 20, 1992) and the balance
sheet data as of December 31, 1994, 1993 and 1992 are derived from the audited
financial statements not included in this Form 10-K.
<TABLE>
<CAPTION>
INCEPTION
YEARS ENDED (APRIL 20, 1992)
DECEMBER 31, TO DECEMBER 31,
-----------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------- -------------- -------------- ----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
License fees $11,324 8,258 2,280 439 28
Technology resales 2,860 3,368 2,399 2,159 319
Service fees 23,172 16,573 8,453 2,405 368
------- ------ ------ ------ ------
Total revenue 37,356 28,199 13,132 5,003 715
------- ------ ------ ------ ------
Costs and expenses:
Cost of licenses 1,319 439 445 - -
Cost of technology resales 2,337 2,651 1,802 1,692 256
Cost of services 15,973 10,341 4,614 1,058 114
General and administrative 5,256 4,761 2,441 542 90
Sales and marketing 10,730 4,829 1,826 543 105
Research and development 6,688 3,082 481 - -
In-process research and development 100 6,913 - - -
------- ------ ------ ------ ------
Total costs and expenses 42,403 33,016 11,609 3,835 565
------- ------ ------ ------ ------
Operating income (loss) (5,047) (4,817) 1,523 1,168 150
------- ------ ------ ------ ------
Other expense (income) (674) 158 7 - -
------- ------ ------ ------ ------
Income (loss) before income taxes (4,373) (4,975) 1,516 1,168 150
Income tax benefit (1,658) - - - -
------- ------ ------ ------ ------
Net income (loss) $(2,715) (4,975) 1,516 1,168 150
======= ======= ====== ====== ======
Net (loss) per share $ 0.21
=======
Shares used in computing loss per share 12,950
=======
Pro forma (1):
Income (loss) before income taxes as reported $(4,975) 1,516 1,168 150
Income tax expense (benefit) (550) 605 450 50
======= ====== ====== ======
Net income (loss) $(4,425) 911 718 100
======= ====== ====== ======
Net income (loss) per share $ (0.41) 0.08 0.07 0.01
======= ====== ====== ======
Shares used in computing net income (loss) per share 10,837 10,837 10,837 7,571
======= ====== ====== ======
</TABLE>
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<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ -------------- -------------- -------------- -------------------
(Table in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents $14,637 $ 1 $ 87 $ 2 $ 70
Working capital 21,619 (1,308) 1,368 760 154
Total assets 36,351 15,292 4,630 1,844 296
Long-term debt, less current portion - 8,932 - - 60
Convertible preferred stock - 5,500 - - -
Redeemable preferred stock - 5,500 - - -
Retained earnings (accumulated deficit) (19,834) (17,119) 2,015 930 142
Shareholders' equity (deficit) 30,992 (15,990) 2,024 938 150
</TABLE>
(1) Prior to May 15, 1995, the Company had elected to be treated as a small
business corporation (S Corporation) for income tax purposes. The pro
forma income taxes have been calculated using the statutory tax rates in
effect during the applicable periods, as if the Company were taxable as a
C Corporation. The pro forma income taxes also assume the adoption of
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes, as of April 20, 1992. Common stock and Common Stock equivalents
issued within one year preceding the Company's IPO have been assumed to be
outstanding for all periods presented in accordance with the rules of the
Securities and Exchange Commission.
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<PAGE> 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company's revenues consist primarily of software license fees, resales
of software products developed by other independent software vendors
("technology resales") and fees for services, including consulting, education
and maintenance. The Company was organized in April 1992, and through calendar
year 1994 a substantial part of the Company's revenue was derived from
technology resales and consulting and education services. The Company began
selling its own license product in the fourth quarter of 1993. Since then, the
Company has brought several additional tools and applications to the market.
Service fees remain the Company's largest single revenue source, although the
Company's strategy is to seek to increase revenue generated by licensing its
application products and software development tools as a percentage of total
revenue. License fees, as a percentage of total revenue, increased to 30% for
fiscal 1996 from 17% in fiscal 1994. Since inception, the Company has
experienced significant revenue growth. However, there can be no assurance
that the Company's revenue growth will continue in the future or that present
levels of revenue can be sustained.
The discussion in this report contains forward-looking statements that
involve risks and uncertainties. The Company's future actual results may
differ materially from the results discussed herein and including those in the
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to the risks discussed in this section
under "Forward Looking Statements and Associated Considerations"
The Company recognizes revenue in accordance with the American Institute
of Certified Public Accountants Statement of Position 91-1, Software Revenue
Recognition. Software license fees are recognized upon shipment to the
customer if collection is probable and the remaining Company obligations are
insignificant. The Company provides for potential product returns and
allowances at the time of shipment. Historically, product returns and
allowances have been immaterial. Revenues from consulting and education
services are recognized as those services are performed. Revenue for
maintenance services is recognized ratably over the term of the support period.
Unrecognized amounts are recorded as deferred revenue.
On March 1, 1996, the Company completed its IPO and issued 2,900,000
shares of its Common Stock at a price of $14.00 per share and on April 3, 1996
the underwriter exercised the over-allotment option and the Company issued
495,000 additional shares of its Common Stock. The total cash received was
approximately $43.3 million net of underwriting discounts and commissions. See
"Liquidity and Capital Resources" for a discussion on the use of the IPO
proceeds.
Effective November 1, 1995, the Company completed the acquisition of
substantially all of the net assets of STI, including the intellectual property
rights to its financial application product. Effective December 6, 1995, the
Company also completed the acquisition of the intellectual property rights
related to manufacturing and customer order management application products
owned by Reliance Electric Industrial Company ("Reliance"). These acquisitions
allowed the Company to enhance its suite of application products, resulting in
the Company's ability to offer its customers a broader range of client/server
application products. Effective January 1, 1996, the Company expanded its sales
and consulting force and acquired rights to a client/server development tool
by the completion of the acquisition of substantially all of the net assets of
Visual. The Company is not currently considering additional significant
acquisitions of complementary businesses, products or technologies, although it
may do so in the future.
All of the acquisitions were recorded as purchase transactions for
accounting purposes and the STI and Reliance transactions resulted in a
non-recurring charge to 1995 fourth quarter income for in-process research and
development of approximately $6.9 million. The Visual transaction resulted in
a non-recurring charge to 1996 first quarter income for in-process research and
development of $0.1 million.
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<PAGE> 23
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
financial data regarding the Company's revenues derived from license fees,
technology resales and service fees:
<TABLE>
<CAPTION>
Revenues FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------
($'S IN THOUSANDS)
1996 CHANGE 1995 CHANGE 1994
- --------------------------- ---------------------------------------------
<S> <C> <C> <C> <C> <C>
License fees $11,324 37% $ 8,258 262% $2,280
Percentage of total revenue 30% 29% 17%
- --------------------------- ---------------------------------------------
Technology resales $ 2,860 (15%) $ 3,368 40% $2,399
Percentage of total revenue 8% 12% 18%
- --------------------------- ---------------------------------------------
Service fees $23,172 40% $16,573 96% $8,453
Percentage of total revenue 62% 59% 65%
- --------------------------- ---------------------------------------------
</TABLE>
License Fees. The Company's license fees are derived from licensing the
Company's development tools and application products. The Company establishes
its licensing fees using a tiered pricing approach based on the number of
concurrent servers and users. Source code licenses are available at an
additional cost. License fees increased 262% from 1994 to 1995 and 37% from
1995 to 1996 due primarily to increased market acceptance of the Company's
products and underlying client/server technology, expansion of the Company's
product offerings and growth in the Company's sales, marketing and customer
service organizations. The increase in 1996 from the respective prior year was
also due to an increase in the number of licenses sold as well as increased
transaction size, OEM license fees, increased market acceptance of the
Company's products and customer awareness of the Company's application
products. Increased OEM license fees includes a $2 million license fee from a
channel partner in which the Company subsequently acquired a five percent
ownership interest for $1.5 million. The Company believes that its release of
enhancements for its application products at the end of the third quarter of
1996 which was later than originally planned negatively impacted the Company's
1996 license fees. Additionally, the release of Powersoft Corporation's
PowerBuilder version 5.0 software created a certain amount of client/server
class library market indecisiveness which negatively impacted revenues
associated with one of the Company's software development tools. In response
to Powersoft's new product release, the Company has developed and released a
new class library development tool. Although the Company believes its new
development tool will benefit users of Powersoft's new product release, there
can be no assurance that the Company's new development tool will achieve market
acceptance.
Technology resales. Technology resales are derived from licensing
complementary client/server development tools developed by other independent
software vendors. Technology resales and related services are more susceptible
to change based on the price for such products and services than the Company's
application license fees and related services. Technology resales increased
40% from 1994 to 1995 primarily due to unit growth associated with growth in
the Company's sales, marketing and customer service organizations. Technology
resales decreased 15% from 1995 to 1996 due to the Company's increased focus on
sales of its own software development tools and application products and
increased market competition for technology resale products. The Company
believes that 1997 technology resales revenue, as a percentage of total
revenue, will be less than prior year periods.
Service fees. The Company's service fees consist of revenue from
consulting, education and maintenance services. Consulting services are
primarily provided on a time and material basis, educational services are
generally priced on a per student basis and annual maintenance service fees are
based on a percentage of the related license fees. During 1995, service fees
grew 96% over 1994 due primarily to continued growth in the Company's
consulting staff and instructor pool and increased maintenance fees
attributable to the increase in sales of the Company's development tools and
application products. During 1996, service fees grew 40% over 1995 due
primarily to the increase in the number of consulting personnel, increase in
the realized consulting hourly rates and the additional maintenance revenue
provided by the Company's product licensing activities. The higher hourly
rates were attained due to the consultants performing higher value-added work
associated with licenses of the Company's products. During 1996 as compared to
1995, consulting fees increased 36%, education fees increased 18% and
maintenance fees increased 257%.
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<PAGE> 24
COSTS AND EXPENSES
The following table sets forth, for the periods indicated, certain
financial data regarding the Company's costs associated with its license fees
technology resales and services:
<TABLE>
<CAPTION>
Cost of revenue FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------
($'S IN THOUSANDS)
1996 CHANGE 1995 CHANGE 1994
- --------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C>
Cost of licenses $ 1,319 200% $ 439 (1%) $ 445
Gross profit percentage 88% 95% 80%
- --------------------------- ----------------------------------------------
Cost of technology resales $ 2,337 (12%) $ 2,651 47% $1,802
Gross profit percentage 18% 21% 25%
- --------------------------- ----------------------------------------------
Cost of services $15,973 54% $10,341 124% $4,614
Gross profit percentage 31% 38% 45%
- --------------------------- ----------------------------------------------
</TABLE>
Cost of Licenses. In 1994, the cost of license revenue was associated
with application software royalty payments to Reliance that the Company is no
longer obligated to pay. The cost of license revenue from 1995 forward
consists primarily of production costs, royalties associated with a module of
one of the Company's application products, and the amortization of intangible
assets. The gross profit percentage of cost of licenses increased in 1995 from
1994 due to the termination of the Company's obligation to pay the royalty
payments to Reliance. In 1996, the gross profit percentage decreased compared
to 1995 due to the amortization of intangible assets acquired in the STI,
Visual and Reliance acquisitions. The Company will incur an annual
amortization expense of approximately $950,000 for the next three years and
approximately $200,000 for years four through six thereafter.
Cost of Technology Resales. Cost of technology resales consists primarily
of costs associated with resales of complementary client/server development
tools developed by other independent software vendors. The gross profit
percentage of cost of technology resales decreased in 1996 and 1995 compared to
prior years because of increased competition in the market for complementary
client/server development tools and the resulting lower prices charged for such
sales. The 47% increase of cost of technology resales in 1995 from 1994 is
primarily due to increased technology resale revenue. The decrease of 12% of
technology resales costs in 1996 compared to 1995 is due to the Company's
increased focus on sales of its own software development tools and applications
and increased market competition for technology resale products.
Cost of Services. Cost of services consists primarily of compensation and
travel costs associated with providing consulting, product support, technical
services and education. Cost of services gross profit percentage decreased in
1996 from 1995 and 1994 primarily because of the recruitment and training of a
more experienced, and thus more expensive, consulting staff and the associated
infrastructure support costs, further shifting of the total service fee mix to
consulting fees from higher margin education fees and higher than expected
consultant turnover in 1996. Cost of services in absolute dollars have
increased year to year from 1994 to 1996 as a result of increased service fees.
The following table sets forth, for the periods indicated, certain
financial data regarding the Company's operating expenses:
<TABLE>
<CAPTION>
Operating expenses FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------
($'S IN THOUSANDS)
1996 CHANGE 1995 CHANGE 1994
- -------------------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C>
General and administrative $ 5,256 10% $4,761 95% $2,441
Percentage of total revenue 14% 17% 19%
- -------------------------------- --------------------------------------------
Research and development $ 6,688 117% $3,082 541% $ 481
Percentage of license fees revenue 59% 37% 21%
- -------------------------------- --------------------------------------------
Sales and marketing $10,730 122% $4,829 164% $1,826
Percentage of total revenue 29% 17% 14%
- -------------------------------- --------------------------------------------
</TABLE>
General and administrative ("G&A"). G&A expenses include compensation,
communications, accounting, legal and related facilities expenses. The
increase in G&A expense in 1995 from 1994 of 95% was primarily due to increased
staffing and associated expenses necessary to manage and support the Company's
increased scale of operations. The increase in G&A expenses in 1996 from 1995
of 10% was a result of the continued expansion of the Company's administrative
staff to support its operations, and increased expenses associated with being
a public company. While G&A
23
<PAGE> 25
expense increased in absolute dollars in 1996 and 1995; the G&A expenses as a
percentage of total revenue decreased compared to prior years due to the growth
in revenue.
Research and development ("R&D"). R&D costs consists primarily of
compensation and related facilities and equipment costs associated with
developing, maintaining and enhancing the Company's development tools and
application products. R&D costs as a percentage of license fees was 21% in 1994
and increased to 37% in 1995 primarily because of the increase in the size of
the Company's product portfolio and the associated costs of product
development, enhancement and maintenance. R&D costs as a percentage of license
fees increased to 59% of total license fees in 1996 primarily due to additional
R&D personnel necessary to expand and enhance the Company's application
products and development tools. During the second and third quarters of fiscal
1996, the Company temporarily reassigned consulting personnel to R&D positions
to facilitate new version releases of its application products. This temporary
transfer not only increased R&D costs but also decreased service fees during
those respective quarters. Following the Company's September 30, 1996 release
of its ADAPTlication Series of products, the Company consolidated four separate
application R&D centers into one facility for several reasons including reducing
costs. Additionally in March 1997, the Company hired an experienced industry
executive to manage the R&D organization. Since inception, the Company has not
capitalized any internal R&D costs. The Company plans to continue to make
significant investments in R&D.
Sales and Marketing. Sales and marketing expenses primarily consists of
compensation paid to sales and marketing personnel, costs of marketing, direct
mail and telemarketing activities, costs of public relations, trade shows and
conferences, and related communication costs. Sales and marketing expense
increased as a percentage of total revenue from 14% in 1994 to 17% in 1995
principally because of continued growth of the Company's direct sales force and
corporate marketing department and costs associated with new product
introductions. Sales and marketing expenses increased as a percentage of total
revenue to 29% in 1996 primarily due to investment in its direct and indirect
sales force (including the establishment of the Company's Business Development
Group and Client/Server Migration Group), its opening of an international
office in The Netherlands, and increased marketing expenses for the Company's
products and services. During the third quarter of fiscal 1996, the Company
restructured the sales management team from ten districts to three sales
regions to reduce the number of layers between the customer and sales
management as well as reduce the infrastructure costs. The Company will
continue to invest in its direct and indirect sales force and implementation of
its marketing and product strategies, and consequently its sales and marketing
expenses may continue to increase both in dollar amounts and percentage of
total revenues in the future.
IN-PROCESS RESEARCH AND DEVELOPMENT
An aggregate expense of $6.9 million, was recorded in the fourth quarter
of 1995 as a result of the STI and Reliance intellectual property acquisition
transactions and $0.1 million was recorded in the first quarter of 1996 as a
result of the Visual transaction related to the acquisition of in-process
research and development. Such amounts have been recorded as an operating cost
and a reduction of operating income.
INCOME TAX EXPENSE (BENEFIT)
Until May 1995, the Company was treated as an S Corporation for federal
and state income tax purposes. Accordingly, federal income taxes on any
earnings were payable by the Company's shareholders rather than the Company.
On May 15, 1995, the Company terminated its S Corporation status and became
subject to statutory corporate income taxes.
LIQUIDITY AND CAPITAL RESOURCES
From the inception of the Company until the IPO, the Company financed
its operations primarily through cash flow from operations, private sales of
equity securities, shareholder loans and borrowings under a commercial line of
credit. In May 1995, the Company sold a total of 55,000 shares of its
Redeemable Preferred Stock and 1,600,000 shares of its Convertible Preferred
Stock to certain institutional investors for a total purchase price of $11.0
million. Prior to termination of its S Corporation status, the Company made
approximately $14.9 million to its founding shareholders in the form of cash
and notes. In December 1995, the Company borrowed a total of $1.0 million
from the Company's three founding shareholders pursuant to promissory notes
bearing interest at the rate of 8% per annum.
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<PAGE> 26
The Company's IPO resulted in net proceeds of approximately $43.3
million. The Company used these IPO proceeds to repay the $7.1 million
promissory note issued to Reliance in connection with the acquisition of certain
software from Reliance; redeem all outstanding shares of the Company's
Redeemable Preferred Stock of approximately $5.5 million; repay promissory
notes from the Company to the three founding shareholders of
the Company of approximately $3.4 million; repay the outstanding bank lines of
credit balances; and repay the $1.0 million working capital notes from the
three founding shareholders of the Company. The remaining proceeds
from the IPO were invested in short-term investments and are used to provide
working capital and capital resources as needed.
At December 31, 1996, 1995 and 1994, the Company had available cash and
cash equivalents of $14,637,168, $500 and $86,966 respectively, and working
capital of $21.6 million, $(1.3) million and $1.4 million, respectively. At
December 31, 1996, the Company had approximately $11.5 million of accounts
receivable.
The Company has an unsecured $5 million revolving line of credit with a
commercial bank for working capital and other purposes. The interest rate on
the line of credit is equal to LIBOR plus 150 or 200 basis points, based on the
Company's tangible net worth. The line of credit requires the Company to
maintain certain financial ratios. At December 31, 1996, no balance was
outstanding on the line of credit. This line of credit was entered into in
October 1996 and replaced a line of credit that permitted borrowing of the
lesser of $4.0 million or 80% of eligible accounts receivable.
Net cash provided by (used in) financing activities for the years ended
December 31, 1996, 1995 and 1994 was $22.8 million, $4.6 million and $(0.3)
million, respectively.
Net cash provided by (used in) operating activities for the years ended
December 31, 1996, 1995 and 1994 was ($4.8) million, $(0.9) million and $0.9
million, respectively. In 1996, uses of cash increased as a result of
increased expenditures in research and development including those associated
with the September 30, 1996 release of the ADAPTlication Series of products and
increased marketing and sales costs due to the Company's increased investment
in its direct and indirect sales force and marketing organizations.
Net cash used in investing activities for the years ended December 31,
1996, 1995 and 1994 was $3.3 million, $3.8 million and $0.5 million,
respectively. Such uses were for purchases of furniture, fixtures, and
communication and computer equipment. In 1995, such uses included $2.3 million
associated with the STI and Reliance transactions and in 1996 included $1.5
million for an investment in a non-public third party and $0.1 million related
to the STI transaction.
To date, inflation has not had a material effect on the Company's
financial results. There can be no assurance, however, that inflation may not
adversely affect the Company's financial results in the future.
The Company believes that funds generated from its operations, existing
cash and cash equivalents and its short term accounts receivable together with
the availability of the line of credit, will be sufficient to finance the
Company's operations for at least the next twelve months.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED CONSIDERATIONS
This report contains statements that constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
The words "believe," "estimate," "expect," "intend," "anticipate" and similar
expressions and variations thereof identify certain of such forward-looking
statements, which speak only as of the dates on which they were made. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events, or otherwise. Such statements appear in a number of places in this
report and include statements regarding the intent, belief or current
expectations of the Company, its directors or its officers with respect to,
among other things: (i) trends affecting the Company's financial condition or
results of operations; (ii) the industry in which the Company operates; (iii)
the Company's business and growth strategies; and (iv) other matters.
Prospective investors are cautioned that any such forward-looking statements
are not guarantees of future performance and involve risks and uncertainties,
and that actual results may differ materially from those indicated in the
forward-looking statements as result of various factors. Readers are cautioned
not to place undue reliance on these forward-looking statements. Factors to
consider in evaluating any forward-looking statements and the other information
contained herein include the following:
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<PAGE> 27
Ability to Manage Change. The Company was incorporated in April 1992 and
commercially shipped its initial products in late 1993. Since inception, the
Company has experienced rapid growth in its revenue, the number of its
employees and the scope of its operations. The number of Company employees,
for example, has grown from 11 on December 31, 1992 to 420 as of December 31,
1996. The Company's rapid growth has resulted in, and is expected to continue
to create, new and increased responsibilities for management personnel, as well
as additional demands on the Company's operating and financial systems. The
Company's business and future growth will depend on the efforts of key
management personnel and the Company's ability to attract and retain qualified
management personnel. The Company's continued growth will also require it to
recruit additional qualified technical personnel, to enhance its managerial
systems for its operations, and to successfully integrate new employees and
systems into its existing operations. If the Company is unable to manage
change effectively, the Company's business, financial condition and results of
operations could be materially adversely affected.
The Company began operations primarily as a value-added reseller of
client/server software development tools developed by third parties and as a
provider of related consulting services. For each fiscal quarter since that
time, including the quarter ended December 31, 1996, revenue from services has
accounted for at least a majority of the Company's revenue. Although the
Company's initial development tool, PowerTOOL, became commercially available in
the fourth quarter of 1993, the Company's other development tool offerings were
commercially introduced in the second half of 1995 or the first quarter of
1996. The Company's first application product, ADAPTlication for Manufacturing
(previously known as PowerMAN), was commercially introduced in the third
quarter of 1994, but the Company's remaining application product offerings were
commercially introduced or acquired in the second and third quarters of 1995.
The Company's strategy is to seek to increase its revenue from the sale of the
Company's software products as a percentage of total revenue. However,
selling, distributing and supporting computer software may demand different
sales, technological and management skills than providing software consulting
services. To be successful, the Company and its management will be required to
adapt to the changing nature of the Company's business. Any failure to do so
would have a material adverse effect on the Company's business, financial
condition and results of operations.
As a result of its growth, the Company has significantly increased its
operating expenses in recent periods as it has continued to expand its
organization to support sales growth and product development. There can be no
assurance that the Company will be able to increase its levels of revenue or
achieve profitability in the future. Increases in operating expenses are
expected to continue and, together with pricing pressures, could result in a
decrease in operating income or increased operating losses.
The Company has pursued, and will continue to pursue, growth opportunities
through internal development and, if appropriate opportunities arise,
acquisition of complementary enterprises and products. The Company competes
for acquisition and expansion opportunities with many entities that have
substantially greater resources. In addition, acquisitions may involve
difficulties in the retention of personnel, diversion of management's
attention, unexpected legal liabilities, and tax and accounting issues. There
can be no assurance that the Company will be able to successfully identify
suitable acquisition candidates, complete acquisitions, integrate acquired
businesses into its operations or expand into new markets. Once integrated,
acquisitions may not achieve comparable levels of revenue, profitability or
productivity as the existing business of the Company or otherwise perform as
expected. The occurrence of any of these events could have a material adverse
effect on the Company's business, financial condition and results of operations.
Fluctuations in Quarterly Activities and Results of Operations. The
Company's quarterly revenue and results of operations have fluctuated
significantly in the past and will likely fluctuate in the future. Causes of
such fluctuations have included and may include, among others, the demand for
the Company's products and services; the size and timing of orders; the number,
timing and significance of new product announcements by the Company and its
competitors; the ability of the Company to develop, introduce, market and ship
existing, new and enhanced versions of the Company's products on a timely
basis; the level of product and price competition; reassignment of consultants
from providing billable services to research and development; the level of
price and product competition; changes in operating expenses; changes in
average selling prices and mix between the Company's products, technology and
resale products and services; changes in the Company's sales incentive
strategy; the mix
26
<PAGE> 28
of direct and indirect sales (including international sales); seasonal decline
in product sales; changes in customers' budget constraints; and general
economic factors. Any one or more of these or other factors could have a
material adverse effect on the Company's business, financial condition and
results of operations. The potential occurrence of any one or more of these
factors makes the prediction of revenue and results of operations on a
quarterly basis difficult.
In general, revenue is difficult to forecast because the market for
client/server software is evolving rapidly and the Company's sales cycle, from
the customer's initial evaluation through purchase of multiple licenses and the
related support services, varies substantially from customer to customer and
from product to product. License fee revenue in any quarter depends on orders
shipped in that quarter. License fee revenue from quarter to quarter is
difficult to forecast, as no significant order backlog exists at the end of any
quarter because the Company's products typically are shipped upon receipt of
customers' orders.
The Company in the past has realized a substantial portion of its revenue
in the last month of a quarter, with this revenue concentrated in the last
weeks or days of a quarter. It is not uncommon for software companies to
experience strong fourth quarters followed by weak first quarters, in some
cases with quarter-to-quarter declines in revenue or operating profit. There
can be no assurance that the Company will not display this pattern in future
years.
A substantial portion of the Company's operating expense is related to
personnel, facilities and marketing programs. The level of spending for such
items cannot be adjusted quickly and is therefore fixed in the short term.
The Company's expense levels for personnel, facilities and marketing programs
are based, in significant part, on the Company's expectations of future revenue
on a quarterly basis. If actual revenue levels on a quarterly basis are below
management's expectations, results of operations are likely to be adversely
affected by a similar amount because a relatively small amount of the Company's
expense varies with its revenue in the short term.
The Company's strategy is to seek to increase sales of its higher margin
development tools and application products and increase their sales as a
percentage of total revenue. Implementation of this strategy has in the past,
and may in the future, cause the Company's quarterly results to fluctuate. In
addition, the Company has built and intends to continue to build an expense
infrastructure that assumes this strategy will succeed. Therefore, the failure
of the Company to achieve this strategy could have a material adverse effect on
the Company's business financial condition and results of operations.
Due to all of the foregoing factors, among others, it is possible that in
some future quarters the Company's results of operations will be below the
expectations of public market analysts and investors. In such event, the price
of the Company's Common Stock would likely be adversely affected.
Dependence on New Products. Many of the Company's development tools and
application products have only recently been introduced by the Company or
acquired by the Company for inclusion in its product line. Although the
Company's initial development tool, PowerTOOL, became commercially available in
the fourth quarter of 1993, its other development tool offerings were
commercially introduced in or following the second half of 1995. The
Company's first application product, ADAPTlication for Manufacturing, was
commercially introduced in the third quarter of 1994; however, its other
application product offerings were commercially introduced or acquired in the
second and third quarters of 1995. Accordingly, the Company has little history
with these products, and there can be no assurance that these products will
achieve market acceptance. The Company's future success will depend heavily on
sales of these products, and the failure of these products to find market
acceptance would have a material adverse effect on the Company's business,
financial condition and results of operations. Also, new products, when first
released by the Company, may contain undetected difficulties or defects that,
despite testing by the Company, are discovered only after they have been
installed and used by customers. In response, the Company's support staff
provides software fixes and maintenance releases designed to correct or work
around these difficulties or defects, most of which are uncovered in the months
immediately following commercial release of a new product. There can be no
assurance that such difficulties will not be discovered in the future, causing
significant customer relations issues, delays in product introduction and
shipments, or requiring design modifications that could adversely affect the
Company's competitive position, business, financial condition and results of
operations. See "Business - Products and Services."
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<PAGE> 29
Dependence on Client/Server Environment. The Company's development tools,
application products, technology resale products, and consulting and education
services are intended to help organizations build, customize or deploy
solutions that operate in a client/server computing environment. The
client/server market is relatively new and there can be no assurance that
organizations will continue to adopt client/server environments or that
customers of the Company that have begun the migration to a client/server
environment will broadly implement this model of computing. The Company's
future financial performance will depend in large part on continued growth in
the market for client/server software applications, development tools and
related services, which in turn will depend in part on the growth in the number
of organizations implementing client/server computing environments and the
number of applications developed for use in those environments. There can be
no assurance that these markets will continue to grow or that the Company will
be able to respond effectively to the evolving requirements of these markets.
If the market for client/server development tools, application products and
services does not grow in the future, or grows more slowly than the Company
anticipates, or if the Company fails to respond effectively to evolving
requirements of this market, the Company's business, financial condition and
results of operations would be materially adversely affected. See "Business -
Industry Background."
Dependence on PowerBuilder and Other Third-Party Products. The Company
currently derives substantially all its revenue from (i) sales of its
development tools designed to complement and enhance Powersoft Corporation's
PowerBuilder software, a widely used application software development tool for
the client/server market, (ii) sales of its application products written using
PowerBuilder software and various relational database management software
products available from Oracle, Sybase and Microsoft, (iii) resales by the
Company of PowerBuilder and software from other independent software vendors
such as LogicWorks, SQA and Intersolv, whose products complement PowerBuilder
and (iv) consulting, education and maintenance services related to all of these
products. As a result, any factor adversely affecting demand for or use of
PowerBuilder or, to a lesser extent, the other technology resale products
described above, or adversely affecting the Company's relationship with
Powersoft Corporation, could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition,
Powersoft could in the future release development tools competitive with the
Company's development tools. Moreover, any changes in or new versions of
PowerBuilder that require changes to the Company's products could materially
adversely affect the Company's business, financial condition and results of
operations if the Company were not able to successfully develop or implement
such changes in a timely fashion. The Company's future financial performance
will also depend in part on the successful development and introduction of new
and enhanced versions of PowerBuilder and other products, and customer
acceptance of such new and enhanced products. See "Business - Products and
Services."
Availability of Consulting Personnel. The Company's application products
and, to a lesser extent, the Company's development tools, generally require
that some level of post-sale technical consulting services be provided to the
customer. The Company's future success will depend on its ability to recruit,
hire, train, retain and provide enough application and technical consultants
or, alternatively, to continue to develop and expand relationships with third
party organizations willing and able to provide these services. There can be
no assurance that the Company will be able to achieve these objectives and, if
it is unable to do so, this could have a material adverse effect on the
Company's business, financial condition and results of operations.
Product Development Risks. The client/server software market is
characterized by rapid technological advances, changes in customer requirements
and frequent new product introductions and enhancements. The Company's future
success will depend upon its ability to enhance its current products and to
develop and introduce new products on a timely basis that keep pace with
technological developments, respond to evolving customer requirements and
achieve market acceptance. Any failure by the Company to anticipate or respond
adequately to technological developments and customer requirements, or any
significant delays in product development or introduction, could result in a
loss of competitiveness or revenue. In the recent past, the Company has
experienced unexpected delays in the introduction of certain of its products,
which has had an adverse impact on the Company's revenue. Also, new products,
when first released by the Company, may contain undetected difficulties or
defects that, despite testing by the Company, are discovered only after they
have been installed and used by customers. There can be no assurance that such
difficulties will not be discovered in the future, causing significant customer
relations issues, delays in product introduction and shipments, or requiring
design modifications that could adversely affect the Company's competitive
position, business, financial condition and results off operations. In
addition, there can be no assurance that new products or product enhancements
developed by the Company will achieve market acceptance, in which case the
Company's business, financial condition and results of operations could be
adversely affected. See "Business - Product Development."
28
<PAGE> 30
Competition The market for development tools, application products and
support services in the client/server industry is intensely competitive and
rapidly changing. The Company competes with different competitors in each
category of its product and service offerings The Company believes that its
ability to compete successfully depends upon a number of factors both within
and beyond its control, including product performance, quality of support,
training and services, timeliness of enhancements and new product releases by
the Company and its competitors, the emergence of new client/server products
and standards, and industry and general economic trends. In addition to direct
competition, the Company faces indirect competition from its existing and
potential future customers, many of which internally design and use their own
software tools or design their own software applications for their particular
needs, and therefore may be reluctant to license products offered by
independent vendors such as the Company. As a result, the Company must educate
prospective customers as to the advantages of the Company's products as opposed
to internally developed applications. There can be no assurance that the
Company will be able to compete effectively with its direct competitors or to
adequately educate potential customers to the benefits provided by the
Company's products.
Most of the Company's current and potential competitors have longer
operating histories and greater financial, technical, sales, marketing and
other resources, as well as greater name recognition, larger installed customer
bases, and greater market acceptance of their products and technologies, than
the Company. Some of these competitors offer a small number of application
products addressing only one business area (i.e., accounting or sales force
automation). As a result of these factors, they may be able to respond more
quickly to technological changes or market opportunities, and to devote greater
resources to the development, promotion and sale of their products than the
Company. Also, in the markets in which the Company operates, there are
relatively low barriers to entry, and new competition may arise either from
expansion by established companies or from new emerging companies. Increased
competition may result in pressure for price reductions and related reductions
in gross margins and market share, any of which could have a material adverse
effect on the Company's ability to achieve its financial and business goals.
To achieve its goal of larger market share, the Company must continue to
enhance its existing products, introduce new products, recruit and train
additional consulting staff, and recruit and train sales and marketing
professionals. There can be no assurance that the Company will be able to
successfully compete against current and future competitors or that competitive
pressure faced by the Company will not have a materials adverse effect on its
business, financial condition and results of operations. See "Business -
Competition."
Dependence on Proprietary Technology; Risks of Third-Party Claims for
Infringement. The Company regards its software as a trade secret and attempts
to protect it with a combination of copyright, trademark and trade secret laws,
and employee and third-party nondisclosure agreements. The Company has no
patents or patents pending, and has not to date registered any copyrights. The
Company holds the registered trademark INTERGY in the United States, and is
currently seeking registration in the United States for a number of other
marks. The Company generally licenses its application products under
negotiated agreements and its development tools primarily under "shrink wrap"
licenses (i.e., licenses included as part of the product packaging). Shrink
wrap licenses are not negotiated with or signed by individual licensees, and
purport to take effect upon the opening of the product package. Certain
provisions of such licenses, including provisions protecting against
unauthorized use, copying, transfer and disclosure of the licensed program, may
be unenforceable under the laws of some jurisdictions. Despite the Company's
efforts to protect its proprietary rights, unauthorized parties may attempt to
copy aspects of the Company's products or to obtain and use information that
the Company regards as proprietary. Policing unauthorized use of the Company's
products is difficult, and although the Company is unable to determine the
extent to which piracy of its software products exists, such piracy can be
expected to be a persistent problem, particularly in international markets. In
addition, the laws of some foreign countries do not protect the Company's
proprietary rights to the same extent as the laws of the United States. There
can be no assurance that these protections will be adequate or that the
Company's competitors will not independently develop technologies that are
substantially equivalent or superior to the Company's technologies. See
"Business - Intellectual Property and Other Proprietary Technology."
There has been substantial litigation in the software industry involving
intellectual property rights. Although the Company does not believe that it is
infringing the intellectual property rights of others, there can be no
assurance that such claims will not be asserted and, if asserted, would not
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, if the Company acquires or licenses a
portion of the software included in its products from third parties, its
exposure to infringement actions may increase because the Company must rely
upon such third parties for information as to the origin and ownership of such
acquired or licensed software. Although the Company has obtained and intends
to continue to obtain
29
<PAGE> 31
representations as to the origins and ownership of such acquired or licensed
software and obtain indemnification to cover any breach of any such
representations, there can be no assurance that such representations will be
accurate or that such indemnification will provide adequate compensation for
any breach of such representations. In the future, litigation may be necessary
to enforce and protect trade secrets, copyrights and other intellectual
property rights of the Company. The Company may also be subject to litigation
to defend against claimed infringement of the rights of others or to determine
the scope and validity of the intellectual property rights of others. Any such
litigation could be costly and divert management's attention, either of which
could have a materials adverse effect on the Company's business, financial
condition and results of operations. Adverse determinations in such litigation
could result in the loss of the Company's proprietary rights, subject the
Company to significant liabilities, require the Company to seek licenses from
third parties or prevent the Company from selling its products, any one of
which would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business - Intellectual Property and
Other Proprietary Technology."
Expansion of Indirect Channels; Potential for Channel Conflict. The
Company markets its development tools, application products and services
directly through both a direct sales force and telesales, and indirectly
through marketing channels such as VARs, OEMs, teaming partners and
distributors. Although VARs, OEMs, teaming partners and distributors accounted
for an insignificant percentage of the Company's total revenue in 1994 and 1995
and a growing percentage in 1996, the Company is increasing resources dedicated
to developing and expanding indirect marketing channels. During July 1996, the
Company established its Business Development Group to generate application
product sales and service revenues through indirect channels in the United
States. There can be no assurance that the Company will be able to attract and
retain a sufficient number of qualified VARs, OEMs, teaming partners and
distributors to market successfully the Company's tools and applications. The
failure to retain its VARs, OEMs, teaming partners and distributors could have
a material adverse effect on the Company's business, financial condition and
results of operations.
Relationships with VARs, OEMs, teaming partners and distributors are
usually established through formal reseller agreements. In many cases, these
agreements may be terminated by either party at any time without cause.
Therefore, there can be no assurance that any VAR, OEM, teaming partner or
distributor will continue to represent the Company's products, and the
inability to retain certain VARs, OEMs, teaming partners or distributors could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Selling through indirect channels may limit the Company's contacts with
its customers. As a result, the Company's ability to accurately forecast
sales, evaluate customer satisfaction and recognize emerging customer
requirements may be hindered. The Company's strategy of marketing its products
directly to end-users and indirectly through VARs, OEMs, teaming partners and
distributors may result in distribution channel conflicts. The Company's
direct sales efforts may compete with those of its indirect channels and, to
the extent different resellers target the same customers, resellers may also
come into conflict with each other. Although the Company has attempted to
manage its distribution channels in a manner to avoid potential conflicts,
there can be no assurance that channel conflicts will not materially adversely
affect its relationships with existing VARs, OEMs, teaming partners or
distributors or adversely affect its ability to attract new VARs, OEMs, teaming
partners and distributors. See "Business - Sales and Marketing."
Voting Control by Management. The executive officers and directors of the
Company beneficially own approximately 67% of the outstanding Common Stock. As
a result , while there is no agreement or understanding among the officers and
directors of the Company with respect to the voting of their Common Stock, if
they vote together, they will effectively be able to control the outcome of
matters requiring a shareholder vote, including the election of directors,
adopting or amending provisions of the Company's Articles of Incorporation and
Bylaws, and
30
<PAGE> 32
approving mergers or other similar transactions, such as sales of substantially
all the Company's assets. Control by the officers and directors may have the
effect of discouraging certain types of transactions involving an actual or
potential change of control of the Company, including transactions in which the
holders of Common Stock might otherwise receive a premium for their shares over
then-current market prices. In addition, the possibility of such persons
exercising such control may limit the price that certain investors may be
willing to pay in the future for shares of the Company's Common Stock.
Moreover, the Company is not prohibited from engaging in transactions with its
management and principal shareholders, or with entities in which such persons
are interested. The Company's Articles of Incorporation do not provide for
cumulative voting in the election of directors.
Dependence on Key Personnel. The Company's success depends to a
significant extent upon a number of key management and technical personnel,
principally its Chief Executive Officer, Harold R. Ross, its President and
Chief Operating Officer, Marc J. Fratello, and its Executive Vice President
and Chief Technology Officer, Roy E. Crippen, III, the loss of one or more of
whom could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company does not have any employment
agreements with those individuals, and only has employment agreements with two
of its key management personnel. The Company believes that its future success
will also depend in large part upon its ability to attract and retain highly
skilled technical, management, sales and marketing personnel. Competition for
such personnel in the computer software industry is intense, and there can be no
assurance that the Company will be successful in attracting and retaining such
personnel. Departures and additions of key personnel may be disruptive to the
Company's business and could have a materials adverse effect on the Company's
business, financial condition and results of operations.
Possible Volatility of Stock Price. The Company's stock price has
fluctuated substantially since its IPO in March 1996. The market price of the
Common Stock is subject to significant fluctuations in response to quarterly
and annual operating results of the Company, the gain or loss of significant
customer orders, announcements of technological improvements or new products by
the Company or its competitors, changes in financial estimates by securities
analysts, changes in general conditions in the economy, the financial markets
or the computer software industry, or other developments affecting the Company,
its customers or its competitors, some of which may be unrelated to the
Company's performance and beyond the Company's control. The stock of many
technology companies has experienced extreme price and volume fluctuations
unrelated to the operating performance of those
31
<PAGE> 33
companies. These market fluctuations have adversely affected and may continue
to adversely affect the market price of the Company's Common Stock.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Financial Statements and Notes thereto and the
report of KPMG Peat Marwick LLP, the Company's independent auditors, are set
forth on the pages indicated in Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes or disagreements with respect to the Company's
independent accountants during fiscal 1996.
32
<PAGE> 34
PART III
Certain information required by Part III is omitted from this Report on
Form 10-K since the Company will file a definitive Proxy Statement for its
Annual Meeting of Shareholders to be held on June 2, 1997, pursuant to
Regulation 14A of the Securities Exchange Act of 1934, as amended (the "Proxy
Statement"), not later than 120 days after the end of the fiscal year covered
by this Report, and certain information included in the Proxy Statement is
incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference
from the section entitled "Directors and Executive Officers" in the Proxy
Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference
from the section entitled "Executive Compensation" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference
from the section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference
from the section entitled "Certain Relationships and Related Transactions" in
the Proxy Statement.
33
<PAGE> 35
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
<TABLE>
<S> <C>
1. Financial Statements, with Independent Auditors' Report PAGE
----
Consolidated Balance Sheets as of December 31, 1996 and 1995............. 37
Consolidated Statements of Operations for each of the years in the
three year period ended December 31, 1996............................. 38
Consolidated Statements of Shareholders' Equity (Deficit) for each of
the years in the three year period ended December 31, 1996............ 39
Consolidated Statements of Cash Flows for each of the years in the
three year period ended December 31, 1996............................. 40
Notes to Consolidated Financial Statements............................... 41
2. Financial Statement Schedule:
Schedule II - Schedule of Valuation and Qualifying Accounts for each
of the years in the three year period ended December 31, 1996.......... 53
3. Exhibits
</TABLE>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
2.1 --- Agreement and Plan of Reorganization, dated as of January 1,
1996, among the Company, PowerCerv Technologies Corporation and
Visual Systems Development Group of Michigan, Inc. (incorporated
herein by reference to Exhibit Number 2.3 to the Pre-Effective
Amendment No. 1 to the Company's Registration Statement on Form
S-1 (File No. 333-00250)).
3.1 --- Articles of Incorporation of the Company effective as of January
1, 1996, as amended by the Articles of Amendment dated as of
January 9, 1996 (incorporated herein by reference to Exhibit
Number 3.1 to the Company's Registration Statement on Form S-1
(File No. 333-00250)).
3.2 --- Bylaws of the Company (incorporated herein by reference to
Exhibit Number 3.2 to the Company's Registration Statement on
Form S-1 (File No. 333-00250)).
4.1 --- Form of Share Exchange Agreement, effective as of January 1, 1996
between the Company and the former owners of capital stock of the
Company's subsidiary, PowerCerv Technologies Corporation
(incorporated herein by reference to Exhibit Number 4.4 to the
Company's Registration Statement on Form S-1 (File No.
333-00250)).
4.2 --- Form of Agreement to Convert Preferred Stock among the Company,
Summit Ventures III, L.P., Summit Investors II, L.P. and ABS
Capital Partners, L.P. (incorporated herein by reference to
Exhibit Number 4.5 to the Company's Registration Statement on
Form S-1 (File No. 333-00250)).
10.1 --- Management Services Agreement, dated as of January 1, 1996,
between the Company and PowerCerv Technologies Corporation
(incorporated herein by reference to Exhibit Number 10.25 to the
Pre-Effective Amendment No. 1 to the Company's Registration
Statement on Form S-1 (File No. 333-00250)).
10.2 --- Loan Agreement and related promissory notes' security agreements
and guarantees, each dated February 13, 1996, among NationsBank,
N.A. (South), the Company, Harold R. Ross, Marc J. Fratello, and
Roy E. Crippen, III for a $4,000,000 and a $1,500,000 revolving
line of credit (incorporated herein by reference to Exhibit
Number 10.23 to the Pre-Effective Amendment No. 2 to the
Company's Registration Statement on Form S-1
(File No. 333-00250)).
34
<PAGE> 36
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.3 --- Loan Agreement and related promissory notes' security agreements
and guarantees, each dated October 31, 1996, among NationsBank,
N.A. (South) and the Company, for a $5,000,000 revolving line of
credit.
10.4 --- Stock Purchase Agreement, dated November 6, 1996, between
Software Business Technologies, Inc. and PowerCerv Corporation.
10.5 --- Loan Agreement and related promissory note, dated October 7,
1996, between PowerCerv Corporation and Gerald R. Wicker.
23.1 --- Independent Auditors' Consent.
27.1 --- Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
None.
35
<PAGE> 37
INDEPENDENT AUDITORS' REPORT
The Board of Directors
PowerCerv Corporation:
We have audited the accompanying consolidated financial statements of
PowerCerv Corporation and subsidiary as listed under Item 14 of this Form
10-K. In connection with our audits of the consolidated financial
statements, we also have audited the financial statement schedule as
listed under Item 14 of this Form 10-K. These consolidated financial
statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements and financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of PowerCerv Corporation and subsidiary as of December 31,
1996 and 1995, and the results of their operations and their cash
flows for each of the years in the three-year period ended December
31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all
material respects, the information set forth therein.
As discussed in note 2 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in 1995.
/s/ KPMG PEAT MARWICK LLP
Tampa, Florida
January 30, 1997
36
<PAGE> 38
POWERCERV CORPORATION
Consolidated Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 14,637,168 500
Accounts receivable, net of allowance of $550,000 in 1996 and $425,000 in 1995 11,474,968 7,950,347
Refundable income taxes 119,277 823,000
Inventories 260,689 42,750
Other current assets 286,183 30,289
------------ -----------
Total current assets 26,778,285 8,846,886
Property and equipment, net 3,110,942 1,886,218
Intangible assets, net 3,243,278 3,193,190
Investment in third-party 1,500,000 --
Deposits and other 60,879 170,891
Deferred tax asset 1,657,700 1,195,000
----------- -----------
Total assets $36,351,084 15,292,185
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
Current liabilities:
Lines of credit$ $ -- 3,416,513
Current portion of notes payable -- 2,467,769
Accounts payable 1,070,512 1,720,137
Accrued expenses 1,754,930 1,114,483
Due to affiliate -- 11,343
Deferred revenue 2,333,369 1,424,971
------------ -----------
Total current liabilities 5,158,811 10,155,216
Notes payable, less current portion -- 8,932,170
Noncurrent income taxes payable -- 1,195,000
------------ -----------
Total liabilities 5,158,811 20,282,386
------------ -----------
Redeemable preferred stock, $.001 par value, 55,000 shares authorized; 55,000 shares
issued and outstanding in 1995 -- 5,500,000
Convertible preferred stock, $.001 par value, 1,600,000 shares
authorized; 1,600,000 shares issued and outstanding in 1995 -- 5,500,000
Common stock with redemption rights, $.001 par value, 50,000 shares issued and
outstanding in 1996 200,000 --
Shareholders' equity (deficit):
Common stock, $.001 par value, 45,000,000 shares authorized; 13,783,000 shares
(excluding those with redemption rights) and 8,680,000 shares issued and
outstanding at December 31, 1996 and 1995, respectively 13,783 8,680
Additional paid-in capital 50,812,156 1,119,720
Accumulated deficit (19,833,666) (17,118,601)
------------ -----------
Total shareholders' equity (deficit) 30,992,273 (15,990,201)
------------ -----------
Commitments, contingencies and related party transactions
Total liabilities and shareholders' equity (deficit) $36,351,084 15,292,185
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
37
<PAGE> 39
POWERCERV CORPORATION
Consolidated Statements of Operations
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------ -------------
<S> <C> <C>
Revenue:
License fees $11,323,848 8,258,312 2,280,151
Technology resales 2,860,481 3,367,457 2,398,546
Service fees 23,171,986 16,572,746 8,453,171
------------- ------------ -------------
Total revenue 37,356,315 28,198,515 13,131,868
------------ ------------ -------------
Costs and expenses:
Cost of licenses 1,319,021 438,326 444,973
Cost of technology resales 2,336,958 2,650,687 1,802,349
Cost of services 15,972,901 10,341,068 4,614,232
General and administrative 5,255,869 4,761,271 2,441,078
Sales and marketing 10,730,429 4,829,125 1,825,389
Research and development 6,688,520 3,082,017 481,247
In-process research and development 100,000 6,913,300 -
------------ ------------ -------------
Total costs and expenses 42,403,698 33,015,794 11,609,268
------------ ------------ -------------
Operating income (loss) (5,047,383) (4,817,279) 1,522,600
------------ ------------ -------------
Other income (expense):
Interest expense (177,687) (222,296) (6,870)
Interest income 859,459 67,073 3,124
Miscellaneous expense (7,154) (2,400) (3,154)
------------ ------------ -------------
Total other income (expense) 674,618 (157,623) (6,900)
------------ ------------ -------------
Income (loss) before income taxes (4,372,765) (4,974,902) 1,515,700
Income tax benefit (1,657,700) - -
------------ ------------ -------------
Net income (loss) $(2,715,065) (4,974,902) 1,515,700
============ ============ =============
Earnings (loss) per share $ (0.21)
============
Weighted average shares outstanding 12,950,000
============
Pro forma net income (loss) data:
Income (loss) before income taxes $ (4,974,902) 1,515,700
Pro forma income tax (benefit) expense (550,000) 605,000
------------- ----------
Pro forma net income (loss) $ (4,424,902) 910,700
============= ==========
Pro forma earnings (loss) per share $ (.41) .08
============== ==========
Pro forma weighted average shares outstanding 10,837,000 10,837,000
============= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
38
<PAGE> 40
POWERCERV CORPORATION
Consolidated Statements of Shareholders' Equity (Deficit)
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL SHAREHOLDERS'
------------------------------- PAID-IN ACCUMULATED EQUITY
SHARES PAR VALUE CAPITAL DEFICIT (DEFICIT)
--------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 8,400,000 $ 8,400 - 929,432 937,832
Shareholders' distributions - - - (430,000) (430,000)
Net income - - - 1,515,700 1,515,700
---------- ------- --------- ---------- ----------
Balance, December 31, 1994 8,400,000 8,400 - 2,015,132 2,023,532
Issuance expenses of
redeemable preferred
stock and convertible
preferred stock - - - (74,710) (74,710)
Issuance of common stock 280,000 280 1,119,720 - 1,120,000
Shareholders' distributions - - - (14,084,121) (14,084,121)
Net loss - - - (4,974,902) (4,974,902)
---------- ------- --------- ---------- ----------
Balance, December 31, 1995 8,680,000 8,680 1,119,720 (17,118,601) (15,990,201)
Preferred stock conversion 1,600,000 1,600 5,498,400 - 5,500,000
Issuance of common stock,
net of offering costs 3,553,000 3,553 44,393,986 - 44,397,539
Granting of redemption
privileges on common stock (50,000) (50) (199,950) - (200,000)
Net loss - - - (2,715,065) (2,715,065)
---------- ------- --------- ----------- ----------
Balance, December 31, 1996 13,783,000 $13,783 50,812,156 (19,833,666) 30,992,273
========== ======= ========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
39
<PAGE> 41
POWERCERV CORPORATION
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (2,715,065) (4,974,902) 1,515,700
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operations:
Depreciation and amortization 1,594,000 398,448 90,112
Accretion of imputed interest 140,674 40,295 -
Write-off of in-process research and development 100,000 6,913,300 -
Deferred income taxes (462,700) (1,195,000) -
Deferred revenue 873,973 1,146,699 278,272
Changes in assets and liabilities, net of effect of acquisition:
Accounts receivable, net (3,000,454) (4,221,553) (2,015,466)
Refundable income taxes 703,723 (823,000) -
Inventories (213,715) 165,531 (208,281)
Deposits and other (145,884) (179,455) (19,129)
Accounts payable and accrued expenses (477,519) 679,422 1,222,862
Due to affiliate (11,343) (45,884) 57,227
Noncurrent income taxes payable (1,195,000) 1,195,000 -
------------ ------------ -----------
Net cash provided by (used in) operating activities (4,809,310) (901,099) 921,297
------------ ------------ -----------
Cash flows from investing activities:
Purchases of property and equipment, net (1,731,889) (1,461,309) (548,328)
Investment in third-party (1,500,000) - -
Acquisition of assets, net of cash received (126,386) (2,348,740) -
------------ ------------ -----------
Net cash used in investing activities (3,358,275) (3,810,049) (548,328)
------------ ------------ -----------
Cash flows from financing activities:
Decrease in bank overdraft - - (102,616)
Net borrowings (repayments) on lines of credit (3,617,673) 3,171,513 245,000
Proceeds from notes payable - 1,000,000 -
Repayments on notes payable (11,540,613) (300,000) -
Net proceeds from issuance of preferred stock - 10,925,290 -
Redemption of preferred stock (5,500,000) - -
Net proceeds from issuance of common stock, net of offering costs 43,462,539 200,000 -
Shareholders' distributions - (10,372,121) (430,000)
------------ ------------ -----------
Net cash provided by (used in) financing activities 22,804,253 4,624,682 (287,616)
------------ ------------ -----------
Net increase (decrease) in cash and cash equivalents 14,636,668 (86,466) 85,353
Cash and cash equivalents, beginning of year 500 86,966 1,613
------------ ------------ -----------
Cash and cash equivalents, end of year $14,637,168 500 86,966
============ ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
40
<PAGE> 42
POWERCERV CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
(1) ORGANIZATION AND OPERATIONS
PowerCerv Corporation was formed as a holding company and, in a share
exchange effected as of January 1, 1996, acquired the stock of PowerCerv
Technologies Corporation (the "Operating Subsidiary"). The Operating
Subsidiary was organized in April 1992, and provides client/server
software development tools (including client/server software products
developed by other companies), application products and professional
services enabling its customers to successfully deploy client/server
computer systems to achieve their business goals. The Operating
Subsidiary has offices throughout the United States and markets its
software products outside the United States through its Netherlands office
and distributors. PowerCerv Corporation and the Operating Subsidiary are
herein referred to as the "Company".
On March 1, 1996, the Company completed an initial public offering
("IPO") of its common stock (see Note 7).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) USE OF ESTIMATES
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. To the
extent management's estimates prove to be incorrect, financial
results for future periods may be adversely affected.
(B) INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out
method) or market, and consist of technology resale products and
educational materials.
(C) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and
amortization are calculated on a straight-line basis over the
estimated useful lives of the respective assets. Upon retirement or
sale, cost and accumulated depreciation or amortization on such
assets are removed from the accounts and any gains or losses are
reflected in the consolidated statement of operations. Maintenance
and repairs are charged to expense as incurred.
(D) REVENUE RECOGNITION
License fees represent revenue from the licensing of the Company's
software development tools and application products. The Company
licenses its development tools and application products pursuant to
non-exclusive and non-transferable license agreements. Technology
resales represent revenue from the resale of third-parties' software
products. Service fees represent revenue from consulting,
education, and support services.
41
<PAGE> 43
POWERCERV CORPORATION
Notes to Consolidated Financial Statements
The Company recognizes revenue in accordance with the American
Institute of Certified Public Accountants' Statement of Position
91-1, "Software Revenue Recognition". Software license fees are
recognized upon shipment to the customer if collection is probable
and remaining Company obligations are insignificant. The Company
provides for potential product returns and allowances at the time of
shipment. Historically, product returns and allowances have been
immaterial. Technology resales are recognized at the time of product
shipments. Consulting and education revenue is recognized as
services are performed. Revenue for maintenance is recognized
ratably over the term of the support period. Unrecognized amounts
are recorded as deferred revenue in the accompanying consolidated
balance sheet.
(E) SOFTWARE DEVELOPMENT COSTS
Software development costs are accounted for in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for
the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed". Costs associated with the planning and design phase of
software development, including coding and testing activities
necessary to establish technological feasibility, are classified as
research and development and expensed as incurred. Once
technological feasibility has been determined, additional costs
incurred in development, including coding, testing, and product
quality assurance, are capitalized when material. During the years
ended December 31, 1996, 1995 and 1994, the Company did not
capitalize any internal software development costs.
In connection with the Synergistic Technologies Business Systems,
Inc. ("STI"), Reliance Electric Industrial Company ("Reliance") and
Visual Systems Development Group of Michigan, Inc. ("Visual")
transactions (see note 12), the Company acquired software
technology. The acquired software technology is being amortized, on
a product-by-product basis, at the greater of the straight-line
basis utilizing the estimated economic life, generally three to five
years, or the ratio of the current product revenue to total expected
revenue over the life of the product.
Acquired software technology and its amortization are summarized as
follows:
<TABLE>
<CAPTION>
AMORTIZATION ACCUMULATED
YEAR COST EXPENSE AMORTIZATION
---- ---------- ------------ ------------
<S> <C> <C> <C>
1996 $2,907,000 759,000 890,000
1995 2,907,000 131,000 131,000
</TABLE>
(F) GOODWILL AND OTHER INTANGIBLE ASSETS
The Company amortizes goodwill and other intangible assets on a
straight-line basis over a seven-year period. The Company
periodically reviews the value of its goodwill and other intangible
assets and the remaining life, to determine if an impairment has
occurred, by comparing the undiscounted net cash flows of the
related assets to their net book value. At December 31, 1996, the
Company is of the opinion that no such impairment has occurred.
42
<PAGE> 44
POWERCERV CORPORATION
Notes to Consolidated Financial Statements
Goodwill and its amortization are summarized as follows:
<TABLE>
<CAPTION>
AMORTIZATION ACCUMULATED
YEAR COST EXPENSE AMORTIZATION
---- ---------- ------------ ------------
<S> <C> <C> <C>
1996 $1,431,000 196,000 205,000
1995 426,000 9,000 9,000
</TABLE>
(G) INVESTMENT IN THIRD-PARTY
During December 1996, the Company acquired a 5% fully-diluted equity
interest in a closely-held entity, through a $1,500,000 investment
in the entity's Series B convertible preferred stock. The cost of
the investment was based on a valuation of the entity done for the
Company by an independent firm. The investee company develops, markets
and licenses accounting software.
In a separate transaction with this entity, the Company entered into a
partnering agreement in June 1996. Under this agreement, the Company
granted OEM development and distribution rights to one of its
application products. In addition to an OEM license fee, the Company
will be entitled to royalties based upon future licenses of the OEM
products. The partnering agreement also provides value-added reseller
rights for certain of the Company's products to the third party and
its VAR channel.
(H) INCOME TAXES
Prior to May 15, 1995, the Company had elected to be treated as a
small business corporation ("S Corporation") for income tax
purposes. Accordingly, the Company's taxable income and all tax
credits were reportable by the shareholders on their individual tax
returns.
Effective May 15, 1995, the Company converted to a C Corporation,
and adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes (Statement 109)." Statement 109 requires
the use of the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
Under Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in operations in
the period that includes the enactment date.
The pro forma income taxes presented in the 1995 and 1994
consolidated statements of operations have been calculated using the
statutory tax rates in effect during the applicable periods, as if
the Company were taxable as a C Corporation. The pro forma income
taxes also assume the adoption of Statement 109 as of April 20, 1992
(the date of the Company's inception).
43
<PAGE> 45
POWERCERV CORPORATION
Notes to Consolidated Financial Statements
(I) CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of accounts
receivable with customers. This risk, however, is limited due to
the large number of customers comprising the Company's customer base
and their dispersion worldwide.
(J) STOCK BASED COMPENSATION
Prior to January 1, 1996, the Company accounted for its stock option
plan in accordance with the provisions of Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. As such, compensation
expense would be recorded on the date of granting of stock options
only if the current market price of the underlying stock exceeded
the exercise price. Effective as of January 1, 1996, the Company
adopted Statement of Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (Statement 123), which permits entities to
recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, Statement
123 also allows entities to continue to apply the provisions of APB
Opinion No. 25 and provide pro forma net income and pro forma net
earnings per share disclosures for employee stock option grants made
in 1995 and future years as if the fair-value-based method defined
in Statement 123 had been applied. The Company has elected to
continue to apply the provisions of APB Opinion No. 25 and provide
the pro forma disclosure provisions of Statement 123.
(K) EARNINGS PER SHARE
Earnings per share is computed on the basis of the weighted-average
number of common shares outstanding and dilutive common stock
equivalent shares. For 1996, common stock equivalents were
anti-dilutive due to the net loss sustained by the Company.
Pursuant to the rules of the Securities and Exchange Commission,
common and common equivalent shares issued during the twelve month
period prior to the Company's IPO have been assumed to be
outstanding for all such periods presented.
(L) SUPPLEMENTAL CASH FLOW INFORMATION
The Company considers all highly liquid investments with purchased
maturity dates of three months or less to be cash equivalents. At
December 31, 1996, cash equivalents totaled approximately
$13,343,000.
In May 1995, the Company declared a $3,712,000 distribution to
shareholders which was paid by issuance of promissory notes.
In November 1995, the Company issued 230,000 shares of common stock
(valued at $4.00 per share) as part of the consideration for the
acquisition of substantially all of the net assets of STI.
In December 1995, the Company acquired the intellectual property
rights related to manufacturing and customer order software
applications owned by Reliance in exchange for a promissory note in
the amount of $7,128,615.
In January 1996, the Company issued 110,000 shares of common stock
(valued at $8.50 per share) as consideration for the acquisition of
the net assets of Visual.
44
<PAGE> 46
POWERCERV CORPORATION
Notes to Consolidated Financial Statements
Interest paid during the years ended December 31, 1996, 1995 and
1994 was approximately $240,600, $148,500, and $6,900,
respectively.
Income taxes paid during the years ended December 31,1996 and 1995
were approximately $4,000 and $825,400, respectively. Income tax
refunds totaled approximately $708,000 during the year ended
December 31, 1996.
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1996
and 1995:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
1996 1995 (YEARS)
---------- --------- ------------
<S> <C> <C> <C>
Leasehold improvements $ 97,088 64,921 3
Furniture and fixtures 682,075 544,941 5 - 7
Computer equipment 2,860,960 1,316,307 3 - 7
Equipment 480,561 330,897 5 - 7
---------- ---------
4,120,684 2,257,066
Less accumulated depreciation
and amortization 1,009,742 370,848
---------- ---------
$3,110,942 1,886,218
========== =========
</TABLE>
Depreciation and amortization expense was approximately $639,000,
$258,100 and $90,100 during the years ending December 31, 1996, 1995,
and 1994, respectively.
(4) LINES OF CREDIT AND NOTES PAYABLE
Prior to October 31, 1996, the Company had two lines of credit which
permitted aggregate borrowings up to the lesser of $4,000,000 or eighty
percent of eligible accounts receivable. The lines of credit had an
interest rate equal to, at the Company's option, the prime rate or LIBOR
plus 200 basis points (7.7% at December 31, 1995). At December 31, 1995,
$3,416,573 was outstanding under these credit lines.
On October 31, 1996, the Company entered into a $5,000,000 unsecured
revolving line of credit with a bank that expires on April 30, 1998.
The line of credit has an interest rate equal to the 90 day floating
LIBOR rate plus 150 to 200 basis points depending on a ratio of the
Company's total liabilities to tangible net worth, as defined (7.06% at
December 31, 1996). The line of credit agreement requires the Company
to adhere to certain restrictive financial ratios. The Company is in
compliance with these financial ratios. There was no outstanding balance
on the line of credit as of December 31, 1996.
At December 31, 1995, notes payable (including current portions) consisted
of the following:
<TABLE>
<S> <C>
Non-interest bearing amounts due shareholders, discussed
in note 7 $ 3,412,000
8% working capital notes, due on the earlier of November 15, 1,000,000
1996 or the completion of a public offering
Reliance note payable, discussed in note 12 6,987,939
-----------
$11,399,939
===========
</TABLE>
The aforementioned notes payable were repaid at the completion of the IPO.
45
<PAGE> 47
POWERCERV CORPORATION
Notes to Consolidated Financial Statements
(5) ACCRUED EXPENSES
Accrued expenses consist of the following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Compensation $1,268,511 660,000
Sales tax 181,619 355,444
Other 304,800 99,039
---------- ---------
$1,754,930 1,114,483
========== =========
</TABLE>
(6) INCOME TAXES
As discussed in note 2, the Company adopted Statement 109 as of May 15,
1995. The effect of the adoption of Statement 109 was $850,000, and has
been reported as a component of income taxes for the year ended December
31, 1995.
Income tax expense (benefit) for the years ended December 31, 1996 and
1995 consists of the following:
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Current:
Federal $(1,005,000) 1,005,000
State (190,000) 190,000
------------ -----------
$(1,195,000) 1,195,000
----------- ---------
Deferred:
Federal $ (390,700) (1,005,000)
State (72,000) (190,000)
------------ -----------
(462,700) (1,195,000)
------------ -----------
Total income tax expense (benefit) $(1,657,700) -
============ ===========
</TABLE>
46
<PAGE> 48
POWERCERV CORPORATION
Notes to Consolidated Financial Statements
Income tax benefit for the years ended December 31, 1996 and 1995 differed
from the amount computed by applying the U.S. federal income tax rate of
34 percent to loss before income taxes as result of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
"Expected" income tax benefit $(1,487,000) (1,691,000)
State taxes exclusive of effect of conversion to C
Corporation, net of federal benefit (173,000) (224,000)
Effect of S Corporation earnings - (260,000)
Effect of conversion to C Corporation - 850,000
Change in the valuation allowance
for deferred tax assets - 1,295,000
Other, net 2,300 30,000
------------ ------------
$(1,657,700) -
============ ============
</TABLE>
The tax effects of temporary differences that give rise to significant
components of the deferred tax assets and deferred tax liabilities at
December 31, 1996 and 1995 are presented below:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Deferred revenue $ 406,000 541,000
Accounts receivable allowance 209,000 162,000
Accrued expenses 133,000 38,000
Operating losses 144,000 -
Intangible assets 2,766,700 2,651,000
----------- -----------
Total gross deferred tax assets 3,658,700 3,392,000
Less valuation allowance (1,295,000) (1,295,000)
----------- -----------
Net deferred tax assets 2,363,700 2,097,000
----------- -----------
Deferred tax liabilities:
Section 481 cash to accrual conversion 544,000 816,000
Property and equipment 162,000 86,000
----------- -----------
Gross deferred tax liabilities 706,000 902,000
----------- -----------
Total net deferred tax assets $ 1,657,700 1,195,000
=========== ===========
</TABLE>
47
<PAGE> 49
POWERCERV CORPORATION
Notes to Consolidated Financial Statements
Management believes that it is more likely than not that the results of
future operations will generate sufficient taxable income to realize the
deferred tax assets. The Company has approximately $380,000 of net
operating losses available to offset future taxable income, if any, through
2011.
(7) SHAREHOLDERS' EQUITY (DEFICIT)
On March 1, 1996, the Company completed its IPO and issued 2,900,000
shares of its common stock at a price of $14.00 per share. The Company
received approximately $36,900,000 of cash, net of offering expenses and
underwriting discounts and commissions. On April 3, 1996, the Company
received approximately $6,400,000, net of underwriting discounts and
commissions, in connection with the issuance of 495,000 shares of its
common stock pursuant to the underwriter's exercise of the
over-allotment option granted by the Company in connection with the IPO.
During 1995, the Company sold 50,000 shares of common stock along with
registration rights, at a price of $4 per share, to a then officer of
the Company. Such shares currently secure a note receivable from this
individual in the amount of $200,000. The note was executed upon
separation by this individual from the Company and is due on October 1,
1997. In exchange for termination of the registration rights on these
shares, this individual has a right, until November 1, 1997, to require
the Company to purchase these shares at a purchase price equal to the
closing price on the date he notifies the Company he wishes it to
repurchase the shares. At December 31, 1996, such share price equaled
$5, resulting in a repurchase commitment of $250,000 with respect to
such shares. These shares of common stock have been excluded from
stockholders' equity in the accompanying consolidated financial
statements due to this individuals ability to require redemption.
On May 5, 1995, the Company's Board of Directors declared an
84,000-for-1 stock split. This stock split resulted in the issuance of
8,399,900 additional shares of common stock. Retroactive effect has
been given to the stock split in the shareholders' equity accounts, and
in all share and per share data included in the accompanying
consolidated financial statements.
The Company declared and paid a $10,000,000 distribution, and declared a
$3,712,000 distribution of previously undistributed S Corporation
earnings during the year ended December 31, 1995. In addition, the
Company paid $372,121 in S Corporation distributions in the first four
months of 1995. The $3,712,000 distribution was paid by issuance of
non-interest bearing promissory notes. These notes were paid after the
completion of the Company's IPO.
(8) COMMITMENTS AND CONTINGENCIES
(A) LEASES
The Company conducts its operations in leased facilities. The lease
terms range from one month to five years. Rental expenses under
operating leases approximated $1,020,000, $520,000 and $270,000,
respectively, during the years ended December 31, 1996, 1995 and
1994, respectively.
48
<PAGE> 50
POWERCERV CORPORATION
Notes to Consolidated Financial Statements
Future minimum lease payments under noncancelable operating lease
agreements during the years following December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, COMMITMENT
------------ ----------
<S> <C>
1997 $ 957,000
1998 687,000
1999 586,000
2000 303,000
----------
$2,533,000
==========
</TABLE>
(B) CONTINGENCIES
The Company is subject to certain litigation matters arising in the
normal course of business. Management of the Company is of the
opinion that the ultimate outcome of such matters will have no
material adverse impact on the Company's consolidated financial
statements.
(9) EMPLOYEE BENEFIT PLANS
(A) DEFINED CONTRIBUTION PLAN
On June 1, 1994, the Company established a 401(k) plan, covering
employees who meet established eligibility requirements. Under the
plan provisions, the Company matches 50% of participant
contributions to a maximum matching amount of 6% of participant base
compensation. The Company contributed approximately $257,000,
$195,000 and $74,000, respectively, to the plan for the years ended
December 31, 1996, 1995 and 1994.
(B) STOCK OPTION PLAN
In June 1995, the Company established a stock option plan which
provides for the granting of both incentive stock options and
non-statutory stock options. Only employees are eligible to receive
grants of incentive stock options.
Generally, options granted under this stock option plan expire 10
years after the date of grant, are exercisable over a four-year
period and are granted at fair market value on the date of the
grant. A total of 800,000 shares were originally reserved for
issuance under the plan. In January 1996, the Company increased the
number of shares reserved to 1,250,000.
49
<PAGE> 51
POWERCERV CORPORATION
Notes to Consolidated Financial Statements
Activity with respect to stock options outstanding is summarized as
follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
OPTION
PRICE PER
SHARES SHARE
--------- -----------
<S> <C> <C>
Balance at December 31, 1994 - -
Options granted 672,033 $ 3.61
Options canceled (12,400) 3.50
-------
Balance at December 31, 1995 659,633 $ 3.61
Options granted 474,812 6.69
Options exercised (47,809) 3.50
Options canceled (165,714) 4.76
-------
Balance at December 31, 1996 920,922 $ 5.00
======= ======
</TABLE>
The range of exercise prices, shares, weighted-average contractural
life and exercise price for the options outstanding at December 31,
1996 is presented below:
<TABLE>
<CAPTION>
Range of Weighted-Average Weighted-Average
Exercise Price Shares Contractual Life Exercise Price
-------------- ------- ----------------- ----------------
<S> <C> <C> <C>
$ 3.50 - 5.00 756,047 9 yrs $ 3.78
7.00 1,050 9 yrs 7.00
8.50 - 10.00 115,675 9 yrs 9.14
12.50 - 17.00 48,150 9 yrs 14.09
-------
3.50 - 17.00 920,922 9 yrs 5.00
=======
</TABLE>
The range of exercise prices, shares and weighted average exercise
price for the options exercisable at December 31, 1996 are presented
below:
<TABLE>
<CAPTION>
Range of Shares Weighted-Average
Exercise Price Exercisable Exercisable Price
============== ============ =================
<S> <C> <C>
$3.50 - 5.00 175,437 $ 3.65
7.00 75 7.00
8.50 - 10.00 34,064 9.27
12.50 - 17.00 5,150 13.18
-------
3.50 - 17.00 214,726 $ 4.77
=======
</TABLE>
Subsequent to December 31, 1996, the Company granted options on
34,000 shares of common stock.
The per share weighted-average fair value of stock options granted
during 1996 and 1995 was $2.34 and $1.28 on the date of grant
using the Black Scholes option-pricing model with the following
weighted-average assumptions: 1996 - expected dividend yield of
0%, risk-free interest rate of 6.4%, expected volatility rate of
135%, and an expected life of 3.5 years; 1995 - expected dividend
yield of 0%, risk-free interest rate of 6.5%, expected volatility
rate of 135%, and an expected life of 4.0 years.
The Company applies APB Opinion No. 25 in accounting for its stock
options and, accordingly, no compensation cost has been recognized
for its stock options in the consolidated financial statements. Had
the Company determined compensation cost based on the fair value at
the grant date for its stock options under Statement 123, the
Company's net loss would have been as follows:
50
<PAGE> 52
POWERCERV CORPORATION
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
1996 1995
---------------------- ----------------------
NET NET
NET LOSS PER NET LOSS PER
LOSS SHARE LOSS SHARE
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
As reported $(2,715,065) (0.21) (4,424,902)* (0.41)*
Statement 123 compensation, net of tax (437,000) (0.03) (187,000) (0.02)
----------- ------- ------------ --------
Pro forma disclosure (3,152,065) (0.24) (4,611,902) (0.43)
=========== ======= =========== =======
</TABLE>
* Pro forma with respect to income taxes
(10) RELATED PARTY TRANSACTIONS
Since September 1994, the Company has used the services of an entity
owned by the Company's three founding shareholders to recruit sales and
consulting personnel for the Company. The expense incurred by the
Company for these services approximated $414,000, $301,000 and $116,000,
respectively, during the years ended December 31, 1996, 1995 and 1994.
During the year ended December 31, 1996, an officer of the Company was
appointed to the Board of Directors of the investee company discussed in
note 2(g).
(11) PREFERRED STOCK
The Company's Articles of Incorporation authorize and permit the
Company's Board of Directors to issue up to 5,000,000 shares of
preferred stock (par value of $.001 per share) in one or more series,
and to fix the relative rights, preferences and limitations of each
series.
On May 15, 1995, the Company authorized the creation of two series of
preferred stock, consisting of 55,000 shares of Series A Redeemable
Preferred Stock (Series A Stock) and 1,600,000 shares of Series B
Convertible Preferred Stock (Series B Stock). The series of preferred
stock were then sold to two investors for an aggregate purchase price of
$11,000,000. The net proceeds to the Company, after issuance expenses,
were approximately $10,925,000.
The Series A Stock was redeemed at $100 per share which totaled
$5,500,000 after the completion of the Company's IPO. The Series B Stock
was converted to common stock at a ratio of one-to-one at the same time
as the Company's IPO.
51
<PAGE> 53
POWERCERV CORPORATION
Notes to Consolidated Financial Statements
(12) ACQUISITIONS
In November 1995, the Company acquired substantially all of the net
assets of STI, including intellectual property rights to its accounting
software application product. The purchase consideration was $2,250,000
in cash and 230,000 shares of the Company's common stock (valued at
$4.00 per share). In addition, the Company granted options to purchase
100,000 shares of the Company's common stock to certain employees of STI
in connection with their employment with the Company. The exercise
price for the options was equal to the IPO price. During the year-end
December 31, 1996, the Company paid approximately $106,000 representing
additional consideration for STI.
In December 1995, the Company acquired the intellectual property rights
related to manufacturing and customer order software applications owned
by Reliance. The purchase price was $7,128,615 and was paid by issuance
of a promissory note. In November 1993, the Company had entered into a
two-year agreement with Reliance to market the above software
applications for a percentage of the licensing fees. This marketing
agreement was discontinued effective with the closing of the
acquisition.
Effective January 1, 1996, the Company acquired substantially all of the
net assets of Visual including the rights to a client/server
development tool. The purchase consideration was $935,000 in the form
of 110,000 shares of the Company's common stock (valued at $8.50 per
share).
The STI, Reliance and Visual transactions resulted in the acquisition of
research and development related to projects that had not yet reached
technological feasibility and had no future alternative use at the date
of acquisition. Such in-process research and development, in the amount
of $100,000 and $6,913,300, has been expensed in the Company's
consolidated statement of operations for the years ended December 31,
1996 and 1995, respectively.
The aforementiioned transactions also resulted in the acquisition of
software technology, goodwill and other intangible assets, all of which have
been captialized. The STI and Reliance transactions resulted in the
acquisition of software technology totaling approximately $2,907,000 and
goodwill and other intangible assets in the amount of $534,000. The Visual
transaction resulted in goodwill and other intangible assets of
approximately $893,000.
Remaining net assets of Visual acquired were as follows (in thousands):
Accounts receivable $ 518
Property and equipment 162
Other assets 52
Lines of credit (125)
Notes payable (176)
Accounts payable and accrued expenses (365)
Deferred revenue (26)
The following unaudited pro forma summary represents the consolidated
results of operations of the Company for the year ended December 31, 1995
as though the transactions all had occurred as of January 1, 1995,
and excludes the non-recurring charges for in-process research and
development (in thousands):
Total revenues $ 30,668
========
Operating income $ 1,124
========
Net income $ 82
========
Earnings per share $ .01
========
52
<PAGE> 54
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO COSTS BALANCE AT END OF
BEGINNING OF YEAR AND EXPENSES DEDUCTIONS YEAR
-------------------- -------------------- ------------ ----------------
<S> <C> <C> <C> <C>
(In Thousands)
Allowance For Doubtful Accounts
Year ended December 31, 1996 $425 $268 $(143) $550
Year ended December 31, 1995 $250 $259 $ (84) $425
Year ended December 31, 1994 $ 75 $208 $ (33) $250
</TABLE>
* * * * *
INTERGY is a registered trademark of the Company, and ADAPTlications, AppSync,
BatchBuilder, EnPower Series, FLOWBuilder, GrowthPlan, PADlock, PFCtool,
PowerCOM, PowerMAN, PowerPerformance Series, PowerTOOL, Response, Xceed and the
PowerCerv logo are trademarks of the Company. This Form 10-K also includes
product names, trade names and marks of companies other than the Company. All
other company or product names are trademarks or registered trademarks of their
respective owners.
53
<PAGE> 55
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized, in the City of
Tampa, State of Florida, on March 28, 1997.
POWERCERV CORPORATION
By: /s/ Harold R. Ross
-------------------------------
Harold R. Ross
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
SIGNATURE TITLE DATE
------------------- --------------------------- --------------
/s/ Harold R. Ross Chairman, March 28, 1997
------------------------- Chief Executive Officer and
HAROLD R. ROSS Director
/s/ Marc J. Fratello President, Chief March 28, 1997
------------------------- Operating Officer and
MARC J. FRATELLO Director
/s/ Roy E. Crippen, III Chief Technology Officer March 28, 1997
------------------------- and Director
ROY E. CRIPPEN, III
/s/ Kenneth D. Barwick Director March 28, 1997
-------------------------
KENNETH D. BARWICK
/s/ O.G. Greene Director March 28, 1997
-------------------------
O.G. GREENE
/s/ Donald B. Hebb, Jr. Director March 28, 1997
-------------------------
DONALD B. HEBB, JR.
</TABLE>
54
<PAGE> 56
<TABLE>
<S> <C> <C>
/s/ Stuart C. Johnson Director March 28, 1997
----------------------
STUART C. JOHNSON
/s/ Thomas S. Roberts Director March 28, 1997
----------------------
THOMAS S. ROBERTS
</TABLE>
55
<PAGE> 1
EXHIBIT 10.3
NATIONSBANK, N.A., (SOUTH)
LOAN AGREEMENT
This Loan Agreement (the "Agreement") dated as of October 31, 1996, by and
between NationsBank, N.A. (South) a national banking association ("Bank"), and
Borrower described below:
In consideration of the Loans described below and the mutual covenants and
agreements contained herein, and intending to be legally bound hereby, Bank and
Borrower agree as follows:
1. DEFINITIONS AND REFERENCE TERMS. In addition to any other terms
defined herein, the following terms shall have the meaning set forth with
respect thereto:
A. BORROWER.
PowerCerv Corporation, a Florida corporation
400 North Ashley Dr., Suite 2700
Tampa, FL 33602
The term Borrower may be used to reference PowerCerv Corporation and
PowerCerv Technologies Corporation, its wholly-owned subsidiary,
collectively.
B. CURRENT ASSETS. Current Assets means any assets of the Borrower
deemed to be current as defined by Generally Accepted Accounting Principles
(GAAP).
C. CURRENT LIABILITIES. Current Liabilities means any liability of the
Borrower deemed current as defined by GAAP, excluding deferred revenue. Any
outstanding balance under the Loan described herein will be considered a
Current Liability.
D. TOTAL LIABILITIES. Total Liabilities means all indebtedness of the
Borrower as defined by GAAP, including but not limited to accounts or trade
payables, accruals, funded debt, capital leases, deferred revenue, and taxes
payable.
E. TANGIBLE NET WORTH. Tangible Net Worth means the Net Worth of the
Borrower less any assets deemed intangible by GAAP including but not limited to
goodwill, trademarks, copyrights, and loans, advances or investments in any
third parties.
F. HAZARDOUS MATERIALS. Hazardous Materials include all materials
defined as hazardous wastes or substances under any local, state or federal
environmental laws, rules or regulations, and petroleum, petroleum products,
oil and asbestos.
G. LOAN(S). Loan(s) means collectively any and all loans heretofore or
hereafter made by Bank to the Borrower.
H. LOAN DOCUMENTS. Loan Documents means this Loan Agreement and any and
all promissory notes executed by Borrower in favor of Bank and all other
documents, instruments, security agreements, and any other documents executed
and/or delivered by Borrower, or third party in connection with any Loan.
I. ACCOUNTING TERMS. All accounting terms not specifically defined or
specified herein shall have the meanings generally attributed to such terms
under GAAP, as in effect from time to time, consistently applied, with respect
to the financial statements referenced in Section 3.H. hereof.
J. CURRENT RATIO. Current Ratio is the ratio of Current Assets to
Current Liabilities.
-1-
<PAGE> 2
2. LOANS.
A. LOAN. Bank hereby agrees to provide Borrower a Revolving Line of
Credit in the amount of $5,000,000.
B. REVOLVING LINE OF CREDIT. This Loan provides for a revolving line of
credit under which Borrower may from time to time, borrow, repay and re-borrow
funds up to $5,000,000 in aggregate. The Loan may be used for acquisition
purposes, any working capital needs, and to repurchase shares of Borrower's
stock currently traded on NASDAQ. The obligation to repay the Loan will be
evidenced by a promissory note dated October 31, 1996 by and between Bank and
Borrower. This Loan will be unsecured and bear interest in accordance with the
promissory note between Bank and Borrower dated October 31, 1996. The entire
balance of principal and accrued interest will be due in full on April 30,
1998.
C. UP FRONT FEE. Borrower will pay an up front commitment fee equal to
$20,000 at or before the closing of this Loan. No unused fee will be charged.
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Bank as follows:
A. GOOD STANDING. Borrower is a Florida corporation, duly organized,
validly existing and in good standing under the laws of Florida and has the
power and authority to own its property and to carry on its business in each
jurisdiction in which Borrower does business.
B. AUTHORITY AND COMPLIANCE. Borrower has the full power and
authority to execute and deliver the Loan Documents and to incur and perform
the obligations provided for therein, all of which have been duly authorized by
all proper and necessary action of the appropriate governing body of Borrower .
No consent or approval of any public authority or other third party is required
as a condition to the validity of any Loan Document, and Borrower is in
compliance with all laws and regulatory requirements to which it is subject.
C. BINDING AGREEMENT. This Agreement and the other Loan Documents
executed by Borrower constitute valid and legally binding obligations of each,
enforceable in accordance with their terms.
D. LITIGATION. There is no proceeding involving Borrower pending or, to
the knowledge of Borrower, threatened before any court or governmental
authority, agency or arbitration authority, except as disclosed to Bank in
writing and acknowledged by Bank prior to the date of this Agreement.
E. NO CONFLICTING AGREEMENTS. There is no charter, bylaw, stock
provision, partnership agreement or other document pertaining to the
organization, power or authority of Borrower and no provision of any existing
agreement, mortgage, indenture or contract binding on Borrower or affecting its
property, which would conflict with or in any way prevent the execution,
delivery or carrying out of the terms of this Agreement and the other Loan
Documents.
F. OWNERSHIP OF ASSETS. Borrower has good title to its assets, and its
assets are free and clear of liens, except those granted to Bank and as
disclosed to Bank in writing prior to the date of this Agreement.
G. TAXES. All taxes and assessments due and payable by Borrower have
been paid or are being contested in good faith by appropriate proceedings and
the Borrower has filed all tax returns which it is required to file.
-2-
<PAGE> 3
H. FINANCIAL STATEMENTS. The financial statements of Borrower
heretofore delivered to Bank have been prepared in accordance with GAAP applied
on a consistent basis throughout the period involved and fairly present
Borrower's financial condition as of the date or dates thereof, and there has
been no material adverse change in financial condition or operations since
September 30, 1996. To the best of Borrower's knowledge, all factual
information furnished by both parties to Bank in connection with this Agreement
and the other Loan Documents is and will be accurate and complete on the date
as of which such information is delivered to Bank and is not and will not be
incomplete by the omission of any material fact necessary to make such
information not misleading.
I. PLACE OF BUSINESS. Borrower's chief executive office is located at:
400 N. Ashley Drive
Suite 2700
Tampa, FL 33602
J. ENVIRONMENTAL MATTERS. Environmental Law Compliance. The conduct of
Borrower's business operations do not and will not violate any federal laws,
rules or ordinances for environmental protection, regulations of the
Environmental Protection Agency and any applicable local or state law, rule,
regulation or rule of common law and any judicial interpretation thereof
relating primarily to the environment or Hazardous Materials and Borrower will
not use or permit any other party to use any Hazardous Materials at any of
Borrower's places of business or at any other property owned by either party
except such materials as are incidental to Borrower's normal course of
business, maintenance and repairs and which are handled in compliance with all
applicable environmental laws. Both parties agree to permit Bank, its agents,
contractors and employees to enter and inspect any of Borrower's places of
business or any other property of either party at any reasonable times upon
three (3) days prior notice for the purposes of conducting an environmental
investigation and audit (including taking physical samples) to insure that
Borrower is complying with this covenant and both parties shall reimburse Bank
on demand for the costs of any such environmental investigation and audit.
Borrower shall provide Bank, its agents, contractors, employees and
representatives with access to and copies of any and all data and documents
relating to or dealing with any Hazardous Materials used, generated,
manufactured, stored or disposed of by Borrower's business operations within
five (5) days of the request therefore.
K. CONTINUATION OF REPRESENTATION AND WARRANTIES. All representations
and warranties made under this Agreement shall be deemed to be made at and as
of the date hereof and at and as of the date of any future advance under any
Loan.
4. AFFIRMATIVE COVENANTS. Until full payment and performance of all
obligations of Borrower under the Loan Documents, Borrower will, unless Bank
consents otherwise in writing (and without limiting any requirement of any
other Loan Document):
A. FINANCIAL CONDITION. Maintain Borrower's financial condition as
follows, determined in accordance with GAAP applied on a consistent basis
throughout the period involved except to the extent modified by the following
definitions:
i. Maintain a ratio of Total Liabilities to Tangible Net Worth of
no more than .75 to 1.00 at all times.
ii. Maintain a Current Ratio of no less than 2.50 to 1.00 at all
times.
B. FINANCIAL STATEMENTS AND OTHER INFORMATION. Maintain a system of
accounting satisfactory to Bank and in accordance with GAAP applied on a
consistent basis throughout the period involved, permit Bank's officers or
authorized representatives to visit and inspect Borrower's books of account and
other records at such reasonable times and upon reasonable notice and as often
as Bank may desire. Unless written notice of another location is given to
Bank, Borrower's books and records will be located at Borrower's chief
executive office set forth above. All financial statements called for below
-3-
<PAGE> 4
shall be prepared in accordance with the rules and regulations of the
Securities and Exchange Commission and by independent certified public
accountants acceptable to Bank.
In addition, Borrower will:
i. Furnish to Bank its Unqualified Audited financial statement,
prepared by a C.P.A. firm acceptable to the Bank, for each fiscal year of
Borrower, within 120 days after the close of each such fiscal year. Such
statements will be prepared on a consolidated basis.
ii. Furnish to Bank internally prepared consolidated financial
statements (including a balance sheet and profit and loss statement) of
Borrower for each quarter of each fiscal year of Borrower, within 45 days after
the close of each such period. Such statements will include copies of
Borrower's 10K and 10Q as required by the Securities and Exchange Commission
Act of 1934.
iii. Furnish to Bank a compliance certificate for (and executed by an
authorized representative of) Borrower, concurrently with and dated as of the
date of delivery of each of the financial statements as required in paragraphs
i and ii above, containing (a) a certification that the financial statements of
even date are true and correct and that the Borrower is not in default under
the terms of this Agreement, and (b) computations and conclusions, in such
detail as Bank may request, with respect to compliance with this Agreement, and
the other Loan Documents, including computations of all quantitative covenants.
iv. Furnish to Bank promptly such additional information, reports and
statements respecting the business operations and financial condition of
Borrower, from time to time, as Bank may reasonably request.
C. INSURANCE. Maintain insurance with responsible insurance
companies on each of its properties, in such amounts and against such risks as
is customarily maintained by similar businesses operating in the same vicinity,
specifically to include fire and extended coverage insurance covering all
assets, business interruption insurance, workers compensation insurance and
liability insurance, all to be with such companies and in such amounts as are
satisfactory to Bank
D. EXISTENCE AND COMPLIANCE. Maintain its existence, good standing
and qualification to do business, where required and comply with all laws,
regulations and governmental requirements including, without limitation,
environmental laws applicable to it or to any of its property, business
operations and transactions.
E. ADVERSE CONDITIONS OR EVENTS. Promptly advise Bank in writing
of (i) any condition, event or act which comes to its attention that would or
might materially adversely affect Borrower's financial condition or operations,
the Collateral, or Bank's rights under the Loan Documents, (ii) any litigation
filed by or against Borrower which would be required to be disclosed by the
Securities and Exchange Commission, (iii) any event that has occurred that
would constitute an event of default under any Loan Documents and (iv) any
uninsured or partially uninsured loss through fire, theft, liability or
property damage in excess of an aggregate of $250,000.
F. TAXES AND OTHER OBLIGATIONS. Pay all of its taxes, assessments
and other obligations, including, but not limited to taxes, costs or other
expenses arising out of this transaction, as the same become due and payable,
except to the extent the same are being contested in good faith by appropriate
proceedings in a diligent manner.
G. MAINTENANCE. Maintain all of its tangible property in good
condition and repair and make all necessary replacements thereof, and preserve
and maintain all licenses, trademarks, privileges, permits, franchises,
certificates and the like necessary for the operation of its business.
-4-
<PAGE> 5
H. NOTIFICATION OF ENVIRONMENTAL CLAIMS. Borrower shall immediately
advise Bank in writing of (i) any and all enforcement, cleanup, remedial,
removal, or other governmental or regulatory actions instituted, completed or
threatened pursuant to any applicable federal, state, or local laws, ordinances
or regulations relating to any Hazardous Materials affecting Borrower's
business operations; and (ii) all claims made or threatened by any third party
against Borrower relating to damages, contribution, cost recovery,
compensation, loss or injury resulting from any Hazardous Materials. Borrower
shall immediately notify Bank of any remedial action taken by Borrower with
respect to Borrower's business operations.
5. NEGATIVE COVENANTS. Until full payment and performance of all
obligations of Borrower under the Loan Documents, Borrower will not, without
the prior written consent of Bank (and without limiting any requirement of any
other Loan Documents):
A. TRANSFER OF ASSETS OR CONTROL. Sell, lease, assign or otherwise
dispose of or transfer any assets, except in the normal course of its business,
or enter into any merger or consolidation, or transfer control or ownership of
the Borrower or from or acquire any subsidiary.
B. LIENS. With the exception of a general lien on the Borrower's
personal property located at 400 N. Ashley St., Tampa, Florida filed by
Equitable Life Assurance Society of the United States with the State of Florida
on August 16, 1995, grant, suffer or permit any contractual or non contractual
lien on or security interest in any of its assets now owned or hereafter
acquired, except in favor of Bank or purchase money liens, or fail to promptly
pay when due all lawful claims, whether for labor, materials or otherwise.
C. EXTENSIONS OF CREDIT. Make any loan or advance to any
individual, partnership, corporation or other entity in excess of $300,000 in
the aggregate.
D. BORROWINGS. Create, incur, assume or become liable in any manner
for any indebtedness in excess of $500,000 (for borrowed money, deferred
payment for the purchase of assets, capital lease payments, as surety or
guarantor for the debt for another, or otherwise) other than to Bank, except
for normal trade debts incurred in the ordinary course of Borrower's business,
and except for existing indebtedness disclosed to Bank in writing and
acknowledged by Bank prior to the date of this Agreement.
E. CHARACTER OF BUSINESS. Change the general character of business
as conducted at the date hereof, or engage in any type of business not
reasonably related to its business as presently conducted.
6. DEFAULT. Borrower shall be in default under this Agreement and
under each of the other Loan Documents if it shall default in the payment of
any amounts due and owing under the Loans or should it fail to timely and
properly observe, keep or perform any term, covenant, agreement or condition in
any Loan Document or in any other loan agreement, promissory note, security
agreement, deed of trust, mortgage, assignment or other contract securing or
evidencing payment of any indebtedness of Borrower to Bank or any affiliate or
subsidiary of NationsBank Corporation. Borrower will have ten (10) days to
cure any default under this agreement. With respect to Sections 4A(i) and
4A(ii), Borrower will have thirty (30) days from the receipt of promptly
received financial statements to cure such default. With respect to Section
5B, Borrower will have thirty (30) days to cure any liens in aggregate of
$25,000 or less.
7. REMEDIES UPON DEFAULT. If an event of default shall occur Bank
shall have all rights, powers and remedies available under each of the Loan
Documents as well as all rights and remedies available at law or in equity.
-5-
<PAGE> 6
8. NOTICES. All notices, requests or demands which any party is
required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to the other party at the following
address:
Borrower:
PowerCerv Corporation
400 N. Ashley Drive, Suite 2700
Tampa, FL 33602
Bank:
NationsBank N.A., (South)
400 N. Ashley Drive
Tampa, FL 33602
Attention: Commercial Banking
or to such other address as any party may designate by written notice to the
other party. Each such notice, request and demand shall be deemed given or
made as follows:
A. If sent by hand delivery, upon delivery;
B. If sent by mail, upon the earlier of the date of
receipt or five (5) days after deposit in the U.S. Mail, first class postage
prepaid.
9. COSTS, EXPENSES AND ATTORNEY'S FEES. Borrower shall pay to Bank
immediately upon demand the full amount of all costs and expenses, including
reasonable attorneys' fees (to include outside counsel fees and all allocated
costs of Bank's in-house counsel), incurred by Bank in connection with (a)
negotiation and preparation of this Agreement and each of the Loan Documents,
and (b) Bank's continued administration thereof.
10. MISCELLANEOUS. Borrower and Bank further covenant and agree as
follows, without limiting any requirement of any other Loan Document:
A. CUMULATIVE RIGHTS AND NO WAIVER. Each and every right
granted to Bank under any Loan Document, or allowed it by law or equity shall
be cumulative of each other and may be exercised in addition to any and all
other rights of Bank, and no delay in exercising any right shall operate as a
waiver thereof, nor shall any single or partial exercise by Bank of any right
preclude any other or future exercise thereof or the exercise of any other
right. Borrower expressly waives any presentment, demand, protest or other
notice of any kind, including but not limited to notice of intent to accelerate
and notice of acceleration. No notice to or demand on Borrower in any case
shall, of itself, entitle Borrower to any other or future notice or demand in
similar or other circumstances.
B. APPLICABLE LAW. This Loan Agreement and the rights and
obligations of the parties hereunder shall be governed by and interpreted in
accordance with the laws of Florida and applicable United States federal law.
C. AMENDMENT. No modification, consent, amendment or waiver
of any provision of this Loan Agreement, nor consent to any departure by
Borrower therefrom, shall be effective unless the same shall be in writing and
signed by an officer of Bank, and then shall be effective only in the specified
instance and for the purpose for which given. This Loan Agreement is binding
upon Borrower, its successors and assigns, and inures to the benefit of Bank,
its successors and assigns; however, no assignment or other transfer of
Borrower's rights or obligations hereunder shall be made or be effective
without Bank's prior written consent, nor shall it relieve Borrower of any
obligations hereunder. There is no third party beneficiary of this Loan
Agreement.
-6-
<PAGE> 7
D. DOCUMENTS. All documents, certificates and other items required
under this Loan Agreement to be executed and/or delivered to Bank shall be in
form and content satisfactory to Bank and its counsel.
E. PARTIAL INVALIDITY. The unenforceability or invalidity of any
provision of this Loan Agreement shall not affect the enforceability or
validity of any other provision herein and the invalidity or unenforceability
of any provision of any Loan Document to any person or circumstance shall not
affect the enforceability or validity of such provision as it may apply to
other persons or circumstances.
F. INDEMNIFICATION. Borrower shall indemnify, defend and hold
Bank and its successors and assigns harmless from and against any and all
claims, demands, suits, losses, damages, assessments, fines, penalties, costs
or other expenses (including reasonable attorneys' fees and court costs)
arising from or in any way related to any of the transactions contemplated
hereby, including but not limited to actual or threatened damage to the
environment, agency costs of investigation, personal injury or death, or
property damage, due to a release or alleged release of Hazardous Materials,
arising from Borrower's business operations, any other property owned by
Borrower or in the surface or ground water arising from Borrower's business
operations, or gaseous emissions arising from Borrower's business operations or
any other condition existing or arising from Borrower's business operations
resulting from the use or existence of Hazardous Materials, whether such claim
proves to be true or false. Borrower further agrees that its indemnity
obligations shall include, but are not limited to, liability for damages
resulting from the personal injury or death of an employee of the Borrower,
regardless of whether the Borrower has paid the employee under the workmen' s
compensation laws of any state or other similar federal or state legislation
for the protection of employees. The term "property damage" as used in this
paragraph includes, but is not limited to, damage to any real or personal
property of the Borrower, the Bank, and of any third parties. The Borrower's
obligations under this paragraph shall survive the repayment of the Loan and
any deed in lieu of foreclosure or foreclosure of any Deed to Secure Debt, Deed
of Trust, Security Agreement or Mortgage securing the Loan.
G. SURVIVABILITY. All covenants, agreements, representations and
warranties made herein or in the other Loan Documents shall survive the making
of the Loan and shall continue in full force and effect so long as the Loan is
outstanding or the obligation of the Bank to make any advances under the Line
shall not have expired.
11. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES
HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY RELATED AGREEMENTS OR INSTRUMENTS, INCLUDING ANY CLAIM
BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING
ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT
APPLICABLE, THE APPLICABLE STATE LAW). THE RULES OF PRACTICE AND PROCEDURE FOR
THE ARBITRATION OF COMMERCIAL DISPUTES OF JUDICIAL ARBITRATION AND MEDIATION
SERVICES, INC. (J.A.M.S.), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE
EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY
ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY
TO THIS AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED
PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS
AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY
OF THE BORROWER'S DOMICILE AT TIME OF THIS AGREEMENT'S EXECUTION AND
ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE
OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN
ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED
WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL
ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH
HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
-7-
<PAGE> 8
B. RESERVATION OF RIGHTS. NOTHING IN THIS AGREEMENT SHALL BE
DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS AGREEMENT; OR (II) BE A
WAIVER BY THE BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY
SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE BANK HERETO
(A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B)
TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN
FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO)
INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. THE
BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR
OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE
PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS AGREEMENT.
NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE
OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL
CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY
SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OF CLAIM OCCASIONING
RESORT TO SUCH REMEDIES.
12. NO ORAL AGREEMENT. FLORIDA LAW PROVIDES THAT ANY AGREEMENT ASSERTED
AS A CLAIM OR DEFENSE IN AN ACTION RELATED TO THIS TRANSACTION MUST BE IN
WRITING AND SIGNED BY THE PARTIES. ORAL AGREEMENTS ARE NOT ENFORCEABLE. YOU
MAY RELY ONLY ON A WRITTEN AGREEMENT.
13. PowerCerv Technologies Corporation ("PCT") joins herein, and by its
execution hereof, agrees that it is bound by and shall observe and perform all
of the terms, conditions, covenants, representations and warranties hereof.
PCT will serve as guarantor as opposed to actual borrower for any and all
indebtedness of Borrower to Bank. In addition, all financial covenants will be
based on the consolidated financial statements of Borrower and PCT as reported
to the Securities and Exchange Commission.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed under seal by their duly authorized representatives as of the date
first above written.
POWERCERV CORPORATION NATIONSBANK, N.A. (SOUTH)
/s/ Marc J. Fratello (Seal) /s/ Tucker Sampson
---------------------------- -------------------------------
By: /s/ Marc J. Fratello Tucker Sampson
-------------------------
Its: President
------------------------
POWERCERV TECHNOLOGIES CORPORATION
/s/ Stephen M. Wagman
- ----------------------------------
By: /s/ Stephen M. Wagman
------------------------------
Its: Chief Counsel and Secretary
-----------------------------
- 8 -
<PAGE> 9
NATIONSBANK, N.A. (SOUTH)
- --------------------------------------------------------------------------------
Promissory Note
Date OCTOBER 31, 1996 [X]New []Renewal This note is a renewal of note #
---------------- -----.
Amount $5,000,000.00 Maturity Date APRIL 30, 1998
-------------- --------------
Bank: Borrower:
NationsBank, N.A. (South) POWERCERV CORPORATION
Banking Center: 400 NORTH ASHLEY DRIVE, SUITE 2700
TAMPA TAMPA, FLORIDA 33602
400 N. ASHLEY DRIVE HILLSBOROUGH COUNTY
TAMPA, FL 33602
HILLSBOROUGH COUNTY
(Street address including county) (Name and street address, including
county)
FOR VALUE RECEIVED, the undersigned Borrower unconditionally (and jointly and
severally, if more than one) promises to pay to the order of Bank, its
successors and assigns, without setoff, at its offices indicated at the
beginning of this Note, or at such other place as may be designated by Bank,
the principal amount of FIVE MILLION AND 00/100 DOLLARS ($5,000,000.00), or so
much thereof as may be advanced from time to time in immediately available
funds, together with interest computed daily on the outstanding principal
balance hereunder, at an annual interest rate, and in accordance with the
payment schedule, indicated below.
(This Note contains some provisions preceded by boxes. If a box is marked, the
provision applies to this transaction; if it is not marked, the provision does
not apply to this transaction.)
1. RATE
[ ] PRIME RATE. The Rate shall be the Prime Rate, plus percent per annum.
The "Prime Rate" is the fluctuating rate of interest established by Bank from
time to time, at its discretion, whether or not such rate shall be otherwise
published. The Prime Rate is established by Bank as an index and may or may
not at any time be the best or lowest rate charged by Bank on any loan.
[ ] FIXED RATE. The Rate shall be fixed at percent per annum.
[X] OTHER. See Exhibit "A" attached hereto and made a part hereof.
-------------------------------------------------------------------
-------------------------------------------------------------------
Notwithstanding any provision of this Note, Bank does not intend to charge and
Borrower shall not be required to pay any amount of interest or other charges
in excess of the maximum permitted by the applicable law of the State of
Florida; if any higher rate ceiling is lawful, then that higher rate ceiling
shall apply. Any payment in excess of such maximum shall be refunded to
Borrower or credited against principal, at the option of Bank.
2. ACCRUAL METHOD. Unless otherwise indicated, interest at the Rate set forth
above will be calculated by the 365/360 day method (a daily amount of interest
is computed for a hypothetical year of 360 days; that amount is multiplied by
the actual number of days for which any principal is outstanding hereunder).
If interest is not to be computed using this method, the method shall be
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------.
3. RATE CHANGE DATE. Any Rate based on a fluctuating index or base rate will
change, unless otherwise provided, each time and as of the date that the index
or base rate changes. If the Rate is to change on any other date or at any
other interval, the change shall be:
-------------------------------------------
- -------------------------------------------------------------------------------.
In the event any index is discontinued, Bank shall substitute an index
determined by Bank to be comparable, in its sole discretion.
4. PAYMENT SCHEDULE. All payments received hereunder shall be applied first
to the payment of any expense or charges payable hereunder or under any other
loan documents executed in connection with this Note, then to interest due and
payable, with the balance applied to principal, or in such other order as Bank
shall determine at its option.
[ ] PRINCIPAL PLUS ACCRUED INTEREST. Principal shall be paid in consecutive
equal installments of $ , plus accrued interest, payable [ ] monthly,
[ ] quarterly or [ ] , commencing on , 19 , and
continuing on the [ ] same day, [ ] last day of each successive month, quarter
or other period (as applicable) thereafter, with a final payment of all unpaid
principal and accrued interest due on , 19 .
[ ] FIXED PRINCIPAL AND INTEREST. Principal and interest shall be paid in
consecutive equal installments of $ , payable [ ] monthly, [ ]
quarterly or [ ] , commencing on , 19 , and
continuing on the [ ] same day, [ ] last day of each successive month, quarter
or other period (as applicable) thereafter, with a final payment of all unpaid
principal and interest due thereon on , 19 . If, on any
payment date, accrued interest exceeds the installment amount set forth above,
Borrower will also pay such excess as and when billed.
[X] SINGLE PRINCIPAL PAYMENT. Principal shall be paid in full in a single
payment on APRIL 30, 1998. Interest thereon shall be paid [ ] at maturity, or
else [X] monthly, [ ] quarterly or [ ] , commencing on
NOVEMBER 30, 1996, and continuing on the [ ] same day, [X] last day of each
successive month, quarter or other period (as applicable) thereafter, with a
final payment of all unpaid interest at the stated maturing of this Note.
[ ] OTHER.
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- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE> 10
5. REVOLVING FEATURE.
[X] Borrower may borrow, repay and reborrow hereunder at any time, up to a
maximum aggregate amount outstanding at any one time equal to the principal
amount of this Note, provided, that Borrower is not in default under any
provision of this Note, any other documents executed in connection with this
Note, or any other note or other loan documents now or hereafter executed in
connection with any other obligation of Borrower to Bank, and provided that the
borrowings hereunder do not exceed any borrowing base or other limitation on
borrowings by Borrower. Bank shall incur no liability for its refusal to
advance funds based upon its determination that any conditions of such further
advances have not been met. Bank records of the amounts borrowed from time to
time shall be conclusive proof thereof.
[ ] Uncommitted Facility. Borrower acknowledges and agrees that,
notwithstanding any provisions of this Note or any other documents
executed in connection with this Note, Bank has no obligation to
make any advance, and that all advances are at the sole discretion of
Bank.
[ ] Out-Of-Debt Period. For a period of at least ----------------
consecutive days during [ ] each fiscal year, [ ] any consecutive
12-month period, Borrower shall fully pay down the balance of this
Note, so that no amount of principal or interest and no other
obligation under this Note remains outstanding.
6. AUTOMATIC PAYMENT
[ ] Borrower has elected to authorize Bank to effect payment of sums due under
this Note by means of debiting Borrower's account number ------------------
- ----------------------------------. This authorization shall not affect the
obligation of Borrower to pay such sums when due, without notice, if there are
insufficient funds in such account to make such payment in full on the due date
thereof, or if Bank fails to debit the account.
7. WAIVERS, CONSENTS AND COVENANTS. Borrower, any indorser, or guarantor
hereof or any other party hereto (individually an "Obligor" and collectively
"Obligors") and each of them jointly and severally: (a) waive presentment,
demand, protest, notice of demand, notice of intent to accelerate, notice of
acceleration of maturity, notice of protest, notice of nonpayment, notice of
dishonor, and any other notice required to be given under the law to any
Obligor in connection with the delivery, acceptance, performance, default or
enforcement of this Note, any indorsement or guaranty of this Note, or any
other documents executed in connection with this Note or any other note or
other loan documents now or hereafter executed in connection with any
obligation of Borrower to Bank (the "Loan Documents"); (b) consent to all
delays, extensions, renewals or other modifications of this Note or the Loan
Documents, or waivers of any term hereof or of the Loan Documents, or release
or discharge by Bank of any of Obligors, or release, substitution or exchange
of any security for the payment hereof, or the failure to act on the part of
Bank, or any indulgence shown by Bank (without notice to or further assent from
any of Obligors), and agree that no such action, failure to act or failure to
exercise any right or remedy by Bank shall in any way affect or impair the
obligations of any Obligors or be construed as a waiver by Bank of, or
otherwise affect, any of Bank's rights under this Note, under any indorsement
or guaranty of this Note or under any of the Loan Documents; and (c) agree to
pay, on demand, all costs and expenses of collection or defense of this Note or
of any indorsement or guaranty hereof and/or the enforcement or defense of
Bank's rights with respect to, or the administration, supervision,
preservation, protection of, or realization upon, any property securing payment
hereof, including, without limitation, reasonable attorney's and paralegal's
fees, including fees related to any suit, mediation or arbitration proceeding,
out of court payment agreement, trial, appeal, bankruptcy proceedings or other
proceeding, in such amount as may be determined reasonable by any arbitrator or
court, whichever is applicable.
8. INDEMNIFICATION. Obligors agree to promptly pay, indemnify and hold Bank
harmless from all State and Federal taxes of any kind and other liabilities
with respect to or resulting from the execution and/or delivery of this Note or
any advances made pursuant to this Note. If this Note has a revolving feature
and is secured by a mortgage, Obligors expressly consent to the deduction of
any applicable taxes from each taxable advance extended by Bank.
9. PREPAYMENTS. Prepayments may be made in whole or in part at any time on
any loan for which the Rate is based on the Prime Rate. All prepayments of
principal shall be applied in the inverse order of maturity, or in such other
order as Bank shall determine in its sole discretion. No prepayment of any
other loan shall be permitted without the prior written consent of Bank.
Notwithstanding such prohibition, if there is a prepayment of any such loan,
whether by consent of Bank, or because of acceleration or otherwise, Borrower
shall, within 15 days of any request by Bank, pay to Bank any loss or expense
which Bank may incur or sustain as a result of such prepayment. For the
purposes of calculating the amounts owed only, it shall be assumed that Bank
actually funded or committed to fund the loan through the purchase of an
underlying deposit in an amount and for a term comparable to the loan, and such
determination by Bank shall be conclusive, absent a manifest error in
computation.
10. DELINQUENCY CHARGE. To the extent permitted by law, a delinquency charge
may be imposed in an amount not to exceed four percent (4%) of any payment that
is more than fifteen days late.
11. EVENTS OF DEFAULT. The following are events of default hereunder: (a) the
failure to pay or perform any obligation, liability or indebtedness of any
Obligor to Bank, or to any affiliate or subsidiary of NationsBank Corporation,
whether under this Note or any Loan Documents, as and when due (whether upon
demand, at maturity or by acceleration); (b) the failure to pay or perform any
other obligation, liability or indebtedness of any Obligor to any other party;
(c) the death of any Obligor (if an individual); (d) the resignation or
withdrawal of any partner or a material owner/Guarantor of Borrower, as
determined by Bank in its sole discretion; (e) the commencement of a proceeding
against any Obligor for dissolution or liquidation, the voluntary or
involuntary termination or dissolution of any Obligor or the merger or
consolidation of any Obligor with or into another entity; (f) the insolvency
of, the business failure of, the appointment of a custodian, trustee,
liquidator or receiver for or for any of the property of, the assignment for
the benefit of creditors by, or the filing of a petition under bankruptcy,
insolvency or debtor's relief law or the filing of a petition for any
adjustment of indebtedness, composition or extension by or against any Obligor;
(g) the determination by Bank that any representation or warranty made to Bank
by any Obligor in any Loan Documents or otherwise is or was, when it was made,
untrue or materially misleading; (h) the failure of any Obligor to timely
deliver such financial statements, including tax returns, other statements of
condition or other information, as Bank shall request from time to time;
(i) the entry of a judgment against any Obligor which Bank deems to be of a
material nature, in Bank's sole discretion; (j) the seizure or forfeiture of,
or the issuance of any writ of possession, garnishment or attachment, or any
turnover order for any property of any Obligor; (k) the determination by Bank
that is insecure for any reason; (l) the determination by Bank that a
material adverse change has occurred in the financial condition of any Obligor;
or (m) the failure of Borrower's business to comply with any law or regulation
controlling its operation.
12. REMEDIES UPON DEFAULT. Except as otherwise provided in the Loan Agreement
dated October 21, 1996, whenever there is a default under this Note (a) the
entire balance outstanding hereunder and all other obligations of any Obligor
to Bank (however acquired or evidenced) shall, at the option of Bank, become
immediately due and payable and any obligation of Bank to permit further
borrowing under this Note shall immediately cease and terminate, and/or (b) to
the extent permitted by law, the Rate of interest on the unpaid principal shall
be increased at Bank's discretion up to the maximum rate allowed by law, or if
none, 25% per annum (the "Default Rate"). The provisions herein for a Default
Rate shall not be deemed to extend the time for any payment hereunder or to
constitute a "grace period" giving Obligors a right to cure any default. At
Bank's option, any accrued and unpaid interest, fees or charges may, for
purposes of computing and accruing interest on a daily basis after the due date
of the Note or any installment thereof, be deemed to be a part of the principal
balance, and interest shall accrue on a daily compounded basis after such date
at the Default Rate provided in this Note until the entire outstanding balance
of principal and interest is paid in full. Bank is hereby authorized at any
time to set off and charge against any deposit accounts of any Obligor, as well
as any money, instruments, securities, documents, chattel paper, credits,
claims, demands, income and any other property, rights and interests of any
Obligor which at any time shall come into the possession or custody or under
the control of Bank or any of its agents, affiliates or correspondents, without
notice or demand, any and all obligations due hereunder. Additionally, Bank
shall have all rights and remedies available under each of the Loan Documents,
as well as all rights and remedies available at law or in equity. Any judgment
rendered on this Note shall bear interest at the highest rate of interest
permitted pursuant to Chapter 687 Florida Statutes.
13. NON-WAIVER. The failure at any time of Bank to exercise any of its
options or any other rights hereunder shall not constitute a waiver thereof,
nor shall it be a bar to the exercise of any of its options or rights at a
later date. All rights and remedies of Bank shall be cumulative and may be
pursued singly, successively or together, at the option of Bank. The
acceptance by Bank of any partial payment shall not constitute a waiver of any
default or of
<PAGE> 11
any of Bank's rights under this Note. No waiver of any of its rights
hereunder, and no modification or amendment of this Note, shall be deemed to be
made by Bank unless the same shall be in writing, duly signed on behalf of
Bank; each such waiver shall apply only with respect to the specific instance
involved, and shall in no way impair the rights of Bank or the obligations of
Obligor to Bank in any other respect at any other time.
14. Applicable Law, Venue and Jurisdiction. This Note and the rights and
obligations of Borrower and Bank shall be governed by and interpreted in
accordance with the law of the State of Florida. In any litigation in
connection with or to enforce this Note or any indorsement or guaranty of this
Note or any Loan Documents, Obligors, and each of them, irrevocably consent to
and confer personal jurisdiction on the courts of the State of Florida or the
United States located within the State of Florida and expressly waive any
objections as to venue in any such courts. Nothing contained herein shall,
however, prevent Bank from bringing any action or exercising any rights within
any other state or jurisdiction or from obtaining personal jurisdiction by any
other means available under applicable law. The interest rate charged on this
Note is authorized by Chapter 655, Florida Statutes and Section 687.12, Florida
Statutes.
15. Partial Invalidity. The unenforceability or invalidity of any provision
of this Note shall not affect the enforceability or validity of any other
provision herein and the invalidity or unenforceability of any provision of
this Note or of the Loan Documents to any person or circumstance shall not
affect the enforceability or validity of such provision as it may apply to
other persons or circumstances.
16. Binding Effect. This Note shall be binding upon and inure to the benefit
of Borrower, Obligors and Bank and their respective successors, assigns, heirs
and personal representatives, provided, however, that no obligations of
Borrower or Obligors hereunder can be assigned without prior written consent of
Bank.
17. Controlling Document. To the extent that this Note conflicts with or is
in any way incompatible with any other Loan Document concerning this
obligation, the Note shall control over any other document, and if the Note
does not address an issue, then each other document shall control to the extent
that it deals most specifically with an issue.
18. ARBITRATION, ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR
ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW.
IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT
UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION.
ANY PARTY TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN ACTION,
INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY
CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING
JURISDICTION OVER SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF ANY
BORROWER'S DOMICILE, OR IF THERE IS REAL OR PERSONAL PROPERTY COLLATERAL, IN
THE COUNTY WHERE SUCH REAL OR PERSONAL PROPERTY IS LOCATED AT THE TIME OF THE
EXECUTION OF THIS INSTRUMENT, AGREEMENT OR DOCUMENT AND ADMINISTERED BY
J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY
PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION
ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90
DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A
SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR
UP TO AN ADDITIONAL 60 DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL BE
DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR
DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12
U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE
RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT
LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY
COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES
SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE
APPOINTMENT OF A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE
UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE,
DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO
THIS INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP
REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR
PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY
PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF
THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
If this Note is secured by a mortgage on real property, documentary stamp taxes
have been paid and affixed to the mortgage.
Borrower represents to Bank that the proceeds of this loan are to be used
primarily for business, commercial or agricultural purposes. Borrower
acknowledges having read and understood, and agrees to be bound by, all terms
and conditions of this Note and hereby executes this Note under seal as of the
date here above written.
NOTICE OF FINAL AGREEMENT. THIS WRITTEN PROMISSORY NOTE REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTION DATE: October 31, 1996
-------------------
Borrower Corporate or Partnership Borrower
PowerCerv Corporation
- ----------------------------------- -------------------------------------
By: /s/ Steve Wagman
- ----------------------------------- ---------------------------------
Print Individual Name Steve Wagman
Treasurer
Title: ------------------------------
By: /s/ Stephen Wagman
- ----------------------------------- ---------------------------------
Print Individual Name Print Name and Title
(Corporate Seal)
- ----------------------------------- Florida documentary stamp tax required
Attest (If Applicable) by law in the amount of $ EXEMPT has
been or will be paid directly to the
Department of Revenue.
Certificate of ???
<PAGE> 12
EXHIBIT A
The Rate will change as follows based on the ratio of Borrower's "Total
Liabilities" to "Tangible Net Worth", as such terms are defined in the Loan
Agreement between Borrower and Bank dated October 31, 1996 (the "Loan
Agreement"):
RATIO OF TOTAL LIABILITIES TO TANGIBLE NET WORTH RATE
If less than or equal to .50 to 1.00 90 day floating LIBOR Rate +
1.50%.
If greater than .50 to 1.00 90 day floating LIBOR Rate +
2.00%
Upon Bank's receipt of the financial statements required by Sections 4B(i),
4B(ii), 4B(iii) and 4B(iv) of the Loan Agreement (the "Financial Statements"),
the Bank will make the calculation to determine the applicable Rate as set
forth above. Bank will notify the Borrower of the applicable Rate which will
become effective five (5) business days after Bank's receipt of the Financial
Statements. In addition to all other rights and remedies available to Bank
under the Loan Documents, should Borrower fail to provide the Financial
Statements, Bank will have the option to increase the Rate to the Default Rate.
The term "LIBOR Rate" as used herein shall mean the floating and fluctuating
rate of interest (rounded upward, if necessary, to the next higher 1/16 of 1%)
set by Bank in accordance with its customary general practice from time to time
as the daily LIBOR Rate for ninety (90) day Dollar deposits as adjusted for
required reserves, FDIC premiums and other regulatory costs. Each time the
LIBOR Rate changes, the per annum rate of interest on this Note shall change
immediately and contemporaneously with such change in the LIBOR Rate.
<PAGE> 13
NOTARY PAGE TO NOTE FOR PowerCerv Corporation DATED October 31, 1996 IN THE
AMOUNT OF $5,000,000.00.
STATE OF Georgia
COUNTY OF Fulton
The foregoing instrument was acknowledged before me this 31st day of October
1996, by Steve Wagman, Treasurer of PowerCerv Corporation, a Florida
corporation, on behalf of said corporation.
/s/ Kimberly S. Oakley
--------------------------------
Notary Public, State of Georgia
--------
My Commission Expires:
Notary Public, Clayton County, Georgia
- ------------------------------------- /s/ Kimberly S. Oakley
My Commission Expires May 15, 1997 --------------------------------
Print or type name of Notary
<PAGE> 1
EXHIBIT 10.4
SOFTWARE BUSINESS
TECHNOLOGIES, INC.
STOCK PURCHASE AGREEMENT
DATED AS OF DECEMBER 3, 1996
<PAGE> 2
SOFTWARE BUSINESS TECHNOLOGIES, INC.
STOCK PURCHASE AGREEMENT
Dated as of December 3, 1996
INDEX
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<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I
DEFINITIONS..................................................................... 1
ARTICLE II
PURCHASE AND SALE OF SHARES
2.1. Purchase and Sale of Preferred Stock........................... 4
2.2. The Conversion Shares.......................................... 4
2.3. Closing........................................................ 4
2.4. Use of Proceeds................................................ 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.1. Organization and Corporate Power............................... 5
3.2. Authorization.................................................. 5
3.3. Government Approvals........................................... 5
3.4. Authorized and Outstanding Stock............................... 6
3.5. Subsidiaries................................................... 6
3.6. Financial Information.......................................... 7
3.7. Events Subsequent to the Date of the Financial Statements...... 7
3.8. Litigation..................................................... 8
3.9. Compliance with Laws and Other Instruments..................... 8
3.10. Taxes.......................................................... 8
3.11. Real Property.................................................. 9
3.12. Personal Property.............................................. 9
3.13. Patents, Trademarks, etc....................................... 10
3.14. Agreements of Directors, Officers and Employees................ 10
3.15. Governmental Approvals......................................... 10
3.16. Contracts and Commitments...................................... 11
3.17. Securities Act................................................. 11
3.18. Registration Rights............................................ 11
3.19. Insurance Coverage............................................. 11
3.20. Employee Matters............................................... 11
3.21. No Brokers or Finders.......................................... 12
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
3.22. Transactions with Affiliates................................... 12
3.23. Assumptions, Guarantees, etc. of Indebtedness of Other Persons. 12
3.24. Disclosures.................................................... 13
ARTICLE IV
AFFIRMATIVE COVENANTS OF THE COMPANY
4.1. Accounts and Reports........................................... 13
4.2. Payment of Taxes............................................... 14
4.3. Maintenance of Key Man Insurance............................... 15
4.4. Compliance with Laws, etc...................................... 15
4.5. Inspection..................................................... 15
4.6. Corporate Existence; Ownership of Subsidiaries................. 15
4.7. Compliance with ERISA.......................................... 16
4.8. Board Approval................................................. 16
4.9. Financings..................................................... 16
4.10. Meetings of the Board of Directors............................. 16
4.11. Rule 144 Information........................................... 16
4.12. State Taxes and Foreign Qualifications......................... 17
ARTICLE V
NEGATIVE COVENANTS OF THE COMPANY
5.1. Investments in Other Persons................................... 17
5.2. Distributions.................................................. 18
5.3. Dealings with Affiliates....................................... 18
5.4. Merger; Sale of Assets......................................... 19
5.5. Limitation on Restrictions on Subsidiary Dividends and
Other Distributions........................................... 19
5.6. No Conflicting Agreements...................................... 19
5.7. Fiduciary Obligations.......................................... 19
ARTICLE VI
PREEMPTIVE RIGHT
6.1. Right of Purchase.............................................. 19
6.2. Definition of New Securities................................... 20
6.3. Notice from the Company; Purchase of New Securities............ 20
6.4. Sale by the Company............................................ 20
6.5. Termination of Rights.......................................... 21
ARTICLE VII
PURCHASER'S REPRESENTATIONS
7.1. Representations and Warranties................................. 21
7.2. Permitted Sales; Legends....................................... 22
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE VIII
REGISTRATION RIGHTS
8.1. Certain Definitions............................................ 23
8.2. Requested Registrations........................................ 24
8.3. "Piggy Back" Registrations..................................... 25
8.4. Registration on Form S-3....................................... 26
8.5. Expenses of Registration....................................... 26
8.6. Registration Procedures........................................ 26
8.7. Indemnification................................................ 27
8.8. Information by Holder.......................................... 31
8.9. Limitations on Registration Rights............................. 31
8.10. Rule 144 Reporting............................................. 31
8.11. Listing Application............................................ 32
8.12. Damages........................................................ 32
ARTICLE IX
REPURCHASE OF SERIES B PREFERRED STOCK
9.1. Repurchase of Series B Preferred Stock......................... 32
ARTICLE X
CONDITIONS OF PURCHASER'S OBLIGATION
10.1. Effect of Conditions........................................... 33
10.2. Representations and Warranties................................. 33
10.3. Performance.................................................... 33
10.4. Opinion of Counsel............................................. 34
10.5. Certified Documents, etc....................................... 34
10.6. No Material Adverse Change..................................... 34
10.7. Shareholders' Agreement........................................ 34
10.8. Amendment to Certificate of Incorporation...................... 34
10.9. Consents and Waivers........................................... 34
ARTICLE XI
CONDITIONS OF THE COMPANY'S OBLIGATION........................................ 34
ARTICLE XII
TERMINATION
12.1. Termination by Mutual Written Consent.......................... 35
12.2. Termination for Breach......................................... 35
12.3. Termination for Delay.......................................... 35
12.4. Rights After Termination....................................... 35
</TABLE>
iii
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<TABLE>
<S> <C> <C>
ARTICLE XIII
MISCELLANEOUS
13.1. Survival of Representations..................................... 35
13.2. Parties in Interest............................................. 36
13.3. Shares Owned by Affiliates...................................... 36
13.4. Amendments and Waivers.......................................... 36
13.5. Construction.................................................... 36
13.6. Notices......................................................... 36
13.7. Expenses........................................................ 37
13.8. Counterparts.................................................... 37
13.9. Effect of Headings.............................................. 37
13.10. Adjustments..................................................... 38
13.11. Governing Law................................................... 38
</TABLE>
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<TABLE>
EXHIBITS
--------
<S> <C>
A Description of Preferred Stock
B Shareholders' Agreement
C Form of Opinion of Company Counsel
</TABLE>
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<PAGE> 7
December 3, 1996
To: PowerCerv Corporation:
Re: Series B Convertible Preferred Stock
------------------------------------
Gentlemen:
Software Business Technologies, a Delaware corporation (the "Company"),
hereby agrees with you as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings (such meanings to be equally applicable to both the singular and
plural forms of the terms defined):
"Act" means the Securities Act of 1933, as amended.
"Affiliate" shall mean, as to any Person, any other Person which directly
or indirectly Controls, or is under common Control with, or is Controlled by,
such Person. Any member of the immediate family (including parents, spouse and
children, adoptive or natural) of any Person who is an individual and any trust
whose principal beneficiary is such individual or one or more members of such
immediate family and any Person who is controlled by any such member or trust
shall be deemed to be an Affiliate of such individual and all other Affiliates
of such individual.
"Agreement" means this Stock Purchase Agreement as from time to time
amended and in effect between the parties.
"Closing" shall have the meaning set forth in Section 2.3.
"Commission" shall have the meaning set forth in Section 3.3.
"Common Stock" includes (a) the Company's common stock as authorized on
the date of this Agreement, (b) any other capital stock of any class or classes
of the Company authorized on or after the date hereof, the holders of which
shall have the right, without limitation as to amount, either to all or to a
share of the balance of current dividends and liquidating dividends after the
payment of dividends and distributions on any shares entitled to preference,
and (c) any other securities of the Company into which or for which any of the
securities described in (a) or (b) may be converted or exchanged pursuant to a
plan of recapitalization, reorganization, merger, sale of assets or otherwise.
<PAGE> 8
"Company" means Software Business Technologies, Inc., a Delaware
corporation, and its successors and assigns.
"Control" shall mean, as to any Person, the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Conversion Shares" shall have the meaning set forth in 2.2.
"Disinterested Director" shall mean, in the case of any action proposed to
be taken by the Board of Directors, any member of the Board of Directors who is
not an Interested Director with respect to such transaction.
"Holders" shall have the meaning set forth in Section 8.1.
"Indebtedness" means all obligations, contingent and otherwise, for
borrowed money that are required to be reflected as indebtedness on a balance
sheet prepared in accordance with generally accepted accounting principles
including, without limitation, any current portion of long-term indebtedness
and all guaranties, endorsements and other contingent obligations in respect of
indebtedness of others except guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business.
"Indemnified Party" shall have the meaning set forth in Section 8.7.
"Indemnifying Party" shall have the meaning set forth in Section 8.7.
"Initiating Holders" shall have the meaning set forth in Section 8.1.
"Interested Director" shall mean, in the case of any action proposed to be
taken by the Company or any of its Subsidiaries, any member of the Board of
Directors who will be a party to such transaction, who is an Affiliate or
Related Party of any party (other than the Company or any Subsidiary of the
Company) to such transaction or one or more of whose Affiliates or Related
Parties (other than, in either case, the Company or any Subsidiary of the
Company) is a party to such transaction.
"Knowledge" means knowledge after due inquiry.
"New Securities" shall have the meaning set forth in Section 6.2.
"New Securities Notice" shall have the meaning set forth in Section 6.3.
"Permitted Liens" means (a) purchase money security interests upon or in
any property acquired by the Company in the ordinary course of business to
secure the purchase price of such
2
<PAGE> 9
property or to secure indebtedness incurred solely for the purpose of financing
the acquisition of such property, (b) liens for taxes not yet due or that are
being actively contested in good faith by appropriate proceedings and (c) liens
arising by operation of law with respect to the property of the Company.
"Person" means an individual, corporation, partnership, joint venture,
trust or unincorporated organization or a government or agency or political
subdivision thereof.
"Principal Shareholder" means Robert Davies.
"Purchased Shares" shall have the meaning set forth in Section 2.1.
"Purchaser" shall have the meaning set forth in Section 2.1.
"Qualified Public Offering" means the closing of a firmly underwritten
public offering by the Company pursuant to a registration statement filed and
declared effective under the Act covering the offer and sale of Common Stock
for the account of the Company in which the gross proceeds to the Company
before deducting underwriting commissions, discounts and offering expenses,
equals or exceeds $20,000,000.
"Registrable Securities" shall have the meaning set forth in Section 8.1.
"Registration Expense" shall have the meaning set forth in Section 8.1.
"Related Party" shall mean with respect to any Person, (i) a corporation,
partnership or other entity in which the stockholders, partners or owners
holding a controlling interest consist of such Person or one or more Affiliates
of such Person or (ii) a partnership, limited partnership or other
unincorporated entity in which such Persons, or such Person and one or more of
its Affiliates are, partners or owners and possess, without the necessity of
the consent of any other Person, the power and authority to direct the
management and policies of such entity and to make decisions concerning the
voting and disposition of all shares of stock that may be held by such entity,
or (iii) in the case of any natural person, such Person's spouse, lineal
descendants or a trust (A) which is for the benefit of such natural person or
his spouse or lineal descendants or (B) the trustee of which is such natural
person.
"Selling Expenses" shall have the meaning set forth in Section 8.1.
"Series B Preferred Stock" shall have the meaning set forth in Section
2.1.
"Subsidiary" or "Subsidiaries" means any corporation, association or other
business entity of which the Company or any of its other Subsidiaries (as
herein defined) directly or indirectly owns at the time more than fifty percent
(50%) of the outstanding voting shares of every class of such corporation or
trust other than directors' qualifying shares.
3
<PAGE> 10
ARTICLE II
PURCHASE AND SALE OF SHARES
2.1. Purchase and Sale of Preferred Stock. At the Closing (as herein
defined), the Company agrees to sell to PowerCerv Corporation (the
"Purchaser"), and the Purchaser agrees to purchase, 294,911 shares of Series B
Convertible Preferred Stock, par value $0.10 per share (the "Series B Preferred
Stock") at an aggregate purchase price of $1,500,000. The Series B Preferred
Stock shall have the rights, terms, and privileges set forth on Exhibit A
attached hereto. The shares of Series B Preferred Stock purchased pursuant to
this Section 2.1 are referred to herein as the "Purchased Shares."
2.2. The Conversion Shares. The Company has authorized and reserved and
hereby agrees that it will continue to reserve, free of any preemptive rights
or encumbrances, a sufficient number of its authorized but previously unissued
shares of Common Stock, to satisfy the rights of conversion of the holders of
the Purchased Shares. The shares of Common Stock issued or issuable upon
conversion of the Purchased Shares are referred to herein as the "Conversion
Shares".
2.3. Closing. Subject to the satisfaction or waiver of the conditions set
forth in Articles X and XI hereof, the purchase of the Purchased Shares shall
be made at a closing (the "Closing") to be held at the offices of Holland &
Knight, 400 North Ashley Drive, Suite 2300, Tampa, Florida, at 1:00 p.m. on
December 6, 1996, or at such other time and on such other date as the Purchaser
and the Company may mutually agree in writing (the "Closing Date"). Payment at
the Closing for the Purchased Shares shall be by check or wire transfer payable
in immediately available federal funds. The Purchaser shall pay the purchase
price for the Purchased Shares at the Closing. At the Closing, the Company
will deliver to the Purchaser one or more certificates representing the
Purchased Shares, in such denominations and issued in such names as may be
requested by the Purchaser.
2.4. Use of Proceeds. As an integral part of the purpose of the financing
contemplated herein, the Company shall use the proceeds received upon the sale
of the Purchased Shares to fund the Company's working capital requirements. No
proceeds from the sale of the Purchased Shares shall be used to pay dividends
or other shareholder distributions.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce the Purchaser to purchase the Purchased Shares, the
Company makes the following representations and warranties, which are true,
correct and complete in all respects on the date hereof and shall be true,
correct and complete in all respects as of the Closing Date:
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<PAGE> 11
3.1. Organization and Corporate Power. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to own its properties and to carry on its business as presently
conducted. Except as set forth on Schedule 3.1, the Company is duly licensed
or qualified to do business as a foreign corporation in each jurisdiction where
the character of its property, or the nature of the activities presently
conducted by it, makes such qualification necessary, except where the failure
to so qualify or be licensed would not have a material effect adverse on the
business or assets of the Company.
3.2. Authorization. The Company has all necessary corporate power and has
taken all necessary corporate action required for the due authorization,
execution, delivery, and performance by the Company of this Agreement, the
Shareholders' Agreement referred to in Section 10.7, (the "Shareholders'
Agreement"), and any other agreements or instruments executed by the Company in
connection herewith or therewith and the consummation of the transactions
contemplated herein or therein, and for the due authorization, issuance and
delivery of the Purchased Shares and the Conversion Shares issuable upon
conversion of the Purchased Shares. Sufficient shares of authorized but
unissued Common Stock have been reserved for issuance upon conversion of the
Purchased Shares. The issuance of the Purchased Shares does not, and the
issuance of the Conversion Shares upon conversion of the Purchased Shares will
not, require any further corporate action and is not and will not be subject to
any preemptive right, right of first refusal or the like. This Agreement, the
Shareholders' Agreement, and the other agreements and instruments executed by
the Company in connection herewith or therewith will each be a valid and
binding obligation of the Company enforceable in accordance with its respective
terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief, or other equitable
remedies, and (iii) to the extent the indemnification provisions contained in
this Agreement may be limited by applicable federal or state securities laws.
3.3. Government Approvals. No consent, approval, license or authorization
of, or designation, declaration or filing with, any court or governmental
authority is or will be required on the part of the Company in connection with
the execution, delivery, and performance by the Company of this Agreement, the
Shareholders' Agreement, or in connection with the issuance of the Purchased
Shares, or the issuance of the Conversion Shares upon conversion of the
Purchased Shares, except for (i) those that have already been made or granted,
and (ii) the filing of registration statements with the Securities and Exchange
Commission (the "Commission") and any applicable state securities commission as
specifically provided for in Article VIII hereof.
3.4. Authorized and Outstanding Stock. At the Closing and before giving
effect to the transactions contemplated by this Agreement, the authorized
capital stock of the Company will consist of (i) 7,000,000 shares of Common
Stock, of which 2,811,781 shares are validly issued and outstanding and held of
record and owned beneficially as set forth in Schedule 3.4; (ii) 1,000,000
shares of Non-Voting Common Stock, of which 618,750 shares are validly issued
and outstanding
5
<PAGE> 12
and held of record and owned beneficially as set forth in Schedule 3.4; and
(iii) 2,500,000 shares of Preferred Stock, of which 2,200,000 shares will have
been designated as Series A Convertible Preferred Stock, of which 1,020,375
shares are validly issued and outstanding and held of record and owned
beneficially as set forth in Schedule 3.4, and of which 300,000 shares will have
been designated as Series B Preferred Stock, of which no shares will be issued
or outstanding. There are no treasury shares held by the Company. All
Purchased Shares and Conversion Shares issued upon conversion of the Purchased
Shares will be, duly authorized, validly issued, and fully paid and
non-assessable and free from any restrictions on transfer, except for
restrictions imposed by federal or state securities laws and except for those
imposed pursuant to this Agreement or the Shareholders' Agreement. Except as
set forth on Schedule 3.4, there are no outstanding warrants, options,
commitments, preemptive rights, rights to acquire or purchase, conversion
rights, or demands of any character relating to the capital stock or other
securities of the Company. Except as set forth in Schedule 3.4, the Company has
no present intent to take any action that will materially affect the Purchaser's
preemptive right, as set forth in Article VI, through the issuance of New
Securities; provided, however, that the Purchaser intends to continue to issue
stock options and make stock issuances from stock that the Company has
previously redeemed from employees upon termination to current and future
employees. All issued and outstanding shares of capital stock of the Company
were issued (i) in transactions exempt from the registration provisions of the
Act, and (ii) in compliance with or in transactions exempt from the registration
provisions of applicable state securities laws.
3.5. Subsidiaries. The Company represents and warrants that, except as set
forth in Schedule 3.5, the Company does not have any investment or other
interest in, or any outstanding loan or advance to or from, any Person,
including, without limitation, any officer, director, or shareholder, other
than investments, interests, loans, or advances that, individually or in the
aggregate, are of an amount that is less than $50,000.
3.6. Financial Information. The Company has previously delivered to the
Purchaser the audited financial statements of the Company for the fiscal years
ended June 30, 1993, June 30, 1994, June 30, 1995, and June 30, 1996 and its
unaudited financial statements for the four-month period ended October 31, 1996
(individually, the "1993 Financial Statements," the "1994 Financial
Statements," the "1995 Financial Statements," the "1996 Financial Statements"
and the "Interim Financial Statements" and collectively, the "Financial
Statements"). The Company represents that the Financial Statements are complete
and correct, are in accordance with the books and records of the Company and
present fairly in accordance with generally accepted accounting principles
applied on a basis consistent with prior periods the financial condition and
results of operations of the Company as of the dates and for the periods shown
at October 31, 1996, the Company had no liability, contingent or otherwise that
is not adequately reflected in or reserved against in the balance sheet included
in the Interim Financial Statements that could materially and adversely affect
the financial condition of the Company. Since October 31, 1996, (i) there has
been no change in the business, assets, liabilities, condition (financial or
otherwise) or operations of the Company except for changes in the ordinary
course of business that, individually or in the aggregate, have not been
materially adverse, and (ii) none of the business, prospects, condition
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<PAGE> 13
(financial or otherwise), operations, property or affairs of the Company has
been materially adversely affected by any occurrence or development,
individually or in the aggregate, whether or not insured against.
3.7. Events Subsequent to the Date of the Financial Statements. Except as
contemplated by this Agreement and as set forth on Schedule 3.7, since October
31, 1996, the Company has not (i) issued any stock, bond or other corporate
security, (ii) borrowed any material amount or incurred or become subject to
any material liability (absolute, accrued or contingent), except liabilities
under contracts entered into in the ordinary course of business, (iii)
discharged or satisfied any material lien or encumbrance or incurred or paid
any material obligation or liability (absolute, accrued or contingent) other
than current liabilities shown on the 1996 Financial Statements and current
liabilities incurred since October 31, 1996, in the ordinary course of
business, (iv) declared or made any payment or distribution to shareholders in
their capacities as such or purchased or redeemed any shares of its capital
stock or other securities, (v) mortgaged, pledged or subjected to lien any of
its assets, tangible or intangible, other than capital leases and Permitted
Liens, (vi) sold, assigned or transferred any of its material tangible assets
except in the ordinary course of business, or cancelled any material debt or
claim, except in the ordinary course of business, (vii) sold, assigned,
transferred or granted any license with respect to any patent, trademark, trade
name, service mark, copyright, trade secret or other intangible asset, except
pursuant to license or other agreements entered into in the ordinary course of
business, (viii) suffered any material loss of property or waived any right of
substantial value whether or not in the ordinary course of business, (ix)
except as set forth on Schedule 3.7(a) and other than changes in connection
with a Partnering Agreement, dated June 29, 1996, between PowerCerv Corporation
and SBT Accounting Systems, Inc. made any material change in officer
compensation, (x) except as set forth on Schedule 3.7(b) and other than changes
in connection with a Partnering Agreement, dated June 29, 1996, between
PowerCerv Corporation and SBT Accounting Systems, Inc. made any material change
in the manner of business or operations of the Company, (xi) entered into any
material transaction except in the ordinary course of business or as otherwise
contemplated hereby or (xii) entered into any material commitment (contingent
or otherwise) to do any of the foregoing.
3.8. Litigation. Except as set forth on Schedule 3.8, there is no
litigation or governmental proceeding or investigation pending or threatened,
against the Company or affecting any of the Company's properties or assets, or
against any officer or key employee of the Company in his capacity as such, nor
has there occurred any event or is there readily apparent any condition on the
basis of which any litigation, proceeding or investigation might properly be
instituted with any substantial chance of recovery where such recovery would
likely have a material adverse effect on the Company. Neither the Company nor
any officer or key employee of the Company in his capacity as such is in
default with respect to any order, writ, injunction, decree, ruling or decision
of any court, commission, board or other government agency that may materially
and adversely affect the business or assets of the Company.
3.9. Compliance with Laws and Other Instruments. The Company is in
compliance with all of the provisions of this Agreement and of its charter and
by-laws, and in all
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<PAGE> 14
material respects with the provisions of each mortgage, indenture, lease,
permit, license, other agreement or instrument, judgment, decree, judicial
order, statute, and regulation by which it is bound or to which it or any of its
properties are subject. Neither the execution, delivery, or performance of this
Agreement, and the Shareholders' Agreement, nor the offer, issuance, sale, or
delivery of the Purchased Shares, or the Conversion Shares with or without the
giving of notice or passage of time, or both, will violate, or result in any
material breach of, or constitute a material default under, or result in the
imposition of any encumbrance upon any asset of the Company pursuant to any
provision of the Company's charter or by-laws, or to the Company's Knowledge,
any statute, rule or regulation, contract, lease, judgment, permit, license,
decree or other document or instrument by which the Company is bound or to which
the Company or any of its properties are subject.
3.10. Taxes. The Company is immediately prior to consummation of the
transactions contemplated by this Agreement, and was for its taxable year ended
June 30, 1996, and has been since its inception, subject to Subchapter C of the
Internal Revenue Code of 1986, as amended, for federal income tax purposes and
for state income tax purposes in all states in which the Company is required to
file income tax returns. The Company represents that, except as set forth on
Schedule 3.10, the Company has filed all tax returns including statements of
estimated taxes owed) required to be filed within the applicable periods for
such filings and has paid all taxes required to be paid, and has established
adequate reserves (net of estimated tax payments already made) for the payment
of all taxes payable in respect to the period subsequent to the last periods
covered by such returns. The Company has withheld proper and adequate amounts
from its employees for all periods in compliance with the tax, social security,
and unemployment withholding provisions of all federal, state, local, and
foreign laws. No deficiencies for any tax are currently assessed against the
Company, and no tax returns of the Company have ever been audited, and, to the
Knowledge of the Company, there is not such audit pending or contemplated.
There is no tax lien, whether imposed by any federal, state, or local taxing
authority, outstanding against the assets, properties, or business of the
Company. For the purposes of this Agreement, the term "tax" shall include all
federal, state, and local taxes, including income, franchise, property, sales,
use, withholding, payroll, and employment taxes.
3.11. Real Property.
(a) The Company does not own any real property. The addresses and uses of
all real property that the Company leases or subleases, and any lien or
encumbrance on the Company's leasehold interest therein are set forth on
Schedule 3.11, specifying in the case of each such lease or sublease, the name
of the lessor or sublessor, as the case may be, and the lease term and the
obligations of the lessee thereunder.
(b) Except as set forth on Schedule 3.11, there is no material violation
of any law, regulation, or ordinance (including without limitation laws,
regulations, or ordinances relating to zoning, environmental, city planning, or
similar matters) relating to the Company's use of any real property leased or
subleased by the Company.
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<PAGE> 15
(c) There are no material defaults by the Company or, to the Company's
Knowledge, by any other party thereto, that might curtail in any material
respect the present use of the Company's property listed on Schedule 3.11. The
performance by the Company of this Agreement and the Shareholders' Agreement
will not result in the termination of, or in any increase of any amounts
payable under, any lease listed on Schedule 3.11.
3.12. Personal Property. Except as set forth on Schedule 3.12 and except
for property sold or otherwise disposed of in the ordinary course of business
since October 31, 1996, the Company owns free and clear of any liens or
encumbrances (other than Permitted Liens), all of the material personal
property reflected as owned by the Company in the balance sheet contained in
the 1996 Financial Statements, and all other material items of personal
property acquired by the Company through the date hereof.
3.13. Patents, Trademarks, etc. Set forth on Schedule 3.13 is a list and
brief description of all material patents, patent rights, patent applications,
trademarks, trademark applications, service marks, service mark applications,
trade names, and copyrights, and all applications for such that are in the
process of being prepared, owned by or registered in the name of the Company or
of which the Company is a licensor or licensee or in which the Company has any
right, and in each case a brief description of the nature of such right. The
Company owns or possesses adequate licenses or other rights to use all patents,
patent applications, trademarks, trademark applications, service marks, service
mark applications, trade names, copyrights, manufacturing processes, formulae,
trade secrets, and know how (collectively, "Intellectual Property") necessary
to the conduct of its business as conducted, and has not received notice that
any claim is pending or, to the Knowledge of the Company, threatened to the
effect that the operations of the Company infringe upon or conflict with the
asserted rights of any other person under any Intellectual Property, and there
is no known basis for any such claim (whether or not pending or threatened).
The Company has not received notice that any claim is pending or, to the
Knowledge of the Company, threatened to the effect that any such Intellectual
Property owned or licensed by the Company, or which the Company otherwise has
the right to use, is invalid or unenforceable by the Company, and there is no
known basis for any such claim (whether, or not pending or threatened). The
Company represents that no current or former shareholder, employee, officer, or
director of the Company has (directly or indirectly) any right, title, or
interest in any of the rights described on Schedule 3.13 other than such right
that such Person may enjoy as a shareholder of the Company.
3.14. Agreements of Directors, Officers and Employees. To the Company's
Knowledge, no director, officer, or employee of, or consultant to the Company
is in violation of any terms of any employment contract, non-competition
agreement, non-disclosure agreement, patent disclosure, or assignment
agreement, or other contract or agreement containing restrictive covenants
relating to the right of any such director, officer, employee, or consultant to
be employed or engaged by the Company because of the nature of the business
conducted or proposed to be conducted by the Company, or relating to the use of
trade secrets or proprietary information of
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<PAGE> 16
others, where such violation would have a material adverse effect on the
business or assets of the Company.
3.15. Governmental Approvals. The Company represents that it has all the
material permits, licenses, orders, approvals, qualifications, accreditations,
franchises, and other rights and privileges of all federal, state, local or
foreign governmental or regulatory bodies necessary for the Company to conduct
its business as presently conducted. All such permits, licenses, orders,
approvals, qualifications, accreditations, franchises, and other rights and
privileges are in full force and effect and, to the Knowledge of the Company,
no suspension or cancellation of any of them is threatened, and none of such
permits, licenses, orders, approvals, qualifications, accreditations,
franchises, or other rights and privileges will be affected by the consummation
of the transactions contemplated in this Agreement and the Shareholders'
Agreement.
3.16. Contracts and Commitments. Except as set forth in the Financial
Statements and Schedule 3.16 attached hereto, the Company is not a party to or
bound by any material contract, obligation, or commitment, or any stock
redemption or stock purchase agreement, financing agreement, license, lease, or
stock option plan. For purposes of this Section 3.16, a contract, obligation,
or commitment shall be deemed material if it requires future expenditures by
the Company in excess of $50,000 or might result in payments to the Company in
excess of $50,000.
3.17. Securities Act. The Company has complied and will comply with all
applicable federal or state securities laws in connection with the issuance and
sale of the Purchased Shares and the issuance of the Conversion Shares upon
conversion of the Purchased Shares. Neither the Company nor anyone acting on
its behalf has offered any of the Purchased Shares, or similar securities,
or solicited any offers to purchase any of such securities, so as to bring the
issuance and sale of the Purchased Shares under the registration provisions of
the Act.
3.18. Registration Rights. Except as set forth on Schedule 3.18, the
Company has not granted any rights relating to registration of its capital
stock under the Act or state securities laws other than those contained in this
Agreement.
3.19. Insurance Coverage. Schedule 3.19 contains an accurate list of the
insurance policies currently maintained by the Company. Such policies are in
full force and effect and provide insurance, including, without limitation,
liability insurance, in such amounts and against such risks as is customary for
companies engaged in similar businesses to protect the employees, properties,
assets, businesses, and operations of the Company. Except as described on
Schedule 3.19, the Company has not received notice of any claims that are
currently pending against the Company under any insurance policies currently in
effect and covering the property, business, or employees of the Company and all
premiums due and payable with respect to the policies maintained by the Company
have been paid to date.
3.20. Employee Matters. Except as set forth on Schedule 3.20, the Company
does not have in effect any employment agreements (excluding oral employment
agreements in which
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<PAGE> 17
employees are employed on an at will basis), consulting agreements, deferred
compensation, severance agreements, pension or retirement agreements or
arrangements, bonus, incentive or profit-sharing plans or arrangements, or
labor or collective bargaining agreements. Except as set forth on Schedule
3.20, the Company has no Knowledge that any of the officers or other key
employees of the Company presently intends to terminate his employment. The
Company represents that it is in compliance in all material respects with all
applicable laws and regulations relating to labor, employment, fair employment
practices, terms and conditions of employment, and wages and hours; the Company
is in material compliance with the terms of all plans, programs and agreements
listed on Schedule 3.20, and each such plan, program, or agreement is in
compliance in all material respects with all of the requirements and provisions
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"); no
such plan or program has engaged in any "prohibited transaction" as defined in
Section 4975 of the Code, or has incurred any "accumulated funding deficiency"
as defined in Section 302 of ERISA, nor has any reportable event as defined in
Section 4043(b) of ERISA occurred with respect to any such plan or program; the
Company maintains a group health plan that is subject to Section 4980B of the
Code or Section 162(i) or (k) of the Code as amended by the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended by the Technical and Miscellaneous
Revenue Act of 1988, and, such group health plan is in compliance in all
material respects with the requirements of the referenced sections of the Code;
and (v) with respect to each plan listed on Schedule 3.20, all required filings,
including all filings required to be made with the United States Department of
Labor and Internal Revenue Service, have been timely made.
3.21. No Brokers or Finders. No person has or will have, as a result of
the transactions contemplated by this Agreement, any right, interest, or claim
against or upon the Company or the Purchaser for any commission, fee or other
compensation as a finder or broker because of any act or omission by the Company
or the Principal Shareholder.
3.22. Transactions with Affiliates. Except as set forth on Schedule 3.22,
there are no loans, leases, or other transactions between the Company on the
one hand, and any officer or director of the Company or any person owning 5% or
more of the Common Stock of the Company or any family member or affiliate of
such officer, director or shareholder on the other hand ("Affiliated
Transaction"), other than Affiliated Transactions in an aggregate amount not in
excess of $25,000 with respect to each officer, director, or 5% shareholder and
their respective family members and affiliates, taken as a group.
3.23. Assumptions, Guarantees, etc. of Indebtedness of Other Persons. The
Company has not assumed, guaranteed, endorsed, or otherwise become directly or
contingently liable on or for any Indebtedness of any other Person, except
guarantees by endorsement of negotiable instruments for deposit or collection
or similar transactions in the ordinary course of business.
3.24. Disclosures. Neither this Agreement, any Schedule or Exhibit to this
Agreement, the Shareholders' Agreement, the Financial Statements, nor any
agreement, document,
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or written statement made by the Company and listed on Schedule 3.24 hereto,
contains any untrue statement of material fact or omits to state any material
fact necessary to make the statements contained herein or therein not
misleading. There is no fact known to the Company that has not been disclosed
herein or in any other agreement, document, or written statement furnished by
the Company to the Purchaser in connection with the transactions contemplated
hereby that materially adversely affects or could materially and adversely
affect the business, properties, assets, prospects, or financial condition of
the Company.
ARTICLE IV
AFFIRMATIVE COVENANTS OF THE COMPANY
Without limiting any other covenants and provisions hereof, the Company
agrees that it will observe the following covenants on and after the date
hereof and until the earlier to occur of (i) the consummation of the first
Qualified Public Offering (as defined in Article I of this Agreement) or (ii)
all outstanding shares of Series B Preferred Stock have been converted into
Common Stock:
4.1. Accounts and Reports. The Company will, and will cause each of
its Subsidiaries to, maintain a standard system of accounts in accordance with
generally accepted accounting principles consistently applied, and the Company
will, and will cause each of its Subsidiaries to, keep full and complete
financial records. The Company will furnish to the Purchaser the information
set forth in this Section 4.1.
(a) Within 90 days after the end of each fiscal year, including the
fiscal year ending June 30, 1996, a copy of the consolidated and consolidating
balance sheet of the Company and its Subsidiaries as at the end of such year,
together with consolidated and consolidating statements of income, shareholders'
equity and cash flow of the Company and its Subsidiaries for such year, setting
forth in each case in comparative form the corresponding figures for the
preceding fiscal year, all in reasonable detail and duly certified by an
independent public accountant of national recognition selected by the Board of
Directors of the Company.
(b) Within 30 days after the end of each calendar month, a preliminary
consolidated and consolidating balance sheet of the Company and its Subsidiaries
as of the end of such month and preliminary consolidated and consolidating
statements of income and cash flow for such month and for the period commencing
at the end of the previous fiscal year and the previous fiscal quarter,
respectively, and ending with the end of such month, all in reasonable detail.
(c) Prior to the end of each fiscal year, a copy of the operating plan
and budget for the next fiscal year required under Section 4.8, in form
reasonably consistent with good business practice.
(d) Promptly upon receipt thereof, any written report, so called
"management letter", and any other similar communication submitted to the
Company or any Subsidiary by its
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independent public accountants relating to the business, prospects, accounting
practices or systems, or financial condition of the Company and its
Subsidiaries;
(e) Promptly after obtaining Knowledge thereof, notice of (i) all actions,
suits, and proceedings before any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, affecting the
Company (or any Subsidiary) that, if successful, could have a material adverse
effect on the Company and its Subsidiaries, taken as a whole; (ii) the loss of
any material governmental permits, licenses, orders, qualifications,
accreditations, franchises, or other similar rights or privileges; and (iii)
all material defaults by the Company or any Subsidiary under any agreement for
money borrowed (unless waived or cured within applicable grace periods):
(f) To the extent applicable, promptly upon sending, making available, or
filing the same, all reports and financial statements as the Company (or any
Subsidiary) shall send or make available generally to the shareholders of the
Company as such or to the Commission: and
(g) Within a reasonable time, such other information with regard to the
business, properties or the condition, prospects, or operations, financial or
otherwise, of the Company or its Subsidiaries as the Purchaser may from time to
time reasonably request.
(h) Except as required by law, the Purchaser agrees to keep any
proprietary information of the Company disclosed to it pursuant to this Section
4.1 confidential in a manner consistent with prudent business practices and
treatment of such Purchaser's own confidential information
4.2. Payment of Taxes. The Company will pay and discharge (and cause any
Subsidiary to pay and discharge) all taxes, assessments, and governmental
charges or levies imposed upon it or upon its income or profits, or upon any
properties belonging to it, prior to the date on which penalties attach
thereto, and all lawful claims that, if unpaid, might become a lien or charge
upon any properties of the Company (or any Subsidiary), provided that neither
the Company nor any Subsidiary shall be required to pay any such tax,
assessment, charge, levy, or claim that is being contested in good faith and by
proper proceedings if the Company or such Subsidiary shall have set aside on
its books adequate reserves with respect thereto.
4.3. Maintenance of Key Man Insurance. Prior to Closing, the Company will,
at its expense, use its best efforts to obtain a life insurance policy with a
responsible and reputable insurance company payable to the Company on the life
of the Principal Shareholder in the face amount of $1,000,000. The Company
will maintain such policy and will not cause or permit any assignment of the
proceeds of such policy and will not borrow against such policy. The Company
will add one designee of the Purchaser as a notice party to such policy, and
will request that the issuer of such policy provides such designee with 10 days
notice before such policy is terminated (for failure to pay premium or
otherwise) or assigned, or before any change is made in the designation of the
beneficiary thereof.
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4.4. Compliance with Laws, etc. The Company will comply (and cause each of
its Subsidiaries to comply) with all applicable laws, rules, regulations, and
orders of any governmental authority, the noncompliance with which could
materially adversely affect the business or condition, financial or otherwise,
of the Company and its Subsidiaries, taken as a whole.
4.5. Inspection. At any reasonable time during normal business hours and
from time to time, upon 5 days written notice, the Company (and each of its
Subsidiaries) will permit the Purchaser (or any transferee of the Purchaser who
owns, of record or beneficially, or has the right to acquire, at least 25% of
the then outstanding Preferred Stock or 5% of the then outstanding Common
Stock) or any of the agents or representatives of the foregoing Persons, to
examine and make copies of and extracts from the records and books of account
of and visit the properties of the Company (and any of its Subsidiaries) and to
discuss the Company's affairs, finances and accounts with any of its officers
or directors; provided that the disclosure of such information to the Persons
exercising these rights shall not be required to the extent that such
information is subject to an attorney-client privilege between the Company and
its counsel that, in the opinion of such counsel, would prohibit such
disclosure; and provided further that any Person or Persons exercising rights
under this Section 4.5 (i) uses all reasonable efforts to ensure that any such
examination or visit results in a minimum of disruption to the operations of the
Company and (ii) as a condition precedent to such disclosure, agrees in writing
to keep any proprietary information of the Company disclosed in the course of
such inspection confidential in a manner consistent with prudent business
practices and treatment of such Person's or Persons' own confidential
information and not use such proprietary information for any purpose in
competition with the Company's business. The rights granted under this Section
4.5 shall be in addition to any rights that the Purchaser may have under
applicable law in its capacity as a shareholder of the Company.
4.6. Corporate Existence; Ownership of Subsidiaries. The Company will, and
will cause its Subsidiaries to, at all times and in all material respects
preserve and keep in full force and effect their corporate existence, and
rights and franchises material to the business of the Company and its
Subsidiaries, taken as a whole, and will qualify, and will cause each of its
Subsidiaries to qualify, to do business as a foreign corporation in any
jurisdiction where the failure to do so would have a material adverse effect on
the business, condition (financial or other), assets, properties, or operations
of the Company and its Subsidiaries, taken as a whole. The Company shall at
all times own of record and beneficially, free and clear of all liens, charges,
restrictions, claims and encumbrances of any nature, all of the issued and
outstanding capital stock of each of its Subsidiaries.
4.7. Compliance with ERISA. The Company will comply, (and cause each of
its Subsidiaries to comply) in all material respects with all minimum funding
requirements applicable to any pension or other employee benefit plans that are
subject to ERISA or to the Code, and comply in all other material respects with
the provisions of ERISA and the Code, and the rules and regulations thereunder,
that are applicable to any such plan. Neither the Company nor any of its
Subsidiaries will permit any event or condition to exist that could permit any
such plan to be
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terminated under circumstances that cause the lien provided for in Section 3068
of ERISA to attach to the assets of the Company or any of its Subsidiaries.
4.8. Board Approval. Prior to the end of each fiscal year, the Company
will prepare and submit to its Board of Directors for its approval prior to
such year end an operating plan and budget, cash flow projections and profit and
loss projections, all itemized in reasonable detail, for the immediately
following year.
4.9. Financings. In accordance with good business practice, the Company
will promptly provide to the Board of Directors the details and terms of, and
any brochures or investment memoranda prepared by the Company related to, any
material probable financing of any nature for the Company (or any of its
Subsidiaries), whether initiated by the Company or any other Person.
4.10. Meetings of the Board of Directors. The Directors shall hold regular
meetings not less frequently than once every fiscal quarter. The Company shall
reimburse the Purchaser for all reasonable direct travel expenses incurred by
any director designee of the Purchaser in attending such meetings. The Company
will have the option of making such travel arrangements for the director
designee.
4.11. Rule 144 Information. After an initial public offering of the
Company's Common Stock, the Company shall, upon the written request of the
Purchaser, provide to the Purchaser and to any prospective institutional
transferee of the Purchased Shares or Conversion Shares designated by the
Purchaser, such financial and other information as is available to the Company
or can be obtained by the Company without material expense and as the Purchaser
may reasonably determine is required to permit such transfer to comply with the
requirements of Rule 144 promulgated under the Act.
4.12. State Taxes and Foreign Qualifications. Within 60 days following the
Closing Date, the Company will have (i) filed all state sales, use, and income
tax returns it is required to file, or to have filed, (ii) paid all state
sales, use, and income taxes due and payable at such date other than amounts
disputed in good faith by the Company and (iii) obtained all licenses,
qualifications, and authorizations to do business as a foreign corporation in
each of the jurisdictions set forth in Schedule 3.1, except in each case where
the failure to file, pay, or obtain in accordance with the preceding clauses
would not have a material adverse effect on the business, assets, or financial
condition of the Company.
ARTICLE V
NEGATIVE COVENANTS OF THE COMPANY
Without limiting any other covenants and provisions hereof, the Company
agrees that it will comply (and will cause each Subsidiary to comply) with each
of the provisions of this Article V on
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and after the date hereof and until the earlier to occur of (i) consummation of
the first Qualified Public Offering or (ii) all outstanding shares of Series B
Preferred Stock have been converted into Common Stock.
5.1. Investments in Other Persons. The Company will not make or permit any
Subsidiary to make any loan or advance to any Person, or purchase, otherwise
acquire, or permit any Subsidiary to purchase or otherwise acquire, the capital
stock, assets comprising the business of, obligations of, or any interest in,
any Person, except:
(i) investments by the Company or a Subsidiary in evidences of
indebtedness issued or fully guaranteed by the United States of America and
having a maturity of not more than one year from the date of acquisition;
(ii) investments by the Company or a Subsidiary in certificates of
deposit, notes, acceptances, and repurchase agreements fully insured by the
Federal Deposit Insurance Corporation and having a maturity of not more than
one year from the date of acquisition issued by a bank organized in the United
States having capital, surplus and undivided profits of at least $50,000,000.
(iii) loans or advances from a Subsidiary to the Company or from a
Subsidiary to another Subsidiary;
(iv) investments by the Company or a Subsidiary in A-rated or better
commercial paper having a maturity of not more than one year from the date of
acquisition:
(v) investments by the Company or a Subsidiary in "money market" fund
shares, or in "money market" accounts fully insured by the Federal Deposit
Insurance Corporation and sponsored by banks and other financial institutions,
provided that such "money market" fund or "money market" accounts invest
principally in investments of the types described in clauses (i), (ii) or (iv)
of this subsection 5.1;
(vi) investments by the Company or a Subsidiary in the ordinary course of
business that are less than $200,000 or of a type and amount that shall be
approved by a majority of the members of the Board of Directors of the Company.
5.2. Distributions. Without the prior written consent of the Purchaser,
the Company will not declare or pay any dividends, except dividends payable
in accordance with Exhibit A, purchase, redeem, retire, or otherwise acquire for
value any of its capital stock (or rights, options, or warrants to purchase such
stock) now or hereafter outstanding, return any capital to its shareholders as
such, or make any distribution of assets to its shareholders as such, or permit
any Subsidiary to do any of the foregoing, except that the Subsidiaries may
declare and make payment of cash and stock dividends, return capital and make
distributions of assets to the Company and except that nothing herein contained
shall prevent the Company from:
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(i) effecting a stock split or declaring or paying any dividend consisting
of shares of any class of capital stock to the holders of shares of such class
of capital stock;
(ii) complying with any specific provision of the terms of the Series B
Preferred Stock as contained in Exhibit A, including, without limitation, the
payment of dividends, liquidation preferences, and redemption payments on or
with respect to the Series B Preferred Stock;
(iii) repurchasing Common Stock from employees, consultants, former
employees, and former consultants of the Company other than the Principal
Shareholder; or
(iv) repurchasing any shares of the Company's Common Stock or preferred
stock owned by the Principal Shareholder, if such repurchase is in settlement
of the Principal Shareholder's personal estate.
5.3. Dealings with Affiliates. Without the approval of the Disinterested
Directors, the Company will not enter into any transaction including, without
limitation, any loans or extensions of credit with any officer or director of
the Company, or any Subsidiary, or holder of any class of capital stock of the
Company, or any member of their respective immediate families, or any
corporation or other entity directly or indirectly controlled by one or more of
such officers, directors, or shareholders, or members of their immediate
families.
5.4. Merger; Sale of Assets. Unless done in accordance with the laws of
the applicable jurisdiction, the Company shall not, and shall not permit any
Subsidiary to, merge or consolidate with any other corporation, or acquire the
stock or assets of any other corporation, partnership or business, or sell,
assign, lease, or otherwise dispose of or voluntarily part with the control of
(whether in one transaction or in a series of transactions) all, or
substantially all, of its assets (whether now owned or hereinafter acquired) or
consent to any liquidation, dissolution or winding up of the Company, or permit
any Subsidiary to do any of the foregoing, (i) except for sales or other
dispositions of assets in the ordinary course of business and (ii) except that
(a) any wholly owned Subsidiary may merge into or consolidate with or transfer
assets to any other wholly owned Subsidiary, and (b) any wholly owned Subsidiary
may merge into or transfer assets to the Company.
5.5. Limitation on Restrictions on Subsidiary Dividends and Other
Distributions. The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, create or cause to exist or become
effective any encumbrances or restrictions on the ability of any of its
Subsidiaries to (i) pay dividends or make any other distributions on its
capital stock or any other interest or participation in its profit owned by any
of the Company or any of its Subsidiaries, or pay any indebtedness owed by any
of the Subsidiaries, (ii) make loans or advances to the Company, or (iii)
transfer any of its properties or assets to the Company.
5.6. No Conflicting Agreements. The Company agrees that neither it nor any
Subsidiary will, without the consent of the Purchaser, enter into or amend any
agreement, contract,
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commitment, or understanding that would restrict or prohibit the exercise by the
Purchaser of any of its rights under this Agreement or the Shareholders'
Agreement.
5.7. Fiduciary Obligations. The Company agrees that neither it nor any
Subsidiary will, in any manner, whether by amendment of the Certificate of
Incorporation, including any certificate of designation, merger, reorganization,
recapitalization, consolidation, sale of assets, sale of stock, tender offer,
dissolution, or otherwise, take any action, or permit any action to be taken,
solely or primarily for the purpose of increasing the value of any class of
stock of the Company, if the effect of such action is to reduce the value or
security of the Preferred Stock.
ARTICLE VI
PREEMPTIVE RIGHT
6.1. Right of Purchase. The Company hereby grants to the Purchaser, so
long as it shall own, of record or beneficially, or have the right to acquire
from the Company, any Purchased Shares, Conversion Shares, or Common Stock,
the right to purchase all or part of its or his pro rata share of New Securities
(as defined in Section 6.2) that the Company, from time to time, proposes to
sell and issue. The Purchaser's pro rata share, for purposes of this preemptive
right, is the ratio of the number of shares of Preferred Stock, Conversion
Shares, and shares of Common Stock that the Purchaser owns to the total number
of shares of Preferred Stock, Conversion Shares, and shares of Common Stock then
outstanding.
6.2. Definition of New Securities. "New Securities" means any capital
stock of the Company whether now authorized or not, and rights, options, or
warrants to purchase capital stock, and securities of any type whatsoever that
are, or may become convertible into or exchangeable for capital stock, issued on
or after the date hereof; provided that the term "New Securities" does not
include (i) securities purchased under this Agreement or Conversion Shares
issuable upon conversion of the Purchased Shares, (ii) Common Stock issued as a
stock dividend to holders of Common Stock or upon any stock split, subdivision
or combination of shares of Common Stock, (iii) Preferred Stock issued as a
dividend to holders of Preferred Stock or upon any stock split, subdivision, or
combination of Preferred Stock, (iv) the issuance of options to purchase shares
of Common Stock to employees or consultants in connection with their employment
under a statutory or nonstatutory stock option plan, as are reasonable in number
for an entity of the Company's size in the software industry based on the total
number of shares authorized and outstanding and subject to the approval of the
Company's Board of Directors, and (v) the issuance of securities in connection
with a bona fide business acquisition by the Company.
6.3. Notice from the Company; Purchase of New Securities. If the Company
proposes to undertake an issuance of New Securities, it shall give the
Purchaser written notice of its intention (the "New Securities Notice"),
describing the type of New Securities and the price and the terms upon which
the Company proposes to issue the same. The Purchaser shall have 20 business
days from the date of receipt of any such notice to agree to purchase up to the
Purchaser's
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pro rata share of such New Securities for the price and upon the terms set forth
in the New Securities Notice by giving written notice to the Company and stating
therein the quantity of New Securities to be purchased, which written notice
shall be given not later than the end of such 20-day period. Sales of such New
Securities to be sold to the Purchaser under this Section 6 shall be made at the
offices of the Company within 60 days following the date the Purchaser receives
the New Securities Notice.
6.4. Sale by the Company. If the Purchaser fails to exercise in full its
preemptive right, the Company shall have 90 days thereafter to sell the New
Securities with respect to which the Purchaser's option was not exercised, at a
price and upon terms no more favorable to the purchasers thereof than specified
in the New Securities Notice. To the extent the Company does not sell all the
New Securities offered within said 90-day period, the Company shall not
thereafter issue or sell such New Securities without first again offering such
securities to the Purchaser in the manner provided above.
6.5. Termination of Rights. The rights granted to the Purchaser under this
Article VI shall expire upon the earlier of (i) consummation of the first
Qualified Public Offering or (ii) all outstanding shares of Series B Preferred
Stock have been converted into Common Stock. The rights granted to the
Purchaser under this Article VI shall not apply (i) in connection with a
Qualified Public Offering and (ii) to holders of the Purchased Shares who,
together with their affiliates, own less than 5% of the then outstanding
Purchased Shares.
ARTICLE VII
PURCHASER'S REPRESENTATIONS
7.1. Representations and Warranties. The Purchaser hereby represents and
warrants to the Company as follows:
(a) This Agreement and the Shareholders' Agreement to which such Purchaser
is a party constitute legal, valid, and binding obligations of the Purchaser,
enforceable against the Purchaser in accordance with their respective terms;
(b) The Purchaser has been advised and understands that the Purchased
Shares have not been registered under the Act;
(c) The Purchaser has been further advised and understands that no public
market now exists for any of the securities issued by the Company and that a
public market may never exist for the Purchased Shares or Conversion Shares;
(d) The Purchaser is purchasing the Purchased Shares for investment
purposes, for its own account and not with a view to, or for sale in connection
with, any distribution thereof in violation of federal or state securities
laws;
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(e) By reason of its business or financial experience, the Purchaser has
the capacity to protect its own interest in connection with the transactions
contemplated hereunder;
(f) No Person has or will have, as a result of any agreement or
understanding with the Purchaser, any right, interest, or claim against or upon
the Company or any of its Subsidiaries for any commission, fee, or other
compensation as a finder or broker arising from the purchase of the Purchased
Shares; and
(g) Each Person signing this Agreement and the Shareholders' Agreement on
behalf of the Purchaser has been duly authorized to execute, deliver, and
perform this Agreement and the Shareholders' Agreement and to bind the
Purchaser by such actions, and no further consent, approval, or authorization
of, or designation or declaration, or filing with any court of governmental
authority, is or will be required on the part of the Purchaser to make this
Agreement, the Shareholders' Agreement and the other agreements and instruments
executed by the Purchaser in connection herewith or therewith valid and binding
obligations of the Purchaser enforceable in accordance with their respective
terms.
(h) The Purchaser believes it has received all the information it
considers necessary or appropriate for deciding whether to purchase the Series
B Preferred Stock. Such Purchaser further represents that it has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the offering of the Series B Preferred Stock and the
business, properties, prospects and financial condition of the Company. The
foregoing, however, does not limit or modify the representations and warranties
of the Company in Article III of this Agreement or the right of the Purchaser
to rely thereon.
(i) The Purchaser is an "accredited investor" as defined in Rule 501(a) of
Regulation D under the Securities Act.
7.2. Permitted Sales; Legends. Notwithstanding the foregoing
representations, the Company agrees that it will permit, subject to a right to
participate granted to the Principal Shareholder in the Shareholders' Agreement
and subject to the Company's rights as set forth in the Bylaws, a sale or other
transfer of any of the Purchased Shares or Conversion Shares upon obtaining
assurance satisfactory to the Company that such transaction is exempt from the
registration requirements of, or is covered by an effective registration
statement under, the Act and applicable state securities laws, including,
without limitation, receipt of an unqualified opinion of counsel to such
effect, which opinion is reasonably satisfactory to the Company. The
certificates representing the Purchased Shares and any Conversion Shares
issuable upon conversion thereof shall bear a legend evidencing such
restriction on transfer substantially in the following form:
"The shares represented by this certificate have been acquired for
investment and have not been registered under the Securities Act of 1933
(the "Act") or the securities laws of any state. The shares may not be
transferred by sale, assignment, pledge, or otherwise unless
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(i) a registration statement for the shares under the Act is in effect or
(ii) the corporation has received an opinion of counsel, which opinion is
reasonably satisfactory to the corporation, to the effect that such
registration is not required under the Act. Any sale, assignment
transfer, or other disposition of the shares represented by this
certificate is restricted by, and subject to, the terms and provisions of
a certain Shareholders' Agreement dated as of December 6, 1996. A copy of
this Agreement is on file with the Secretary of the Corporation."
ARTICLE VIII
REGISTRATION RIGHTS
8.1. Certain Definitions. As used in this Article VIII, the following
terms have the following respective meanings:
"Holder" means the person who, together with such person's affiliates, is
the record owner of at least 10% of the Registrable Securities that have not
been sold to the public.
"Initiating Holders" means the Purchaser or its assignees who in the
aggregate are holders of at least twenty-five percent (25%) of the sum of (i)
the Conversion Shares now owned or hereafter acquired by the Purchaser, (ii)
all other shares of Common Stock owned by the Purchaser, and (iii) all shares
of common stock issuable with respect to securities of the Company convertible
into or exercisable for shares of Common Stock now or hereafter acquired by the
Purchaser.
"Registrable Securities" means (i) all the Conversion Shares owned by the
Purchaser, (ii) all other shares of Common Stock now owned or hereafter
acquired by the Purchaser; (iii) all shares of Common Stock issuable with
respect to securities of the Company convertible into or exercisable for shares
of Common Stock now owned or hereafter acquired by the Purchaser; and (iv) any
Common Stock issued in respect of the shares described in clauses (i) through
(iii) upon any stock split, stock dividend, recapitalization, or other similar
event; provided that in no event shall "Registrable Securities" be deemed to
include shares of Common Stock acquired by the Purchaser in a public market
purchase.
The term "register" means to register under the Act and applicable state
securities laws for the purpose of effecting a public sale of securities.
"Registration Expenses" means all expenses incurred by the Company in
compliance with Sections 8.2, 8.3, or 8.5 hereof, including, without
limitation, all registration and filing fees, printing expenses, transfer
taxes, fees and disbursements of counsel for the Company, blue sky fees and
expenses, and the expense of any audits incident to or required by any such
registration.
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"Selling Expenses" means all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and any fees paid
to advisors, including legal counsel, that the Purchaser may hire
independently.
8.2. Requested Registrations.
(a) If on any two occasions after the Company's initial public offering of
its Common Stock, the Company shall receive from one or more Initiating Holders
a written request that the Company effect the registration of Registrable
Securities pursuant to a firm commitment underwriting managed by a nationally
recognized underwriter, the Company will:
(i) promptly give written notice of the proposed registration to all
other Holders; and
(ii) as soon as practicable, use all commercially reasonable efforts
to effect such registration as may be so requested and as would permit or
facilitate the sale and distribution of such number of Registrable
Securities as are specified in such request, together with such portion of
the Registrable Securities of any Holder or Holders joining in such request
as are specified in a written request received by the Company within twenty
days after the mailing of such written notice by the Company. If the
underwriter managing the offering advises the Holders who have requested
inclusion of their Registrable Securities in such registration that
marketing considerations require a limitation on the number of shares
offered, such limitation shall be imposed pro rata among such Holders who
requested inclusion of Registrable Securities in such registration
according to the number of Registrable Securities each such Holder
requested to be included in such registration. Neither the Company nor any
other shareholder may include shares in a registration effected under this
Section 8.2 without the consent of the Holders holding a majority of the
Registrable Securities sought to be included in such registration. The
Principal Shareholder, however, may include shares in a registration
effected under this Section 8.2. If the underwriters managing the offering
advise the Holders and the Principal Shareholder that marketing
considerations require a limitation on the number of shares offered or a
reduction in the offering price thereof, such limitation first shall cause
a reduction of the number of shares the Principal Shareholder may include
in such registration, and then, to the extent required by the managing
underwriter(s), such limitation shall cause a reduction of the number of
shares the Holders may include in such registration, which number shall be
reduced on a pro rata basis solely among the Holders. No registration
initiated by Initiating Holders hereunder shall count as a registration
under this Section 8.2 unless and until it shall have been declared
effective and the sale of the securities registered shall have been
consummated. If, however, the Holders withdraw a registration after the
same has been filed with the Commission, and such withdrawal is not caused
by a material adverse development with respect to the Company, its
business, condition, or prospects, then such proposed registration shall
count as one of the registrations requested hereunder unless the Holders
who requested inclusion of Registrable Securities therein elect to pay the
expenses incurred by the Company in connection with such withdrawn
registration.
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(b) Notwithstanding the provisions of Section 8.2(a), if at the time of
receipt of a request to register securities under such section the Board of
Directors of the Company believes it would be seriously detrimental to the
Company because the Company is actively considering an acquisition, merger, or
other transaction that the Company would be unable to pursue or would be
required to disclose prematurely, if it proceeded to effect such registration,
or such other event that the parties may agree upon, the Company may delay such
registration for a period of up to 180 days. The Company may not exercise its
right to delay a requested registration under this Section 8.2(b) more than
twice in total or more than once during any 180-day period.
(c) Selection of Underwriter. The underwriter of any underwriting
requested under this Section 8.2 shall be a nationally-recognized underwriter
selected by the Holders holding a majority of the Registrable Securities
included therein. Such underwriter, however, must be reasonably acceptable to
the Company.
8.3. "Piggy Back" Registrations.
(a) If the Company shall determine to register any of its securities,
either for its own account or the account of a security holder or holders
exercising their registration rights, other than a registration relating solely
to employee benefit plans, or a registration on any registration form that does
not permit secondary sales or does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of Registrable Securities, the Company will:
(i) Promptly give to each Holder of Registrable Securities written notice
thereof (that shall include the number of shares the Company or other security
holder proposes to register and, if known, the name of the proposed
underwriter); and
(ii) Use all commercially reasonable efforts to include in such
registration all the Registrable Securities specified in a written request or
requests, made by any Holder within 20 days after the date of mailing of the
written notice by the Company described in clause (i) above. If the
underwriter advises the Company that marketing considerations require a
limitation on the number of shares offered pursuant to any registration
statement, then the Company may offer all of the securities it proposes to
register for its own account or the maximum amount that the underwriter
considers saleable and such limitation on any remaining securities that may, in
the opinion of the underwriter, be sold will be imposed pro rata among all
Holders who are entitled to include shares in such registration statement
according to the number of Registrable Securities each such Holder requested to
be included in such registration statement.
(b) The Company shall select the underwriter, if any, for an offering made
pursuant to this Section 8.3; provided that such underwriter must be reasonably
acceptable to the Holders of a majority of the Registrable Securities being
registered in such offering.
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8.4. Registration on Form S-3. The Company shall use its best efforts to
qualify for registration on Form S-3 or any comparable or successor form; and
to that end the Company shall register (whether or not required by law to do
so) the Common Stock under the Securities Exchange Act of 1934 (the "Exchange
Act") in accordance with the provisions of the Exchange Act following the
effective date of the first registration of any securities of the Company on
Form S-1 or any comparable or successor form. After the Company has qualified
for the use of Form S-3, in addition to the rights contained in the foregoing
provisions of this Article VIII, the Holders of Registrable Securities
affiliated with the Purchaser shall have the right to request, on one occasion,
registration on Form S-3 of all or any portion of such Holders' Registrable
Securities, at such Holders' election (such requests shall be in writing and
shall state the number of shares of Registrable Securities to be disposed of
and the intended methods of disposition of such shares by such Holder or
Holders). The right to register securities on a Form S-3 under this Section
8.5 must be exercised with respect to the registration of at least $2,500,000
in expected value of Registrable Securities, or such lesser total number of
Registrable Securities as are then owned by the party requesting the same.
8.5. Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Section 8.3 shall be paid by the Company. All Registration Expenses pertaining
to the sale of Registrable Securities incurred in connection with any
registration, qualification, or compliance pursuant to Section 8.2 or 8.4 and
all Selling Expenses incurred in connection with any registration,
qualification or compliance pursuant to Section 8.2, 8.3, or 8.4 shall be borne
by the Holders of the securities registered, pro rata on the basis of the
number of their shares sold in such registration.
8.6. Registration Procedures. In the case of each registration effected by
the Company pursuant to this Article VIII, the Company will keep each Holder of
Registrable Securities included in such registration advised in writing as to
the initiation of each registration and as to the completion thereof. At its
expense, the Company will do the following for the benefit of such Holders:
(a) Keep such registration effective for a period of 60 days or until the
Holder or Holders have completed the distribution described in the registration
statement relating thereto, whichever first occurs, and amend or supplement such
registration statement and the prospectus contained therein from time to time
to the extent necessary to comply with the Act and applicable state securities
laws;
(b) Use all commercially reasonable efforts to register or qualify the
Registrable Securities covered by such registration under the applicable
securities laws of such jurisdictions as the selling shareholders may
reasonably request; provided, that the Company shall not be obligated to
qualify to do business in any jurisdiction where it is not then so qualified or
otherwise required to be so qualified or to take any action that would subject
it to the service of process in suits other than those arising out of such
registration;
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(c) Furnish such number of prospectuses and other documents incident
thereto as a Holder from time to time may reasonably request;
(d) In connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 8.2 hereof, the Company will
enter into any underwriting agreement reasonably necessary to effect the offer
and sale of Registrable Securities, if such underwriting agreement contains
customary underwriting provisions and is entered into by the Holder. If the
underwriter so requests, the underwriting agreement will contain customary
indemnification and contribution provisions on the part of the Company;
(e) To the extent then permitted under applicable professional guidelines
and standards, obtain a comfort letter from the Company's independent public
accountants in customary form and covering such matters of the type customarily
covered by comfort letters and an opinion from the Company's counsel in
customary form and covering such matters of the type customarily covered in a
public issuance of securities, in each case addressed to the underwriters, and
provide copies thereof to the Holders; and
(f) Permit counsel to the Holder to inspect and copy such corporate
documents as such counsel may reasonably request.
8.7. Indemnification.
(a) The Company will, and hereby does, indemnify each Holder, each of its
officers, directors, and partners, and each person controlling such Holder
within the meaning of the Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Article VIII,
and each underwriter, if any, and each person who controls such underwriter
within the meaning of the Act, against all claims, losses, damages, and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any prospectus, offering circular, or other document (including any related
registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the Act or the Exchange Act or securities act of any state or any
rule or regulation thereunder applicable to the Company and relating to action
or inaction required of the Company in connection with any such registration,
qualification, or compliance, and will reimburse each such Holder, each of its
officers, directors, and partners, and each person controlling such Holder, each
such underwriter and each person who controls any such underwriter, for any
legal and any other expenses reasonably incurred in connection with
investigating and defending any such claim, loss, damage, liability, or action,
whether or not resulting in any liability, provided that the Company will not be
liable in any such case (i) with respect to any Holder, to the extent that any
such claim, loss, damage, liability, or expense arises out of or is based on any
untrue statement (or alleged untrue statement) or omission (or alleged omission)
based upon written information furnished to the Company by such Holder and
stated to be specifically for use therein
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and (ii) with respect to any underwriter, to the extent that any such claim,
loss, damage, liability, or expense arises out of or is based on any untrue
statement (or alleged untrue statement) or omission (or alleged omission)
based upon written information furnished to the Company by such underwriter and
stated to be specifically for use therein. The Company will not be required to
fund any settlement entered into by a party otherwise entitled to indemnity
hereunder unless such settlement has been consented to by the Company, which
consent shall not be unreasonably withheld.
(b) Each Holder will, if Registrable Securities held by him are included
in the securities as to which such registration, qualification, or compliance
is being effected, indemnify the Company, each of its directors and officers
and each underwriter, if any, of the Company's securities covered by such a
registration statement, each person who controls the Company or such
underwriter within the meaning of the Act and the rules and regulations
thereunder, each other such Holder and each of their officers, directors, and
partners, and each person controlling such Holder, against all claims, losses,
damages, and liabilities (or actions in respect thereof) arising out of or
based on any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus, offering circular, or
other document, or any 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 the Company and such Holder's
directors, officers, partners, persons, underwriters, or control persons for
any legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability, or action,
whether or not resulting in liability, in each case to the extent, but only to
the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular, or other document in reliance upon and in
conformity with written information furnished to the Company by such Holder and
stated to be specifically for use therein; provided, however, that the
obligations of each Holder hereunder shall be limited to an amount equal to the
net proceeds received by such Holder upon the sale of his securities.
(c) Each party entitled to indemnification under this Section 8.7 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual Knowledge of any claim as to which indemnity may be sought, but the
failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations under this Section 8.7 (except and to the
extent the Indemnifying Party has been prejudiced as a consequence thereof).
The Indemnifying Party will be entitled to participate in, and to the extent
that it may elect by written notice delivered to the Indemnified Party promptly
after receiving the aforesaid notice from such Indemnified Party, at its expense
to assume, the defense of any such claim or any litigation resulting therefrom,
with counsel reasonably satisfactory to such Indemnified Party, provided that
the Indemnified Party may participate in such defense at its expense,
notwithstanding the assumption of such defense by the Indemnifying Party, and
provided, further, that if the defendants in any such action shall include both
the Indemnified Party and the Indemnifying Party and the Indemnified Party shall
have reasonably concluded that there may be legal defenses available to it or
other Indemnified Parties
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that conflict with or are in addition to those available to the Indemnifying
Party, the Indemnified Party or Parties shall have the right to select separate
counsel to assert such legal defenses and to otherwise participate in the
defense of such action on behalf of such Indemnified Party or Parties and
the fees and expenses of such counsel shall be paid by the Indemnifying Party.
No Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement that does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation. Each
Indemnified Party shall (i) furnish such information regarding itself or the
claim in question as an Indemnifying Party may reasonably request in writing and
as shall be reasonably required in connection with defense of such claim and
litigation resulting therefrom and (ii) shall reasonably assist the Indemnifying
Party in any such defense, provided that the Indemnified Party shall not be
required to expend its funds in payment of costs, fees, or expenses of third
parties in connection with such assistance.
(d) No Holder shall be required to participate in a registration pursuant
to which it would be required to execute an underwriting agreement in
connection with a registration effected under Section 8.2 or 8.3 that imposes
indemnification or contribution obligations on such Holder materially more
onerous than those imposed hereunder, however, the Company shall not be deemed
to breach the provisions of Section 8.2 or 8.3 if a Holder is not permitted to
participate in a registration because of his refusal to execute an underwriting
agreement on the basis of this subsection (d).
(e) In order to provide for just and equitable contribution to joint
liability under the Act in any case in which any Holder exercising rights under
this Agreement, or any controlling person of any such Holder, makes a claim for
indemnification pursuant to this Article VIII but it is judicially determined
(by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Article VIII provides for indemnification in
such case, then, the Company and such Holder will contribute to the aggregate
losses, claims, damages, or liabilities to which they may be subject (after
contribution from others) in such proportion as is appropriate to reflect the
relative fault of the Company on the one hand and of the Holder on the other in
connection with the statements or omissions that resulted in such losses,
claims, damages, or liabilities, as well as any other relevant equitable
considerations. The relative fault of the Company on the one hand and of the
Holder on the other shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by the
Company on the one hand or by the Holder on the other, and each party's relative
intent, Knowledge, access to information, and opportunity to correct or prevent
such statement or omission, however, in any such case, (A) no such Holder will
be required to contribute any amount in excess of the public offering price of
all such Registrable Shares offered by it pursuant to such registration
statement; and (B) no person or entity guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) will be entitled to
contribution from any person or entity who was not guilty of such fraudulent
misrepresentation.
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(f) In order to provide for just and equitable contribution to joint
liability under the Act in any case in which the Company exercising its rights
under this Agreement, makes a claim for indemnification pursuant to this
Article VIII, but it is judicially determined (by the entry of a final judgment
or decree by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the last right of appeal) that such indemnification may
not be enforced in such case notwithstanding that this Article VIII provides
for indemnification, in such case, then, the Company and such Holder will
contribute to the aggregate losses, claims, damages or liabilities to which
they may be subject (after contribution from others) in such proportion as is
appropriate to reflect the relative fault of the Company on the one hand and of
the Holder on the other in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative fault of the Company on the
one hand and of the Holder on the other shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Company on the one hand or by the Holder on the
other, and each party's relative intent, Knowledge, access to information and
opportunity to correct or present such statement or omission; provided,
however, that, in any such case, (a) no such Holder will be required to
contribute any amount in excess of the public offering price of all such
Registrable Shares offered by it pursuant to such registration statement; and
(b) no person or entity guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) will be entitled to contribution from any
person or entity who was not guilty of such fraudulent misrepresentation.
8.8. Information by Holder. Each Holder of Registrable Securities included
in any registration shall furnish to the Company such information regarding
such Holder and the distribution proposed by such Holder as the Company may
reasonably request in writing and as shall be reasonably required in
connection with any registration, qualification, or compliance referred to in
this Article VIII or otherwise required by applicable state or federal
securities laws.
8.9. Limitations on Registration Rights. Except as otherwise set forth in
the penultimate sentence of this Section 8.9, from and after the date of this
Agreement, the Company shall not enter into any agreement with any holder or
prospective holder of any securities of the Company giving such holder or
prospective holder (a) the right to require the Company, upon any registration
of any of its securities, to include, among the securities that the Company is
then registering, securities owned by such holder, unless under the terms of
such agreement, such holder or prospective holder may include such securities
in any such registration only to the extent that the inclusion of its
securities will not limit the number of Registrable Securities sought to be
included by the Holders of Registrable Securities or, in the judgement of the
underwriters, adversely affect the proposed offering; or (b) the right to
require the Company to initiate any registration of any securities of the
Company. The Company may grant to any holder or prospective holder of
securities of the Company the right to request registration of such securities
provided that: (i) such request may not be made prior to the first anniversary
of the date of the Agreement, (ii) the Purchaser may include its Registrable
Securities in a registration requested by such person, and (iii) in the event
that fewer than all securities requested for inclusion in such registration can
be sold, no securities requested to be included therein by such person shall be
included unless all Registrable
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Securities requested to be included therein by the Purchaser are so included.
Subject to the immediately preceding sentence, the Company may grant to the
Principal Shareholder the right to request the Company to register his shares.
8.10. Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission that may permit the sale of
restricted securities (as that term is used in Rule 144 under the Act) to the
public without registration, the Company agrees to:
(a) make and keep public information available as those terms are
understood and defined in Rule 144 under the Act, at all times from and after
90 days following the effective date of the first registration under the Act
filed by the Company for an offering of its securities to the general public;
(b) use it best efforts to file with the Commission in a timely manner all
reports and other documents required of the Company under the Act and the
Exchange Act at any time after it has become subject to such reporting
requirements; and
(c) so long as the Purchaser owns any restricted securities, furnish to
the Purchaser forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of Rule 144 (at any time from
and after 90 days following the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Act and Exchange Act (at any time after it has become
subject to such reporting requirements), a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents so filed
as a Purchaser may reasonably request in availing itself of any rule or
regulation of the Commission allowing a Purchaser to sell any such securities
without registration.
8.11. Listing Application. If shares of any class of stock of the Company
shall be listed on a national securities exchange or The Nasdaq Stock Market,
the Company shall, at its expense, include in its listing application all of
the shares of the listed class then owned by the Purchaser.
8.12. Damages. The Company recognizes and agrees that the holder of
Registrable Shares shall not have an adequate remedy if the Company fails to
comply with the provisions of this Article VIII, and that damages will not be
readily ascertainable, and the Company expressly agrees that in the event of
such failure any Holder of Registrable Shares shall be entitled to seek
specific performance of the Company's obligations hereunder and that the
Company will not oppose an application seeking such specific performance.
ARTICLE IX
REPURCHASE OF SERIES B PREFERRED STOCK
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9.1. Repurchase of Series B Preferred Stock.
(a) General. Each Holder shall have the right (the "Preferred Stock Put")
to require the Company to purchase shares of Series B Preferred Stock held by
such Holder, not to exceed 50% in the aggregate of the then outstanding shares
of Series B Preferred Stock, on the terms and subject to the conditions as set
forth herein.
(b) Preferred Stock Put Notice. A Holder shall exercise the Preferred
Stock Put by delivering written notice of such intention to effect the
Preferred Stock Put (the "Preferred Stock Put Notice") to the Company within 60
days after four years from the date of issuance of the Purchased Shares. Such
Preferred Stock Put Notice shall set forth the Holder's name and the number of
shares of Series B Preferred Stock for which such Holder is exercising the
Preferred Stock Put.
(c) Preferred Stock Put Price. The price per share payable pursuant to
the exercise of the Preferred Stock Put shall equal $5.09 per share, payable in
three equal annual installments with the first payment being due on the last
business day of the calendar month immediately following the date of the
Preferred Stock Put Notice and, thereafter on the same date of the next two
successive calendar years.
(d) Preferred Stock Put Closing. Payment of the Preferred Stock Put Price
shall be made against delivery of certificates (or an affidavit in lieu of a
lost certificate) representing the number of shares of Series B Preferred Stock
to be repurchased (the "Preferred Stock Put Closing Date").
(e) Rescission. Any exercise of a Preferred Stock Put may be rescinded at
any time by a Holder prior to the Preferred Stock Put Closing Date relating to
such Preferred Stock Put by written notice delivered by such Holder to the
Company; provided, however, that such notice must be delivered at least five
days prior to the Preferred Stock Put Closing Date.
ARTICLE X
CONDITIONS OF PURCHASER'S OBLIGATION
10.1. Effect of Conditions. The obligation of the Purchaser to purchase
and pay for the Purchased Shares at the Closing shall be subject to the
satisfaction of each of the conditions stated in the following Sections of this
Article, unless waived by the Purchaser in writing.
10.2 Representations and Warranties. The representations and warranties
of the Company contained in this Agreement shall be true and correct in all
material respects on the date of such Closing with the same effect as though
made on and as of that date, and the Purchaser shall have received a certificate
dated as of such Closing and signed on behalf of the Company to that effect.
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10.3. Performance. The Company shall have performed and complied with all
of the material agreements, covenants and conditions contained in this
Agreement required to be performed or complied with by it and him at or prior to
such Closing, and the Purchaser shall have received a certificate dated as of
such Closing and signed on behalf of the Company to that effect.
10.4. Opinion of Counsel. The Purchaser shall have received an opinion,
dated the date of such Closing, from Brobeck, Phleger & Harrison LLP, counsel
to the Company, in form and substance acceptable to the Purchaser.
10.5. Certified Documents, etc. Counsel for the Purchaser shall have
received a copy of the Company's Certificate of Incorporation, as amended,
certified by the Secretary of State of the State of Delaware and copies of the
Company's By-Laws certified by its Secretary, as well as any and all other
documents, including certificates as to votes adopted and incumbency of
officers and certificates from appropriate authorities as to the legal
existence and good standing of the Company and its Subsidiaries, that the
Purchaser or their counsel may reasonably request.
10.6. No Material Adverse Change. The business, properties, assets or
condition (financial or otherwise) of the Company and its Subsidiaries shall
not have been materially adversely affected since the date of this Agreement,
whether by fire, casualty, act of God or otherwise, and there shall have been
no other changes in the business, properties, assets, condition (financial or
otherwise), management or prospects of the Company or any of its Subsidiaries
that would have a material adverse effect on their respective businesses or
assets.
10.7. Shareholders' Agreement. A Shareholders' Agreement in the form of
Exhibit B attached hereto shall have been executed by the Purchaser, the
Company and the Principal Shareholder.
10.8. Amendment to Certificate of Incorporation. The Certificate of
Incorporation of the Company shall have been amended to provide for the
authorization of the Preferred Stock with the terms set forth in Exhibit A.
10.9 Consents and Waivers. The Company shall have obtained all consents or
waivers necessary to execute this Agreement and the other agreements and
documents contemplated herein, to issue the Purchased Shares and the Conversion
Shares, and to carry out the transactions contemplated hereby and thereby. All
corporate and other action and governmental filings necessary to effectuate the
terms of this Agreement, the Shareholders' Agreement, the Purchased Shares, the
Conversion Shares and other agreements and instruments executed and delivered
by the Company in connection herewith shall have been made or taken.
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ARTICLE XI
CONDITIONS OF THE COMPANY'S OBLIGATION
The Company's obligation to sell the Purchased Shares shall be subject to
the accuracy on the date of the Closing of the representations and warranties
of the Purchaser contained in this Agreement and payment of the purchase price
for the Purchased Shares as provided in Section 2.3 hereof.
ARTICLE XII
TERMINATION
12.1. Termination by Mutual Written Consent. This Agreement may be
terminated, and the transactions contemplated hereby abandoned, at any time
prior to the Closing by the written agreement of the Company and the Purchaser.
12.2. Termination for Breach. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time before the
Closing (or any date to which the Closing may have been extended by the written
agreement of the parties obligated to perform on such Closing) by any
party obligated to perform on the Closing if the conditions for its benefit set
forth in Article X or XI, as the case may be, have not been satisfied on or
prior to the Closing and if the conditions for the benefit of the other parties
have been satisfied or waived, and if such performing party shall have given
written notice of termination to the non-performing party.
12.3. Termination for Delay. Unless earlier terminated in accordance with
Section 12.1 or 12.2, this Agreement may be terminated and the transactions
contemplated hereby may be abandoned by the Company or the Purchaser if the
Closing does not occur by December 6, 1996, however, the right to terminate
this Agreement under this Section 12.3 shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the cause
of, or resulted in, the failure of the Closing to occur on or before such date.
12.4. Rights After Termination. Upon termination of this Agreement under
this Article XII, the parties shall be released from all obligations arising
hereunder, except as to any liability for misrepresentations, breach or default
in connection with any warranty, representation, covenant, duty or obligation
given, occurring or arising prior to the date of termination.
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ARTICLE XIII
MISCELLANEOUS
13.1. Survival of Representations. The representations, warranties,
covenants, and agreements made herein or in any certificates or documents
executed in connection herewith shall survive the execution and delivery hereof
and the closing of the transaction contemplated hereby.
13.2. Parties in Interest. Except as otherwise set forth herein, all
covenants, agreements, representations, warranties, and undertakings contained
in this Agreement shall be binding on and shall inure to the benefit of the
respective successors and assigns of the parties hereto (including transferees
of any of the Purchased Shares or Conversion Shares but excluding purchasers of
Common Stock issued in a public offering). The parties agree to maintain in
confidence the terms of the purchase of the Purchased Shares hereunder, except
that (i) the Purchaser may disclose such terms to its investors in the ordinary
course and in any required reports filed with the Commission, (ii) the Company
may disclose such terms to its shareholders and (iii) both the Purchaser and
the Company may disclose such terms to their respective attorneys and
accountants in the ordinary course or if required to do so pursuant to a court
order.
13.3. Shares Owned by Affiliates. For the purposes of applying all
provisions of this Agreement that condition the receipt of information or access
to information or exercise of any rights upon ownership of a specified number
or percentage of shares, the shares owned of record by any affiliate of a
Purchaser shall be deemed to be owned by such Purchaser. For the purpose of
this Agreement, the term "affiliate" shall mean any Person controlling,
controlled by or under common control with, the Purchaser and any general or
limited partner of the Purchaser.
13.4. Amendments and Waivers. Amendments or additions to this Agreement
may be made, agreements with any decision of the Company may be made, and
compliance with any term, covenant, agreement, condition, or provision set forth
herein may be omitted or waived (either generally or in a particular instance
and either retroactively or prospectively) upon the written consent of the
Company and the holders of a majority of the issued and issuable Conversion
Shares (without inclusion of any Conversion Shares sold in a public offering).
Prompt notice of any such amendment or waiver shall be given to any Person who
did not consent thereto. This Agreement (including the Schedules and Exhibits
annexed hereto, that are an integral part of this Agreement) constitutes the
full and complete agreement of the parties with respect to the subject matter
hereof.
13.5. Construction. The parties have participated jointly in the
negotiation and drafting of this Agreement. If an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as if
drafted jointly by the parties and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation.
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<PAGE> 40
13.6. Notices. All notices, requests, consents, reports and demands
shall be in writing and shall be deemed given upon receipt if hand delivered or
sent by facsimile or other traceable electronic medium, or deemed given upon
deposit to the United States Postal Service if mailed, postage prepaid, return
receipt requested, to the Company, or to the Purchaser at the address set forth
below or to such other address as may be furnished in writing to the other
parties hereto:
<TABLE>
<S> <C>
The Company: Software Business Technologies, Inc.
1401 Los Gamos
San Rafael, California 94903
Attn: President
FAX: (415) 444-9910
with copy to:
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, California 94303
Attn: Edward M. Leonard, Esq.
FAX: (415) 496-2885
The Purchaser: PowerCerv Corporation
400 N. Ashley Drive, Suite 2700
Tampa, Florida 33602
Attn: Mr. Stephen Wagman
FAX: (813) 222-0886
with copy to: Holland & Knight
400 North Ashley Drive
Suite 2300
Tampa, Florida 33602
Attn: Mr. Michael L. Jamieson
FAX: (813) 229-0134
</TABLE>
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<PAGE> 41
13.7. Expenses. Each party hereto will pay its own expenses in connection
with the transactions contemplated hereby.
13.8. Counterparts. This Agreement and any exhibit hereto may be executed
in multiple counterparts, each of which shall constitute an original but all of
which shall constitute one and the same instrument. One or more counterparts of
this Agreement or any exhibit hereto may be delivered via telecopier, with the
intention that they shall have the same effect as an original counterpart
hereof.
13.9. Effect of Headings. The article and section headings herein are for
convenience only and shall not affect the construction hereof.
13.10. Adjustments. All provisions of this Agreement shall be
automatically adjusted to reflect any stock dividend, stock split, or other
such form of recapitalization.
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<PAGE> 42
13.11 Governing Law. The validity of this Agreement and the rights,
obligations and relations of the parties hereunder shall be construed and
determined under and in accordance with the laws of the State of Delaware
therein as applied to contracts to be performed in Delaware between Delaware
residents; provided, however, that if any provision of this Agreement is
determined by a court of competent jurisdiction to be in violation of any
applicable law or otherwise invalid or unenforceable, such provision shall to
such extent as it shall be determined to be illegal, invalid or unenforceable
under such law be deemed null and void, but this Agreement shall otherwise
remain in full force.
13.12. Venue. In the event any litigation should arise under this
Agreement, then the parties agree to litigate said matter in a venue which
in the case of the Purchaser initiating would be in the Federal Courts in Marin
County, California and conversely in the case of the Company initiating would be
in the Federal Courts of Hillsborough County, Florida. Prior to initiating said
litigation, it is the parties intent to discuss and resolve any such matters at
the appropriate corporate levels rising, if necessary, to senior management of
the Company and the Purchaser.
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same to
the Company, whereupon, this letter shall become a binding agreement among us.
Very truly yours,
SOFTWARE BUSINESS TECHNOLOGIES, INC.
By: /s/ Robert H. Davies
---------------------------------------
Robert H. Davies, President
PURCHASER:
POWERCERV CORPORATION
By: /s/ Harold R. Ross
----------------------------------------
Name: Harold R. Ross
--------------------------------------
Title: Chief Executive Officer
--------------------------------------
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<PAGE> 43
EXHIBIT A
DESCRIPTION OF PREFERRED STOCK
1. Designation and Amount. The Company shall be authorized to issue an
aggregate of 2,500,000 shares of preferred stock, of which 2,200,000 shares
shall be designated Series A Convertible Preferred Stock, par value $.10 per
share, and of which 300,000 shares shall be designated Series B Convertible
Preferred Stock, par value $.10 per share (the "Series B Preferred Stock").
The Series B Preferred Stock shall have the preferences, limitations and rights
set forth below.
2. Certain Definitions.
"Conversion Price" shall have the meaning set forth in Section 6.
"Common Stock" means the common stock, par value $.01 per share, of the
Company and all shares hereafter authorized of any other class of common stock
of the Company, which term shall include, where appropriate, in the case of any
reclassification, recapitalization or other change in such common stock, or in
the case of a consolidation or merger of the Company with or into another
corporation affecting such common stock, such capital stock to which a holder
of common stock shall be entitled upon the occurrence of such event.
"Common Stock Equivalents" shall have the meaning set forth in Section 6.
"Junior Stock" means (i) the Common Stock, and (ii) any other class or
series of capital stock, whether now existing or hereafter created, of the
Company, other than the Series B Preferred Stock and the Parity Stock. A class
or series of junior stock shall rank junior to the Series B Preferred Stock as
to dividends, rights of redemption or rights on liquidation if the holders of
shares of Series B Preferred Stock shall be entitled to receipt of dividends,
amounts payable on redemption or amounts distributable on dissolution,
liquidation or winding up, as the case may be, in preference or priority to the
holders of such class or series.
"Original Series B Issue Price" shall have the meaning set forth in
Section 6.
"Parity Stock" means the Series A Convertible Stock, par value $.10, of
the Company.
"Purchase Date" means December 6, 1996.
"Person" means an individual, corporation, partnership, joint venture,
trust or unincorporated organization or a government or agency or political
subdivision thereof.
"Qualified Merger" shall have the meaning set forth in Section 4.
<PAGE> 44
"Qualified Public Offering" means the closing of a firmly underwritten
public offering by the Company pursuant to a registration statement filed and
declared effective under the Act covering the offer and sale of Common Stock
for the account of the Company in which the gross proceeds to the Company
before deducting underwriting commissions, discounts and offering expenses,
equals or exceeds $20,000,000.
"Reorganization" shall have the meaning set forth in Section 4.
"Series B Preferred Stock" shall have the meaning set forth in Section 1.
3. Dividends.
a. General. The holders of the Series B Preferred Stock shall be
entitled to receive participating, noncumulative dividends at the annual rate of
$.25 per share, when and as declared by the Board of Directors of the Company,
out of funds legally available therefor.
b. Dividends on Capital Stock. Except as permitted hereunder, so long
as any shares of Series B Preferred Stock remain outstanding, the Company shall
not declare and pay or set aside funds for payment of any dividend with respect
to any shares of any class of Common Stock, Junior Stock, or Parity Stock,
unless dividends are also paid on the Series B Preferred Stock.
4. Liquidation, Dissolution or Winding Up.
a. Treatment at Liquidation, Dissolution and Winding Up. In the event
of any liquidation, dissolution or winding up of the Company, either voluntary
or involuntary, the holders of Series A and Series B Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of any of the
assets of the Company to the holders of Common Stock by reason of their
ownership thereof, (A) in the case of the Series A Preferred Stock, an amount
per share equal to the sum of (i) $1.00 for each outstanding share of Series A
Preferred Stock and (ii) an amount equal to declared but unpaid dividends on
such share and (B) in the case of the Series B Preferred Stock, an amount per
share equal to the sum of (i) $2.55 for each outstanding share of Series B
Preferred Stock and (ii) an amount equal to declared but unpaid dividends on
such share. If upon the occurrence of such event, the assets and funds thus
distributed among the holders of the full aforesaid preferential amounts, then,
the entire assets and funds of the Company legally available for distribution
shall be distributed ratably among the holders of the Series A and Series B
Preferred Stock so that each holder receives the same percentage of the
applicable preferential amount.
Upon the completion of the distribution required by subparagraph (a) of
this Section 4, the remaining assets of the Company available for distribution
to shareholders shall be distributed ratably among the holders of the Series B
Preferred Stock and the Common Stock until the holders of the Series B Preferred
Stock shall have received an aggregate of $5.09 per share, including amounts
paid pursuant to subsection (a) of this Section 4; thereafter, if assets remain
in
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<PAGE> 45
this Company, the holders of Common Stock shall receive all of the remaining
assets of the Company pro rata based on their respective shares of Common Stock.
b. Treatment of Reorganizations. To the extent permitted under
applicable law, (i) any merger or consolidation of the Company with or into
another corporation pursuant to which holders of one hundred percent (100%) of
the Company's then outstanding voting securities (assuming conversion or
exercise of all securities then convertible or exercisable into shares of voting
securities and vested, if applicable) become holders of less than fifty percent
(50%) of the Company's (or the surviving company's) outstanding voting
securities (assuming conversion or exercise of all securities then convertible
or exercisable into shares of voting securities and vested, if applicable) (a
"Qualified Merger"), or (ii) the sale of all or substantially all of the
Company's properties and assets to any Person or (iii) any transaction or series
of related transactions in which more than fifty percent (50%) of the
outstanding voting securities of the Company are sold or assigned (any of the
events described in clauses (i), (ii) or (iii) is herein referred to as a
"Reorganization"), shall be regarded as a liquidation, dissolution or winding up
of the affairs of the Company within the meaning of this Section 4.
c. Distributions in Cash. Whenever a distribution provided for in this
Section 4 is payable in property other than cash, the value of such distribution
shall be the fair market value of such property as determined in good faith by
the Company's Board of Directors.
5. Voting Power. Except as otherwise expressly provided in Section 7
hereof, or as required by law, each holder of Series B Preferred Stock shall be
entitled to vote on all matters and shall be entitled to that number of votes
equal to the largest number of whole shares of common stock into which such
holder's shares of Series B Preferred Stock could be converted, pursuant to the
provisions of Section 6 hereof, at the record date for the determination of
shareholders entitled to vote on such matter or, if no such record date is
established, at the date such vote is taken or any written consent of
shareholders is solicited. Except as otherwise expressly provided herein or by
law, the holders of shares of Series B Preferred Stock and Common Stock shall
vote together as a single class on all matters.
6. Conversion Rights. The holders of the Series B Preferred Stock shall
have the following rights with respect to the conversion of the Series B
Preferred Stock into shares of Common Stock:
a. General. Subject to and in compliance with the provisions of this
Section 6, any share of the Series B Preferred Stock may, at the option of the
holder, be converted at any time into fully-paid and non-assessable shares of
Common Stock. The number of shares of Common Stock to which a holder of Series
B Preferred Stock shall be entitled upon conversion shall be determined by
dividing the Original Series B Issue Price by the Conversion Price. The
Original Series B Issue Price is $5.09. The initial Conversion Price shall be
the Original Series B Issue Price. The Conversion Price for the Series B
Preferred Stock shall be subject to adjustment as set forth in Section 6(d).
3
<PAGE> 46
(b) Automatic Conversion. Each share of Series B Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Price
at the time in effect for such Series B Preferred Stock immediately upon the
earlier of (i) except as provided below in subsection 6(c), the Company's sale
of its Common Stock in a Qualified Public Offering or (ii) the date specified by
written consent or agreement of the holders of a majority of the then
outstanding shares of Series B Preferred Stock.
(c) Mechanics of Conversion. Before any holder of Series B Preferred
Stock shall be entitled to convert the same into shares of Common Stock, he
shall surrender the certificate or certificates therefor, duly endorsed, at the
office of the Company or of any transfer agent for the Series B Preferred Stock,
and shall give written notice to the Company at its principal corporate office,
of the election to convert the same and shall state therein the name or names in
which the certificate or certificates for shares of Common Stock are to be
issued. The Company shall, as soon as practicable thereafter, issue and deliver
at such office to such holder of Series B Preferred Stock, or to the nominee or
nominees of such holder, a certificate or certificates for the number of shares
of Common Stock to which such holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Series B Preferred Stock
to be converted, and the person or persons entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock as of such date. If
the conversion is in connection with a Qualified Public Offering, the conversion
may, at the option of any holder tendering Series B Preferred Stock for
conversion, be conditioned upon the closing with the underwriters of the sale of
securities pursuant to such offering, in which event the person(s) entitled to
receive the Common Stock upon conversion of the Series B Preferred stock shall
not be deemed to have converted such Series B Preferred Stock until immediately
prior to the closing of such sale of securities.
(d) Conversion Price Adjustments of Preferred Stock for Splits and
Combinations. The conversion price of the Series B Preferred Stock shall be
subject to adjustment from time to time as follows:
(i) In the event the Company should at any time or from time
to time after the Purchase Date fix a record date for the effectuation of a
split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities
or rights convertible into, or entitling the holder thereof to receive directly
or indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the Conversion
Price of the Series B Preferred Stock shall be appropriately decreased so that
the number of shares of Common Stock issuable on conversion of
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<PAGE> 47
each share of such series shall be increased in proportion to such increase of
the aggregate of shares of Common Stock outstanding and those issuable with
respect to such Common Stock Equivalents.
(ii) If the number of shares of Common Stock outstanding at any
time after the Purchase Date is decreased by a combination of outstanding shares
of Common Stock, then, following the record date of such combination, the
Conversion Price for the Series B Preferred Stock shall be appropriately
increased so that the number of shares of Common Stock issuable on conversion of
each share of such series shall be decreased in proportion to such decrease in
outstanding shares.
(e) Other Distributions. In the event the Company shall declare a
distribution payable in securities of other persons, evidences of indebtedness
issued by the Company or other persons, assets (excluding cash dividends) or
options or rights not referred to in subsection 6(d)(i), then, in each such
case for the purpose of this subsection 6(e), the holders of the Series B
Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the Company into which their shares of Series B Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the Company entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time there shall be
a recapitalization of the Common Stock (other than a subdivision, combination
or merger or sale of assets transaction provided for elsewhere in this Section
6 or Section 4) provision shall be made so that the holders of the Series B
Preferred Stock shall thereafter be entitled to receive upon conversion of the
Series B Preferred Stock the number of shares of stock or other securities or
property of the Company or otherwise, to which a holder of Common Stock
deliverable upon conversion would have been entitled on such recapitalization,
plus an amount equal to declared but unpaid dividends on the shares of Series B
Preferred Stock being converted. In any such case, appropriate adjustment
shall be made in the application of the provisions of this Section 6 with
respect to rights of the holders of the Series B Preferred Stock after the
recapitalization to the end that the provisions of this Section 6 (including
adjustment of the Conversion Price then in effect and the number of shares
purchasable upon conversion of the Series B Preferred Stock) shall be
applicable after that event as nearly equivalent as may be practicable.
(g) No Impairment. The Company will not, by amendment of its Certificate
of Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Company, but will
at all times in good faith assist in carrying out of all the provisions of this
Section 6 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Series B Preferred Stock against impairment.
(h) No Fractional Shares and Certificate as to Adjustments.
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<PAGE> 48
(i) No fractional shares shall be issued upon the conversion
of any share or shares of the Series B Preferred Stock, and the number of shares
of Common Stock to be issued shall be rounded to the nearest whole share.
Whether or not fractional shares are issuable upon such conversion shall be
determined on the basis of the total number of shares of Series B Preferred
Stock the holder is at the time converting into Common Stock and the number of
shares of Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment of
the Conversion Price of Series B Preferred Stock pursuant to this Section 6,
the Company, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series B Preferred Stock a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Company shall, upon the written request at any time
of any holder of Series B Preferred Stock, furnish or cause to be furnished to
such holder a like certificate setting forth (A) such adjustment and
readjustment, (B) the Conversion Price for such series of Preferred Stock at the
time in effect, and (C) the number of shares of Common Stock and the amount, if
any, of other property which at the time would be received upon the conversion
of a share of Series B Preferred Stock.
(i) Reservation of Stock Issuable Upon Conversion. The Company
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series B Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series B preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series B
Preferred Stock, in addition to such other remedies as shall be available to the
holder of such Preferred Stock, the Company will take such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purposes, including, without limitation, engaging in best efforts to
obtain the requisite shareholder approval of any necessary amendment to this
Certificate of Incorporation.
7. Restrictions and Limitations.
(a) Corporate Action. Except as expressly provided herein or
as required by law, so long as any shares of Series B Preferred Stock remain
outstanding, the Company shall not, and shall not permit any subsidiary (which
shall mean any corporation, association, or other business entity of which the
Company or any of its other subsidiaries directly or indirectly owns at the time
more than fifty percent (50%) of the outstanding voting securities, other than
directors' qualifying shares) to, without the approval by vote or written
consent by the holders of at least a majority of the then outstanding shares of
Series B Preferred Stock, voting together as a separate class (in addition to
the voting rights granted by Section 5):
6
<PAGE> 49
(i) redeem, purchase or otherwise acquire for value (or pay
into or set aside for a sinking fund for such purpose), any shares of capital
stock, provided, however, that this restriction shall not apply to the
repurchase of shares of Common Stock from employees, directors or consultants
pursuant to agreements under which the Company has the option to repurchase such
shares upon the occurrence of certain events such as the termination of
employment.
(ii) authorize or issue, or obligate itself to authorize or
issue, additional shares of preferred stock, provided that the Company shall be
permitted to issue shares of Junior Stock;
(iii) authorize or issue, or obligate itself to authorize or
issue, any equity security senior to or on parity with the Series B
Preferred Stock as to liquidation preferences, redemption rights or dividend
rights;
(iv) amend, restate, modify or alter the by-laws of the Company
in any way that adversely affects the rights of the holders of the Series B
Preferred Stock.
8. Notices of Record Date. In the event of
a. any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property or to receive any other right, or
b. any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company, any merger of the
Company, or any transfer of all or substantially all of the assets of the
Company to any other corporation, or any other entity or person, or
c. any voluntary or involuntary dissolution, liquidation or
winding up of the Company, then and in each such event the Company shall mail
or cause to be mailed to each holder of Series B Preferred Stock a notice
specifying (i) the date on which any such record is to be taken for the purpose
of such dividend, distribution or right and a description of such dividend,
distribution or right, (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, merger, dissolution, liquidation
or winding up is expected to become effective and (iii) the time, if any, that
is to be fixed, as to when the holders of record of Common Stock (or other
securities) shall be entitled to exchange their shares of Common Stock (or other
securities) for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, transfer, merger,
dissolution, liquidation or winding up. Such notice shall be mailed at least
ten (10) business days prior to the date specified in such notice on which such
action is to be taken.
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<PAGE> 50
9. No Reissuance of Series B Preferred Stock. No share or shares of
Series B Preferred Stock acquired by the Company by reason of redemption,
purchase or otherwise shall be reissued, and all such shares shall be
cancelled, retired, and eliminated from the shares that the Company may from
time to time take such appropriate corporate action as may be necessary to
reduce the authorized number of shares of the Series B Preferred Stock
accordingly.
8
<PAGE> 51
SHAREHOLDERS' AGREEMENT
AGREEMENT, made as of the 6th day of December, 1996, by and among Software
Business Technologies, Inc., a Delaware corporation (the "Company"), Robert
Davies (the "Principal Shareholder"), and PowerCerv Corporation, a Florida
corporation (the "Purchaser" and, together with the Principal Shareholder, the
"Shareholders").
BACKGROUND
The Principal Shareholder is the owner of an aggregate of 1,750,000 shares
of common stock, par value $.01 per share, of the Company (the "Common Stock").
The Purchaser is acquiring an aggregate of 294,911 shares of Series B
Convertible Preferred Stock, par value $.10 per share, of the Company (the
"Preferred Stock"), pursuant to the terms of a Stock Purchase Agreement dated
as of the date hereof among the Company, the Purchaser and the Principal
Shareholder, the terms of which are hereby incorporated by reference (the
"Purchase Agreement"). It is a condition to the obligations of the Purchaser
under the Purchase Agreement that this Agreement be executed by the parties
hereto, and the parties are willing to execute this Agreement and to be bound
by the provisions hereof. In consideration of the foregoing and the parties'
desire to provide for continuity of ownership of the Company to further the
interests of the Company and its present and future shareholders, the parties
mutually agree as follows:
1. Definition of Shares. As used in this Agreement, "Shares" means and
includes all shares of Preferred Stock and all shares of the Common Stock and
other equity securities of the Company with rights to vote for the election of
directors now owned or hereafter acquired by a Shareholder. Other terms used
as defined terms herein and not otherwise defined shall have the meanings set
forth in the Purchase Agreement.
2. Prohibited Transfers. The Purchaser shall not sell, assign, transfer,
pledge, hypothecate, mortgage, encumber or dispose of all or any of its Shares
except in compliance with the terms of this Agreement. Notwithstanding
anything to the contrary contained in this Agreement, the Purchaser may
transfer without the necessity of prior approval all or any of its Shares to
any trust for the benefit of the Purchaser, provided that with respect to a
transfer to a trust, such Purchaser retains, as trustee or by some other means,
the sole authority to vote such Shares.
3. Right of First Refusal on Dispositions By Purchaser.
a. If at any time the Purchaser desires to sell or otherwise transfer
all or any part of its Shares pursuant to a bona fide offer from an unrelated
third party (the "Proposed Transferee"), the Purchaser shall deliver a written
offer (the "Offer") to the Company, to sell such Shares (the "Offered Shares")
to the Company on terms and conditions, including price, not less favorable than
those on which the Purchaser proposes to sell such Offered Shares to the
Proposed Transferee. The Offer shall disclose the identity of the Proposed
Transferee, the number of Offered Shares proposed to be sold, the total number
of Shares owned by such Purchaser, the terms and conditions, including price, of
the proposed sale, and any other material facts relating to the
<PAGE> 52
proposed sale. The Offer shall further state the Company may acquire, in
accordance with the provisions of this Agreement, any of the Offered Shares for
the price and upon the other terms and conditions set forth therein.
(b) If the Company desires to purchase all or any part of the Offered
Shares, the Company shall give written notice of its election to purchase to
the Purchaser, which notice shall state the number of Offered Shares the
Company desires to purchase and shall be received by the Purchaser within 20
days of the date the Offer was made. Such notice shall, when taken in
conjunction with the Offer, be deemed to constitute a valid, legally binding,
and enforceable agreement for the sale and purchase of such Offered Shares.
Sales of such Offered Shares to be sold to the Company pursuant to this Section
3 shall be made at the offices of the Company within 60 days following the date
the Offer was made.
(c) If the Company does not purchase all of the Offered Shares, the
remaining Offered Shares may be sold by such Purchaser at any time within 60
days after the date the Offer was made. Any such sale shall be to the Proposed
Transferee, at not less than the price and upon other terms and conditions, if
any, not more favorable to the Proposed Transferee than those specified in the
Offer. Any remaining Offered Shares not sold within such 60-day period shall
continue to be subject to the requirements of this Section 3. If Offered
Shares are sold pursuant to this Section 3 to any purchaser who is not a party
to this Agreement, the purchaser of such Offered Shares shall execute a
counterpart of this Agreement as a pre-condition of the purchase of such
Offered Shares and any Offered Shares sold to such purchaser shall continue to
be subject to the provisions of this Agreement. The certificates
representing such Offered Shares shall bear a legend to that effect as set
forth in Section 8 of this Agreement.
4. Election of Directors. For not less than three full annual terms from
the date hereof, at each annual meeting of the shareholders of the Company, and
at each special meeting of the shareholders of the Company called for the
purpose of electing directors of the Company, and at any time at which
shareholders of the Company shall have the right to, or shall, vote for
directors of the Company, then, and in each event, the Shareholders shall vote
all Shares entitled to a vote that are owned by them for the election of a
Board of Directors consisting of not more than five directors, designated in
the manner designated below:
(i) one director shall be designated by the Purchaser;
(ii) up to four directors shall be designated by the Principal
Shareholder.
5. Term. This Agreement shall terminate immediately prior to the
consummation of the first Qualified Public Offering.
6. Failure to Deliver Shares. To the extent permitted by law, if the
Purchaser becomes obligated to sell any Shares to the Company under this
Agreement and fails to deliver such Shares in accordance with the terms of this
Agreement, the Company may, at its option, in addition to all
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<PAGE> 53
other remedies it may have, send to the defaulting Purchaser the purchase
price for such Shares specified herein. Thereupon, the Company, shall cancel on
its books the certificate or certificates representing the Shares to be sold to
the Company and thereupon all of the defaulting Purchaser's rights in and to
such Shares shall terminate.
7. Specific Enforcement. The Purchaser expressly agrees that the Company
may be irreparably damaged if this Agreement is not specifically enforced.
Upon a breach or threatened breach of the terms, covenants or conditions of
this Agreement by the Purchaser, the Company shall, in addition to all other
remedies, be entitled to apply for a temporary or permanent injunction, and a
decree for specific performance, in accordance with the provisions hereof.
8. Legend. Each certificate evidencing any of the Shares now owned or
hereafter acquired by the Purchaser shall bear a legend substantially as
follows:
"The shares represented by this certificate have been acquired for
investment and have not been registered under the Securities Act
of 1933 (the "Act") or the securities laws of any state. The
shares may not be transferred by sale, assignment, pledge, or
otherwise unless (i) a registration statement for the shares under
the Act is in effect or (ii) the corporation has received an
opinion of counsel, which opinion is reasonably satisfactory to
the corporation, to the effect that such registration is not
required under the Act. Any sale, assignment transfer, or other
disposition of the shares represented by this certificate is
restricted by, and subject to, the terms and provisions of a
certain Shareholders' Agreement dated as of December 6, 1996. A
copy of this Agreement is on file with the Secretary of the
Corporation."
9. Notices. Notices given hereunder shall be in writing and shall be
deemed given upon receipt if delivered by personal delivery with receipt
therefor or sent by facsimile or other traceable electronic medium to the
facsimile number specified on Schedule 1 hereto or such other number as the
addressee may subsequently notify the other parties in writing, or shall be
deemed given upon deposit to the United States Postal Service if mailed by
certified or registered mail, return receipt requested, to the party being
notified at his or its address specified on Schedule 1 hereto or such other
address as the addressee may subsequently notify the other parties of in
writing.
10. Entire Agreement and Amendments. This Agreement, along with the
provisions of the Purchase Agreement as incorporated by reference herein,
constitutes the entire agreement of the parties with respect to the subject
matter hereof and neither this Agreement nor any provision hereof may be waived,
modified, amended or terminated except by a written agreement signed by the
parties hereto. The Purchaser represents that it is not a party to any other
agreement that would prevent him or it from performing his or its obligations
hereunder. No waiver of any breach or default hereunder shall be considered
valid unless in writing, and no such waiver shall be deemed a waiver of any
subsequent breach or default of the same or similar nature.
3
<PAGE> 54
11. Governing Law; Successors and Assigns. This Agreement shall be
governed by the laws of the State of Delaware without giving effect to the
conflicts of laws principles thereof and, except as otherwise provided herein,
shall be binding upon the heirs, personal representatives, executors,
administrators, successors and assigns of the parties.
12. Construction. The parties have participated jointly in the
negotiation and drafting of this Agreement. If an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as if
drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local,
or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation.
13. Severability. If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any
manner affect or render illegal, invalid or unenforceable any other provision
of this Agreement, and this Agreement shall be carried out as if any such
illegal, invalid or unenforceable provision were not contained herein.
14. Captions. Captions are for convenience only and are not deemed to be
part of this Agreement.
15. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed as of the date and
year first above written.
PRINCIPAL SHAREHOLDER: COMPANY:
SOFTWARE BUSINESS
TECHNOLOGIES, INC.
/s/ Robert H. Davies By: /s/ Robert H. Davies
------------------------------ ---------------------------
Robert H. Davies, individually Robert H. Davies, President
4
<PAGE> 55
PURCHASER:
POWERCERV CORPORATION
By: /s/ Harold R. Ross
-------------------------------
Name: Harold R. Ross
Title: Chief Executive Officer
5
<PAGE> 56
EXHIBIT C
Substance of Opinion of Company Counsel
The opinion of Brobeck, Phleger & Harrison LLP, counsel for the Company
will favorably address the issues set forth below. Terms used as defined terms
herein and not otherwise defined shall have the meanings set forth in the Stock
Purchase Agreement dated as of December 3, 1996 (the "Agreement"):
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
all requisite corporate power and authority to own its properties and to carry
on its business.
2. The Company has all necessary corporate power and has taken all
necessary corporate action required for the due authorization, execution,
delivery and performance by the Company of the Agreement and the Shareholders'
Agreement and the consummation of the transactions contemplated therein, and
for the due authorization, issuance and delivery of the Purchased Shares and
the Conversion Shares issuable upon conversion of the Series B Preferred Stock.
Sufficient shares of authorized but unissued Common Stock have been reserved
for issuance upon conversion of the Series B Preferred Stock. The issuance of
the Purchased Shares does not, and the issuance of the Conversion Shares upon
conversion of the Series B Preferred Stock will not, require any further
corporate action and to our knowledge is not and will not be subject to any
preemptive right, right of first refusal or the like. Each of the Agreement
and the Shareholders' Agreement is a valid and binding obligation of the
Company enforceable in accordance with its respective terms, provided, however,
that no opinion is expressed with respect to the enforceability of the
indemnity obligations of Section 8.7 of the Agreement.
3. No consent, approval, license, or authorization of, or designation,
declaration or filing with, any court or governmental authority is or will be
required on the part of the Company in connection with the execution, delivery,
and performance by the Company of the Agreement or in connection with the
issuance of the Purchased Shares or the Conversion Shares upon conversion of
the Series B Preferred Stock, except for (i) those that have already been made
or granted and (ii) the filing of registration statements with the Commission
and any applicable state securities commission as specifically provided for in
Article VIII of the Agreement.
4. At the Closing and before giving effect to the transactions
contemplated by this Agreement, the authorized capital stock of the Company
will consist of (i) 7,000,000 shares of Common Stock, of which 2,811,781 shares
are validly issued and outstanding; (ii) 1,000,000 shares of Non-Voting Common
Stock, of which 618,750 shares are validly issued and outstanding; and (iii)
2,500,000 shares of Preferred Stock, of which 2,200,000 shares will have been
designated as Series A Convertible Preferred Stock, of which 1,020,375 shares
are validly
<PAGE> 57
issued and outstanding, and of which 300,000 shares will have been designated
as Series B Preferred Stock, of which no shares will be issued or
outstanding. All Purchased Shares and Conversion Shares issued upon conversion
of the Series B Preferred Stock will be, duly authorized, validly issued and
fully paid and non-assessable and free from any restrictions on transfer, except
for restrictions imposed by federal or state securities laws and except for
those imposed pursuant to the Agreement or the Shareholders' Agreement.
Except as set forth on Schedule 3.4 to the Agreement, there are no outstanding
warrants, options, commitments, preemptive rights, rights to acquire or
purchase, conversion rights or demands of any character relating to the capital
stock or other securities of the Company.
5. To our knowledge, except as set forth on Schedule 3.8 to the
Agreement, there is no litigation or governmental proceeding or investigation
pending or, threatened, against the Company. The Company, to the knowledge of
such counsel, is not in default with respect to any order, writ, injunction,
decree, ruling or decision of any court, commission, board or other government
agency which may materially and adversely affect the business or assets of the
Company.
6. Neither the execution, delivery or performance and compliance with the
terms of the Agreement and the Shareholders' Agreement will violate, or result
in any breach of, or constitute a default under, or result in the imposition of
any encumbrance upon any asset of the Company pursuant to any provision of the
Company's charter or by-laws, or, to the knowledge of such counsel, any
statute, rule or regulation, contract, lease, judgment, permit, license, decree
or other document or instrument specifically identified in the Disclosure
Schedules by which the Company is bound or to which the Company or any of its
properties are subject.
7. Assuming the accuracy of the representations and warranties of the
Purchasers contained in Article VII of the Agreement, the offer, issuance, sale
and delivery of the Purchased Shares under the circumstances contemplated by
the Agreement do not require registration under the Act and applicable state
securities laws.
2
<PAGE> 1
EXHIBIT 10.5
LOAN AGREEMENT
This agreement (the "Agreement") is made and entered into by and
between PowerCerv Corporation, a Florida corporation (the "Company") and Gerald
R. Wicker ("Wicker") as of the 7th day of October, 1996.
RECITALS
The Company has agreed to lend $200,000 to Gerald R. Wicker. The Loan
shall be evidenced by a promissory note in the same amount, which shall be
executed by Wicker and dated today. In order to induce the Company to make or
extend the Loan to Wicker, Smith Barney Inc., as I.R.A. custodian for Gerald R.
Wicker, Smith Barney Inc., as I.R.A. custodian for Nancy S. Wicker, and Gerald
R. Wicker, as trustee of the Gerald R. Wicker Revocable Family Trust dated
April 2, 1982 (collectively, the "Pledgors") agree to pledge, as collateral for
the Loan, 50,000 shares of the issued and outstanding common stock of the
Company represented by certificate numbers ___, ___, and ___ respectively (the
"Pledged Shares"). The parties have come to agreements with respect to
additional rights and duties and desire to memorialize such agreements herein.
TERMS
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties agree as follows:
1. The Loan. The Company agrees, upon the terms and conditions
herein set forth, to lend $200,000 to Wicker (the "Loan").
2. The Promissory Note. The Loan shall be evidenced by and
subject to the terms of the promissory note, dated today, in the form of
Exhibit A (the "Note"), payable to the Company on October 1, 1997. In
consideration for ongoing management, financial and accounting consultation to
the Company, the Loan shall not bear interest unless and until Wicker defaults
under the Note, and after default shall bear interest at a rate equal to the
prime rate at NationsBank N.A. (South) plus one percent (1%) per year.
3. Security Agreement. As an inducement to make or extend the
Loan to Wicker, Wicker shall cause the Pledgors to execute and deliver to the
Company a security agreement in the form of Exhibit B (the "Security
Agreement"), pursuant to which the Pledgors shall pledge to the Company the
Pledged Shares. Wicker will deliver the stock certificates representing the
Pledged Shares to the Company within 5 days of this Agreement. Failure to make
such delivery will constitute an event of default under the Note.
4. Put Option. Until November 1, 1997, Wicker shall have the
right, in one transaction, to elect in writing to require the Company to
purchase the Pledged Shares (the "Option"). The Company shall repurchase the
Pledged Shares within 30 days after Wicker's exercise of the Option, at a time
and place to be determined by the Company. The purchase price will be equal to
the average between the high and low closing price of the Company's common
stock on the Nasdaq stock market on the date the Option is exercised. If the
Note remains outstanding at the time the Option is exercised, the Company may
offset amounts owed under the Note against its purchase price.
<PAGE> 2
5. Legality. Notwithstanding the foregoing, the Company shall
have no obligation to purchase the Pledged Shares if to do so would violate any
provision of law or any agreements to which the Company is then a party. The
failure of the company to purchase the Pledged Shares by virtue of this
paragraph shall not impair Wicker's obligations under the Note.
6. Representations and Warranties. Wicker represents and
warrants to the Company that the Pledgors are the sole owners of the Pledged
Shares, free and clear of all liens and encumbrances, and that the Company will
acquire marketable title to the Pledged Shares upon payment therefor if Wicker
exercises the Option. Wicker has the power and authority to execute and
deliver, and to perform all of their obligations under this Agreement and the
Note, and all other documents that have been or will be executed and delivered
by Wicker pursuant to this Agreement.
7. Termination of Employment and Obligations. As of October 4,
1996 and pursuant to Wicker's resignation letter, dated September 23, 1996,
Wicker's employment with the Company was terminated. In connection with such
termination, the April 12, 1995 Stock Purchase Agreement (the "Stock Purchase
Agreement") and the April 12, 1995 Compensation Package Agreement (the
"Compensation Package Agreement") are hereby terminated and Wicker and the
Company shall have no further rights or obligations under the Stock Purchase
Agreement or the Compensation Package Agreement. In the event of a conflict
between the terms of this Agreement and the terms of the Stock Purchase
Agreement or the Compensation Package Agreement, the terms of this Agreement
shall control.
8. Obligations Under Noncompetition Agreement. Wicker hereby
acknowledges his continuing obligations under the PowerCerv Non-Compete
Agreement, entered into by and between the Company and Wicker, dated May 15,
1995 (the "Non-Compete Agreement"), and attached as Exhibit C to this
Agreement. Wicker agrees that his obligations under the Non-Compete Agreement
shall survive the termination of his employment with the Company.
9. Miscellaneous. Each party admits that no representation of fact or
opinion has been made by such party or anyone acting on their behalf, to induce
this agreement. Each party acknowledges that it has had the opportunity to
have this Agreement reviewed by attorneys, and that it is executed freely and
voluntarily.
10. Counterparts. This Agreement may be executed in any number of
counterparts and duplicate originals, each of which, when so executed and
delivered, shall be deemed to be an original, and all of which when taken
together shall constitute one and the same instrument.
11. Severability. If any one or more of the provisions contained
in this Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement, but this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
12. Notices. To be effective, a notice or other communication
required or permitted by this Agreement must be in writing. All notices and
other communications shall be delivered by overnight courier service, by
telecopy (if confirmed), or by first class, certified mail, with postage
prepaid. Communications shall be addressed to the intended recipient at the
address specified below, or to such other address as the intended recipient may
have designated in a writing previously delivered to the sender.
2
<PAGE> 3
<TABLE>
<S> <C>
If to the Company: PowerCerv Corporation
400 N. Ashley Drive Suite 2700
Tampa, Florida 33602
If to Wicker: Gerald R. Wicker
3319 Elizabeth Ct.
Tampa, FL 33606
</TABLE>
13. Integration. This Agreement comprises the complete and
integrated agreement of the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements, written or oral, on the subject
matter hereof.
14. Headings. The headings of the paragraphs contained in this
Agreement are for convenience of reference only and do not form a part hereof
and in no way modify, interpret or construe the meaning of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first written above.
<TABLE>
<S> <C>
WITNESSES: PowerCerv Corporation,
a Florida corporation
/s/
- -------------------------------
By: /s/ Stephen Wagman
/s/ ---------------------------------------------------------------
- ------------------------------- Stephen Wagman
Chief Counsel
/s/ /s/ Gerald R. Wicker
- ------------------------------- ----------------------------------------------------------------
Gerald R. Wicker
/s/
- -------------------------------
</TABLE>
44078-1
TPA2-372910.2
3
<PAGE> 4
PROMISSORY NOTE
$200,000 October 7, 1996
FOR VALUE RECEIVED, GERALD R. WICKER, (the "Borrower"), whose address
is 3319 Elizabeth Court, Tampa, Florida 33602, promises to pay to the order of
POWERCERV CORPORATION, ("Lender"), at the offices of Lender at 400 North Ashley
Drive, Suite 2700, Tampa, Florida 33602, or at such other place as the holder
of this Note may from time to time designate, the principal sum of $200,000 in
lawful money of the United States of America. This Note shall not bear
interest unless and until Borrower defaults under this Note, and after default
shall bear interest at a rate equal to the prime rate at NationsBank N.A.
(South) plus one percent (1%) per year ("Default Rate").
Notwithstanding the foregoing, however, in no event shall the interest
charged exceed the maximum rate of interest allowed by applicable law, as
amended from time to time. Lender does not intend to charge any amount of
interest or other fees or charges in the nature of interest that exceeds the
maximum rate allowed by applicable law. If any payment of interest or in the
nature of interest hereunder, together with all other payments of interest or
in the nature of interest, would cause the foregoing interest rate limitation
to be exceeded, then such excess payment shall be credited as a payment of
principal unless Borrower notifies Lender in writing that Borrower wishes to
have such excess sum returned, together with interest at the rate specified in
Section 687.04(2), Florida Statutes, or any successor statute.
Interest shall be computed on the basis of a year of 360 days, but
charged for the actual number of days elapsed.
Principal and interest outstanding hereunder shall be due and payable
in a single payment on September 30, 1997. Borrower is entitled to prepay this
Note in whole or in part at any time, without premium or penalty.
This Note is secured by a Security Agreement, dated today, between the
parties hereto and others, to which reference is made for a description of
certain events of default hereunder.
Unless otherwise specified herein, payments of this Note shall be
applied by Lender first to interest and lawful charges then accrued, and then
to principal, unless otherwise determined by Lender in its sole discretion.
-1-
<PAGE> 5
The Borrower agrees to pay or reimburse Lender for all of its costs
and expenses incurred in connection with the administration, supervision,
collection, or enforcement of, or the preservation of any rights under, this
Note or the obligation evidenced hereby, including without limitation,
attorneys' fees out of court, in trial, on appeal, in bankruptcy proceedings,
or otherwise.
All notices, requests, and demands to or upon the parties hereto,
shall be deemed to have been given or made when delivered by hand, or when
deposited in the mail, postage prepaid by registered or certified mail, return
receipt requested, addressed to the address shown above or such other address
as may be hereafter designated in writing by one party to the other.
This Note shall be governed by, and construed and interpreted in
accordance with, the laws of the State of Florida, excluding those laws
relating to the resolution of conflicts between laws of different
jurisdictions.
No delay or omission on the part of Lender in exercising any right or
remedy hereunder shall operate as a waiver of such right or remedy or of any
other right or remedy and no single or partial exercise of any right or remedy
shall preclude any other or further exercise of that or any other right or
remedy. Presentment, demand, notice of nonpayment, notice of protest, protest,
notice of dishonor and all other notices are hereby waived by Borrower.
All rights and remedies of Lender under this Note are cumulative, and
are not exclusive of any rights and remedies provided by law or in equity, and
may be pursued singularly, successively, together, and may be exercised as
often as the occasion therefor shall arise.
This Note may not be modified or amended nor shall any provision of it
be waived except by a written instrument signed by the party against whom such
action is to be enforced.
This Note shall be binding upon and inure to the benefit of Lender,
its personal representatives and assigns, and shall be binding upon Borrower
and its respective heirs, legal representatives, successors, and assigns;
provided, however, that no rights or obligations of Borrower shall be assigned
without the prior written consent of Lender.
Time is of the essence in the performance of this Note.
-2-
<PAGE> 6
IN WITNESS WHEREOF, Borrower has executed this Note as of the date
first written above.
/s/ Gerald R. Wicker
------------------------------------
Gerald R. Wicker
-3-
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
PowerCerv Corporation:
We consent to incorporation by reference in the registration statement (No.
333-3960) on Form S-8 of PowerCerv Corporation of our report dated January 30,
1997, relating to the consolidated balance sheets of PowerCerv Corporation and
subsidiary as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows and related
schedule for each of the years in the three-year period ended December 31,
1996, which report appears in the December 31, 1996 annual report on Form 10-K
of PowerCerv Corporation.
/s/ KPMG PEAT MARWICK LLP
St. Petersburg, Florida
March 28, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF POWERCERV CORPORATION FOR THE YEAR ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 14,637
<SECURITIES> 0
<RECEIVABLES> 12,025
<ALLOWANCES> (550)
<INVENTORY> 261
<CURRENT-ASSETS> 286
<PP&E> 4,121
<DEPRECIATION> (1,010)
<TOTAL-ASSETS> 36,351
<CURRENT-LIABILITIES> 5,159
<BONDS> 0
0
0
<COMMON> 14
<OTHER-SE> 30,978
<TOTAL-LIABILITY-AND-EQUITY> 36,351
<SALES> 0
<TOTAL-REVENUES> 37,356
<CGS> 0
<TOTAL-COSTS> 42,404
<OTHER-EXPENSES> 7
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (682)
<INCOME-PRETAX> (4,373)
<INCOME-TAX> (1,658)
<INCOME-CONTINUING> (2,715)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,715)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
